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Netflix is a place where people win. They exceed expectations. They conquer the odds. That’s how they’ve moved as fast as the market from DVDs to streaming, capturing an audience of close to 100M paying subscribers. And it’s also why extremely high-caliber talent goes to work there. Much of this is the product of Netflix’s hard-driving culture, as described and defined in its infamous Culture Doc, which continues to make industry rounds to this day (Sheryl Sandberg once called it “the most important document to ever come out of Silicon Valley.”)

The author of the document is a legend in her own right. Patty McCord joined Netflix in 1998, and set out to create a living set of “behaviors and skills” that the management team would update continuously and fastidiously. Still in effect today, it drives toward a single point: a company is like a pro sports team, where good managers are good coaches, and the goal is to field stars in every position. We covered this deck once before on the Review here.

But now — after spending the last 5 years advising and consulting for a range of startups like Warby Parker, Harry’s, and Simply Hired — McCord is back, with a book set to come out in January 2018. Titled Powerful: Building a Culture of Freedom and Responsibility, it dives into the nitty gritty of how the team at Netflix built an iconic company from the ground up with intense focus on culture as its cornerstone. We’re pleased to publish one of our favorite chapters from the book here, in advance of its release, to give you a rare sneak peek.

Read on for new wisdom from Patty McCord, one of the wisest minds you’ll find on topics of culture, people operations, and building to win.

One of the most important insights anyone in business can have is that it’s not cruel to tell people the truth respectfully and honestly. To the contrary, being transparent and telling people what they need to hear is the only way to ensure they both trust and understand you.

Most of us feel that we can’t tell the people who work for us or with us the truth because:

What’s so wrong with this? After all, humans want to be nice. We want to treat one another well, and we think that means making one another feel good. But this desire to make people feel good is often as much a desire to make ourselves feel good as to do the right thing. It often leads to people actually feeling worse, because they’re not correcting a problem in the way they’re working, and that eventually comes home to roost.

Part of being an adult is being able to hear the truth. And the corollary is that you owe the adults you hire the truth. That is actually what they want most from you.

Have you said this to their face?

One of the most important mandates at Netflix was that people talk openly about issues with one another. That went for subordinates, colleagues, and bosses. We wanted honesty to flow up and down, all around the company.

A big part of why [Founder and CEO] Reed Hastings and I worked so well together is that we’ve always been so honest with each other. Reed liked how honest I was not only with him but with everyone at the company. When I told one of my old HR colleagues, who had heard lots of my stories about working with Reed at Pure Software, that I was going over to Netflix, she said, “What?! You’re going to another startup with the Animal?” I had forgotten I’d sometimes called him that. He could be really tough in those days. But he expected a lot from me and I was always challenged to deliver.

Practicing radical honesty is like breathing to me, which didn’t always put me in good graces at other companies. One reason I decided to move from the corporate world to the startup world when I went to work for Reed at Pure was that I was always getting in trouble. I’d be called to the VP of HR’s office, and he’d ask, “Did you make fun of the engineers?” And I’d say, “Yes, but seriously! They’re complaining that the hot tubs were not hot enough, the towels aren’t fluffy enough, and the pool is too cold.” And he’d reprimand me, “You know our engineers are our most important resource and you have to give them special treatment!” I just wasn’t buying that. I’d gotten quite tired of them being treated like gods.

With Reed, things couldn't have been more different. When I interviewed with him, one of his first questions was, "What's your HR philosophy?" Remember, I'd worked at Sun and at Borland, so I answered in my fluent HR-speak: "Reed, I believe that everyone should draw a line from their personal ambitions and integrity and become empowered to contribute." He looked at me and said, "Do you even speak English? You know what you just said didn't mean anything, right? Those words don't even string together into a logical sentence."

I responded with characteristic aplomb, "Hey, you don't even know me!"

He shot right back, "How am I supposed to know you when we're having this kind of conversation? Tell me, what would you do that would make my company grow?"

When I got home that day and my husband asked me how the interview had gone, I told him, "Well, I got into a fight with the CEO." Fortunately, I got the job, and I quickly came to love how blunt Reed and I could be with each other. He always challenged my assumptions and called out any HR truisms I might spout, and that felt great. I felt respected. Reed never coddled me in the slightest, and I loved the way he pushed me to keep finding new ways to improve the business. As soon as I had accomplished something I was really proud of, he would say, "Okay, that was great! So now what?"

