This Week in Startups - No Rules Rules Co-Author Erin Meyer on how Netflix cultivates outlier performance & re-aligns values towards innovation – Part 1 | E1166

Episode Date: January 27, 2021

Buy No Rules Rules: https://rb.gy/kbom13 FOLLOW Erin: https://twitter.com/erinmeyerINSEAD FOLLOW Jason: https://linktr.ee/calacanis

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as it's people and every hire matters. Post your first job for free at LinkedIn.com slash twist and checkout.com. With checkout.com, your business can innovate, adapt to your markets, and make smarter financial decisions faster. If your business takes payments online, you need checkout.com. Learn more at checkout.com slash twist. Hey everybody. Hey, everybody. Welcome to a very special episode of this week in startups. We got a Slack room with like 30,000 founders in it, and we read books together. And we have a book club. You can go to this week in Startups.com slash Slack, and you can sign up for our Slack room. It's a bit of chaos, but the book club is really the highlight for me. And we asked fans of the show to tell us which

books to read. And one of the books that came up that people said over and over and over again was very applicable to their day-to-day was a book called No Rules Rules, Netflix and the Culture of Reinvention. And we had a great book club around it. We talked about a lot of the different, I would say, iconoclastic, the iconoclastic worldview of the Netflix team, Reed Hoffman, amongst them, a developer who is known for maybe being a little hardcore. The Netflix culture deck ripped through Silicon Valley over a decade ago. And most people were aghast at how brutal it was at times. But the people, did I say Reed Hoffman? I'm not Reed Hastings. Sorry, I always do that. Reed Hastings's approach to leadership and hiring and talent management,

which is the core of what we do in Silicon Valley and startups. It was a little perplexing to people and it needed to be unpacked. And when you unpack it, and unpack it he did with his co-author, Aaron Meyer, who is on the program today. You actually understand. a little bit of the method behind the madness and maybe how to apply it yourself and maybe even on the margins where people were misinterpreting maybe what is considered a very hardcore approach to humans. Aaron, welcome to the program. And you yourself say in the book that you were a little bit of gassed by some of the slogans,

credos, best practices that Netflix had when you laid eyes on them. So welcome to the program and tell us, what do you? What do you do for a living and how did you wind up writing this book with Reed? Yeah. Hi, Jason. So nice to be here with you. So I am a professor at Inciad, which is a business school outside of Paris. I'm joining you from Paris today. And I study organizational behavior, but I'm an expert in cross-cultural management. So my first book, The Culture Map, was all about national cultural differences in the workplace. And then at one point, you know, like very many people, I came across the Netflix cultural. or deck, which, I mean, if your listeners haven't heard of it, it's been downloaded like 20 million times. And I think many of the listeners have heard of it. And when I first looked through it, I was, yeah, I was really taken aback. I mean, I loved on the one hand, I loved that there was like so much honesty. But on the other hand, there were these things in it, like there

was this slide that said at Netflix, adequate performance gets a generous severance. And that really confused me because at NSEAD, we had been researching this whole idea that if you wanted to create an innovative work environment, you really had to focus on psychological safety, right? Psychological safety was all the buzz. God almighty, with the psychological safety. Explain to the audience what psychological safety means because this to me is very triggering about snowflake millennial culture. What does this mean psychological safety in the workplace? Yeah, well, so the term was developed by a Harvard professor, Amy Edmondson. And, I mean, basically, the main idea behind it is that you want to create a workplace where people feel safe to speak up and to share their ideas.

But I also at that time had this kind of greater understanding that if people felt, let's say, comfy. then they would be more creative. Okay. You're laughing because what we've all realized in the hardcore elite practice of running these world-changing companies is that we very rarely see this kumbaya safety approach. And we typically see marauding packs of samurai and SWAT teams basically creating very uncomfortable conditions in order to have elite performance. And anybody who watched the Michael Jordan documentary The Last Dance would say there is a distinct lack of psychological safety on the

Bulls team. I don't know if you saw the documentary. I did. I'm sure you did. Just right off the bat. There's just a perfect, you know, kind of microcosm of the book and everything and his philosophy and their philosophy. Is it which do you fall on? Do you want to curate psychological safety? Or do you want people on edge saying, you know what, I've got to perform this year because come January 2022, I might be out of a job if I don't bring it. Right. So, I mean, so that's the big question. I mean, I don't know.

Are you asking me what I prefer? Yeah. What do you think? What do I think breed success? Yeah. Who cares what people think personally? What people care about is what's going to result in a Netflix, Tesla, Uber, Google, Apple, outcome?

