With people stuck at home, it is no surprise that Netflix is having a great year. On the other hand, there is a whole bunch of new streaming options, such as Disney+, that are also thriving. You would expect them to be taking some business away from Netflix, but instead, it has seen revenue climb 25% versus a year ago, and both earnings and the stock price are up 50%.
When the co-founder and CEO was asked what the secret was for consistently getting such great results, he said: “We fundamentally want to be better at creating stories people want to watch and talk about than any of our competitors.” Given that goal, how does the company go about doing that? Here are the four building blocks the CEO believes are key:
1.) Talent – He believes the most important principle of the company is constantly building a roster of elite talent as he summarizes here: “Our culture is like that of a championship professional sports team -our employees respect one another but shed no tears when a teammate is jettisoned in favor of an upgrade. Winning in our business requires perpetually hiring the most creative and exceptional performers in our industry and regularly releasing the average and below-average performers. We pay absolute top dollar to get the best.” Clearly this won’t work in many other industries that often depend on accumulated experience and expertise, but the CEO believes it is the core principle of his company in this unusual industry.
2.) Freedom, With Implications – The CEO explains that the company is a creative company and organizes around flexibility and tolerates chaos. The individual is responsible for creating winners and he/she makes all the decisions themselves to make that happen. In the end, they own the win if that occurs, as well as the loss and its employment implications. Teamwork is not part of the culture. Obviously, this is vastly different from most industries, which are totally dependent of small groups of people of different skills working jointly to generate and manage complex products.
3.) Transparency in Feedback – Netflix uses a system of regular 360 reviews of individuals, but they execute the reviews in a unique way. Specifically, peers, the boss, and subordinates give feedback about the person, live, in front of the person, and with everybody sitting around a table. No doubt some people leave with grudges and vendettas, but the company believes it makes people better in the long run. I assume the CEO believes this accelerates his process of deciding whether to keep an individual. Steeping back, that is not how 360 reviews are typically run, where feedback is collected by the manager and then delivered anonymously and is usually framed in a constructive manner.
4.) Ignoring Efficiency – The Netflix CEO puts all the chips on creativity and has no interest in efficiency at all. As an example, using his language(!), he explains his key approach to hiring elite talent: “We write big checks. Our approach is the tell the person that we want to hire: ‘How about we give you this big shitpile of money?’ Clearly, ignoring efficiency won’t work in the majority of industries, but this is showbusiness!
The moral of the story is that each business has to make judgments on the approaches to these core elements of the business that will lead to maximum success in their situation. Don’t always use the same cookie-cutting approach in all cases.