One of the pillars of the Netflix culture was that if people had a problem with an employee or with how a colleague in their own department or somewhere else in the company was doing something, they were expected to talk about it openly with that person, ideally face to face. We didn't want any criticizing behind people's backs.

Managers would often complain to me about an employee or someone in another department. I'd always say, "Have you told her yet?"

Holding people to this standard of transparency has many benefits. One is that it puts the clamp on politicking and backstabbing. I've often said that I hate company politics, not just because it's nasty but because it's so inefficient. Think about it. If I'm going to stab someone in the back, I have to go get a knife, hide it, wait until I'm alone with that person, and catch them off guard. I'd better be sure to kill them or they'll come back after me. It takes planning and it's high risk. Wouldn't it be a whole lot easier just to tell that person, "It makes me crazy when you do that, so please stop!" More important, though, is that honesty helps people to grow, and it flushes out the differences of opinion and alternative ideas that people so often keep to themselves.

People Learn to Welcome Criticism

Openly sharing criticism was one of the hardest parts of the Netflix culture for new employees to get used to, but most of them quickly came to appreciate how valuable the openness was. When I talked about this with one of our great team leaders, Eric Colson [now Chief Algorithms Officer at Stitch Fix], he told me the giving and taking of honest feedback was central to how well his team worked, and his teams worked beautifully. That's why Eric rose to the position of VP of Data Science and Engineering in less than three years at the company, having begun as an individual contributor.

He'd been managing a small data analytics team at Yahoo! before coming to Netflix, and he recalled that the culture there was to be super supportive of people and not to criticize them. He told me that when he started getting critical feedback from colleagues at Netflix, "It hurt. People told me, 'Colson, you're not good with communication; when you need to get a message out to a wide audience, you take too long to make the point and it's unclear.'" His initial reaction was to think, Oh yeah? Well I've got a lot of things to say about you too! But before long, he realized that "when you reflect on what they've said, you see it from their point of view, and you learn how to improve on those things. That directness was really helpful." Again and again at Netflix, I saw that people rebounded quickly from the initial shock of receiving negative feedback and learned not only to appreciate it but to deliver it themselves much more consistently and thoughtfully.

Eric also shared wth me a story that reinforced what I observed so often when managers weren't willing to give people tough feedback: It puts undue pressure on the boss to provide cover and cheats the employee of the chance to improve.

He recalled having held back a badly needed critique from one of his reports at Yahoo! and then having to make up for that person's shortfalls, which was exhausting — and unfair to the employee. "I was too kind," he told me, "and that means you're a bad manager in a lot of ways. You end up sugarcoating things, and that's doing them a disservice."

Practice Your Delivery

We worked hard at Netflix to engender the kind of belief Eric expresses in this value of totally honest feedback, and to coach managers so that they felt comfortable delivering it. That was a major focus of my time. Sometimes I would just let the person with the issue vent, loudly and passionately. They'd recite in detail all the bad behavior of the person they were annoyed with. Then I would ask, "What did she say when you told her that?" Typically, the person complaining would say, "I can't say this to her!" I'd push back, "But you said it to me, didn't you?" and they'd look sheepish, realizing it wasn't right to unload behind the person's back.

Then we would practice the same conversation without the emotion. We'd also discuss the importance of giving specific examples of the problematic behavior and proposing solutions. Following those rules makes such conversations actually constructive.

Practice is crucial for honing your delivery style. You can do it in front of a mirror or with your spouse or a friend. Actually rehearsing what you'll say, out loud, allows you to hear the tone of your voice. You might even want to record yourself. It's also important to think about your body language, which can speak louder than words. We're often totally unaware of how emphatically it's sending a negative message.

A friend told me that when she went for coaching about how to talk to her boss — who was so difficult that her whole team had trouble communicating with her — the coach had my friend do some roleplay showing how she typically talked to her boss. The coach exclaimed, "Well, I'm sure she knows how annoyed you are with her!" My friend's hand gestures had spoken volumes. The coach told her to sit on her hands during meetings with her boss, and that dramatically improved their conversations.

The most important thing about giving feedback is that it must be about behavior, rather than some essentializing characterization of a person, like "You're unfocused." It also must be actionable. The person receiving it has to understand the specific changes in their actions that are being requested.

The comment, "You're making a great effort, but you're not getting enough done" is essentially meaningless. An action version would be, "I can see how hard you're working, and I really appreciate that, but I've noticed that there are some things you're spending too much time on at the expense of others that are more important." You would then establish better prioritization with the person.

