How Netflix Grew To A $366 Billion Beast. Sharing Their CEO's Secrets

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0:57Limited time offer restrictions apply. New customers only requires 300 Mbps internet, security edge, and additional qualifying service. One year agreement, paperless billing, and auto pay with bank account required, taxes and fees extra. How did Netflix go from being laughed out of a boardroom to becoming a beast worth$366 billion? Well, let me tell you a story. In the year 2000, Reed Hastings, the founder of Netflix, walked into a conference room on the 27th floor in Dallas, Texas. Across the table sat John Antioco. John is the CEO of Blockbuster. At the time, Blockbuster had 9 ,000 stores, 60 million customers,$6 billion in annual revenue.

1:41Netflix had 300 ,000 subscribers, and they were losing money. So Hastings made a pitch to him. He said, buy us for$50 million and we're going to run your online business. Antioco laughed them out of the boardroom. Ten years later, Blockbuster filed for bankruptcy. Today, Netflix is worth$366 billion. That meeting is one of the most instructive moments in business history. Not because Blockbuster was stupid and dropped the bag, but because Netflix had something Blockbuster just didn't. It had nothing to do with technology. had nothing to do with their business knowledge. It had everything to do with their team and their culture.

2:22Reed Hastings wrote a book called No Rules Rules, and it's about the specific principles that built Netflix into what it is today. And today, I'm gonna give you the five most critical lessons from their playbook and exactly how to apply those lessons in your business right now. In fact, when I read this book, I implemented some of the things I learned immediately and saw immediate results. Some of the things I'm going to share with you today are going to make some of the biggest impacts in your business that you've ever seen. And that's no exaggeration because I've witnessed it in my own business.

2:54So let's get started. Welcome back to the$100 MBA show. I'm your host, Omar Zinhome, where I deliver practical business lessons three times a week, Monday, Wednesday, and Friday to help you start, grow, and scale your business. I got a quick favor to ask. If this show has helped you in any way, leave me a quick review. You could do so wherever you listen to podcasts. This helps me and my team reach even more people who need the same no-fluff practical business advice that you're getting from the show. It only takes a few seconds, but it makes a huge difference. Thanks for being a part of our journey to help others on their journey.

3:38Lesson one, talent density changes everything. And this is the foundational idea behind everything that Netflix does. They believe that a small team of exceptional people outperforms a large team of average ones every single time. And Hastings calls this the talent density, how dense your talent pool is in your business, even if that's just you and a co-founder or you and your executive assistant. Here's specifically what Netflix means by this. One exceptional engineer not just does the work of two average engineers, they do the work of 10. I've witnessed this myself building a software business for over 10 years.

4:19I had an engineer on my team that was outputting 10, sometimes 20 times work than the average engineer on the team. Okay, so we had many engineers. There was one that was just so, so much better. And guess what? He was the most expensive one. This teaches you that exceptional people do not just work faster. They make better decisions. They solve harder problems. They raise the standard for everyone around them. And here's the flip side. One mediocre performer on a team of high performers doesn't just underperform. They drag the entire team down. They slow decisions. They lower the standard. They make the exceptional people around them work harder when they don't have to.

5:03Some of you know, I play basketball and I'm competing in the World Master Games in Greece very, very soon. And when I practice with my team, and this is a team of very high performing players, many of them, if not most of them, have played professionally around the world. And when I play, because the standard's so high, I play my best basketball. But sometimes I play some pickup basketball with my friends. They're okay, but they're not at the same level. And when I play with them, my performance, just not as good. It's because I become worse of a player. I become less fast, less smarter. My passes are not sharp because I don't have to play as good.

5:39So this is a good example of the environment really shapes how well people perform and how they show up at work. Netflix has this concept called the keeper test. Every manager at Netflix regularly asks themselves a simple question. If this person told me they were leaving tomorrow, if they got another job offer somewhere else, would I fight to keep them? Or would I kind of secretly be like, well, that's okay. I can find somebody else. If the answer is anything less than an emphatic yes, that person should probably be somewhere else. You probably shouldn't hire them in the first place. And Netflix fully understands this.

6:12Now, there's another exercise that I recommend that you do that I teach inside the$100 rate program. And it's a thought experiment. The idea is that if you had to, you were forced to fire everybody on your team and have to start from zero. Who would you rehire? Okay. So this concept kind of gets you thinking, well, I don't have the burden of having to fire them or go through that painful, I have to do it. So they're all fired, they're gone. Now I got to choose who I can rehire. That is a different idea of like, who would I actually value and need? And they're actually adding a lot of value to the company.

