Book SummaryNo Rules Rules, by Reed Hastings

1-Page Summary1-Page Book Summary of No Rules Rules

When Netflix launched in 1997, the company was essentially a mail-order version of Blockbuster, the video rental store that dominated the home entertainment industry at the time. Today, Netflix produces award-winning content, has more than 200 million subscribers across 190 countries, and is consistently listed among the best places to work. (Shortform note: Netflix had 167 million subscribers at the time of the book’s publication, but that number has since grown to over 200 million. The company experienced a boom at the height of the Covid-19 pandemic, gaining more than 36 million subscribers in 2020 as a result of lockdowns around the world.)

To achieve this level of success, Netflix had to adapt and thrive in a rapidly changing industry. The keys to Netflix’s success have been unconventional business practices:

1. Hire and keep the best employees—at any cost.
2. Promote candor through constant feedback at all levels.
3. Eliminate controls, such as allotted vacation time and approval processes.

These practices have created a company culture that focuses on empowering employees to innovate and take accountability, rather than conditioning them to simply follow protocol. In No Rules Rules, Netflix CEO Reed Hastings details his logic in cultivating the company’s culture, while co-author and business professor Erin Meyer provides context for how these unusual business practices shaped the company’s success. We’ll explore each practice in detail in this guide.

Practice #1: Have Only Top Employees

The first critical business practice that Hastings established at Netflix was to have only top employees. This practice grew out of Hastings’s early experience at Netflix: A few years after Netflix was founded in 1997, the company was hit with the repercussions of the 2001 dot-com crash. Venture capital funds dried up and Hastings was forced to lay off a third of his 120 employees, including many who produced adequate work. Although Hastings feared that the layoffs would decimate morale, he discovered that his remaining staff buzzed with energy and produced high-quality work.

Hastings soon realized that by eliminating less-than-stellar workers, he was left with a higher level of talent per employee. This created a talent-concentrated environment in which top performers thrived: High-performing employees were eager to work with other talented workers they could learn from and who pushed them to produce quality work, which in turn increased individual satisfaction and morale. Seeing how a lean, high-performing workforce improved the company, Hastings vowed to hire only the best employees.

A Better Way to Handle Layoffs

Hasting’s narrative of events tends to romanticize the idea of layoffs—while Netflix experienced an uptick in performance after cutting down its workforce, research suggests that layoffs are merely a short-term fix and typically lead to a 41 percent decline in job satisfaction and a 20 percent decline in job performance. A reduced staff also means a heavier workload for remaining employees, which then leads to higher rates of burnout and turnover.

Instead of laying off workers during a crisis, some suggest finding ways to cut costs in the short term, such as asking employees to go on unpaid leave for a few weeks. If layoffs are unavoidable, make them as painless as possible by giving affected employees other opportunities, whether it’s by helping them find jobs in other companies, giving them the chance to pitch business proposals and win grants, or providing them with training to gain new skills that they can use elsewhere.

Pay Top Dollar for Top Talent

As Hastings cultivated a high-performing workforce, he faced the threat of other companies poaching his employees. Hastings realized he would have to pay top dollar to maintain the company’s high concentration of talent, and he implemented three measures to get employees to stay:

1) Pay top-of-market salaries. Hastings knew that Netflix had to pay enough not just to attract the highest-performing employees but also to prevent them from being poached. He prioritized paying his employees more than any other company would offer them.

(Shortform note: While Hastings believes in paying top-of-market rates, Ray Dalio of Bridgewater Associates thinks you should just pay “north of fair.” In Principles, Dalio recommends paying employees just enough so that they don’t have to worry about money and can focus on their work, but not so much that they’ll become complacent—they should still be motivated to work hard and earn more.)

2) Eliminate performance-based bonuses. At most companies, employees earn annual bonuses if they achieve predetermined goals. However, Hastings claims, this format assumes managers can accurately predict which achievements will be most valuable to the company in the year ahead, and those metrics are constantly subject to change. Instead, Netflix rejected bonuses and put that money into larger base salaries.

