As everyone has experienced, the business world is very competitive. New companies go under on a daily basis but new ones rise as well. That is especially true nowadays as we live in the world of startups. I was always interested in how startups manage to survive and grow into great companies. What was the key ingredient for their secret success recipe? Was it strategy, talent, or the company culture? Or maybe the combination of all those?

Talent is often the difference between success and mediocrity.

If your startup wants to succeed there is no place for mediocrity. Hiring talented individuals is one aspect, but how to keep those who drive innovation and efficiency? How do great companies do it? Was it their management strategy or something else? In the case of Netflix it is certainly the case of management and to be more precise the HR strategy.

In this article, I cover why and how the founder of Netflix, Reed Hasting, built the Netflix culture with the main goal in mind to address the issue of talent density using a strategy that came to be known as the ‘Keeper Test’, it’s influenced in shaping corporate culture, becoming the key strategy behind the success of Netflix to success, and redefining talent management practices across many industries.

Building a Streaming Empire

Netflix founder Reed Hastings has been a pioneer in the industry of Video Streaming. He built an internationally dominant Streaming Empire known as Netflix. But the very beginning of Netflix it was a bumpy road.

The Beginnings: Birth of the Strategy

Video by the Stanford University.

I wondered how the strategy, behind the ‘Keeper Test’, was born. I started my research by watching the Blitzscaling 16: Reed Hastings on Building a Streaming Empire video on YouTube from the Stanford University.

In the video, Reed caught my attention when he mentioned the 2001 recession and when he said: “No one cares about the bubble, they care about the fall.” which made me laugh, and got me hooked. 😀😃😄😁

He continues “So, suddenly we didn’t have enough money, we had to lay off a third of the company in 2001, and we eked into profitability and survived. But until that point, we really spent all the time just on how are we gonna get the business to be, we were DVD by mail at the time. So, it was, how is it gonna be profitable? And only after 2002, we realized, ‘Wow, we are gonna survive.’“ .

Creating the Culture

“Then we started to think, “Wow, it would be awful to not want to work here, so we should try to figure out what cultural attributes were there of what we wanted to work in.”

In the next part, you can see how the culture evolved and how the Keeper Test was born. He continues: ‘We didn’t set out to try to say, “What’s the most theoretically efficient culture?” in some abstract sense,”

“it was literally about us, and we realized that what we valued most, even more than success, was working with really talented people in a productive way. “

“That joy of excellence was incredible. And of course, if you can get that joy of people excellence and talent density, then you’re very likely to win. So, they come together, but at the core, it was about having dense talent.”

Key to the Strategy: Increasing Efficiency

Reed continues how layoff impacted efficiency in the company: “And part of it was, after we did this one-third layoff, it was 120 people to 80, we had expected to basically grind to a halt and really not be able to make any improvements, cause it would take 80 people just to keep the lights on.”

“But, in fact, we got more done with only 80 people, and we tried to figure out why. And we realized now there was no dummy-proofing necessary, and so it was just everybody was going fast and everything was right.”

“And so, we realized with the right density of talent, there’s very little process needed, and that that was the joyful thing.”

“So, at first, we said, “Let’s do a one-third layoff every year.” That was the key.”

Key of the ‘Keeper Test’: Being Proactive

Reed continues about being proactive: “But talent density matters so much. So, then we figured, “No, let’s not do a layoff every year like that. Let’s just do continued focus.” And the big evolution we came to is for managers, they have to each year testify for each of their people that if that person were trying to quit, they would try to change their mind. And so, it’s up to the manager to decide, “Yes, I would want to change their mind,” but sometimes you find that you have people working for you and if they quit you’d be like, “That’s pretty good.” And that’s the case that we wanted to proactively, not wait for them to quit, but proactively give them a generous severance package.”

This gave me the core insight into how the ‘Keeper Test’ was conceived.

Understanding the Keeper Test

Origins of the Keeper Test

As we saw from the paragraphs before, the Keeper Test can be considered a radical approach to talent management. It was very much influenced by the environment of Silicon Valley, which feeds on innovation and agility.

Hastings had a goal not only for his business to survive but to create a team that was not just fairly good, but exceptional. This is how he managed to make the the business grow and thrive. But this was not accomplished only by performing the Keeper Test but by having a goal to build such a company culture that would maintain a lean and effective team, capable of adapting quickly to the demands of the tech industry.

In summary the test:

• Asks managers to consider whether would they fight to keep an employee in case they were thinking about quitting.
• Encourages a culture where every team member is critical to the success of the company.
• Focuses keeping the irreplaceable talent that is crucial to the future of the company.

The Keeper Test is not just about who gets to stay but also about creating a sense of urgency and excellence within the team members.

The Keeper Test Explained

The main goal of this strategy is to determine value of an employee within Netflix. Managers are asked to reflect on each team member with a simple question: If the person on your team were considering leaving for another company, would you fight hard to keep them? This question aims to identify the most critical members of the team. This way the managers ensure that the company retains its top talent.

It is a continuous process that encourages managers to regularly assess their team. The following points outline the key aspects of the Keeper Test:

• It focuses on the individual’s contribution to the company’s success.
• It encourages managers to consider the employee’s skills, work ethic, and cultural fit.
• It prompts action: if an employee doesn’t pass the test, the manager must consider whether to help them improve or part ways.

Tip: The Keeper Test is not about creating a culture of fear and should be applied with care and empathy.

Summary to ‘Keeper Test’

• The ‘Keeper Test’, is an innovative management strategy with a main designed goal, to keep high talent density within Netflix.
• Keeping a high talent density was and still is crucial for Netflix’s success,
• This strategy guarantees a concentration of high-performing personnel that are focused on innovation and efficiency.
• Using the ‘Keeper Test’ can shape a company’s culture in such a way that a high-performance mindset is valued but at the same time challenging employee job security.
• Many have reported the effectiveness of the ‘Keeper Test’ when it comes to improving performance, but it comes with criticism for its demanding nature which leaves a toll on the employees.

Embracing the Keeper Test for Future Success

In conclusion, Reed Hastings’ innovative ‘Keeper Test’ has proven to be a game-changer in enhancing talent density within businesses. By encouraging leaders to critically evaluate their teams and foster an environment where only the most impactful contributors thrive, Hastings has provided a blueprint for building a high-performing culture. As companies continue to navigate the complexities of the modern business landscape, adopting such bold strategies will be crucial for sustained success. The ‘Keeper Test’ is not just a method; it’s a mindset that underscores the importance of excellence and commitment in every aspect of an organization.