#2 – Building startup culture from the ground up | Marc Randolph, Co-Founder of Netflix & Sam Corcos

Episode introduction

Show Notes

A startup needs to create and establish a company culture in the beginning in order for the team to thrive and grow as the company scales. Understandably, it may seem counterintuitive to focus on intangible things like culture in the early days of a startup, but it’s key. Netflix Co-Founder Marc Randolph is a standout leader to talk to about this; he helped build Netflix’s culture 20 years ago. To this day, CEOs still reference Marc’s Netflix culture playbook. Listen as Sam Corcos and Marc Randolph discuss the importance of building company culture from the ground up.

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Episode Transcript

Marc Randolph: Hey.

Ben Grynol: Marc. Do we have you?

Marc Randolph: Yeah you have me. I’m on but I can’t hear. For some reason I’m not getting audio out.

Ben Grynol: Yeah, we can hear you check in the settings. Do you see there’s a little wheel?

Marc Randolph: I go to settings and it looks like we’re set properly.

Ben Grynol: I’ll text both of you a new link and then we’ll all hop on there.

Marc Randolph: Okay.

Ben Grynol: Okay, perfect.

Marc Randolph: I’m standing by.

Ben Grynol: I’m Ben Grynol, part of the early startup team here at Levels. We’re building tech that helps people to understand their metabolic health and this is your front row seat to everything we do. This is A Whole New Level. When building culture at any company, it’s always hard to think about a way to do it. Is there a proper way to do it? Is there a process? Is there a playbook? And often in early stage startups culture is very much overlooked because it’s a small group of people rallying around a mission and making things happen. But the challenges as a team grows the first group of people, whether there’s 5, 10, 20 people, influence the culture for the next cohort of people to come in. So the first 30 will influence the next 60 and the next 60 will influence the next 120 and culture unfolds that way. It’s woven into the fabric of a company.

Ben Grynol: And the challenge is that culture isn’t a matter of putting ping pong tables or having espresso machines. Culture is created or established by the conditions that you create. It’s not a poster on the wall. It’s not a set of values that you pontificate in the team. So there’s no better person to talk to about culture and the way that it was built from the ground up at one of the world’s largest companies. Part of the FAANG group, the Facebook, Amazon, Apple, Netflix and Google, the group of big tech companies. Marc Randolph, co-founder of Netflix, set the tone for culture internally within Netflix more than 20 years ago and to this day that culture has evolved. And so Sam Corcos, one of the co-founders and CEO of Levels, had a chance to sit down with Marc and really have a deep conversation on how to think about culture at such an early stage something that we’ve embraced within the company and it’s something that we take seriously.

Ben Grynol: We want to make sure that as an asynchronous and remote first company, that we are creating the conditions for culture to not only thrive but to be built so that as our team grows and scales, this can transpire within the next group of people. And so Marc and Sam had a great conversation about everything related to culture. Why it’s hard to build, why you can’t just put posters on the wall and say, “Hey, here’s our culture.” They even talked about things like why Marc sees himself as a great early stage founder but sees the challenges in building and scaling a company. It’s very introspective to think like that and to understand where his skillset lies.

Ben Grynol: He’s not only co-founder of Netflix, he’s founded five other companies. He’s a mentor to hundreds of startups. He’s an author, he’s a podcaster, he’s an investor. Full caveat. He’s part of the level’s cap table. And so Marc, you can find his work on marcrandolph.com. You can check out his book That Will Never Work as well as the podcast that he recently started where he mentors early stage startups and he posts the content. The podcast is also called That Will Never Work. Here’s where Sam and Marc kicked it off.

Sam Corcos: One of the things for me, I’ve been… We’ve been thinking a lot more about culture building and from my own personal perspective, five years ago if you would have asked me if culture is important, I would have said no. And I think at the time I had always thought of culture as getting drinks with your coworkers and all these hand-wavy things. And what’s interesting is really in the last few years I’ve become increasingly convinced that culture is something completely different than that and not… In many ways it’s the only thing that matters and so I guess I would open with something more general just what does culture mean to you and in terms of a company?

