Demystifying Netflix

  • Cruise ship and iceberg

I had brief stay with Netflix many years back so I have a perspective. In a sentence, the whole company philosophy is based on the book “Good to Great” by Jim Collins.

First, let me start with discounting the value of culture. There is a lot that has been written and said about company cultures. Most of the time, it’s overrated. I am saying overrated is because it is claimed to be directly related to the success of a company, which is not true.

Culture has a marginal short-term impact and a substantial long-term impact. When a company like Netflix is facing a lot of tail winds, it does not really matter whether they are treating employees royally or have a quarterly ritual of layoffs. When a company like Yahoo is facing a lot of headwind — no matter how hard and how sincerely Marissa Mayer tries to change culture — it will not change the course of the company. I remember reading in an article that while a ship is going to hit an iceberg, you do not spend time arranging deck chairs. I am a big admirer of Marissa and maybe would have done the same thing as she did — since you have to start somewhere — but it becomes challenging when you expect a big short term impact from that.

Coming back to Netflix, the company has an amazing business model. It has faced continuous tail winds since Blockbuster has gone bust. This is what prompts everyone to look for reasons behind company success; and they look inside.

Netflix has an unwritten policy that they will give you complete flexibility and if they think you are abusing it, they’ll let you go. It works great in that the company does not build any deadwood. It fails when you throw a baby out with bathwater (because both stink same) every few months.  It’s easy to measure deadwood as productivity can be measured by various metrics, but it’s impossible to measure the loss of babies who were thrown out with the bathwater. One can also argue that maybe the loss is not much because it’s the business model and momentum which drive growth rather than few rock start employees.

The Netflix model is great when you are an established player and have a lot of money to pay. It’s like when you are young and hot, everyone wants to sleep with you. Companies that are not so lucky need to work on nurturing employees. You need both performance and loyalty. You reward performers for loyalty because they had the choice to go somewhere else but they did not.