I once received an extraordinarily helpful piece of feedback that is a model for being direct and suggesting a solution. Someone who worked closely with me and was often with me in meetings told me that I should talk less. "You're always talking so much that others don't get a chance to get their two cents in." Done. I started to catch myself and make sure I shut up and listened more.

Many people feel hesitant to speak so openly, but the truth is that most people really appreciate the opportunity to get a better understanding of their behavior and how it's being perceived, as long as the tone of delivery isn't hostile or condescending.

Model Honesty and People Will Pick the Habit Up

You want everyone on your team — and, for upper management, all around the company — to learn to be more open and honest with one another. For this to happen, the standard must be set and practiced from the top down.

The Netflix executive team modeled honesty in a number of ways. One was to conduct an exercise we called "Start, Stop, Continue" in our team meetings. In this drill, each person tells a colleague one thing they should start doing, one thing they should stop doing, and one thing they're doing really well and should keep doing. We were such believers in the value of transparency that we did this exercise in our meetings, out loud in front of the group.

Recognition of how important it is to be open rippled down through the company as we'd go back to our teams and report that the executive team had just done "Start, Stop, Continue" and fill them in on what had been said. That wasn't a mandate; it didn't make it an HR initiative. Most of the executives just did it, which exemplifies the power of modeling. A few told me it would never work with their teams, and I'd say to them, "Well, you know, they're doing it in product and in marketing, and it seems to be working there because they're getting lots of great work done." That was usually quite compelling.

We also modeled radical honesty from the top down by requiring it of all our team leaders in managing their people and coaching them on how to provide it. We insisted that they share feedback on a continual basis. In addition, we asked them to explicitly set the standard with their teams that it was unacceptable to talk about people behind their backs or to come to them to complain about a colleague, unless, of course, the problem was one concerning ethical violations, such as sexual harassment, which was treated with confidentiality.

Another one of our great team builders was Rochelle King, [now Global VP of Product Design and Insights at Spotify], who started out managing a small design team and became the manager of a large group as VP of User Experience and Product Services. She recalled that it was difficult at first for her to give such open, honest feedback, but that because it was such a strong mandate, she realized she had no choice but to get comfortable with it.

She said, "I felt as a leader that I would have to do the hard things in order to uphold the culture, things that were against my nature, such as having difficult conversations to people's faces. I knew that was something I had to abide by, the completely uncomfortable act of going and talking to someone about a problem. When it's so much a part of the culture, you hold yourself accountable to it. There were lots of stories of other leaders who had done it, and so you did it too."

The more rigorously you communicate and model the transparency standard, the more pervasive a part of your culture it will become.

Provide Mechanisms for Feedback

Eventually, we decided we wanted to facilitate the offering of critiques not only to one's direct reports and teammates, but to colleagues all around the company. So we created a system for sending "Stop, Start, Continue" feedback to anyone at the company once a year. We picked an annual feedback day and asked that everybody send their comments, in "Stop, Start, Continue" format to everyone they had feedback for.

This is a great example of how the practices we used to create the culture evolved as we tried new things. At first, we made the system anonymous. But, true to form, the engineers rebelled. Management was saying people should be open and honest, yet the tool we had provided lacked transparency. They simply started to sign their names to their critiques within the message text. The executive team realized they had a good point, and we revised the system.

To make sure that people understood we truly didn't want them to hold back, I monitored how actively people were entering critiques. I didn't want them to write just a few bits of softball criticism to a couple of team members they knew well. The whole point was that we were providing a platform for widespread transparency. Eric Colson told me that the first time he had to write his feedback he thought, If I've only written comments for a few people, I'm going to hear from Patty, "What's this? You work with 50 people and you only gave feedback to three of them?!" If you institute a process like this, you will probably have to hold people accountable to step up and avidly participate.

There's no question that this process took some getting used to. Eric described how anxious he was the first time through: "I didn't like the way a product manager was doing a certain thing," he said. "And I remember hovering over that submit button thinking, Oh God, what's he going to think of me? Is this going to piss him off? But the next day when everybody got their feedback, to my surprise, he came by my desk and said, 'Hey, I got your feedback; thank you, that was very helpful.'" Eric realled that he came to really look forward to feedback-sharing day. In my experience, probably 90% of people reacted that way, and often the feedback would lead to productive conversations that really helped clear the air.