Marc Randolph: Yes. One of those things where you define it by looking back at it. Because certainly all the time that I’ve built cultures, they haven’t necessarily been this conscious exercise where I’ve gone to a whiteboard and sketched it all out and build it. But I do have a pretty good sense of now what I think culture is and I tend to think of it as a form of magnetic field that aligns people. And having that magnetic field is not that important when the company is three people in a room or five people in a room because everybody can see what direction Sam’s facing. And everyone has listened to Sam make decisions a hundred times. What happens that makes it challenging is either because of scale where geography or some other factor people are not in the room with you. And the culture allows them all to be aligned around a similar set of values about how they make decisions, about are the important aspects of our company and it allows companies when they have that very strong sense of aligned values to move really quickly and really consistently. It’s really the only way to replicate personality if you can think about it that way is having that culture.

Marc Randolph: Which is why I’m so big advocate, that culture is really who you are than it’s really not something that you make up. That’s what I view culture as and especially now in COVID where people aren’t in the same offices all the time, culture has become more important than ever. I’m much more in your camp which is it’s the only thing that matters. That you can have the very best strategy in the world but if everyone is going to interpret that strategy based on their own set of rules, you’re going to quickly find that that strategy is no strategy at all.

Sam Corcos: Yeah. I’ve found that a lot of this is still crystallizing for me and you’ve had a lot more experience with this than I have. But referencing decision-making as part of culture is interesting. I’ve been increasingly convinced that expectations and processes around communication are actually part of culture. Values, when we started the company we’d listed out a set of values that we thought were important. And as the company is developing we looked back on these old sets of values and we realize how arbitrary they were. And they looked like they belonged on a wall at the TSA and how it’s really culture is something that you memorialize more than it is something you develop. So what are some of the things that you think of as in the bucket of culture?

Marc Randolph: Well, first of all we have to put the exclamation point around what you just said because if there is one singular thing that’s the most important thing for anyone in business to recognize about culture it is that culture is not what you say, it is what you do. Culture is not aspirational, it’s observational. That too many people have gotten this bug in their head that, “Oh, well, I guess we need to have a corporate culture.” And then they say, “What should our culture be?” And you get everyone in a conference room and you begin to brainstorm, that of course you’re right. It does look like a TSA poster because it’s all these, “Wouldn’t it be great if…”

Marc Randolph: And you can put together this completely vacuous by committee, lowest common denominator sense of what you want to stand for which of course no one is going to be able to live up to that. And so much more it has to be this reflection of who the company really is and it certainly is not unreasonable to pick the parts of the company that you like and that you think are effective and that you think are powerful and say, “We really want those to be the aspects that are emphasized.” But that does not come from just writing them down. You can have an amazing culture and never write a word. You don’t need a culture deck. You don’t need to have the posters in the break room. It purely comes from how you tend to emphasize those behaviors.

Sam Corcos: I had a really interesting conversation with Mike Haney our editorial director and we were thinking through this concept of reinforcing cultural values. And he mentioned something that changed the way that I thought about how we approach this. He asked me, “Are we looking to build a HR policy manual or are we looking to build a narrative around our culture?” And I hadn’t really ever thought about culture as a narrative and a story of this is the type of thing that we’re building. And the other principle that he mentioned in this conversation was that, related to what you mentioned, what is on paper doesn’t really matter. It’s maybe a good starting point but it’s people model what they see around them.

Sam Corcos: And many companies have an unlimited vacation policy and people see that and immediately they go, “Okay but how do people actually do vacation here?” And one of the challenges that we’re thinking a lot about is assuming that the principal is modeling, in most companies it just accidentally diffuses. And so we’re trying to think of ways of how do you intercept that modeling. We’ve been doing a lot of content where we interview people on the team and we don’t ask about aspirational culture. We just ask, “How do you do vacations?” And Casey, for example, my co-founder, she goes off grid and does camping. You can’t even reach her. Me I usually… When I go on vacation I’m usually somewhat available and I’m doing a lot of writing and different people do these things differently and it’s just giving people permission of what they can model. So I don’t know how much of that resonates.