Yeah. Well, I can tell you, I mean, I'm pretty certain having now lived these couple of years kind of in Netflix and with Netflix. So I conducted 200 interviews, right, with Netflix employees. I really see that when people are given, we'll talk more about it, this, right? But when people are given a lot of freedom to do what they believe in, right, like to take on projects that they really feel will have the biggest impact, that they get these, let's say, like, adrenaline rushes, right? And that it's a general rush of, let's say, motivation. Now, do we feel comfortable when we've been given a lot of freedom to make a big

decision, maybe use a lot of money from the company, maybe, you know, do something even that our bosses don't believe in? But we believe it's going to work out. Does that make us feel comfortable? Well, no, we don't feel comfortable. But we feel excited. We feel like we jump up in the morning and jump out of bed and we think, oh, my gosh, I'm going to get started.

So I do believe that I do believe that that idea of giving people this kind of a lot of freedom and then also telling them, you know, if we find that you don't have good judgment over a period of time, you won't be here anymore. I do think that that actually does work in creating a lot of motivation. So this is a very nuanced point. I think that this is where, you know, nuance seems to be, have been lost in, you know, because of social media and tweets. But in a podcast, we can really get into nuances.

One of the great things about this format. So as we unpack this, and I think it really needs to be unpacked, if you want to have elite performance, it's not just about people having pressure under them. It's that they have opted into taking on responsibility. So if a person does not want responsibility, they need not take that seat. But if you do choose to sit in the pilot's seat in a fighter pilot or a fighter jet and you have to make decisions and it's a $100 million airplane, you opt it to sit in that seat. That's what people sometimes miss about psychological safety. You know, an astronaut who gets on

the tip of a rocket ship or somebody who goes a fighter pilot or whatever it happens to be, they're not opting into safety. They're opting into adventure. Correct? That's right. Okay. So that's clear. It's clear that the people who work at Netflix, they go there because they want to, they want to do big things. They want to do big things. They have high ambitions and they're willing to take some career risk in order to make it happen. But I think it's also useful to take a step back. I mean, my, I think my biggest overwhelming learning from doing this work, work with Reed and at Netflix, was that most companies today and most of what we're teaching in business school is actually a hangover from the industrial era. And what I mean by

that is that, of course, during the industrial era, which powered our economy for a long time, so of course we're still doing those things. But during the industrial era, we were focused on error prevention, maximizing efficiency, replicability, and consistency, because that was what we needed when we had these industrial plants. And of course, some of your listeners, I imagine, are working in these kinds of situations today where error prevention and replicability is their primary goal. But, you know, in a growing number of organizations and teams today, the biggest goal is no longer error prevention or consistency, the biggest goal is innovation and flexibility. And if we're going to, it's almost the opposite, right? So if we're going to turn towards

innovation and flexibility, yeah, we have to think differently, right. I mean, I think it's really worth unpacking there because if you were trying to make, you know, take Starbucks from 10 locations to a thousand locations, you're not looking for each Starbucks manager who comes in to want to light a fire under the asses of their baristas and make them feel unsafe every day coming to work and overall feeling unsafe when they go to a new city. You want them to consistently produce a frappuccino that if I tasted in Shanghai or Singapore, you know, or Salt Lake City, it tastes the same. That's what you're going for, just as one metaphor, amongst many. But if you look at a company like Uber, when they were deploying, they took a, and I think Netflix had a similar approach,

which is the general manager in this city, this geo location is in charge. Here's their budget, innovate. You're the CEO of Uber or Netflix, Norway, Las Vegas, whatever the geo is, and go for it. Spend the money how you want to spend it. But that is nerve-wracking because some people, maybe a lot of these MBAs, I'll be totally honest, no offense, they might want a playbook. They might want you to tell them, how do I execute, how do I get the high score? Because MBAs, let's face it, they've been trained their entire life. you get into Harvard or Stanford on how to ace tests.

So there are a bunch of, you know, wrote learners who, you know, go in and run these companies. That is part of the conflict here is the entrepreneurial pirates versus these wrote, you know, high scoring aptitude test people, right? That's right. And I think it's very interesting that you mentioned Starbucks versus Uber. Because as we, as you say, unpack this a little bit more. I think we can see there's really two very different companies there in that, of course, of Starbucks is going for error prevention and replicability as they open up there, and maximizing

efficiency as they open up their stores around the world. But their product is not a safety critical product, which means that process is less critical. So we can talk more about that in a few minutes, but Uber, of course, has a safety critical product. So if you give people a ton of freedom and you don't focus on error prevention, that might actually lead to some, you know, some big dangers, right? Yeah. And they did actually, in fact, have issues around maybe vetting drivers in some locations. And sometimes it was fair and sometimes it was unfair.

