The Netflix Playbook

August 26, 2009: 7:27 AM ET

Finally, a Powerpoint presentation worth reading

CEO Hastings'

Hastings' "deck" is a how-to guide for startups. Image: Netflix

It isn't often that I get convinced to read through a slide deck 128 images long. But after the fourth startup CEO, in this case Jonathan Sposato, CEO of online photo-editing service Picnik brought it to my attention; I sat down to give "Reference Guide on our Freedom & Responsibility Culture" a gander.

The slide deck, which can be found here, contains the distilled thinking of Netflix (NFLX) CEO Reed Hastings about how to run a company.

The presentation offers interesting insights about how he runs Netflix, which by any measure is hitting it out of the park. So I am going to do something that is even more unusual for me, and recommend highly that you read this 128-image-slide deck too.

(Full disclosure here: I am a Netflix member, have been forever it seems, and count the delivery of my DVDs as one of the few pleasurable interactions I have with the U.S. Postal Service. And Netflix Instant? Don't get me started on how my consumption of Japanese animation and survival shows has skyrocketed).

Hire stars, scrap vacation policies

The overall Netflix approach is to hire stars, pay them at the top of the scale and give them the freedom to do their jobs. Simply adequate talent gets weeded out quickly.

Beyond that, get rid of the extraneous red tape that slows your stars down. For example, there is no vacation policy at Netflix. People take what they need while getting their jobs done. The travel and expense policy is five words long, "act in Netflix's best interests."

Freedom underpins how Hastings looks to grow his company and his team.  Whereas most companies tend to curtail freedom and add process when they grow, Netflix tries to do the opposite. Hastings is of the opinion that a process driven culture drives the talent you want to keep out of your company.

In the near-term, you can have a highly successful process-driven company with a leading share in its market, but at the expense of the "innovators and mavericks" you want to keep.

When the market shifts, Hastings warns,  "due to new technology or new competitors or new business models the company is unable to adapt quickly, because the employees are extremely good at following the existing processes, and process adherence is the value system.

"The company generally grinds painfully into irrelevance, due to inability to respond to the market shift."

Could Hastings be referring to competitor Blockbuster (BBI)? Blockbuster has had a painful time adjusting to the changes Netflix brought to the market it once owned. The way to avoid chaos as you grow and as complexity grows too Hastings says, is to hire ever-higher performance people. Once you have them, pay them big salaries - period. No bonuses, no free stock options, no philanthropic match.

"Instead, put all that expense into big salaries," Hastings advises. "Give people big salaries, and the freedom to spend as they think best." Those are some of the gems, and there are plenty more, including when to fire people, and how to determine those you should keep.

Emulating Netflix

Startup CEOs like Sposato are enamored of the presentation because it gives them something to shoot for. Not just to be the size of Netflix, which is projecting sales of $1.65 to $1.67 billion in 2009, but to be a grown-up public company that nurtures the same fun, creative, innovative culture on which startups thrive.

But whatever the size of the company you run (or slave away inside), Hastings' take on management and culture should get you to think about how you run your company or team, and what changes might be made.  If nothing else, it will make you wish you worked for Netflix.

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About This Author
Michael Copeland
Michael Copeland

Michael V. Copeland joined FORTUNE as a senior writer in September 2007. Copeland has covered everything from electric cars to e-readers. He is a creator of Tech Mate, an irreverent video series in which he debates (and skewers) digital issues of the day. Before joining FORTUNE, Copeland was a senior writer at Business 2.0. Copeland graduated from the University of Pennsylvania.

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