Marc Randolph: It doesn’t but for a different reason. Let’s make sure we come back in three minutes to the subject of that specific thing about vacation because I think that’s a really interesting one to use as a model of how I do think about this. But let’s start by answering that question of how do you model behavior. And it turns out, in my experience, there are a handful of actions which have power and abilities far beyond those of mortal men to go back to the old Superman stuff. Which is the strongest possible way to send a signal about culture is who do you hire? Who do you fire? Who do you reward? Those are the hyper signals in any company. And that is the type of thing that sends signals about what really is important. Because basically, I don’t know how many countries I know of have some version of the no assholes rule because of course that sounds great to say we don’t tolerate assholes.

Marc Randolph: And then you end up with your genius coder or your hyper talented CFO or your head of sales who happens to turn out to be an asshole but because they’re so valuable to the company they stick around. And so what you’ve done… And even worse… And so you are not at all adhering to what you say is important because your actions speak so much louder than your words. What speaks louder is firing your CFO because she or he was an asshole. That will do something that nothing else will do in terms of signaling that I’m genuinely serious about this particular skill. Another thing I hear all the time about even more than the, we don’t tolerate assholes cultural aspiration is the, we are all about innovation here and risk-taking.

Marc Randolph: And the reason I say this of course is I do a lot of keynote speaking so I’m [inaudible 00:13:07] up at these big meetings, the quarterly meetings and they’re all going, “Marc. We are all about innovation. We want you to come. This fall meeting is about innovation.” And then I happened to be there and they go, “Now we’re going to give out our corporate awards.” And what they bring up is the top sales guy. They bring up the first new close, the biggest deal. They brought the person and I’m going, “What?” No. What you do is you go, “Today’s reward, which is going to be a $50,000 cash gift and a six months paid vacation, it’s going to this person who failed miserably at this thing four times in a row.” Then everyone in the audience goes, “Holy shit. They are serious when they say innovation is important.” So thinking really carefully who do we hire? Who do we fire? Who do we reward? Sends signals far beyond almost anything else you can do in terms of communicating culture.

Marc Randolph: Now let’s go back to this vacation one because you are, in my opinion perhaps misinterpreting… Okay, one quick step back. I want us to step back. Culture is individual. There’s no such thing as a right or a wrong. It has to reflect who you are. So I’m going to be saying things with some degree of certainty because they’re how I envision [crosstalk 00:14:24] but it’s a good example of what I’m talking about. So unlimited vacation. Okay, it’s wrong to think about how you take vacation or when you take vacation. That has nothing to do with it. A better way to think about unlimited vacation is unlimited for it work. Which is we are not saying you have to work 50 weeks a year. We’re saying you can work 30 a year if you want.

Marc Randolph: What we’re trying to say is we don’t judge you based on how many hours you’re putting in. You are not given A’s for effort. This is all about what you accomplish and the culture of unlimited vacation is really a culture of personal responsibility. It’s that I am not going to be a parental figure and tell you how much time you need to get your job done. I trust you. You might be five times more talented than the next person and you can do it in 20 brain at the time. Oh my God, I would be delighted to have you go on eight months a year because of how much you get done the four months a year that you’re here. So that’s where in my opinion reinforcing values around unlimited vacation. It’s partly, yes you have to send a signal that I’m not just saying it’s okay and then I never take vacation.

Marc Randolph: So I’m not saying that’s not the case. But the thing I’ve always tried to reinforce… Let me give you a concrete example and again, shut me down if I’m just rambling on for too long but this is a great subject. So relatively early at Netflix, I had an engineering manager. He has supervised a team of other engineers and came in to the office one day. He goes, “Gosh, Marc, I’ve got great news.” I go, “Great. What?” He goes, “I’m in love.” And I go, “Oh, that’s fantastic.” And he goes, “But my girlfriend lives in San Diego.” And I go, “Oh yeah. Well, that’s interesting.” And he goes, “So I’d like to propose something to you.” He goes, “What I’d love to do is basically leave work at around maybe three or four O’clock on Thursday and I’ll fly down Thursday night. And I’ll work from there on Friday and then I’ll work from there Monday and I’ll fly back Monday night or Tuesday morning. What do you think?”