I mean, Uber was held to a higher standard as a technology company with some new technology. But it was universally safer because they were tracking every ride. We could put that aside. But hey, everybody, I want to take a minute to thank him broker for sponsoring the week in startups and supporting us all year long. What a great company. And it's very simple. You need to have insurance. I don't know how many times I got to talk to you about this. You have to have insurance for your company. It's time to grow up and it's time to save money and to do it online quickly and easily. In broker's technology will let you save a ton of time

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That's right. So you were talking earlier about, about psychological safety and how important it is to make our employees feel safe. But I think that one of the big things that people have been missing when they've been kind of looking at the Netflix culture is that this isn't actually about like safety or lack of safety. That's not the big question, right? The big question is freedom, right? So it's the freedom that breeds the success.

And I'm just going to, Jason, I'm just going to tell a quick story from the book, if you don't mind. But I think it's kind of like the most important story to illustrate the point. So when I first interviewed Reed, he told me this story about his first company, right, which was this organization, peer software. And when he opened peer software, like most small entrepreneurial companies, it was just a small group of people who were operating, let's say, fast and loose. Right. So they had no rules or process that were guiding the way they worked.

They were just using their judgment to do the best they could for the good of the company, right? But then the company grew. And it grew a couple hundred people, a couple thousand people. And of course, as it grew, some people did stupid things and other people took advantage of the freedom. So Reed responded to that by putting in place, you know, a lot of process like KPIs and and BOs and rules like travel policies and vacation policies, right? So he dummy proofed the system.

But as he always says, what I didn't realize is that if you dummy proof the system, only dummies want to work there. So then as all those processes started to kind of take root, a couple of things happened. And one is that the most, like, say, like crazy mavericky employees and the ones who were really adding, let's say, kind of the most innovative value to the organization, they left because they didn't want to work in a place that they had a lot of controls. And then the people who were really good at following process, they were, of course, promoted into senior positions.

Right. They drew within the lines. That's right. And they were not the most flexible people on the planet. So when the environment shifted from C++ to Java, they were not able to shift quickly. And Reed had to sell the company. So with his next organization, which was Netflix, he had these kind of over-eship, underpinning lessons, which was employee freedom breeds innovation and process kills organizational flexibility. So now, you know, he often talks about operating Netflix on the edge of chaos. And I think we can see here how that kind of freedom then creates a sort of fertile environment for all

of this innovation to take place. And that's really the key point, right? All of the other aspects they're just put in place to give the people the freedom they need to innovate. And this is why I think it's important. I'll read the book because you have to get the full 360-degree view of what's happening here because if you pull out specific pieces of the culture of the culture deck or something you've heard or a story or, you know, a little anecdote, it's more the holistic, a process. You can't just take away all the rules because if you have a bunch of, people who love checking the boxes,

they are in fact going to lose their minds because they're going to say, just tell me what to do. And then you might have people who go to town and abuse the fact that there's no policies like unlimited vacation or no vacation policy or no travel policy, two of the most polarizing things

that I want to ask you about next. All right, so the two polarizing things, I think, that come to mind that people have heard from the outside that we should unpack and just put in context. Number one, the travel policy, expense policy, and the vacation policy. These are kind of things that employees are always fascinated with. I find people

put too many cycles on them, but it's just kind of the nature. People really care about and covet their vacation days. It's become a bit of a game and a gaming of the system. And then obviously expenses are a never-ending game that people play. Some people just look at what are the max limits I can do and they try to game it. When I was starting my career, I was working at Sony music. at the dawn of the internet age, people would buy business class tickets, downgrade them to coach, take the cash or credits

and then use that to buy tickets from their vacation. It was, or people would, when we were, people would get stacks of receipts from their friends and they would just fill out their own receipts and then bring peanut butter and jelly sandwiches

but put, you know, hamburger fries $12. And that was how like the, the middle class that Sony made an extra $2,000 a year in bonus was by putting in Fugazi receipts. Let's talk about those. No vacation policy. I heard from people was like people didn't take their vacations. They were under so much pressure. Nobody would ever approve them. Yada, yada, yada.

Explain how that was deployed. And if people wound up ultimately taking more vacation, less vacation, or about the same. Right. Okay. So the Netflix. Yeah. So the Netflix policy at the the vacation policy at Netflix is take some. Okay. So there is a policy. Yes. And they do actually work on the words in these policies. That's right. Take some. So, yeah, and I mean, just like another example, a newer, a newer one, their, their maternity and paternity policy is do what's best for you and your baby. Okay. That one's new since the book came out. So, yeah, I mean, I was really concerned about this, too, when I first read about it. I thought, well, you know, one of two things is going to happen, right? Either people are taking no vacation at all, which is, you know,

bad for them and bad for their families and ultimately not good for the company, or people are on vacation all the time, which is like the entrepreneur is a nightmare. So at Netflix, they talk about leading with context, not control. And what that means is there aren't any, like, you know, policies telling you what number of days you can and cannot take off. But you do get a lot of soft guidelines from your manager and the leaders around you about, you know, what they expect people to be doing, right? So, I mean, one of the things that's quite interesting working with Reed is that he takes six weeks of vacation a year and he talks a lot about his vacation. There's a little peacocking going on here about vacations.

