CAN RULE-BREAKING BECOME A RULE?
Here’s how Reed Hastings, the founder of Netflix, opens his story:
“In the 1990s, I was a regular at Blockbuster, renting a few VHS tapes at a time and always returning them quickly to dodge late fees. But one day, I found a forgotten tape on my desk that I’d watched weeks earlier. When I finally took it back, they hit me with a $40 fee—a costly oversight on my part.”
Looking back, I agree: had I known the extra charge, I wouldn’t have rented it. Blockbuster relied heavily on late fees for profits, but when your business model annoys customers, you can’t expect them to stay loyal.
Reed Hastings was asking himself, “Is there a way to enjoy watching movies at home without the hassle of extra fees for forgetting to return them?”
In May 1998, they launched Netflix, the world’s first online DVD rental service, with 30 employees and nearly every DVD available at the time—around 925 films.
Co-authored by Erin Meyer and Reed Hastings, the book “No Rules Rules: Netflix and the Culture of Reinvention” begins here and goes even deeper. How do freedom and responsibility shape this culture? And what sparked my interest in the Netflix model? Let’s see if it sparks your curiosity as well.
Since 1980, I’ve made regular trips to the United States and became familiar with Blockbuster in its early days. Founded in Texas in 1985, it quickly grew into one of the world’s largest VHS, DVD, and game rental chains, reaching a valuation of $6 billion by the early 2000s. Meanwhile, Netflix was just a struggling company with 300,000 subscribers, operating as a website where customers could order DVDs to be mailed. At one point, Netflix offered itself to Blockbuster for $50 million, suggesting it could serve as an online rental division, but Antioco turned down the offer. Back then, Blockbuster was a giant in the industry, while Netflix was seen as a copycat. What’s more, Blockbuster was part of Viacom, one of the largest and most valuable media conglomerates in the world.
But as time went on, the world changed, and Netflix survived. It went public in 2002, while Blockbuster filed for bankruptcy before reaching 2010. Today, Netflix stands as one of the world’s most significant content creators, streaming series and films to 268 million subscribers globally (*), and even producing its own shows.
The co-author of the book with Reed Hastings is Erin Meyer, a business professor at INSEAD. I previously referenced Erin Meyer in an article about her book Culture Map, where she outlines her approach to understanding different cultures (https://muratulker.com/y/farkli-kulturleri-anlamadan-global-sirket-yonetemezsiniz/). As Meyer points out, values commonly touted by companies—such as Honesty, Communication, Respect, and Perfection—were also adopted by Enron, a company infamous for one of the largest fraud scandals in history. Surprisingly, these values were prominently displayed in Enron’s lobby. In 2009, Netflix released its Netflix Culture List, a 127-slide document, which Meyer called “the most honest material ever released.” While Meyer admits that she, along with many professionals in Silicon Valley, didn’t particularly appreciate the document, it resonated deeply with employees and consumers, offering a rare glimpse into the distinct culture that contributed to Netflix’s success.
A Great Workplace Means Impressive Colleagues
Reed Hastings describes his first cultural breakthrough as follows: a crisis struck in the spring of 2001 when the first internet bubble burst, leading numerous dot-com companies to fail or disappear.
We evaluated each employee’s contribution. Actually, none of them performed poorly, so we divided them into two groups: we would retain the top 80 performers and part ways with the remaining 40, who showed more moderate performance. They were great people, but their work was average. Despite their frenetic effort, they lacked sound judgment and needed much more support. A few were exceptionally talented, but they were often overly critical and pessimistic.
On the day of the layoffs, as expected, emotions ran high. Those let go expressed their frustration through tears, slamming doors, yelling, and arguing. Yet, within a few weeks, the work atmosphere shifted for the better. By reducing our workforce by one-third, we were able to lower costs, and the office soon buzzed with energy, enthusiasm, and innovative ideas.
Before long, we were achieving far more with 30% fewer employees. Remarkably, the remaining 80 worked with even greater passion. They put in longer hours, but the morale was through the roof.