Marc Randolph: And I go, “Well, I guess like most things it depends. If you’re asking me is it okay for you to spend half your weekend in San Diego, of course. I don’t care. You can work from Mars for all I care. That makes no difference to me. It’s up to you. But if you’re asking me if I’m willing to lower my expectations of what it is I expect you to do well, that’s also an easy answer. The answer there is no. And let’s ask ourselves some questions. You’re an engineering manager, what degree do you think being accessible and available to your team is important? Now if you are talented enough to do your job not being around half the time, all power to you. You are a better manager than I am. But if you’re asking if I’m willing to expect less from you because of that, that’s a no.”

Marc Randolph: And so it’s saying to the person don’t ask me to make the decision of how much you work or where you work from. That’s not what I want my job to be. That’s the culture of unlimited vacation.

Sam Corcos: Yes. One of the policies that has really developed internally is the value of treating people like adults and we expect people to act like adults. And I actually I’m reminded… You talked about the no assholes policy. I’m reminded of years ago I was doing some work for an organization and they had one person who would regularly make inappropriate comments. And a few days later the whole team would get an email of these passive aggressive notes of, “All right, at our company we don’t make comments that are demeaning towards certain groups of people.” And it’s just that guy. Why are we all getting his email? Somebody needs to do something about this. What the hell?

Marc Randolph: Yeah. That whole issue of treating people like adults in my opinion is the secret sauce that came out of the whole Netflix culture. It all boils down to that. All of this freedom and responsibility culture that was the culture we developed at Netflix was entirely about recognizing that that was magic. And fundamentally that what people wanted from work was not the nap pods and the kombucha on tap and the fireman poles and all the other bullshit that startups seem to think is what you need to do to have a great culture.

Sam Corcos: Yeah. Ping pong tables and not culture.

Marc Randolph: Yeah. That’s ridiculous. If you really stepped back and go, “What does make somebody want to work for one company or another? What does make them…” And it’s fairly straightforward. It’s treating them like an adult and it’s surrounding them with stunning colleagues. That if you have those two things, my God what a dream job that is and the irony of this is that culture that is found in every early stage company. How many people do you have in Levels?

Sam Corcos: We’re at about 30 now.

Marc Randolph: Yeah. So when you have 10 people it’s easy because you can say, “Okay, here’s the goal. I’ll see you there in two weeks.” And you are so busy Sam. You don’t have time to check in on people. You just trust that two weeks from now when you get back into the conference room and you go around the room, everyone has their shit nailed and you go, “That was awesome.” And the people who did it go, “God, this is so fun. Sam is very clear about what we need to do and I get to do my job and figure it out and stuff happens and I make the decision.” But then what happens is there’s a natural well-meaning destruction, which is someone all of a sudden in that meeting two weeks from now goes, “I didn’t get this stuff done.” And the well-meaning CEO goes, “Okay, we can’t have this happen. Everyone, now we need to start writing status reports.” And it all goes.

Sam Corcos: Totally. It’s like we now all need to use Jira. We need to add all this overhead. Totally.

Marc Randolph: Yeah. Someone goes overspent and all of a sudden it’s like, “All right, I need to pre approve all the expenses.” And little by little… Or someone is available when they need… We’re on the warehouse and they’re gone. Decided to take their vacation a week before Christmas and they’re gone. You can’t have that. Everyone’s got to pre approved when they take vacation. And what you’re doing with well meaning is you’re building these guardrails to protect you from people with bad judgment.

Sam Corcos: Yeah.

Marc Randolph: And what the Netflix experiment was basically is saying what happens if there are no guardrails? What happens if we build a culture not to protect us from people with bad judgment but a culture which is built around people with good judgment? And then that became this exercise and how many rules do we take away? And the answer is pretty much all of them.

Sam Corcos: Yeah.