But there was a reason for that. That's right. I mean, the reason to do that is that if he doesn't take vacations, if he does, if people don't see their boss taking vacation, it's clear they're not going to take vacation, right? So, I mean, imagine that you're hired into a company and they say, okay, the vacation policy is take some. At first, that sounds really exciting. And then you arrive and you're like, okay, well, what are other people doing? And then you look at what they're doing and you try to do kind of the same. And, you know, that's human nature. So if you see that your boss is taking six weeks of vacation

and those around you are taking, you know, five or six weeks of vacation, then you're likely to do the same thing. And if you don't, if you only take one week and people start saying you, huh, seems like you haven't been on vacation in a long time, right? Or they're showing one another all their pictures of vacation and you never have any pictures, right? That's really, I think, actually very powerful. So what I did see at Netflix, I mean, when the company was smaller,

they really focused on this modeling, right? These modeling are these kind of soft messages. So, you know, for example, retaking six weeks of vacation and talking about it a lot and his managers all being encouraged to take a lot of vacation and talk about it a lot. So then it just works, right? But, you know, Netflix is now a bigger place.

So I did certainly see a lot more variance from one part of the company to another, depending on what the leader of that department was doing. I would say that doesn't bother read too much because when you're operating on the edge of chaos, you will have a lot of inconsistencies. And the best that he can do is kind of try to continually get a feel and really encourage those areas where he sees burnout or things aren't working while, really encourage people to, you know, take the time off. Well, and when you think about it, if he is really up against and he knew that this day would come,

the Disney pluses of the world would show up and he would not, you know, just have a, straight path to, you know, sweeping up the Marvel films and Marvel series and putting them on Netflix. At some point, he was going to have to go head to head with some really serious competition. He wanted a fast team that could sprint. And if the team is going from an all-out sprint for 26 miles versus very serious competitors, and you've got to stop and say, let's debate, you know, our travel policy or let's look at how many days people have taken off. It's a waste of time. It's a waste of time that could be put into finding the next orange is the new black or Queen's Gambit or whatever it is that move the needle forward, correct? That's, that was his main point.

Yeah. Well, and I think that actually the main reason that they don't have the vacation policy or the travel policy, it's just symbolic, right? And, you know, the symbol is, oh, really? Oh, sure. I thought it was more practical than symbolic. Oh, well, certainly he doesn't want the, the wasted times and the process. But, you know, these symbols, they're important. The symbol, look, I trust you. I trust you to live your life the way you want to live your life. and you know, you should be the person you want to be and, you know, you're adults. So then people, oh, okay, I'm trusted here. Here I can organize my life however I want.

So now I'm going to really behave in a way that shows you that you were right in giving me that trust. And, you know, those symbols, I think, are actually quite powerful in encouraging responsibility. It's a new year. Thank goodness. And we have so many people to hire here at launch, which is our investment company and this week in startups.

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We're finding them all on LinkedIn jobs, obviously. And we love using LinkedIn jobs here at launch because we can manage all of our job postings and our candidates from a single view. And you can even contact the candidates because, obviously, they're in the LinkedIn. LinkedIn interface. So it's so streamlined. It's so simple, which is what I like. I like efficiency. I like getting things done. I want these three or four new positions I got filled. Pronto. Whether you're like shifting your business hours or hiring more remote employees, the one thing that remains unchanged is having the right people on your team. You'd have the right people on the bus before you decide where you're going. Get the right people on your bus and do it with LinkedIn. When your business is ready to make that next hire, what I want you to do is use LinkedIn by going to LinkedIn.com slash twist. They're going to post your first job for free. I mean, it's an incredible, incredible offer. They have over 722 million members worldwide. So they mean business. And you really don't have to overthink this one, folks. LinkedIn is going to find you the right person

and they're going to find you that person faster. Go to LinkedIn.com slash twist. Okay, let's get back to this amazing episode. That's the FNR that they talk about. So you have the freedom to do what you want, but you have to be responsible and it does build loyalty as well, right? It, If you trust people, they're loyal to you and they have much lower voluntary turnover. They have the overall the same amount of turnover, but the percentage that's voluntary versus involuntary is inverse of most companies. Can you explain that and why that is important to him and, you know, overall a good lesson? Yeah.