(Shortform note: Hastings mentions one drawback of bonuses—that job candidates prefer guaranteed money over the possibility of a bonus—but this doesn’t give a complete picture of the flaws of the bonus system. Paul Marciano expands on these flaws in Carrots and Sticks Don’t Work. He explains that bonuses may prompt employees to slack off once they reach their goal, or they may cover up...

No Rules Rules Summary Shortform Introduction

Starting as a DVD-by-mail service, Netflix evolved into a streaming service that now offers video on demand to over 200 million subscribers worldwide (as of October 2021). No Rules Rules details the unique culture that propelled Netflix to success in a rapidly changing industry where creative innovation and agility are key.

The main principles behind the Netflix culture are cultivating a highly talented staff, creating an atmosphere of radical candor, and removing controls and approvals. The book discusses the unconventional practices that are rooted in this culture, such as firing adequate employees, sharing sensitive financial data with all employees, and eliminating vacation policies.

About the Authors

Reed Hastings is the co-founder, chairman, and co-CEO of Netflix. His father was a lawyer who worked for the Nixon administration, and his mother was a debutante from a Social Register family. Hastings’s mother had...

No Rules Rules Summary Part 1: Have Only Top Employees | Chapter 1: Pay Top Dollar for Top Talent

When Netflix launched in 1997, the company was essentially a mail-order version of Blockbuster, the video rental store that dominated the home entertainment industry at the time. Instead of going to a store to pick out rentals of movies and television series, Netflix users received their DVDs by mail and sent them back when they were finished. Today, Netflix not only streams movies and TV shows but also produces its own award-winning content. The company now has more than 200 million subscribers across 190 countries, its stock price rose from $1 in 2002 to $350 in 2019, and it’s consistently listed among the best places to work.

(Shortform note: Netflix had 167 million subscribers at the time of the book’s publication, but that number has since grown to over 200 million. The company gained more than 36 million of those subscribers at the height of the Covid-19 pandemic, when people around the world were largely stuck at home due to lockdowns. Netflix’s stock price has also seen an impressive increase: Starting at just $15 per share when the company went public in 2002, it [hit a high of...

Shortform Exercise: Employee—How Are You Paid?

Reflect on how your company determines your pay and how that impacts your performance.

How is your pay structured? (For example, do you have a salary, are you eligible for bonuses, and do you get raises?)

Shortform Exercise: Manager—How Do You Pay Your Employees?

Reflect on how your company determines pay, and how that impacts employee performance.

What is the pay structure at your company? (For example, are employees paid a salary, are they eligible for bonuses, and do they get raises?)

No Rules Rules Summary Chapter 2: Fire Good Employees to Make Room for Great Ones

The previous chapter discussed how Hastings decided to pay top dollar to attract and retain Netflix’s top talent. However, Hastings also realized that having a high concentration of talent doesn’t just mean hiring and keeping the best people—it also means firing good employees to make room for great ones. In this chapter, we’ll discuss how Netflix lets go of adequate employees and manages the potential pitfalls of this practice.

Fire Any Employee You Wouldn’t Fight to Keep

To separate good employees from great ones, Hastings says that Netflix encourages managers to regularly assess their staff’s standing by asking themselves, “Would I fight to keep an employee if he said he was thinking of leaving?” (Netflix calls this the “Keeper Test.”) If a manager wouldn’t fight to keep an employee on the team, then the manager should either talk to the employee about how he can improve or offer him a generous severance package.

Hastings believes that each employee should remain in a position only as long as the employee is the best person for the job and the job is the best fit for the employee. Someone may be the perfect match for a job when he starts, but over time that can...

Shortform Exercise: Employee—Would You Work Somewhere With a “Keeper Test”?

Consider the pros and cons of working for a company where managers determine if they should fire an employee based on whether or not they would fight to keep the employee at the company.

If you were applying for a dream job at Netflix and found out about the practice of firing and giving generous severance packages to adequate employees, how would that impact your interest in the job?

Shortform Exercise: Manager—Would You Reform Your Firing Practices?

Consider the pros and cons of your current firing philosophies compared to Netflix’s practices.

What are your current firing practices and overarching philosophies?

No Rules Rules Summary Part 2: Encourage Candor | Chapter 3: Promote Frequent Feedback

In Part 1, we discussed how Netflix attracts and retains top talent. In Part 2, we’ll discuss how Netflix maximizes these talented employees’ potential by promoting frequent feedback.