I’m not endorsing layoffs, and thankfully, we haven’t had to take such action at Netflix since then. However, in the days and months following the 2001 layoffs, I discovered something that completely transformed my understanding of employee motivation and leadership responsibility.
To help illustrate these discoveries, I’ve numbered the points:
Talent Density: Talented People Empower Each Other (Feature 1)
Every employee brings talent to the table. After the layoffs, only the top 80 remained, meaning although we had fewer talented people overall, the overall talent per person was much higher. Our talent density increased. What stood out the most was how exciting, inspiring, and downright enjoyable it was to work with such a skilled team.
Poor Performance is Contagious
Professor Will Felps of the University of New South Wales conducted a fascinating study on contagious behaviors in the workplace. He discovered that even if team members were highly talented and intelligent, the underperformance of just one individual could reduce the overall effectiveness of the team. In just 45 minutes, the behavior of one person began to impact the rest of the group. It was unexpectedly troubling to see others begin to mirror the behavior of the underperforming team member.
If a few members of your team are performing just adequately, their lackluster performance can spread and eventually bring down the entire organization. As the saying goes, “You are the company you keep.”
When you reach a point of high talent density, where everyone excels, you are ready to foster a culture of openness. It brings to mind our saying: “Birds of a feather flock together.”
Feedback: Speak Your Mind Honestly, But with Good Intent (Feature 2)
Hastings later emphasizes the second core cultural feature: I encouraged everyone to share their honest feelings, opinions, and feedback with positive intent—not to attack or harm, but to express emotions and views constructively. When we started providing increasingly direct feedback, we found an additional benefit: our work performance improved.
Rather than gossiping behind closed doors, we found that openly sharing our thoughts helped minimize resentment and petty politics, enabling us to work more efficiently.
As feedback becomes a regular practice, people start learning faster and performing better in their roles.
In our society, this trait is rarely found. People often resist receiving feedback, either by dismissing it or taking it personally and rejecting it. When left with no other recourse, they may say, “Please forgive me this time.” However, the real issue lies in accepting the consequences of one’s actions, for true forgiveness is not within our power—after all, we cannot stop time or undo the past.
We Dislike Honesty, Yet Long for It
Very few people enjoy being criticized. Our brains react to negative feedback in a way similar to how they respond to physical threats, triggering faster reactions and heightened emotions.
What we tend to dislike even more than personal criticism is receiving negative feedback in front of others.
Feedback Cycle: Building a Culture of Candor
The feedback cycle is one of the most effective tools for enhancing performance. When feedback becomes a fundamental part of our workplace culture, it accelerates learning and drives greater results. It helps prevent misunderstandings, promotes accountability, and reduces the need for strict hierarchies and rules.
To cultivate a culture of candor within your organization or team, it’s crucial to first create an environment where employees feel comfortable giving honest feedback to the boss. This should be complemented by feedback from the boss to the employees. However, the true benefits of openness only unfold when employees begin offering sincere feedback to their leaders.
Under the heading “Feedback Guidelines,” the book explains the process of feedback at Netflix:
a. Aim to Help: Feedback should always be delivered with positive intent. Using it to vent frustrations, harm someone intentionally, or advance a hidden agenda is not acceptable. Be clear about how a particular behavioral change would help the other person or benefit the company, rather than serving your own interests.
b. Applicability: A feedback should focus on what the recipient can change.
c. Appreciation: When criticized, our natural inclination is to get defensive or make excuses; we instinctively try to protect our ego and reputation. When receiving feedback, try to counter this natural instinct by listening attentively and assessing the message objectively.
d. Accept or Ignore: You should listen to and consider all feedback, but ultimately, you are not required to act on it. However, avoid the trap of assuming the roles of both prosecutor and judge by making judgments and drawing conclusions independently. If a set of rules exists, you do not have the authority to do so!
I recall during my youth, when I interned at the factory, a teammate who felt his wages were insufficient began reducing his effort and openly displayed this attitude, saying, “This much work for this much pay.” Not only did he complain, but he also acted as though he were the prosecutor and judged as if he were the one in charge. In doing so, he deprived the company of his labor (!). But in the end, it was he who ended up deprived.
Feedback Should Be Given Everywhere, Anytime!