6:43So this is a really, really good way to find out if your team has good talent density. Are most of the people you would rehire or most of the people are the people that you would fight for so you can keep? or some of them or most of them just not worth rehiring. Now, I want to pause for a second because you might be hearing this and saying, this sounds very cutthroat. This sounds like, oh my gosh, like firing people is not a fun thing and that's really not a nice thing to do people. And I understand that. But you have to understand when you signed up to become an entrepreneur, when you signed up to start a business, you have a loyalty, you have an allegiance, you have a duty and responsibility to your customers to give them your best.

7:21And if you're shortchanging them because you are not choosing the right talent or keeping talent that are not the best people for the job, then that is something that you're gonna have to live with. The fact that you're just not delivering the best quality, the best product or service that you possibly can do. And guess what? Your competition, they're gonna do that. They're gonna make sure that they have the best people. And especially as you start growing in your business, start competing with bigger companies, you're gonna start realizing that, hey, it's all about talent. It's all about who can I recruit on my team so we can win.

7:52So Netflix totally gets this, and they don't wait, by the way, for annual performance reviews. They apply this test constantly, and they act as a result. And they're very honest about this. They're very honest about a lot of things, which I'll mention. But this is a lesson I had to learn the hard way when I was building my software company, Weaponer Ninja. I had a software engineer that was genuinely good as a person, but not really adding a lot of value to the company. In fact, a lot of the other engineers were doing his job for him because he wasn't doing it good enough. But I didn't know it was happening.

8:24They were kind of hiding it so that they can cover for him. And this is a likable guy, but you got to hit the standard. Otherwise, it's not fair for your customers. It's not fair for the rest of the team. And it's not fair for you who's making sure that you're trying to keep a high standard in your company. So I encourage you to do the keepers test. Who would you fight for? If you had to fire everybody and had to rehire them again, who would you rehire? This is something that you can implement right now and start asking yourself some real questions. Why wouldn't you rehire them? Can you train them?

8:53Can you help them out? Can you give them the support they need? Or you just need to get better talent. If you're honest about this, the answer is gonna tell you a lot of things about the talent density in your team. Now, before I move on, I wanna talk about something that a lot of entrepreneurs fall into, okay? It's a myth they believe. They believe they can find the diamond in the rough. They feel like they can find the best value. I'm gonna find the person that no one knows about and it's pretty cheap from some country, blah, blah, blah. You get what you pay for. You get what you pay for. At the end of the day, don't try to find the diamond in the rough.

9:22I use a lot of sports analogies because I do believe that a business team is very much like a sports team. And Netflix believes this as well. I'll share that in a minute. But the New York Yankees, how many championships have they won? How many World Series have they won? Too many to count, okay? They also have the biggest payroll, okay? And there's a reason why, because they go after the best talent. And the best talent, they deserve and demand a lot of money. So in my opinion, it's best for you to have one person that's expensive than five that are mediocre and maybe less expensive and allows you to feel like, oh, wow, I got a team of five people instead of one and kind of strokes your ego.

9:57No, you get what you pay for. Go with the top talent and you're going to get a lot more than what you bargained for. Investing with Schwab is like spending a Saturday at a great farmer's market. You can fill your reusable tote with a bit of everything. Maybe you go for some free-range, self-directed investing. Or perhaps you pick up a few farm-fresh trades while you peruse. You can even get help from a dedicated advisor. That's full-service wealth management. Mix, match, and change your mind whenever you want. Because at Schwab, you can invest your way. No matter your goals or appetite for investing, Schwab has everything you need all in one place.

10:32Visit schwab.com to learn more. Running a business means you're always reachable, until you're not. And the moment you miss that call, that text, that follow-up, a competitor is the one that picks it up. That's why today's episode is brought to you by Quo, spelled Q-U-O, the business phone system built so you never miss an opportunity. With Quo, all your calls, texts, and voicemails live in one place so anyone on your team can pick up a conversation, see the full history, and respond fast. Set up in minutes on any device, keep your existing number, and add teammates as you grow. No IT, no hassle.

11:11And Quo's built-in AI agent handles after-hours calls, answers questions, and even books appointments so you never miss a lead, even when your team is offline. Money is on the line. Always say hello with Quo. Try Quo for free, plus get 20 % off your first six months when you go to Quo.com slash MBA. That's Q-U-O dot com slash MBA. Lesson number two, radical candor is the competitive advantage of Netflix. I'm going to tell you right now that this chapter is probably the most controversial chapter of the whole book. Most organizations, they have a feedback problem. Not because people don't have opinions.

11:52It's because they don't say them out loud. They don't actually give feedback respectfully and honestly. You know what I'm talking about. They smile in a meeting and they complain in the car in the parking lot, right? You need to encourage your entire team to be as honest and respectful as possible at all times so that we're constantly giving each other feedback. You know, just five seconds ago, you didn't see it off camera. Josh corrected me. I made a mistake. I read the word on my script incorrectly. But that feedback I needed so that we can all win and that we can have a great episode and I don't look like a fool on camera.