Everyone Deserves to Know About Problems with the Business Too

We practiced this same radical honesty about the chllenges the business was facing. It was a very bumpy ride in the early years, and we shared with the whole company the difficulties as we encountered them, being very clear about our time frame, our metrics, and what it would take to meet goals. We wanted to make sure all of our people understood where we were going and what we were doing, and I realized that an essential part of that was understanding — really deeply understanding — what the business was up against.

At most companies, no one owns the responsibility of communicating that information company-wide, and too often many people — whole departments, even — are left in the dark. Companies sometimes even delay making important strategy and operations changes bcause of the worry about how employees will react.

At Netflix, we learned that preparing people for changes to come led to a sense of trust around the company: trust that we would proactively take the company where it needed to go and that we wouldn't mislead anyone about the changes that would require.

For sure, sometimes those changes weren't popular. One of our big early challenges was making the transition to streaming. We had always talked about video streaming as the future of our business, and we tracked the habits of our customers very closely as we got better at delivery and built up our content. During that time, we had many open, heated debates about what the transition would mean to our customers. Transparency about the difficulty of these decisions didn't make coming to them any easier, but the honest dialogue did mean that people all over the company were prepared. It also meant that we made the right decisions at the right times. We didn't delay out of worry about a shock to the system for employees. Sure, the transition was tough, and some people weren't happy, but there was no lack of clarity about what to expect.

Too often, upper management thinks that sharing about problems confronting the business will heighten anxiety among staff, but what's more anxiety provoking is not knowing. You can't protect your people from hard truths anyway. And holding back the truth, or telling them half-truths, will only breed contempt. Trust is based on honest communication, and I find that employees become cynical when they hear half-truths.

Cynicism is a cancer. It creates a metastasizing discontent that feeds on itself, leading to smarminess and fueling backstabbing.

Admit When You're Wrong and You'll Get Better Input

Somebody asked me once, "What would you fire me for?" I said, "That's a good question. Let me think. Well, certainly embezzlement, sexual harassment, or breach of confidentiality. Wait, I know what I'd fire you for. If we were discussing something that went wrong during a post-mortem, and you said, 'Oh, I knew that was a problem but nobody asked me.' Then I'd probably run you over in the parking lot, because you would allow something to go wrong that you saw was coming."

The other vital point about honesty concerning business issues is that it's got to go both ways. Employees should be told never to withhold questions or information from you or their direct superiors. As a leader, you should model this, showing, not just telling, that you want people to speak up and that you can be told bad news directly and disagreed with. Otherwise, most people will never be truly open with you.

A study by Deloitte showed that 70% of employees in a wide range of sectors "admit to remaining silent about issues that might compromise performance."

Say you're in a meeting and are about to make a decision. One of your direct reports at the table has been bending your ear for months about what a stupid idea he thinks it is. Yet here you are at the end of the meeting and that person hasn't spoken up. You should call that out. Say, "You know, we're about to make a decision that you've been telling me for four months you're against, and you haven't said a word. Have you changed your mind? Or do you feel like I'm not going to listen?"

You have to exhibit the courage you want people to have, the courage to say, "I honestly don't think that's a good idea at all, and here's why."

Of course, it's one thing to get honest input from colleagues on your own level, or from your boss, and another to get it from your subordinates. But that is exactly what you want. Because you are absolutely not always going to be right, and the satisfaction of being right can be very dangerous.

I was a huge fan of that satisfaction. I used to love being right. When I had told Reed or another executive I thought something they had decided to do was a bad idea and I turned out to be right, I took great pleasure in that. One time Reed sent me an email saying, "You were right, I was wrong," and I printed it out and kept it in my wallet. I only got those about every three years, so they were a big deal to me! But then one day we were talking about something and he said, "You were right. I was wrong about this one," and it didn't feel good anymore. Instead, I was mad at myself because I hadn't made my case more effectively earlier. I found myself wondering how I could have made a better argument.

When leaders not only are open to being wrong but also readily admit it — as Reed did that day, and regularly did — and when they do it so publicly, they send a powerful message to their teams: Please speak up!

One of the best ways to get all the cards on the table is to help people see that those who speak up live to see another day. Reed was great at this. I love the story Tom Willerer [Now Chief Product Officer at Coursera] told me about a time he disagreed with Reed in a team meeting of about 35 people:

Facebook had started doing frictionless sharing in the Newsfeed about what people were posting, such as what they were reading or watching and events they were going to. Reed was intent on Netflix getting on this bandwagon and having information about what members were watching feed directly to their Facebook pages. Tom thought members should be given the option to select which information would be shared, and Reed passionately disagreed. The two debated the point vigorously in front of the group. Tom pressed the point that survey data showed that members wanted the choice, and Reed agreed to let Tom and his team perform an A/B test to see which approach was better. When the data showed that Tom was right, Reed openly announced to that same group, "Look, I debated hard against this but Tom was right. Great job."