So also, I should finish answering your question about the vacation policy, which is that overall people take about the same amount of vacation as they do at another company. I mean, okay, so that's what we find in the end, right? Okay, but then I'm... But hold on. And also in that situation, it's important to note that some people take less and then you will have somebody who abuses it. But like credit card abuse, you don't want to slow down 100 transactions at Starbucks,

where people want to get in and out to ask people for their driver's license if one out of, you know, $100 is fraud. You'd rather eat the dollar in fraud and not inconvenience the other 99 purchasers to take out their driver's license, correct? That is kind of how. they look at it. Oh, that's, it's clear. So earlier you were bringing up the, the no expense policy and the no travel policy. And, you know, people always say, but I don't get it, right? I mean, of course people will take advantage of that freedom. And the CFO and the previous CFO did tell me that he thought

that the travel costs were probably about 10% more at Netflix than they would would need to be if they had travel policies, but the benefits that they get from giving employees freedom and letting them feel like, oh, you're an adult, we treat you like an adult. That was way beyond. The benefit was way beyond the 10%. But I think when you want to think about abusing the system, I mean, that's the big worry. How can we reduce the error? And we did find some, right? We talked about those things about this guy. There was one person running scams. There was that guy in Taiwan. He was like, I'm going to pay myself in consulting firms and all this kind of stuff. Yeah, round-tripping. Yeah, one who took a hundred. It was like over $100,000 in personal travel for him and his family over a four-year period.

And he didn't get caught because his manager didn't look at the receipts. And managers at Netflix, they can look at the receipts. I mean, they come in every month and some do and some don't. And then they do an audit every year where they look at portions of the company. So eventually he was caught, right? But the big, you know, the big lesson is when you find one person who behaves irresponsibly, don't punish the rest of the company by putting rules in place. Just deal with that one individual and deal with them loudly and then continue to increase freedom for the rest of the employees. Yeah. So that's a, that's where they're going to. That takes a tolerance for ambiguity that few people seem to have in leadership positions,

the ability to say like, yes, we're going to actually allow somebody to steal $100,000 so the other 10,000 employees can feel trusted. And that's the minor, you know, tax we're going to pay. It's the minor, you know, percentage of overhang to have this kind of freedom. Oh, I agree, Jason. And I think it makes people very uncomfortable because of our industrial era hangover. I mean, we've got such a big headache from the industrial era. fill out your TPS reports and stuff.

That's right. That we think the leadership is about control, even when we're talking about empowerment. We're all talking about empowerment, but we're still putting in place all of these systems to control our employees. It makes us feel nervous. Going back to the safety part of this, what makes people feel more safe? Because I actually don't know, and I'm trying to figure it out in my head. Does it make people feel more safe to say you have this many vacation days?

You can spend this much on a flight versus use your job. judgment and do what you think is in the best interest of Netflix? Which one produces more psychological safety? Well, certainly, giving people freedom makes them feel more in control of their own lives, right? So I don't really know how to answer the question. I guess that's dependent on the person, right? But people who want to feel in control of their own lives, I'll tell you, that's wonderful at Netflix. I had people tell me these stories like, because they have so much freedom to work, anywhere and work the hours that they want. You know, they organized all sorts of things like, you know,

going to do like research projects on things that they loved in Brazil some months and then coming back and working again or going to take care of their mother every Tuesdays. So I do, yeah, I think people want control over their own life. But of course, there's an element of, am I doing the right thing, right? Am I following the rules? Right. So you have to get used to that. talk a little bit about how they communicate with each other because this is a key to the freedom

and responsibility is that we can have a conversation of what you actually accomplished when given this freedom and charged with the responsibility of making Netflix, you know, surge in Taiwan or Norway or whatever region you've been assigned to and we don't even understand that region. I know that's part of your expertise is how these different cultures, operate versus the rulebook or the playbook, let's call it, it's probably better to call it a playbook. These heuristics have to meet the culture that people grew up in, right? And that is also a communications issue.

So let's move into the communications and how they communicate the stuff to people. Yeah. So at Netflix, they have a very strong focus on developing a feedback culture. And, you know, okay, this year today, there's nothing new about that. that. There's so many companies are talking. It seems to be like the huge new trend. Everyone's talking about feedback and candor. But at Netflix, they've really got it down. So one of the things, so first let me say that despite the amount that we talk about feedback, most people don't like to give and receive feedback, right? So that's because of our amygdala, right? The amygdala is the most

primitive part of your brain. And the amygdala, one of its main concerns is finding safety in numbers. So if you give someone a critical feedback about something they didn't do well, no matter what they'd like to do, their amygdala starts kind of sending off a siren. And that siren is, oh, I might be kicked out of the group, right? So my reflex is then fight or flight. Either I deny it. And I say, no, you know, it's not because of me. It's because of what you did. Or I flee. I don't want to talk to you again.

So because of that kind of like this primitive part of our brain, it's really hard to get that feedback going. That being said, we also see through a lot of research that not only does giving and receiving a lot of feedback at work up the performance in the organization, but most employees actually say, they want more of it. So there was what they... Are they actually, when they say they want more feedback? Do they actually want more feedback? Or are they just saying they want more feedback? Well, I don't know.