Marc Randolph: But there’s a corollary to it, which is that when you have someone with bad judgment, this is a company which doesn’t handle people with bad judgment. You’re trusting people to make decisions that involve very consequential actions. Either very large amounts of money, very material contractual obligation and you’re not going to require everyone to check in with you. You’re going to give them the authority to do this, they better have the judgment to do a great job at it otherwise the company becomes… Gets in trouble. And that means when you find someone with bad judgment, you have to have that hard discussion that says, “This is not the right place for you.”

Sam Corcos: Yeah. So we’ve talked to… Back when we were around 10 people we had some open-ended conversations with a number of other founders of companies that have gone on to be much larger 10 plus billion dollar companies. And we asked the founders open-ended questions about, thinking back on when you were 10 people what would you have done differently? All of the people we talked to said, “We would’ve focused more on culture.” They said, “Whatever you’re investing in culture now, double that and then double it again. And you’re still probably not putting enough effort into culture.” And I wondered how much of this is survivorship bias. Because I had a similar experience when I talked to them about fundraising. The people of the most successful companies say, “I wish we took less dilution.” It’s like, “Of course you do because your company was successful.” But above all the people, I’d been at failed startups and I tell you what, we would’ve taken more dilution. So I wonder in the companies that talk about emphasizing culture and how important that is, just because you have a lot more exposure to different companies how do you see survivorship bias or if that’s even something to think about?

Marc Randolph: Well, yeah. Survivor bias is terrible. And then the very fact that you and I are talking is an example of talking to the wrong person perhaps. But what’s useful sometimes is when you’re asking those questions of people of successful companies is really parse apart what’s nice to have, which is need to have. In other words taking less dilution almost never sinks a company. You would’ve made more money or had a bit more control had you not but it didn’t make the difference. Whereas the culture piece is existential and putting that time in at the beginning pays dividends dramatically more so than doing it at the end because culture is multiplicative. As we’ve talked about from the beginning here, it’s observational. So when there’s 10 people everyone’s watching you and your co-founders and you have to make sure that all 30 people in the company are modeling the right behavior because very soon the next level that you hire is going to take their cultural cues from those 30.

Marc Randolph: So if you make a mistake now, if you let a person… If you… Again, it’s personal. If your culture is about maturity and judgment and you allow someone to slip through with it was immature and bad judgment because you go there a good person, we have 29 other smart people, you are fucked if you don’t let go of the person who is offensive. If one of your values is that… Whatever. That’s why you can’t invest too much at the beginning. It’s the hardest now. It’s the hardest to hire but it’s the most critical thing because the second 20 take their cues in the first 10. The next 60 take their cues from the first 30. And if you think it’s hard when you have 30, wait until you have a hundred, wait until you have a thousand, wait until you… Like Netflix does almost 10,000. And what the role of an HR person does is help you not administer benefits and not do stock option plans and all that bullshit. What they do is speak truth to power and say, “Sam in your meeting you say everyone should… The culture thing is everyone is a voice but my count is 60% of the voice was yours.” That’s what a great HR person does is help you in these early stages. Make sure you’re walking the walk not just talking the talk.

Sam Corcos: Yeah. I wonder in your experience of culture development, how much of it is in selection versus things like expectation setting and keeping the ship on course with the existing people?

Marc Randolph: Selection meaning hiring?

Sam Corcos: Yeah. In our hiring process we we’re very transparent as a culture and we set a lot of expectations very early about the type of culture that we’re building. A lot of people opt out of that process, which is actually being a temp. Hiring is not a sales pitch it’s a matching problem and so I’m increasingly convinced that selection is the biggest factor in developing culture. It’s getting people who want to be part of the culture that you’ve already built and who will contribute and add to it. And there is still some degree of riding the ship as things start to move but how much of the process of culture building do you think fits into these different categories?

Marc Randolph: I think selection is important but I think it’s second to deselection. I think deselection is euphemism for firing, is much more important. But selection is important too but maybe not about it the same way. But for example, the famous Netflix Culture Deck. That is not meant for internal use. That is not a guideline for how we want to behave as a company. Again because it’s supposed to be a reflection of what the culture actually is for people on the outside to make a judgment about is this the right place to work.

Sam Corcos: Right.