Hastings writes that he encouraged employees to openly share their feelings with everyone on the team—superiors, colleagues, and subordinates—as long as they did it with positive intent, without attacking or hurting others. In fact, frequent feedback became so ingrained in Netflix’s culture that not speaking up was considered an act of disloyalty, because it inhibited the company’s improvement.

(Shortform note: Some may think that it’s best to maintain the peace and keep people comfortable by sugarcoating feedback or letting small issues slide. But like Hastings, Bridgewater’s Ray Dalio believes that it’s actually kinder and a sign of care and respect to tell people what they need to improve. In Principles, Dalio writes that everyone at Bridgewater not only has the privilege but the obligation to speak up because doing so allows people to address issues...

No Rules Rules Summary Chapter 4: Formalize Feedback

In the previous chapter, we discussed how frequent feedback helps each employee achieve peak performance—but no matter how much you preach the benefits of candor, some people will still avoid giving and receiving honest feedback because it’s often uncomfortable. For that reason, Hastings implemented two processes to ensure that everyone participates.

Process 1: Annual Written 360-Degree Reviews

Hastings wanted a formalized way for employees to receive feedback, but he felt that the standard performance review that many companies use had a glaring shortcoming: Feedback only goes from superiors to subordinates, missing insight from coworkers who work with you in a different capacity.

Instead of a traditional performance review, Hastings and the executive team thus implemented an annual written 360. (Shortform note: A “written 360” refers to a 360-degree review, which is also called multisource feedback, multi-rater feedback, or multisource assessment.) In the written 360, each employee receives written feedback from any colleague who wants to give it—including bosses, supervisors, coworkers, and subordinates. Comments must be actionable and constructive, and they...

Shortform Exercise: Are You Missing Important Feedback?

Reflect on the kind of feedback that could help you improve your performance.

Describe your current performance review process.

No Rules Rules Summary Part 3: Eliminate Controls | Chapter 5: Increase Organizational Transparency

Once Hastings had created a culture of candor at Netflix, as discussed in Part 2, he built on that transparency by making sensitive data—including profit and loss statements (P&Ls) and other financial documents—available to all employees. While direct feedback raised individual performance and increased accountability, Hastings instituted organizational transparency to build employees’ trust in the company and its leaders, which would boost the staff’s sense of ownership and responsibility for contributing to the company’s success. Additionally, he found that making information available to employees empowers them to make the best decisions, as we’ll discuss in Chapters 6 and 7.

(Shortform note: Bridgewater has a similar principle of extreme transparency, which Ray Dalio describes in Principles: The firm records all meetings and interviews and makes these recordings available to the entire team. Additionally, each employee has a personality profile, which allows co-workers to see everyone’s strengths and weaknesses at a glance....

Shortform Exercise: Employee—How Transparent Is Your Organization?

Reflect on your company leaders’ level of transparency and how that impacts your attitude and performance.

Describe the last time you felt that a manager or leader at your company was withholding information from you and your colleagues.

Shortform Exercise: Manager—How Transparent Is Your Organization?

Reflect on your level of organizational transparency and how that impacts your employees.

What kind of information do you withhold from most of your staff (with the exception of top executives or pertinent employees)?

No Rules Rules Summary Chapter 6: Empower Employees to Make Decisions

In the previous chapter, we discussed how Netflix gives employees access to sensitive information. In this chapter, we’ll cover how this level of transparency empowers lower-level employees to make decisions and own the consequences, rather than requiring them to seek approval from higher-ups.

Employees Have Both Autonomy and Accountability

In most companies, all big decisions must pass through the higher-ups. However, managers and executives are not necessarily the most qualified to make decisions on everything from marketing strategies to financial structuring—that’s why they have competent staff to lead those efforts. When one or a handful of company leaders has the final say-so on everything, their lack of vision or fixed perspective can severely limit innovation. Additionally, running every decision up the chain of command slows progress and growth, and if the boss shoots down an idea, employees have to spend even more time developing a new proposal.