I do not. I think the deal is like if I think of myself, right? I think, okay, I want to know where my blind spots are. But it doesn't feel good for me to hear that. So like I want to get it, but I don't look forward to the moment of it. It's like getting a shot or something. Yeah. That's right. So 72% of employees in one big study said that, said that they felt that they would have better performance at work if they received more feedback and they weren't getting enough of it. So just, I mean, I think just simple things. I mean, like one thing is putting feedback on the agenda, right? So like if we have a meeting every month that the first item on the agenda or the last item is feedback. And at the end of the meeting, you give me some feedback about what you think I could do to improve.

and I give you some feedback. It's super simple, right? But when you create those spaces for the feedback, suddenly I say, oh, I think I'll tell her that thing. I wasn't going to tell her, right? Right. You're giving people the green light. And sometimes people, you know,

we want to be polite to each other, we want to create safety. We don't want to create animosity or, you know, uncomfortable feelings. So to give people the green light and say, and I think Ed Catmull does a good job of this at Pixar and I don't know if you're right, Creativity, Inc. Another really, it's a nice companion to your book, actually.

And it really does, giving people that freedom, giving them that, you know, green light, hey, can you be candid with me? And using the word candid, I guess, has become, it's kind of annoying now because people are just saying it over and over again. But they don't want to say be honest, because if you say be honest, that means you were lying before you were being honest.

So Candid is like this higher level. of a green light. Hey, do you have a business that accepts purchases, maybe orders online? Well, if you do, have you ever had a digital transaction not go through? And you're like, wait a second, the card works. Person is telling me the card works. Well, this is called a false decline. And this happens when an online purchase is declined when it should have been accepted.

So that's the technical term in the industry, false decline. And this is often the result of just like a technical or a financial or even a fraud score reason. You should have gotten that money. You should have had that transaction. shouldn't have your customer frustrated with you, and they blame it on you, right? Because that's what happens. It worked. The card work two other times. It doesn't work on this website. It reflects badly on you, right? Last year, false declines. This is amazing. Cost US, UK, French, and German

markets over $20 billion. And that's why, if your business takes payments online, you need checkout.com. I mean, what an amazing domain name. Checkout.com. If you run an e-commerce company, this is a no-brainer. You can't lose your valuable customer. It's just something that is an unforced error, right? You're shooting yourself in the foot. It just can't happen. So here's a demo, my associate press, creating a free test account at checkout.com slash twist. Now, if you're watching the video, it's super easy. He just has access to the checkout dashboard interface and it lets him play around. He's got all the tutorial data and just sets it up so easy, a permanent gateway into a Squarespace website in seconds, right? And it works with all the other major platforms

out there, obviously. So right now, go ahead and create a free test account, see how it works. The dashboard is gorgeous. Very simple. Checkout.com slash twist. Checkout.com slash twist. And you'll see if their payment solution works for your business. I'm sure it will. Checkout.com slash twist. Is the Netflix group, and they're not listening so you can be totally candid, are the Netflix executives a little narcissistic in that they want too much feedback? Are they too self-absorbed?

Because it seemed like they were getting into levels of feedback, of, you know, hour-long feedback sessions and this like really intense feedback that it almost felt a little cultish. Well, they do do things at Netflix that I, thought we're quite shocking. I don't think it had, I don't think that has to do with the leaders being self-absorbed. I think it has to do with this really strong focus on, you know, how are we going to get the feedback out there? But the one, right, the really crazy one, is these 360-degree feedback dinners, right? Yes, that's what I'm thinking of is when they

go to dinner and just annihilate each other. But that also felt a little self-absorbed, like, let's go to dinner and just talk about us. Yeah, but so, Jason, I want to tell you when I first heard that, so what they do, right, they go out like once a year. And, you know, just to be clear, it's not a process or a rule, which means that not every team does it, right? Right. You don't have to do it. There's not so, not many things at Netflix you have to do. But many managers at Netflix choose to do these 360 feedback dinners at some point that they feel it would benefit their team. So they go out to dinner and or over a, meal over several hours, right? And the deal is like, I'm up first and we go around and each person at the table tells me what they think that I could do in order to improve my performance, right? And then we move on to the next person. And, you know, my initial reaction to this was like, well, what's the point? Like, what's the point of dragging my weaknesses in front of the whole

team? I mean, why couldn't you tell me that in private? Yeah, here's a note. Here's a little note. This is what post-its are for or email or a quick SMS message, a Slack DM. This is what DMs are for. That's right. But I actually found out, realized that it has this incredible benefit, which is that when one person gives you feedback, you always wonder, oh, well, I think that's maybe an issue about him, right? Agenda, right.

