on the condition that I would not be siloed off as the HR lady; I would report directly to Reed and be part of the executive team. That meant that I had to step up and learn deeply about how the business worked. As I did that, I came to understand the enormous value of every single employee at the company gaining the same understanding. Reed and I had both been inspired by the argument for open-book management in Jack Stack and Bo Burlingham’s book The Great Game of Business. The importance of transparency was driven home for me by our dramatic shift from the DVD-by-mail model to the subscription model.
One morning when Reed and I were carpooling to work, he started passionately talking about changing from a pay-per-rental service to a subscription model, getting all fired up about it. I told him, “Okay, all right! I can hear it in your voice. I know what happens when you get like this. You are sure you’re right about this, aren’t you?” I knew that most employees weren’t going to like the change, but I also knew that Reed was going to do it anyway because he believed it was the right thing for the business. It was clear that the change would be wrenching. It involved much more than simply changing the terms on the website; we had to change the shipping model and the billing model and the whole structure of the company, its departments and supervisors and salespeople. We also had to bring in lots of new people who could build up our technical capabilities for serving subscribers and making good use of the tsunami of user data we’d be accumulating, and we were facing intense competition for them from our biggest competitor, which was a hundred times bigger than we were: Blockbuster.
The beautiful thing for me was that because the shift in the business was so dramatic, I had to focus very intensively on two things. First, I had to deeply understand the new business model and what was at stake. Subscription is a numbers race, and revenue occurs only over time after an up-front investment. I appreciated what a very big bet it was. We’d have to spend considerable money to sign up a first group of subscribers, which was an investment in getting more customers, and those new customers would allow us to pay for the next expansion. This is the fundamental Netflix model; pay up front for benefits in future years. At this stage in our growth, that considerable up-front expense meant that we didn’t have much time to make the model work. Second, the urgency of getting it right meant that I had to help everyone else in the company understand the new business model too. At the time, the only model any of us knew included due dates and late fees. When Reed proposed a subscription without due dates and late fees, it was truly scary. After all, late fees were the gas in Blockbuster’s engine. When we said weren’t going to charge them, everybody in the company was asking, “How’s that going to work?”
I fell in love with being a businessperson, and I didn’t want to be happy-face HR den mother anymore. I also fell in love with explaining very clearly and fully to everyone in the company why we were making the decisions we were, how they could best participate in achieving our goals, and what the obstacles would be.
My aha moment reminded me of when my son was six and playing soccer. My husband was the coach, and I’d go to lots of the practices. Watching the kids was hysterical. They’d just clump around the ball. I asked my husband in the car on the way to the team’s first game, “So what’s your strategy for the game?” He said, “Well, I was going to really attempt to have everybody moving down the field in the same direction at the same time.” I responded, “You know, I think that’s achievable,” and he said, “Well, but in the second half, they’ve got to go the other way.” The World Cup fell later in the season, and I had the kids over to watch. When they saw the view of the game from the blimp, they realized, Oh! That’s what a pass looks like! Business is no different.
People need to see the view from the C suite in order to feel truly connected to the problem solving that must be done at all levels and on all teams, so that the company is spotting issues and opportunities in every corner of the business and effectively acting on them. The irony is that companies have invested so much in training programs of all sorts and spent so much time and effort to incentivize and measure performance, but they’ve failed to actually explain to all of their employees how their business runs.
The Heartbeat of Communication
Of course, as a business grows more complex, communicating about how it works, let alone about the course for the future, also becomes more complicated. Working out how to do this—and, for company leaders and HR executives, coaching all managers to do it, and do it consistently and continuously—takes time. The key is to establish what I call a strong heartbeat of communication, and that takes experimentation and practice.
For a time, Reed and I would meet with every ten new hires in a room and go through a PowerPoint, which was our starting point in creating the Culture Deck. We’d say, “This is your cheat sheet. This is what you should expect from one another and absolutely expect from your management.” Over time, we developed “new employee college.” For one whole day each quarter, every head of every department would make an hourlong presentation on the important issues and developments in their part of the business. The idea for the college actually came from Cindy Holland, who is now VP of content acquisition/original series. She and I were backstage watching a set of management presentations the executive team was giving to a group of investors. She realized that she was learning a great deal, and she turned to me and asked, “Why do we do all of this hard work for a bunch of strangers but don’t do it for ourselves?” So we rolled it out for everybody.
Netflixers will recall with a kind of awe that taking in all the information at new employee college was like drinking from a fire hose. They heard detailed presentations that included the metrics and the deliverables of each department. This not only gave employees a deep understanding of our business but also introduced them to the heads of the different parts of the business. Better still, they could ask those people questions.
Ensure That Communication Flows Both Up and Down
It’s vital that communication go both ways. People must be able to ask questions and offer critiques and ideas. Ideally, they should be able to do so with all managers, up to the CEO. At new employee college, as we started the proceedings, we’d say to the participants, “You will take out of this day what you put into it. If you don’t ask questions, you won’t get answers.” I look back now and realize that this was crucial early stage-setting for the success of the company. It gave people at all levels license to freely ask for clarification, whether about something they were expected to do or about a decision made by management. Not only did this mean they were better informed, but over time it instilled throughout the company a culture of curiosity. That meant managers often gained important insights because someone had asked a really good question. Here’s a great example. During new employee college, Ted Sarandos explained what’s called windowing of content. The term refers to the traditional system that developed for feature film distribution: a movie would first come out in theaters, then go to hotels, then to DVD, and at that point Netflix could bid to pick it up. During the Q&A, an engineer asked Ted, “Why does the windowing of content happen like that? It seems stupid.” Ted recalls that the question stopped him cold. He realized that although it was the convention, he really didn’t know why, and he answered frankly, “I don’t know.” He told me that the question stuck with him and that it “made me challenge everything about the windowing of content, and years later, it contributed to my complete comfort with releasing all episodes of a series at once, even though no one had ever done that in television.”
Never underestimate the value of the ideas, and the questions, that employees at all levels may surprise you with.
Everyone Working for You, at All Levels, Can Understand Your Business
I expect you’ve had the experience of talking to someone on your team about a business issue and being asked a question