Tom took the wisdom of modeling how to be wrong to his role at Coursera. He delightedly told me how wrong he had been about a big idea he brought to the company. Arriving with his "bright, shiny Netflix background," he was sure that Coursera should start streaming its classes 24/7 so that people could start a course whenever they wanted. The professors teaching the classes argued that courses should be offered only at the starts of semesters, just as in brick-and-mortar colleges. They said students needed a hard start of that kind and deadlines to motivate them to keep up. Tom thought that approach was outmoded and pressed ahead with streaming a number of classes, designing a fancy new interface as well. What happened? Many more people started those classes, but many fewer finished them. That was a big problem for Coursera. The business model is not just about offering lots of classes; it's about people actually learning and getting credits. The professors were right that hard deadlines are important for learning. But Tom wasn't completely wrong. Ultimately, through more testing, the company came up with a blended model in which courses start every two weeks; there are due dates for assignments, but students know that if they fall behind, they can start again in just two weeks.

That is exactly the kind of honest debate and disagreement from below that is smothered at so many companies. This may be why a study by the Corporate Executive Board found that companies that actively fostered honest feedback and had more open communication produced a return over a 10-year period that was an astonishing 270% higher than that of companies that didn't.

When People Share Openly, It's Harder to Rewrite History

Transparency also helps ensure that people take ownership of the positions they've advocated and don't get hopelessly caught up in finger-pointing after the fact, or at least not as much. Let's face it, it's fun to say, "I told you so." But it's toxic to productive problem solving.

One of the most difficult failures we had at Netflix was our decision to divide our business into a DVD rental service (which we called Qwikster) and a streaming service (which kept the Netflix name), and to increase our subscription rates for each at the same time. It was a train wreck. Customers were outraged, and within a about a month we reversed course, issuing a public apology. I'm not going to claim that there were no recriminations or calls of "I told you so." But the fact was that the executive team had agreed on the strategy and everyone had the chance to object.

Rochelle King, who by then had been promoted to the executive team, recalled when I talked about this with her, "What was interesting was the way the company acted in the aftermath, doing a great job of pulling together, getting all of the VPs across all functions to think through what they were going to do. We were all fully aware of the strategy. Due to the culture of transparency, the whole team had to take responsibility for what happened."

Anonymous Surveys Send a Mixed Message

The engineers who rebelled against our anonymous feedback system did so out of depth of respect for the value of open, attributed contributions. This is one of the things I love about engineers. When they write code, every little bit of their handiwork is clearly identified as thers, and they've learned that being able to trace errors, as well as great pieces of coding, to individuals helps everyone write better programs. They were right to push for the change to our feedback system. Once the sources of comments were identified, feedback became more thoughtful and productive.

The conventional thinking is that if you allow people to be anonymous, they will be more truthful. In my experience, that's not the case.

Truthful people are truthful in everything they do. And if you don't know who is giving you feedback, how can you put their comments into the context of work they're doing, who their manager is, and what kind of employee they are? Perhaps the worst problem with anonymous surveys, though, is that they send the message that it's best to be most honest when people don't know who you are.

I was talking to an HR director recently who told me she'd just gotten the results of her company's semiannual employee survey and wanted to discuss some HR initiatives she was planning to roll out as a result. I asked her if the company had hired an outside firm to do an anonymous engagement survey. She said yes, that she had talked the management into spending the money because she knew how important it was. I asked her who came up with the questions. She said they'd picked one of the software programs that are available for purchase off the shelf. I said, "I betcha someone complained that you took away the four kinds of flavored water in the fridge, right?"

My point was that if you rely on anonymous surveys and prescribed questions, you will not get quality information. If you want to know what people are thinking, there is no good replacement for simply asking them, best of all face-to-face. That company consisted of 70 employees. They should have simply broken people into seven groups of 10 and asked people to share their thoughts.

Your people can handle the truth, straight and in person, and so can you.


Questions to Consider

Patty McCord's book Powerful: Building a Culture of Freedom and Responsibility, is available for pre-sale now before it comes out in January.

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