At CMP, we work a wide range of organizations on how they can best develop and leverage their human capital. We have been fortunate to see the organizational impact and major business outcomes that emerge when they invest in their people.
I was doing some planning on another blog, and I came across the famous Netflix Culture Memo. There is a section in the memo that talks about building the ideal team and culture AKA, the dream team. I thought it was well worth revisiting this statement to reflect on what it says about executive search, talent development, and organizational design.
The Netflix Culture Memo is now nine years old (it was updated to talk about inclusion) but it is timeless in that what it outlines is still so relevant to the workplace of today.
The Dream section – in its entirety – is listed here:
Dream Team
A dream team is one in which all of your colleagues are extraordinary at what they do and are highly effective collaborators. The value and satisfaction of being on a dream team is tremendous. Our version of the great workplace is not comprised of sushi lunches, great gyms, fancy offices, or frequent parties. Our version of the great workplace is a dream team in pursuit of ambitious common goals, for which we spend heavily. It is on such a team that you learn the most, perform your best work, improve the fastest, and have the most fun.
To have an entire company comprise the dream team (rather than just a few small groups) is challenging. Unquestionably, we have to hire well. We also have to foster collaboration, support information sharing, and discourage politics. The unusual part is that we give adequate performers a generous severance package2, so that we can find a star for that position. If you think of a professional football team, it is up to the coach to ensure that every player on the field is amazing at their position, and plays very effectively with the others. We model ourselves on being a team, not a family. A family is about unconditional love, despite your siblings’ unusual behavior. A dream team is about pushing yourself to be the best teammate you can be, caring intensely about your teammates, and knowing that you may not be on the team forever.
We have no bell curves or rankings or quotas such as “cut the bottom 10% every year.” That would be detrimental to fostering collaboration, and is a simplistic, rules-based approach we would never support. We focus on managers’ judgment through the “keeper test” for each of their people: if one of the members of the team was thinking of leaving for another firm, would the manager try hard to keep them from leaving? Those that do not pass the keeper test (i.e. their manager would not fight to keep them) are promptly and respectfully given a generous severance package so we can find someone for that position that makes us an even better dream team. Getting cut from our team is very disappointing, but there is no shame. Being on a dream team can be the thrill of a professional lifetime.
Given our dream team orientation, it is very important that managers communicate frequently with each of their team members about where they stand so surprises are rare. Also, it is safe for any employee at any time to check in with their manager by asking, “How hard would you work to change my mind if I were thinking of leaving?” In the tension between honesty and kindness, we lean into honesty. No matter how honest, though, we treat people with respect.
One might assume that with dream team focus, people are afraid of making mistakes. In fact, it’s the opposite. We try all kinds of things and make plenty of mistakes as we search for improvement. The keeper test is applied as a judgment of someone’s overall expected contribution.
Within a dream team, collaboration and trust work well because your colleagues are both exceptionally skilled at what they do, and at working well with others. In describing selflessness we say “You make time to help colleagues. You share information openly and proactively.” We want new colleagues to feel very welcome and get all the support they need to be effective.
People like loyalty, and it is great as a stabilizer. Employees with a strong track record at Netflix get leeway if their performance takes a temporary dip. Similarly, we ask employees to stick with Netflix through any short term dips. But unconditional allegiance to a stagnant firm, or to a merely-adequately-performing employee, is not what we are about.
On a dream team, there are no “brilliant jerks.” The cost to teamwork is just too high. Our view is that brilliant people are also capable of decent human interactions, and we insist upon that. When highly capable people work together in a collaborative context, they inspire each other to be more creative, more productive and ultimately more successful as a team than they could be as a collection of individuals.
Succeeding on a dream team is about being effective, not about working hard. Sustained “B” performance, despite an “A” for effort, gets a respectful severance package. Sustained “A” performance, even with modest level of effort, gets rewarded. Of course, to be great, most of us have to put in considerable effort, but hard work is not how we measure contribution.
Being on a dream team is not right for everyone, and that is OK. Many people value job security very highly, and would prefer to work at companies whose orientation is more about stability, seniority, and working around inconsistent employee effectiveness. Our model works best for people who highly value consistent excellence in their colleagues.
To help us attract and retain stunning colleagues, we pay employees at the top of their personal market. We make a good-faith estimate of the highest compensation each employee could make at peer firms, and pay them that max. Typically, we calibrate to market once a year. We do not think of these as “raises” and there is no raise pool to divide up. The market for talent is what it is. We avoid the model of “2% raise for adequate, 4% raise for great”. Some employees’ market value will rapidly rise (due both to their performance and to a shortage of talent in their areas) while other employees may be flat year-to-year, despite doing great work. At all times, we aim to pay all of our people at the top of their personal market.
Note that if our company experienced financial difficulty, we wouldn’t ask our employees to accept less pay. A sports team with a losing record still pays top of personal market for the players they hope will get them back into a winning position. On the other hand, if the company does well, our broadly distributed stock options become quite valuable.
The dream team model reinforces the idea that your economic security is based on your skills and reputation, not on your seniority at one company. At Netflix, you learn a lot working on hard problems with amazing colleagues and what you learn increases your market value. Knowing that other companies would quickly hire you if you left Netflix is comforting. We see occasional outside interviewing as healthy, and encourage employees to talk with their managers about what they learn in the process.
While our teammates are fantastic, and we work together very well, we know we can always do better. We strive to have calm confidence, and yet yearn to improve. We suck compared to how great we want to become.
There is so much to unpack from this memo. It provides a great refresher course to all of us on what it takes to build a winning culture:
- A great workplace is about working with great people who all give everything that they got towards building solutions that will advance the organization. Dream teams are not made up of all A players but are made up of the right people doing the right roles at the right time.
- Loyalty is earned – by the employee recognizing that the company will reward them properly and will stick with them if performance temporarily drops or the business suffers a downturn. The employer, in turn, should be given the same loyalty by the employee through their best effort and sticking with them when things take a dip.
- Organizations can professionally handle severance with compassion and funding so that employees can leave to find their success elsewhere.
- Employee feedback needs to be frequent and honest so that surprises are rare.
- Culture is built on all of the pieces working together. Even though performance is highly valued, it does not condone bring in “brilliant jerks.”
- Merit increases are not a true reflection of the value that an employee provides. An employee’s value is determined by the market. High demand skills will provide higher wages and vice versa.
- Everyone can always strive to do better. Continuous improvement is a journey that never ends.
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