However, fostering a culture of openness doesn’t mean sharing your thoughts without considering how they might affect others. It requires thoughtfulness, preparation, and empathy before offering feedback.
Reducing Controls (Feature 3)
The third fundamental cultural feature at Netflix is reducing controls, he says. But remember, Netflix’s workforce now consists solely of highly selected talents. Hastings continues with a personal example.
Reed Hastings: “For instance, consider eliminating your current vacation policy. In today’s information age, especially in creative companies like Netflix, the focus should be on what is achieved, not the number of hours worked. I’ve never been concerned with how many hours people put in. Instead, I valued the idea of empowering employees to take responsibility and decide when to work and when to take a break. Therefore, we decided to allow salaried employees to take as much vacation as they wanted, whenever they wanted—no prior approval required, and no need for anyone to track days out of the office, neither employees nor executives. Whether they took a few hours, a day, a week, or even a month off was entirely up to the employee. In the end, the trial worked exceptionally well, and to this day, we continue to follow this approach, reaping numerous benefits. At first, I worried it might lead to chaos, but surprisingly, people were happier. By giving our high-performing employees more control over their work schedules, they felt a greater sense of freedom.
The leader’s correct behavior plays a crucial role in the success of such a vacation policy. If the leader themselves keeps their vacation time short, employees are likely to follow suit. Many worried that removing the vacation policy would lead to teams taking extended breaks at inconvenient times, potentially disrupting teamwork and hurting the business—but that wasn’t the case. We granted them the freedom to take their own responsibility, and at the same time, another positive outcome emerged—people took greater ownership of the office environment. Allowing more freedom encouraged employees to act more responsibly and take greater pride in their work.”
After Netflix abolished vacation tracking, other companies in the tech sector, including Glassdoor, LinkedIn, Songkick, and Philips, also began to adopt that approach.
We don’t have such practices ourselves. Not having them doesn’t mean they’ll never happen, though. But honestly, that’s not my responsibility.
My approach is somewhat different: I have never concerned myself with people’s leave and vacation. For those who work with me—that is, the CEO and my own office—I only have two conditions. First, I need to be able to reach you when I call. Second, no one should be coming to me with questions about your work. Especially after the pandemic, following the trend of remote work, I haven’t been focused on when people arrive or leave the office. However, I do share my daily schedule with those around me. I try to accommodate everyone’s agendas, and I guess I’m the most flexible person here.
Another way to reduce control is by embracing the principle of “spend the company’s money as if it were your own.”
Reed Hastings thought this principle would work wonderfully. However, not everyone turned out to be as frugal as he was, and differences in how people spent their own money began to create problems.
From then on, Netflix’s “new spending policy” became: Act in the Best Interests of the Company!
Typically, after just one or two discussions to clarify the context, employees will learn how to spend the company’s money wisely, and this will practically resolve the issue—assuming, of course, that those individuals have the appropriate understanding and ability.
Once we had a cashier. Years later, when we met, he asked for my forgiveness, as during his time working, he would occasionally use leftover cash from the till for food and drink, then replenish it throughout the week.
If your employees decide to misuse the freedom you’ve granted them, it’s important to make it known and let them go, so that everyone else understands the repercussions.
Some people will cheat, but the gains outweigh the losses.
Pay Above Market Rates! (Feature 4)
Reed Hastings: “Back in 2003, we didn’t have a lot of money, so we had to be mindful of every dollar we spent. For operational roles, we decided to pay the market average, expecting top-tier performance in return. But for creative roles, rather than sticking to the average, we chose to pay the highest rate to a select group of exceptional performers. This is how we hire most of our team members at Netflix, and it’s proven to be highly effective. We’ve significantly accelerated our innovation and production as a result.”
Bonuses have an adverse effect on flexibility.
In 2003, Netflix encountered the “rockstar principle.” Their top programmers were adding not just multiple but hundreds of times the value of average employees. Professor Meyer, through numerous studies, found that performance-based rewards work for routine tasks but reduce performance in roles that require creativity, a concept Netflix experienced firsthand.