12:26In most businesses, they write performance reviews in the most diplomatic language possible, not to hurt anybody's feelings, right? Makes sense. But often in that process, honesty gets missed. They tell their colleagues what they think, but they never really tell the person that they're supposed to hear it, like the person that needs the feedback. Netflix decided that this is not acceptable. They built a culture they call radical candor, right? And I love this idea because, and they really underline the understanding of it. We're going to be honest. We're going to be candid, but we're going to be respectful, Right.

12:59We're going to give honest feedback to encourage each other to do better. Again, sports analogy all the time when you're on the basketball court, you're telling your teammates if they miss a shot, don't worry about it. Next shot. You know, keep going after it. Giving people feedback constantly just so that people know that, hey, we're on the same team, but you need to hear, you know, find another way to influence the game. You don't have to always keep shooting. So the point here is, is that you want to give honest feedback to your team at all times and understand, and they all understand, we have like a culture that, hey, we're doing this so that we all get better, right?

13:32Because if you win, I win, we all win. By the way, this only works if it's at every level. And one of the rules they have at Netflix that I absolutely love is don't try to please your boss. It's a great, great rule, which lets people know that, hey, you're not going to win any writing points by trying to please, you know, the CEO or the manager or whoever it might be. What you want to do is give honest feedback regardless of who you're speaking to, okay? Because we all need to hear all the ideas in the room. So the person that's making the decision or the team that's making the decision got all the information.

14:04So they'd be able to make the best sound decision possible. So in Netflix, a junior employee, an intern can give feedback to a senior employee. Even the CEO himself, Reed Hastings, really encourages people not to try to like pander to him and, you know, give him lip service. He says, please destroy my ideas if you think you have a better one. But the best part of this is that Netflix encourages feedback in real time, not once a year, not once a quarter in the moment. And there's nothing wrong with that. There's nothing wrong with taking that moment and say, hey, I'm going to make this a teaching moment to give feedback.

14:36But also remember that you need to be open to get feedback. You got to be open to say if someone gives you feedback, be like, hey, I'm going to consider to that. I'm going to try that next time because they're not going to listen to you if you are not listening to them. And that's the whole point. And I think Netflix really nailed it with this framework. Now, I want to break down this framework so that you can apply it in your own business. And it's called the 4A framework. And it's four A's. The first A is aim to assist, give feedback with the intention of helping and not criticizing. This is very important because if you don't have the right intention, it's going to come off as you just being a little bit petty.

15:12So that's the first eight, aim to assist. Number two, actionable. Focus on what the person can actually do differently. This is so important. So many people just say, well, I don't like what you just did. Well, that's not feedback that's helpful. You want to tell them what they should do instead, right? Not what you didn't like. Eight number three, appreciate. When you receive feedback, resist the instinct to defend yourself. A lot of us, we were just like, no, you don't understand. This is why I did this. No, don't do that. Just say thank you. Just take it as a data point and say, I appreciate you giving me feedback.

15:43And then you can figure out what you want to do with it later. And the fourth A is accept or discard. You are not obligated to act on every piece of feedback, but you must genuinely consider it. And this is really good advice, even as the leader of your business as an entrepreneur. Anytime you hear anything, and we're going to talk about this in a future episode, but anytime you hear anything like advice from a podcaster or some guru on YouTube or something you read in a book, just see it as a data point. See it as something that you can add to your arsenal to help you make better decisions. It's up to you what you do with that information.

16:16So what does this actually do for you? What does radical candor do for your business? Well, it eliminates the gap between what people think and what gets said. You know, a lot of people, they think something, but they don't actually say it, right? They keep it to themselves. And that gap is where bad decisions live. That's where problems really fester. And you don't want to do that. By the way, this is applicable to even just personal relationships, where the thing everyone knows is wrong never gets fixed because no one wants to say it out loud. It's very hard for you to address something that you don't recognize.

16:45Here at the$100 MBA, we've built a culture where we have learned through repetition how to give feedback the right way. When something's not working, what we like to do is we like to be very direct and honest, but there's no reason to be mean about it, right? There's no reason to be like, you know, spiteful about it. You can just be respectful and even you can have a little fun with it and just be nice about it. So we like to have a direct conversation. We don't have like a strongly worded email or anything like that. It's just easier to talk to somebody face-to-face or even on a Zoom call and just have a chat.

17:15And more times than not, we're actually on the same page. We just decided to implement whatever we decided to do in different ways. So you have to save yourself from those bad decisions that can be created by miscommunication, by the fact that you just never told that person the way you wanted it or the way you envisioned the project to go. So always communicate. We have a rule that you can never over-communicate because over-communication really doesn't exist. You know, it's good to reiterate things, remind people, and also give feedback when it's needed, but also encouragement. Feedback is also encouragement.