What's her agenda? Yeah, you don't really know kind of what you should be working on or what you shouldn't be working on. And when you get together as a team like that, then you really see the picture clearly, right? Because one person might say, you know what, Erin, you always speak so loud. It's just crushing the rest of us. And then the next person might say, you know, I totally disagree with what Patricia just said. I love your energy.

And I definitely don't want you to adjust your voice tone. Oh, good. So you can kind of level set the feedback. back. Somebody might feel you're, I don't know, not energetic enough. Another person might feel you're just perfect, right? And you can level set that. It might be, it's like when a group, you ever have a group do the Myers-Briggs together? Yeah. And you're like, I can literally guess people's like E&J or something like that. I got so good at it at one point. I was like, yeah, you're like, you're like, I-N-TJ, you're I-N-TB. Like you could just kind of like, just from knowing the person. But then you know, like, oh, shit, I'm like one of eight extroverts on this. in this group, the other seven people are introverts. Okay, that explains everything, right? That's right. So with this, right, then you leave feeling like, okay, well, now I understand what, you know,

that person thinks I should do differently and that person I think so I do differently. But really, I understand, you know, from the entire group, that one thing that I need to be working on. And many people said to me that although they found those dinners always uncomfortable moving into, that they realized when they got there that, you know, Everyone was trying to be helpful and they knew that they were being like watched by the team. So they wanted to be kind. And it was the greatest developmental moments of their life.

That's what I often heard. I actually started doing them at Encead and I could tell you, I found them pretty useful, Jason. You did them in a university setting in France? I have. Yeah. Really? Have they reported you to HR yet? Well, you know, we talked about it ahead of time, which is what they do at Netflix too, right?

Like, what do you guys think? You think we could pull this off? Got it. Get people to opt into it. That's right. That's right. Because people could feel like you're ganging up on them or I hate to say it as like, you know, an attack because people are so soft now that words are like an attack. I mean, they're just words.

It's just an opinion. But there got a lot of snowflakes out there who feel like words are. And you're in a university setting. Like it seems to me like a university is the exact opposite of like Netflix. Oh, it sounds dangerous to you. is the opposite of what happens out of Netflix, right? Well, okay, maybe. Yeah, but I don't need to go into NCI, but actually it is true.

It is true at my business school, too, that the faculty get a huge amount of freedom. And because of that freedom, we have a lot of innovation. I mean, I see that parallel really clearly. And also, I mean, supposedly, right, when you get, when someone gets to tenure, it should be because they've really proven that they are a stunning, that they are a stunning colleague. Right. That was their language, a stunning colleague. You want to be able to say these colleagues of mine are just extraordinary.

They're stunning and how good they are. Yeah. That's what they're going for as a little. Yeah, I want to talk about that. Yeah, please. I want to talk about it because I feel like we should have talked about it earlier. Yeah. Because we can't.

Just give me 360 feedback on my performance as an interviewer. You're saying I should have front-loaded the conversation with stunning in place. Okay, fine. Jason, you asked me the question in the wrong order. I would like to have at least three guests who'd be on the podcast. Give me feedback before I take yours. Just so I make sure that it's universal and it's not just something about you, because it could be about you.

You might be projecting. Thank you. But okay, no, tell us about it. Okay. Because normally we shouldn't talk about candor or about freedom until we talk about talent density, right? Yes. Okay.

Yes, you can't do this with a bunch of dipshits. You give a bunch of idiots who are dumb and who have never, or not adults, if they're acting like kids, you give them unlimited vacation policy and unlimited travel policy. Like, all right, Yolo. Right. Yeah. So that's like the whole foundation of this. So if we kind of go back to what then, okay, so Reid had this epiphany. Okay, I'm going to open him Netflix, give people a lot of freedom. But he also realized like, I guess all the entrepreneurs listening to the podcast that at a point, there's enough, there's so much complexity in the company that if you don't put process in place, that the organization is going to

descend into mayhem. So he tried to think about how to mitigate that. And he thought, okay, well, you know, in most organizations, the top performers, they don't really need a lot of rules and process. We put those things in place in order to deal with the kind of like less amazing people. So what if we tried to create a work environment that really was, you know, as much as possible only those top performers? Then we could give them a lot, a lot more freedom. Right. And then what if we got this candor going, which would increase talent density more, which would allow us to give more freedom, right? So that was the, that's the whole, the whole belief behind it. And the term talent density, I mean, a lot of people say, okay, well, that's great for Netflix. It's great for Netflix.

Unlimited budgets. They got a money printing machine in the corner with, and they're just shoveling $100 bills, you know, like with giant bulldozers into like a warehouse of $100 bills. They got unlimited resources, easy to say. And they always overpay, right? And they always overpay, right? That was the other thing when you talk about talent density. Talk about these insane stories of recruiters calling and what the instructions were when a recruiter called you at Netflix. Okay. Okay. Yeah, crazy.