In creative work, it’s essential for our minds to be unburdened. If not, focus diminishes, freedom is lost, and the best ideas or most innovative possibilities can’t emerge. As a result, performance suffers. Hastings puts it this way: “When people earn a sufficient salary that shields them from daily stresses, their creativity flourishes. However, when there’s uncertainty about extra pay, creativity declines. This gives us a competitive edge when working with top talent, as we offer them the highest salaries.”
Paying slightly higher salaries than the market rate, giving an employee a raise without demanding, and proactively adjusting their salary before they start looking for another job is the way to attract and retain the best talent in the market.
Paying above-market salaries is actually less expensive than losing your top employees to competitors offering higher pay and then having to recruit and train replacements.
This approach is what we call the WIN-WIN principle. However, if you truly want to come out ahead in the long run, you’ll leave the last bite on the plate for the other side.
Knowing What and When to Share, Transparency (Feature 5)
The cultural takeaway here is that while keeping secrets at work is common, it’s ultimately damaging. Managers constantly face the dilemma: Should I share this with my team? What could be jeopardized if I do?
Transparency is appealing, but it comes with risks. Driven by his instinct to share, Reed Hastings once sent a draft of Netflix’s future strategy to 700 employees.
Hastings: “When employees know everything, they don’t waste time seeking information or approval; they work faster and more consistently. Seeing the whole picture—understanding financial and strategic goals—deepens their sense of responsibility. They feel like owners of the company.”
If you want to establish a culture of transparency, don’t act like an unreliable hypocrite. Don’t whisper the truth or sugarcoat it.
Embellishing reality is one of the most common ways leaders erode trust. It couldn’t be clearer: don’t do this. No one is a fool, and the truth has a habit of surfacing eventually.
I understand the challenge. Any leader striving to be more transparent soon realizes that exposing the truth sometimes conflicts with respecting individuals’ privacy rights. Both are essential. However, when someone is dismissed, naturally wants to know the reason. By communicating openly and honestly, you eliminate the space for gossip, fostering greater trust.
Whenever I feel I’ve made a mistake, I speak about it in detail, publicly. This transparency empowers employees to take risks in uncertain situations, driving innovation throughout the company. Sharing openly builds trust, asking for help speeds up learning, acknowledging mistakes promotes forgiveness, and discussing failures nurtures courage among your team.
Perhaps we too need to share our visions for the future with our team!
No Approval Needed for Decisions (Feature 6)
Another cultural element aimed at removing control mechanisms is the elimination of decision approvals. In many companies, bosses are there to approve or veto their employees’ decisions, but this practice is one of the most effective ways to stifle innovation and slow down growth.
Hastings: “At Netflix, we emphasize that it’s perfectly fine to disagree with your manager or pursue an idea they might not support. We don’t want people to hold back great ideas. Our message is clear: don’t worry about pleasing your boss. Focus on what’s best for the company.”
I always say that the work itself is our true boss. I also add, if one day you feel I’m not meeting the mark, replace me for the sake of the business. That’s why I persist in reading, taking courses, and being present every day.
There is a myth that CEOs and other senior leaders’ deep involvement in operational details is what makes products and services exceptionally good. This is nonsense. The Steve Jobs legend, for instance, lies in his micromanagement, which supposedly made the iPhone a great product. Major network and film studio executives occasionally make numerous creative decisions about their projects—what’s the big deal?
As Reed Hastings puts it, “We don’t adopt top-down models because we believe our organization is most effective and innovative when employees at every level are empowered to make their own decisions. At Netflix, we focus on building strong decision-making capabilities throughout the company, and we take pride in the fact that senior management makes fewer decisions. Thanks to our well-balanced decision-making framework, I don’t make any decisions myself. This has become a cornerstone of our culture and a key driver of our rapid growth and innovation. Our aim is for decisions to be made on the spot, based on proposals. The principle is that employees shouldn’t require approval from their boss to take action, but they must keep their superiors informed.”
We spend the majority of our day discussing the work we need to accomplish. But our competitors spend the day discussing us.