17:48Just say like, hey, I really liked what you did. That was fantastic. And that just tells them, hey, keep doing that. That's the direction you should move in. The point of this takeaway is you want to build a culture where honesty is safe. It's not just tolerated, it's rewarded. It's respected and it's celebrated. Lesson number three. Now, some of you are going to really need to learn this lesson. And some of you, this is going to come naturally. And what's lesson number three? Treat people like adults. Netflix has a very generous vacation policy. In fact, they have a no vacation policy, which means there is no policy, okay?

18:23They just allow people to understand that these are your responsibilities. This is what you got to get done. As long as you get them done, that's fine. They're just result-oriented. And, you know, I know that a lot of countries have different laws and, you know, you have to kind of follow these laws. But if the spirit of your holiday policy is you figure it out, you're going to be fine if you need to take a few weeks off. No problem. As long as you get your job done. That is really what you should embody from this lesson is that it's not just about the vacation policy, but you have to treat people like they are autonomous, like they're responsible, like they're adults.

18:55Netflix doesn't have a lot of policies, whether it comes to expenses or holiday or sick leave or whatever it might be. But they do have one rule, and this rule is very simple. Act in the company's best interest. So they don't have any forms to fill, no approval chains, not even receipts to submit to a committee. They just submit it straight to accounting. But they have a rule that says, hey, whatever you do, we're expecting you to act in the company's best interest. And that kind of covers all the bases. Now, most people, when they hear this, they hear that, oh, my God, people are going to abuse this.

19:28If I just give them unlimited holiday, they're just going to be gone for six months. If I have no expense policy, they'll just, you know, run up a huge bill and, you know, drive me out of business. And here's what actually happens in Netflix. Okay, employees take roughly the same amount of time off as if they had a traditional policy. The funny thing is that people will just act responsible if you just allow them to be adults. Remember, you're hiring top talent, people that care about their job, They want to keep their job. They want to keep on doing what they're doing for a living. And yes, I understand that things can get expensive, travel costs and all that kind of stuff.

20:05But you have to understand that what's the cost of making your employees feel like you don't trust them? And in Hastings' book, literally and figuratively, he really believes that that's a small price to pay. It's a small price to pay to have no policy and maybe to have a little bit of overspending here and there to make sure that the team understands that I trust you. I appreciate you, and I also believe that you're going to act responsibly. But that's not the best benefit of having as little rules as possible or as little number of policies possible. The number one benefit of this is speed. When people do not have to approve to make any kind of decision, things get faster.

20:45Things get done quickly because they don't need a committee. They don't need approvals. They're not waiting months to get something done. For example, when they don't need to submit an expense request, they just buy what the business needs and move on and they get the job done. When they are trusted to manage their own time and their own holiday, they take ownership of their output rather than their hours. They make sure that the team is not burdened by the leave. They take care of things so that they can take the leave responsibly, but also comfortably. Their entire model is built on one belief.

21:16Most people are adults that want to do good work. and treating them like children who cannot be trusted and are gonna run amok if I don't stop them from doing so. That's the kind of culture and behavior that a lot of people don't wanna be around. People don't wanna be a part of a company that makes them feel restricted, makes them feel that they can't be creative and they can't make decisions and can't be autonomous. The flip side of trusting somebody is that they understand that they're responsible, right? And they respect your trust. Control, on the other hand, produces really just compliance.

21:50And you don't want that. You want innovators. You want people that are going to go after it and do better work than you could ever do. Hey, if you're loving this episode, do me a favor. Smash that subscribe button. Whatever app you're using, subscribe because we have an upcoming episode I don't want you to miss. And as soon as it goes out, you'll see it in your feed. And this episode's all about how to create a vision for your business without feeling cliche or corny. I'm going to give you a step-by-step plan of how we come up with our vision, and how we communicate our vision to our team. And it's not a once and done thing.

22:21It's something that we try to do over and over and make it a part of what we do every day. And this is actually quite simple. It's not some big corporate concept and framework that is hard to follow. It's simple, it's step-by-step, and I'm gonna share it with you. So hit subscribe so you don't miss that episode so you can nail your vision, not only what it is, but how to communicate it. Lesson number four is something that I kind of talked about and hinted on throughout today's episode, and that's we are a team, not a family. Now, this might rub you the wrong way, okay? But you have to understand that in business, you have competition, just like in sports, just like a professional sports team.

22:58And the goal of a professional sports team is to win a championship, right? And they want to assemble the best team possible to be the best, you know, the best team wins in sports. Now, most companies describe their culture as a family. We're a family here. We take care of each other. We're loyal to each other. And no matter what, we got each other's backs. That sounds warm. It sounds human. It sounds kind of nice, but it's not reality. That's not the truth. You're actually lying to people because that is not what actually happens in business. Why? Because family doesn't cut you out when your performance drops.