I was having a beer with teammates on a Friday evening and someone asked, “At your last job, how many people had to approve a decision before anything actually happened?” We went around the table and the answers ranged from three to seven. That night I cracked open No Rules Rules and hit the chapter on how Netflix employees actually make decisions – and the framework was nothing like what any of us described. There are no approval chains, no committees, no stage-gate processes. Instead, there is a four-step Innovation Cycle that treats every employee like an entrepreneur with a stack of poker chips.

The steps are simple. The stories behind them are not.

Netflix headquarters in Los Gatos, California. Photo: Wikimedia Commons. CC BY 2.0.

Step 1: Farm for Dissent

The first step came directly from the Qwikster disaster. After that debacle, dozens of Netflix managers came forward to say they had known it would fail — but stayed quiet because Reed seemed so certain. One VP told Hastings: “You’re so intense when you believe in something, Reed, that I felt you wouldn’t hear me. I should have laid down on the tracks screaming that I thought it would fail. But I didn’t.”

That silence nearly killed the company. So Netflix added a new cultural rule: “It is disloyal to Netflix when you disagree with an idea and do not express that disagreement.” Withholding your opinion is not politeness. It is sabotage.

In practice, farming for dissent means circulating shared memos before any major decision. Colleagues leave comments in the margins. Some employees distribute spreadsheets asking people to rate an idea from -10 to +10 with their reasoning. Before a big leadership meeting, Reed passed around a memo proposing a one-dollar subscription price increase with a tiered pricing model. Dozens of managers scored it, with ratings ranging from -4 (“Making two changes at once is a bad idea”) to +8 (“Timing is perfect just before big market launch”).

“The spreadsheet system is a super-simple way to gather assent and dissent, and when your team consists entirely of top performers, it provides extremely valuable input. It’s not a vote or a democracy. You’re not supposed to add up the numbers and find the average. But it provides all sorts of insight.” — Reed Hastings, No Rules Rules

Step 2: Test It Out

Even when the boss is against an idea, Netflix lets employees test it. The best example involves offline downloads. In 2015, Netflix had no download feature. Neil Hunt, chief product officer, was publicly against it — he believed the internet would become ubiquitous and downloading would be a “shrinking use case.”

Reed agreed. But Todd Yellin, VP of product, had doubts. His junior researcher Zach Schendel ran unauthorized tests in India, Germany, and the US. The findings were devastating: 70% of YouTube users in India used downloads because cell phone streaming was unreliable in Hyderabad. Even in the US, 15-20% of Amazon Prime users downloaded content. Germany fell in between.

Zach pushed his findings to Adrien, who pushed to Todd, who pushed to Neil, who pushed to Reed. Reed admitted he and Neil had been wrong. Netflix now provides downloads.

“Let me be clear. I am nobody in the company. I’m just some researcher. Yet I was able to push back against a strong and publicly stated opinion from the top leadership to rally excitement for this feature. This is what Netflix is all about.” — Zach Schendel, No Rules Rules

Reed Hastings speaking at an event. Photo: Wikimedia Commons. CC BY 2.0.

Step 3: As the Informed Captain, Place Your Bet

Netflix doesn’t build consensus. It identifies an “informed captain” — the person closest to the decision — and gives them full authority. The captain collects opinions, weighs the evidence, and then decides. No boss needs to sign off.

Kari Perez, a director of communications responsible for Netflix’s brand across Latin America, used this model to launch Prêmio Netflix — a Mexican film award for independent cinema. Her boss Jack hated the idea. He said it had been tried in Brazil and failed. He publicly stated in meetings that “if the buck stopped with him, he would do it over his dead body.”

Kari was the informed captain, not Jack. She listened to his concerns, adapted her plan (local influencers instead of film festivals), and placed her bet anyway. The result: the press conference exploded with coverage, Twitter was flooded, and when the Mexican president’s daughter showed up at the awards party alongside one of Mexico’s most famous actresses — flown in on a private plane by Jack’s own team — even Jack stood up at the next meeting and admitted he’d been absolutely wrong.

“When I started at Netflix, Jack explained to me that I should consider I’d been handed a stack of chips. I could place them on whatever bets I believed in. Some bets would fail, and some would succeed. My performance would ultimately be judged not on whether any individual bet failed, but on my overall ability to use those chips to move the business forward.” — Kari Perez, No Rules Rules

Step 4: If It Wins, Celebrate. If It Fails, Sunshine It.

This is the step that separates Netflix from every other company I have studied. When a bet fails, the response is not punishment, not silence, not a quiet burial. The response is “sunshining” — talking about the failure openly, publicly, loudly.

Chris Jaffe, a director of product innovation, devoted thousands of engineering hours to Project Explorer — a redesigned Netflix interface for the Nintendo Wii. When they tested it on 200,000 users, the new interface drove consumers to use Netflix less, not more. A total failure.

At the next quarterly “Consumer Science” meeting, with Reed and all senior leadership watching, Chris got up on stage. His first slide, in red capital letters, read: “EXPLORER: A BIG BET FOR ME THAT FAILED.” He walked through everything that went wrong, what he learned, and how the failure taught Netflix that complexity kills consumer engagement.

Reed’s response? “Okay, that’s interesting. Let’s remember that. Well, that project’s over. What’s next?” Eighteen months later, Chris was promoted to VP.

Why This Matters

Most companies say they value innovation. Netflix actually built a system for it. The Innovation Cycle works because each step reinforces the next: farming for dissent improves the quality of bets, testing reduces blind spots, the informed captain structure enables speed, and sunshining failures removes the fear that kills risk-taking.

The result is a company where a junior researcher can overrule the CEO on downloads, a director can ignore her boss on a Mexican film award, and a VP can publicly present his biggest failure without fear — because the culture has made betting, failing, and learning feel as natural as breathing.

For anyone building a team: you don’t need Netflix’s budget to copy this cycle. You need the courage to let people disagree with you, the humility to admit when you’re wrong, and the discipline to celebrate failures as loudly as you celebrate wins. The chips are already on the table. The question is whether you’ll let your people play them.

Sources

  • Reed Hastings and Erin Meyer, No Rules Rules: Netflix and the Culture of Reinvention, Penguin Press, 2020 (Chapter 6: No Decision-Making Approvals Needed)