Netflix Innovation Cycle:
The topic of decision-making brings us to innovation. At Netflix, the innovation cycle operates as follows:
If you have an idea you’re truly passionate about, here’s what to do:
1. Research opposing viewpoints.
2. If it’s a remarkable idea, test it.
3. As a captain, make your own decision.
4. If it succeeds, celebrate. If it fails, analyze.
Hastings expands on this: “At Netflix, we have a culture where not speaking up against an idea is seen as disloyalty. We believe that if you withhold your opinion, you’re indirectly not supporting the company. To make the best decisions, I need input from everyone. That’s why we actively seek out different viewpoints before moving forward, calling it the research of dissent. At Netflix, we don’t require anyone’s approval to implement an idea. The four-step innovation cycle encourages individual decision-making with input from others, and it’s essential to consider the opinions of relevant colleagues. If the initiative succeeds, managers openly acknowledge their satisfaction, even if there were doubts, celebrating and stating ‘I was wrong’ to demonstrate that challenging a superior’s opinion is acceptable. But when an idea fails, the manager’s response becomes even more crucial. Everyone is watching to see how you react. Will there be punishment or reprimands? In ancient Greece around 800 BC, failed teachers in the workplace were forced to sit in the market with a basket on their heads.”
Choosing a Metaphor: Family or Team?
Reed Hastings has some interesting insights on the family vs. team metaphor: “In Netflix’s early days, our managers encouraged a family-like environment. But after the layoffs in 2001, when we saw a significant boost in performance, we realized that the family metaphor wasn’t the best way to attract and keep top talent. We wanted employees to feel dedicated to themselves, to their colleagues, and to a cause greater than themselves. At the same time, we didn’t want them to see their roles as something that should last a lifetime. Work should be the time when you’re the best fit for the job, and the job is the best fit for you—and we made that possible.”
Here lies the difference between American and Japanese culture!
“When you stop learning or striving for excellence, it’s time to step aside and pass your role to someone who is better suited for it, while transitioning into a position that’s a better fit for you.”
For years, workplaces have been described as “family-like,” with loyalty as the key. But with today’s crowded global corporations, how feasible is that?
In my view, the goal should be to create a team spirit, empowering employees to feel ownership over their work through clearly defined authority. After all, at a time when even nuclear families are fracturing…
We are Not a Family, We are a Team (Feature 7)
It’s generally expected that an employee should only lose their job if they make a mistake or fail in their role. However, for our team to be a champion, we need the very best player in each position. Does this idea seem unfamiliar, perhaps even a bit harsh?
Erin Meyer explains: “At Netflix, you could be giving your best to help the company succeed and achieving solid results, yet one day, you might find yourself out of a job. Not due to a financial crisis or unexpected layoffs, nor because your output isn’t as stellar as your boss expected, but simply because your work has remained average! This approach has allowed Netflix to build a talent density that few other companies have reached. When employees consider this possibility, they often ask their manager, “How hard would you work to change my mind if I said I was thinking of leaving?” What would your response be?”
I see three possible answers. What do you think?
If every manager consistently assesses whether each team member is the best fit for their role and makes adjustments when they’re not, the company’s performance will continuously reach new heights.
Being Frank, but How?
Have you heard the tale of “Selamün aleyküm, blind judge”? Once upon a time, a new judge, or *kadı*, was appointed to a town. As he met with the town dignitaries, he asked to meet a man reputed for his unflinching honesty. The man arrived and, upon noticing that the judge had a squint, promptly greeted him, “Selamün aleyküm, blind judge!” The judge scowled and said, “Not every truth needs to be spoken everywhere.”
Netflix has a principle that, when rigorously applied, encourages everyone to be radically candid—or radically silent. “When discussing someone, speak only as you would to their face. Talking behind people’s backs fuels gossip, which creates inefficiency, negative emotions, and office politics that can be draining.” For more on this, you may find it helpful to read my article, *The Gossip Test: Would You Bite Someone?* (https://muratulker.com/y/giybet-testi-birini-isirir-misiniz/).
As a leader, you must share your 360-degree assessments with your team, including truly honest thoughts about your own weaknesses. This shows that giving and receiving open, actionable feedback isn’t something to be feared. The key point is that employees should feel the same freedom when providing feedback to their leaders.