Marc Randolph: So I totally agree with you about that aspect is you have to do everything you can to make it clear to people so they can opt in or opt out because you don’t want to mismatch from the beginning. But I’m also a believer that it’s almost impossible to judge someone’s capability in advance. Whether that’s capability to living up to the values of the company or even being able to do the job you’re hiring them for. Really hard to predict that. Which means you’re going to get it wrong but it also means that you can lighten up on yourself. That if you set up this… What’s the word where you run through it and everyone hits at you with the weapons but it’s this thing you have to navigate through and get through to the end.

Sam Corcos: The crucible or something, right?

Marc Randolph: Yeah. Something like that. You’ve got to be careful but if you recognize as a company, I’m never going to get it right the only way to really understand does someone fit and are they effective with their job is to see how they do and then acknowledge that you’ve made a mistake. In other words owning the mistake. We’ve hired the wrong person and then addressing it. I think that’s a much more powerful way of making sure that you maintain a culture which you think is what you want.

Sam Corcos: We have a hiring philosophy document to help align on how we think about these things. And I see it very much as an XY graph and you have talent on one end and you have values on the other. And obviously low talent and low values it’s a pretty easy no. High talent, high values pretty easy yes. The high values, low talent I think maybe is where you can make exceptions if you feel like they have the aptitude to throw into something. I think what you were touching on earlier is the low values, high talent are the ones you always want to say yes to. They’re usually a bad idea. I add an asterisk in there that maybe we hire them as a part-time contractor for a limited duration if we really need the thing done but they’re not people we would bring on full-time. Does that sound like a reasonable mental model?

Marc Randolph: Yes, it does. I’m wondering whether it is naive of me to say that I wouldn’t want the low talent high values either but not every company is in a position where they have that choice all the time.

Sam Corcos: Sure.

Marc Randolph: But I agree. The values is infinitely destructive. Low values is infinitely destructive. Low talent isn’t. The problem is that low talent as an aspect of values is why it gets confusing to me. I’m not necessarily worried about the person not being able to do their job well. I’m worried about the impact that has on everybody else and what it says about you. Because again once more, culture is personal and everyone has to have one that fits themselves. But for me I’ve always been so careful about recognizing my real responsibility to my team, which is again surround them with great colleagues. And by forcing people to work with people who are not great, I’m failing in my role of what makes a place a great place to work. It’s not just treating you with respect.

Marc Randolph: It’s knowing that you also respect the people you’re being asked to work with. Now I don’t worry about it so much on the way in. Again, I’m a dick about it. In a way I correct for it really quickly. I’m a dick to the person who I have to sit down and say, “This is not working.” But I’m a hero to the person… To others, to the people on the team who rather work with that person. And I’d rather be the latter than the former.

Sam Corcos: Another question that I have. This is just trying to make sense of my own personal journey understanding culture is at what point did you realize that it was an important thing to focus on? Because for me it’s really only been in the last maybe three years. So I’m curious when you have this recognition that this was something that was really important.

Marc Randolph: That’s a really great question because I didn’t recognize it at the beginning and I almost let it get away from me. And I was lucky in that I fell into the trap of we’re growing really quickly. I can’t hire quickly enough. The standards were slipping and for me, what saved us was that we had to do a big layoff. And-

Sam Corcos: I remember reading that in the book.

Marc Randolph: Yeah. And we dropped almost 40% of the company and it forced us back into that mode where every single person in the company now is a star. And I all of a sudden went, “Even though we all have so much more to do, this is back to how it felt at the beginning.” Which led to the level of this introspection about what is it and then once you grok what happened, you go, “Okay. Now we have to be very conscious about this not ever happening again.” And so I did let it go and then got it back so no. I’ve always known it was important but it’s always been something that came to me second nature. Never one that I was codified until that.

Sam Corcos: Yeah, the last question I have is we all just as a leadership team, we just read the high growth handbook and we talked about it. And one of the things he says in the book is… He talks about how as the company scales, the person might be values aligned. They might be high scale but as the company grows in scales, that person might not necessarily grow into that role and so it’s not personal. It’s not that they’re bad people. It’s not that they’ve failed in any way. But how do you manage when there are people who are great resources early that don’t quite scale with the team?