(Shortform note: Having just a small group of leaders make final decisions doesn’t hinder innovation just due to lack of vision, as Hastings says—[it also creates an environment where employees may be surprised...

Shortform Exercise: How Much Ownership Do You Have?

Reflect on how much freedom you have to pursue projects you believe in.

Describe the last project you pitched or spearheaded.

No Rules Rules Summary Chapter 7: Empower Employees by Giving Enough Information

In the previous chapter, we discussed how radical transparency enables Netflix to have a system of dispersed decision-making, which allows employees to make informed decisions without having to seek approval from higher-ups. Now, we’ll explain how to max out that decentralization of power by creating an organizational structure in which executives and managers lead by giving enough relevant information (what Netflix calls “leading with context instead of control”).

Meyer explains that unlike at most companies, when Netflix employees face big decisions, company leaders don’t exert control by intervening. At Netflix, managers provide employees with enough relevant information (the “context”) to make decisions that align with the company’s goals and strategies.

Leading with relevant information builds on the dispersed decision-making model discussed in Chapter 6, and it greatly contrasts with the direct oversight that most companies practice. In many workplaces, Meyer notes, managers give employees instructions, monitor progress, and correct their work before finalizing it or presenting it to clients. Even when company leaders try to move away from direct oversight, they...

Shortform Exercise: Employee—Could Your Company Lead by Giving Information?

Reflect on what would be required to enable managers at your organization to lead by giving relevant information instead of control.

What’s the last decision you faced at work that required you to get your boss’s approval?

Shortform Exercise: Manager—Could You Lead by Giving Relevant Information?

Reflect on how you could lead by giving relevant information instead of control.

Give an example of how much freedom a mid-level employee has to make decisions without consulting her boss.

No Rules Rules Summary Chapter 8: Abolish Vacation and Expense Policies

With a highly motivated staff and a culture of candor and accountability, Hastings was able to give Netflix employees more freedom and empower lower-level employees to make decisions that most companies delegate to managers and executives. This also enabled Hastings to implement another unconventional measure at Netflix: He abolished the vacation policy and the travel and expense approval process.

Giving employees so much freedom is unorthodox and can be risky. To safeguard against abuse, Hastings says you should remove controls strategically to ensure that employees understand the weight of responsibility and the context to make good decisions. If done well, this creates a culture in which autonomy and accountability spiral up: As employees enjoy more freedom, they act more responsibly, and as they act more responsibly, management can feel confident offering more freedom.

How to Hold Employees Accountable

Hastings uses the unconventional practices at Netflix to drive the message that great freedom comes with great responsibility, but he doesn’t explain how companies that don’t have Netflix’s unusual culture can create enough accountability to make the risky...

Shortform Exercise: Employee—How Do Controls Affect You?

Consider how approvals affect the way you work.

Describe the most recent incident when you needed travel or expense approval.

Shortform Exercise: Manager—How Do Controls Impact Your Staff’s Productivity?

Consider how approvals affect your staff’s workflow.

Briefly describe the travel and expense approval policies at your organization.

No Rules Rules Summary Part 4: Thrive Globally | Chapter 9: Accommodate Cultural Differences

By 2011, Netflix had cultivated a culture of autonomy and accountability that was enabling the company to produce great results in the U.S. Hastings began expanding the company into other countries—first in Canada, then Latin America, Europe, and Pacific Asia. By 2016, Netflix was in more than 130 countries worldwide.

(Shortform note: Netflix is now in 190 countries, setting the stage for the company’s next phase and a new form of disruption: producing non-U.S. content. This strategy seems to be paying off. Netflix has a roster of international hits, including the wildly popular Spanish show Money Heist and the record-breaking South Korean drama Squid Game.)

Still, Hastings knew from his past international travels that certain experiences and practices can’t be translated directly into other cultures. He considered whether the corporate culture he’d worked so hard to develop would work outside the U.S., or whether it would cause confusion and misunderstanding.

He made a plan to make the international expansion as smooth as possible: He would find foreign job candidates who...

Shortform Exercise: Have You Had Cross-Cultural Confusion?

Reflect on an occasion when you experienced cultural differences.

Describe the last time you dealt with some confusion or misunderstanding when communicating with someone from another country.