A written 360° report is an effective mechanism for annual feedback. However, steer clear of anonymity and numerical ratings, don’t link results to pay raises or promotions, and allow feedback from anyone willing to share their thoughts.
In fact, there is the Istanbul Youth Platform, which organizes an annual “Failures Summit,” striving to make openly acknowledging our failures a virtue and a cultural element of society. In 2022, I spoke at the summit about one of my own failures. Here’s the link—I think you’ll find it quite insightful:
(https://muratulker.com/y/basarisizlik-zirvesi-var-dediler-sevindim-neden-mi/).
Approval or Control?
A leader endorses and guides the initiatives, actions, and decisions of their team. But sometimes, rather than directly supervising employees’ decisions, a leader empowers them further by implementing a pre-determined control process.
Many leaders implement control systems that give employees the freedom to work as they choose, but keep a close eye on their actions and deadlines. Examples of such methods include Key Performance Indicators and Management by Objectives.
However, practicing contextual leadership is challenging and grants employees significant freedom. You equip team members with all the necessary information to make impactful decisions and perform their tasks independently, without relying on supervision or control processes. This approach helps individuals grow and make better decisions down the line. However, for contextual leadership to truly work, the conditions must be right. And the key condition is having a team with high talent density!
This is how you run your business with control. But, are we aiming to avoid mistakes or to innovate?! If eliminating mistakes is our goal, we continue with control! If you’re producing airplanes, tight control is essential. But if your goal is innovation, what you must avoid is a team that, fearing mistakes, sticks to the status quo, causing your business or products to eventually lose relevance.
If your goal is to build a highly creative, agile, and flexible organization, you need to foster an environment where rules and processes are minimized, cultivating a culture of freedom and responsibility.
Finally
The book’s final topic revisits Erin Meyer’s “culture maps” that I previously discussed (https://muratulker.com/y/farkli-kulturleri-anlamadan-global-sirket-yonetemezsiniz/), illustrating communication differences when conducting business across diverse cultures.
When it comes to providing feedback, everything is relative on a global scale. The Japanese consider Singaporeans to be rather direct. To Americans, however, Singaporeans can seem opaque and lacking in transparency. Despite its aspirations to be multinational, Netflix remains largely rooted in American culture. Regarding negative feedback, on the other hand, Americans tend to be more direct than many cultures, though they’re still less direct than the Dutch.
At the end of the book, Erin Meyer says: “After what you’ve read, I assume you understand—you can either manage by controlling your employees with rules and processes, or lead with a culture of freedom and responsibility, as Netflix does.” Both approaches have their advantages. You already knew the first; now, we’ve learned about the second. The choice is yours!
My interest in Netflix actually stems from noticing the number of branded products I encounter while watching Netflix content. Supposedly, Netflix has an ad-free business model; however, a bit of research revealed that nearly every series incorporates paid product placements. Back when I was still a student, I collaborated with some director friends to place product ads in Turkish films. The most recent placement we did was for *Murder on the Orient Express* in 2017, where we featured Godiva chocolates. Incidentally, the Orient Express is back on its journeys, stopping in Istanbul twice in 2024 (**).
Lastly, I’d like to note that Netflix has really taken product placement to another level. Cars, computers, watches, food, and drinks—everything from Volvo, BMW, Burger King, Apple, and Coca-Cola appears as product placements. For example, Coca-Cola invested $26 million in product placements within the *Stranger Things* series (***). Netflix’s product placement revenue continues to grow, establishing it as a well-managed platform and a valuable communication medium for maintaining brand presence. And, of course, that translates to a steadily increasing subscription fee.
Footnotes
(*) https://www.demandsage.com/netflix-subscribers/
(**)https://www.aa.com.tr/tr/kultur/orient-express-bu-yil-ikinci-defa-istanbulda/3315366
(***)https://www.thedrum.com/opinion/2022/11/02/product-placement-20-one-solution-netflix-s-problem ; https://hollywoodbranded.com/press/more-product-placements-may-come-to-netflix/
Note: This open-source article does not require copyright and can be quoted by citing the author.