Netflix and its “No Rules Rules”

In “No Rules Rules: Netflix and the Culture of Reinvention” (Penguin Press), Reed Hastings, the co-founder and co-CEO of Netflix, and business writer Erin Meyer describe a highly-unorthodox corporate culture at the multi-billion-dollar entertainment company, which in just a few years grew from a mail-delivery service for DVDs to a leading […]

In “No Rules Rules: Netflix and the Culture of Reinvention” (Penguin Press), Reed Hastings, the co-founder and co-CEO of Netflix, and business writer Erin Meyer describe a highly-unorthodox corporate culture at the multi-billion-dollar entertainment company, which in just a few years grew from a mail-delivery service for DVDs to a leading international film and TV production studio.

Read an excerpt below, and don’t miss Lesley Stahl’s interview with Hastings on “CBS Sunday Morning” September 6!

/ Credit: Penguin Press

“Blockbuster is a thousand times our size,” I whispered to Marc Randolph as we stepped into a cavernous meeting room in Dallas, Texas, early in 2000. These were the headquarters of Blockbuster, then a $6 billion giant that dominated the home entertainment business with almost nine thousand rental stores around the world.

The CEO of Blockbuster, John Antioco, who was reputed to be a skilled strategist, welcomed us graciously. By contrast, I was a nervous wreck. Marc and I had co-founded and now ran a tiny two-year-old start-up, which let people order DVDs on a website and receive them through the US Postal Service. We had one hundred employees and a mere three hundred thousand subscribers and were off to a rocky start. Eager to make a deal, we’d worked for months just to get Antioco to respond to our calls.

After a few minutes of small talk, Marc and I made our pitch. We suggested that Blockbuster purchase Netflix, and then we would develop and run Blockbuster.com as their online video rental arm. Antioco asked, “How much would Blockbuster need to pay for Netflix?” When he heard our response — $50 million — he flatly declined. Marc and I left, crestfallen.

Of course, Antioco wasn’t interested. Why would a powerhouse like Blockbuster, with millions of customers and massive revenues, be interested in a flailing wannabe like Netflix?

But, little by little, the world changed and our business stayed on its feet and grew. In 2002, two years after that meeting, we took Netflix public. By 2010, Blockbuster had declared bankruptcy. By 2019, only a single Blockbuster video store remained. Blockbuster had been unable to adapt from DVD rental to streaming.

Erin Meyer and Reed Hastings. / Credit: Austin Hargrave

The year 2019 was also noteworthy for Netflix. Our film “Roma” was nominated for best picture and won three Oscars, which underscored the transformation of Netflix into a full-fledged entertainment company. Long ago, we had pivoted from our DVD-by-mail business to become not just an internet streaming service, with over 167 million subscribers in 190 countries, but a major producer of our own TV shows and movies around the world. We had introduced a new way for people to watch and enjoy great stories.

I am often asked, “Why could Netflix repeatedly adapt but Blockbuster could not?” That day we went to Dallas, Blockbuster held all the aces. They had the brand, the power, the resources, and the vision.

We had one thing that Blockbuster did not: a culture that valued people over process, emphasized innovation over efficiency, and had very few controls. We promote flexibility, employee freedom, and innovation, instead of error prevention and rule adherence.

We have a culture where “No Rules Rules.” If you give employees more freedom instead of developing processes to prevent them from exercising their own judgment, they will make better decisions and it’s easier to hold them accountable. This also makes for a happier, more motivated workforce as well as a more nimble company.

The vast majority of firms fail when their industry shifts. Our culture has allowed us to continually grow and change as the world, and our members’ needs, have morphed around us.

From “No Rules Rules: Netflix and the Culture of Reinvention” by Reed Hastings and Erin Meyer. Reprinted courtesy of Penguin Press, a division of Penguin Random House, Inc. All rights reserved.

     For more info:

“No Rules Rules: Netflix and the Culture of Reinvention” by Reed Hastings and Erin Meyer (Penguin Press), in Hardcover, eBook and Audio formats, available September 8 via Amazonnetflix.com

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