We got there. Okay. So, you know, I guess, Jason, a lot of your podcast listeners are maybe engineers. I don't know. I mean, if they are. Founders, startups. Yeah. Some of the introverted, you know, technicians and other ones are sales executives and marketers who start companies.

But yes, it's all startups. Okay. So I did not know about the Rockstar principle, but I know now that apparently most software engineers do know about that principle. So the principle being that if you, based on an interesting research project, but that if you take the top software engineer, that person is likely to provide more value than 10 to 25 times the medium engineer. right? So if you have a certain amount of money and you could hire like eight medium engineers, you might instead pull all that money together and hire one rock star, right? So Reed took that idea and he believed that that would be true for anybody who was in a creative environment, which makes sense, right? If you are looking for that, if you want to be as successful at marketing

as possible will hire one amazing marketer, and you might find that that person will have more impact than like 25 medium ones, right? So that's the idea. And the idea was you want to hire, you want to find the best person, pay them really as much as possible as necessary, as much as much. If you pay them twice as much and they're a 10x developer, you know, they, when one person looks at that, they say, oh my God, you're paying double. That makes no sense. another person says, well, you've got 80%, you accrued 80% of the value to the company by paying them double, if they are, in fact, 10x. That's right.

So the idea was, you know, let's have a lot less employees and use our money to pay them a lot more, right? And that's what talent density means, right? So then we can give them more freedom. We've got more energy in the organization. And we find that the kind of the energy spirals up, right? And that leads to one of my favorite of research pieces, which is this idea. that performance is contagious. Do you mind if I tell that, Jason? Yeah, please. Okay, so I have this colleague, a business professor at another business school, and he did this research where he invited four

MBA students into his lab at a time. He gave them a task, and he rewarded them financially based on how well they performed. But unbeknownst to them on 50% of their the teams, there was an interloper. And this interloper. That's right. This interloper named Nick. So Nick was an actor, right? He'd been hired, a young actor, he'd been hired to act just like an MBA student, but to behave

in a way that was a little bit like unamazing. So sometimes he would act kind of bored, like put his feet up on the table and text his mom, right? Or sometimes he would, he would act kind of jerky, like he might say to the other MBA students like, have you ever even attended an MBA class before? Right. And what was what was fascinating is that Professor Phelps showed on team after team after team that even when the top, the other MBA students on the team were, let's say, top of their class, that those teams with Nick on them performed at a 45% worse rate. And more interesting than that is that you can see that. You can see that.

that during these 45 minutes, the other three MBA students, they start to behave like him, right? Like Nick. So, like, when Nick is behaving like a depressive pessimist, you can see that they come in, the other MBA students, they're really energized, but within 20 minutes, they're starting to look really bored. There's one video where you can see one of the MBA students actually put her head down on the table.

She gets so tired. I guess Nick has just like sapped all the life out of her. And when he starts to act jerky, the others on the team act jerky too, right? But not just to him. That's the thing. They start acting jerky to one another. So, I mean, we, I think when we think about it, we all can say, oh, yeah, I've experienced that kind of thing. But the issue is that in companies, most of us think about an individual performance problem as an individual problem, right?

So we think, okay, if this guy is not doing a great job, that's an issue between him and me, his boss, right? But an individual performance problem is not an individual problem. It's a systemic problem that impacts the energy, the creativity, the performance of the entire team, or maybe even of the entire organization, right? So that's why. That's the no-jerk rule. Yeah. And it's like regression to the mean or what I tell people is like when I was a runner, I used to run with people who were just faster and I would run faster. And then I ran with another group that ran slow and I would run slower. And when I was running with a slower group, I was in more pain. But being the last person in the group of five or six really fast runners was a my performance was much better than being the lead runner in the slow group. And much preferred being last, you know, that's why I hang out with people who are much more successful than me. That's right. I do the podcast. I get to have smart people like, you. on and then it just raises my average.

But it is true, right? Like the company you keep is something we've heard, you know, like it actually really matters. And jerks and B players really infuriate A players. And that kind of disruption, whether it's, you know, acting depressed or being a jerk, whatever it is. People will model it around you. You'll just sap the energy out of the room.

It's really important for leaders to be positive and optimistic. and candid, and it really falls on them to set that example, right? That's right. And of course, okay, so at Netflix, they say no brilliant jerks, which maybe does take care of Nick. But your point is, which is, I think, the overwhelming lesson is that when you have lower performers on your team, they just bring down the entire team. And that's why, I mean, we have to go back to this really harsh expression that I started with, which is adequate, yeah, adequate performance. gets a generous severance. And that's not to, you know, to create this environment where people are

like sweating, am I going to get fired? It's in order to create this environment where people are like, oh my gosh, I love coming to work because I'm surrounded by so much talent. And, you know, that is actually what I see there. Stay tuned for Part 2 with Aaron Meyer, releasing later this week.