Last week a friend high 5’d me and congratulated me on finally writing a non-portfolio related post. I shrugged...
I just got a chance to view the incredible “Culture Deck” that Netflix uses to articulate its corporate culture to new employees. They’ve used a version of this since 2002 and it appears to have been leaked publicly about a year ago, but I just stumbled across it a couple weeks ago.
It is the single best articulation of culture in a high-performance startup or technology environment that I have ever seen. It’s that good.
That is not to say that I fully buy into, or endorse, every single aspect of this approach. I do believe that the vast majority of the content is spot on in its relevance for the startups I invest in. My favorite one is that successful high-performance organizations are a team, and NOT a family. I’ve seen a large number of startups fail because the founders and management team - working from a base of values that makes them individually great humans - articulates “family” instead of “team” as the metaphor for the culture. Doing so feels good for the first few months and years, but my experience is that it creates a barrier to effectively replacing employees (and management team members) with higher-performing people. At a minimum, it creates a much longer delay in making a needed change in the team, and produces a lot more resentment in the departing employee (“I thought we were a FAMILY!”). These kinds of delays, and cultural rifts, can and do skill startups all the time.
Putting aside the other great content of this presentation, its more important aspect is that it implements, in a better manner than any other articulation I’ve seen, the most important part of organizational culture, which is that it be specific, unique, clear, and differentiating. Reasonable people can, and do, disagree about whether it is the “right way” to build a high performance culture. That makes it effective in filtering the right people from the beginning, because potential employees who view this will self-select and “opt in” to the culture from the beginning. Many talented employees would not want to work in a company that says it does not value loyalty, satisfactory performance, or stability; as a result, people who place a high value on those cultural values don’t end up even applying for jobs at Netflix. But who would ever “opt out” of a company that says it values “integrity?”
Guy Kawasaki once said to me something profound, which I’ll paraphrase. He said that corporate values or culture statements are only valuable and effective if reasonable people can argue both for and against the value/statement. If it’s something that every reasonable human believes in (e.g., “honesty” or “integrity”), then it is of no use, because it doesn’t tell anybody what makes your culture _different_ than other cultures. It becomes a platitude that nobody really follows in any specific way, and it loses the ability to provide the context for how employees should make decisions and set priorities, which is where culture is most effective as a company grows.
(As an aside, one of the very first slides in the Netflix Culture Deck points out that the four corporate values of Enron posted in their lobby were Integrity, Communication, Respect, and Excellence).
Kawasaki’s point was that it is only in telling people what makes _your_ company’s culture different from the culture of _other_ reasonable and successful companies that turns culture into an effective motivational tool for alignment and cohesion. I’ve always respected that about the much-vaunted Zappos corporate culture, which despite the inclusion of many platitudes, clearly and always puts customer service as the #1 priority, ahead of all other aspects of the company. Reasonable people and companies can legitimately disagree about that - other retailers (e.g. WalMart) say that low price is the most important thing; many other ecommerce companies say that design or fulfillment triumph; and many tech companies put product ahead of service.
Coming back to the Netflix Culture Deck, what makes it so powerful in my view is that reasonable people and companies can disagree. Netflix does not believe in giving employees incentive stock options, and it believes that if an employee’s performance is merely satisfactory, they should be terminated (with generous severance). Netflix doesn’t believe the company should track vacation time, or have an expense-reimbursement policy, or set travel budgets. Most interestingly, and insightful, is the Netflix observation that the obsession around quality is of most relevance to manufacturing, medical and other “life and death” environments; at creative companies like Netflix, it’s actually better to encourage lots of mistakes, because it’s cheaper to fix the mistakes after they’ve been identified than it is to over-invest in quality (and the process and bureaucracy that comes with it) in order to prevent mistakes from happening in the first place.
His takeaway was that there are only 3 areas of true existential risk, where legal/structural issues can end up directly causing the company to fail. These are:
- 1. Disputed rights to ownership of IP and other company assets between founders and previous employers.
- 2. Disputes over ownership and structure among and between company founders that end up causing irreparable dysfunction and damage to trust.
- 3. Disputes over ownership and structure among and between company investors and founders that end up causing irreparable and dysfunction damage to trust.
Everything else, more or less, can be fixed with money — although sometimes the amount of money required for the fix is substantial. As a result, you’re better off getting the structural and legal issues right from the beginning. Along those lines, here are a few additional lessons: