The Keeper Test by Reed Hastings

Reed Hastings is the founder of Netflix. This is an excerpt from his book No Rules Rules.

FROM FAMILY TO TEAM

In the early Netflix days, our managers also worked to foster a family-like environment. But, after our 2001 layoffs, when we saw the performance dramatically improve, we realized family is not a good metaphor for a high-talent-density workforce.

We wanted employees to feel committed, interconnected, and part of a greater whole. But we didn’t want people to see their jobs as a lifetime arrangement. A job should be something you do for that magical period of time when you are the best person for that job and that job is the best position for you. Once you stop learning or stop excelling, that’s the moment for you to pass that spot onto someone who is better fitted for it and to move on to a better role for you.

But if Netflix wasn’t a family, what were we? A group of individuals looking out for ourselves? That definitely wasn’t what we were going for. After a lot of discussion Patty suggested that we think of Netflix as a professional sports team.

Initially this didn’t sound very profound. The metaphor of team for company is just about as tired as the metaphor of family. But as she kept talking, I started to see what she meant:

Patty was right. At Netflix, I want each manager to run her department like the best professional teams, working to create strong feelings of commitment, cohesion, and camaraderie, while continually making tough decisions to ensure the best player is manning each post.

A professional sports team is a good metaphor for high talent density because athletes on professional teams:

• Demand excellence, counting on the manager to make sure every position is filled by the best person at any given time.

• Train to win, expecting to receive candid and continuous feedback about how to up their game from the coach and from one another.

• Know effort isn’t enough, recognizing that, if they put in a B performance despite an A for effort, they will be thanked and respectfully swapped out for another player.

On a high-performing team, collaboration and trust work well because all the members are exceptionally skilled both at what they do and at working well with others. For an individual to be deemed excellent she can’t just be amazing at the game; she has to be selfless and put the team before her own ego. She has to know when to pass the ball, how to help her teammates thrive, and recognize that the only way to win is for the team to win together. This is exactly the type of culture we were going for at Netflix.

This is when we started saying that at Netflix:

WE ARE A TEAM, NOT A FAMILY

If we are going to be a championship team, then we want the best performer possible in every position. The old notion is that an employee has to do something wrong, or be inadequate, to lose their job. But in a pro, or Olympic, sports team, the players understand the coach’s role is to upgrade—if necessary—to move from good to great. Team members are playing to stay on the team with every game. For people who value job security over winning championships, Netflix is not the right choice, and we try to be clear and non-judgmental about that. But for those who value being on winning teams, our culture provides a great opportunity. Like any team successfully competing at the highest level, we form deep relationships and care about each other.

THE KEEPER TEST

Of course, managers at Netflix, like good people anywhere, want to feel positive about their actions. To get them to feel good about cutting someone they like and respect requires them to desire to help the organization and to recognize that everyone at Netflix is happier and more successful when there is a star in every position. So we ask the manager: Would the company be better off if you let go of Samuel and looked for someone more effective? If they say “yes,” that’s a clear sign that it’s time to look for another player.

We also encourage all managers to consider each of their employees regularly and make sure they’ve got the best person in every spot. To help managers on the judgment calls, we talk about the Keeper Test:

If a person on your team were to quit tomorrow, would you try to change their mind? Or would you accept their resignation, perhaps with a little relief? If the latter, you should give them a severance package now, and look for a star, someone you would fight to keep.

We try to apply the Keeper Test to everyone, including ourselves. Would the company be better off with someone else in my role? The goal is to remove any shame for anyone let go from Netflix. Think of an Olympic team sport like hockey. To get cut from the team is very disappointing, but the person is admired for having had the guts and skill to make the squad in the first place. When someone is let go at Netflix, we hope for the same. We all stay friends and there is no shame.

Patty McCord herself is one example. After working together for over a decade, I started feeling that it would be best for us to have someone new in the role. I shared these thoughts with Patty, and we talked about what was leading me there. As it turned out, she wanted to work less, so she left Netflix and it was very amicable. Seven years later we remain close friends and informal advisers to one another.

In another case, Leslie Kilgore was incredible for us as chief marketing officer, and she was instrumental in our culture, our battle with Blockbuster, and our growth overall. She was, and is, a great business thinker. But with House of Cards launching, and a future of marketing titles rather than making offers, I knew we needed someone with deep Hollywood studio experience, partially to make up for my own lack of showbiz knowledge. So I let go of Leslie, but she was willing to serve on our board, so she has become one of my bosses and has been a great company director for many years.

So the Keeper Test is real and all our managers at all levels of the company use it consistently. I tell my bosses, the board of directors, that I should be treated no differently. They shouldn’t have to wait for me to fail to replace me. They should replace me once they have a potential CEO who is likely to be more effective. I find it motivating that I have to play for my position every quarter, and I try to keep improving myself to stay ahead.

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