Marc Randolph: It’s probably one of the hardest things I have had to do as a leader is sit people down and explain that to them. Explaining to them is the hard part. Making the decision that you’re going to do it is the even harder part. Because these are people who have been with you since the beginning. Who have worked tirelessly to try and make this collective dream you’ve all had, this reality and now it’s time to say, “We’re doing amazingly well and unfortunately you’re not the right person for this next stage of the company.” But that is the nature of startups is that the type of skillset you need at the very beginning is different. As mentioned on the brief talk I just had with the Levels team earlier, at the beginning you don’t know what you’re doing.

Marc Randolph: Every day you come to work prepared to change tactics entirely because you’ve learned something new and it favors the type of person who’s a Jack of all trades, who is decent at a lot of things but really not phenomenally good at a single one. And it requires recognizing when you need to begin bringing in real domain expertise or really deep skillset in a specialized area and you can prepare for that. You can prepare for that by being really careful about title inflation, et cetera. But you can’t prepare for sitting across the desk from someone. And listen… And well Sam, I’ll share this with you. It might be you. It might be you that don’t scale. And one of the things you have to do as a leader of an organization is begin to recognize not just, “Well, my director of Marketing doesn’t have the skillset to become the VP. My director of sales doesn’t have the skillset set to become the VP.” You have to recognize that the early stage CEO may not have the skillset to be the late stage CEO.

Marc Randolph: And I can say that with great clarity and competence because I recognized I was not the person who had the skillset to scale. I’m self aware enough now to recognize that I modestly I’m really good as an early stage company guy. I have these certain characteristics of the ability to triage, the ability to focus, the ability to build a team, to be able to inspire a group. But I’m the first to say that when companies get bigger, for me it’s around three to 400 employees, I suck. And not only am I bad at it, I don’t like it very much. And for me that, at Netflix specifically, it took that moment of awareness to say that I certainly started off with this dream of being the CEO of a big successful company but in fact those are two different dreams and I’m going to have to decide which is the more important one.

Marc Randolph: Is it more important that I be the CEO or is it more important that we have a big successful company? And fundamentally that was, I won’t say an easy emotional decision to make but it’s certainly an easy intellectual decision to make, that it was the dream of being the successful company was way beyond just mine. It was my investors, it was my employees, it was my customers and I was obliged to do whatever I had to do.

Sam Corcos: Yeah.

Marc Randolph: I was extremely fortunate that I had at the beginning just a board member but eventually a partner who was a phenomenally good late stage CEO. And so things certainly worked out that way. To answer the question directly, it sucks and there is no a way to coach people. And listen, one more, I mentioned stupid things you can do like no title inflation but an even more important thing, culturally, is making it clear that this is not a job where you automatically… That our obligation to our employees is not career growth. But for me it was never. It was not like when I hire you, in 18 months you’ll become the manager and then 18 months later you’re the director and then… Maybe but that’s not by definition. Yeah. What my responsibility is, is to give you a chance to really be self-empowered, treat you like an adult, surround you with great people, let you enjoy what you’re doing and then let’s see what happens beyond that.

Sam Corcos: One of the things that we want to avoid as a culture is there are stories from the Jack Welch era where it was an upper out culture. People lived in a state of constant fear that they were going to get fired. And there’s a risk when you let people go who were at the company from the very beginning who maybe didn’t scale with the company. People feel insecure about their roles. And I wonder as a leader how do you signal that for people and make it so that people understand what’s going on and don’t feel like they’re constantly at risk? Because that’s not the culture that we want to build. And I think Netflix has done this quite successfully because I know people who have worked there. And even though there is a culture of letting go of under performers, nobody really felt scared. There wasn’t this fear culture. So I’m wondering how you solved for that.

Marc Randolph: It’s certainly a very important thing. The first thing is it’s not capricious. This is not like we go into a back room and we rate people and if you’re in the bottom 10% you’re getting fired, which is a terrifyingly opaque process. This is an extremely transparent process where a manager’s job is to constantly be communicating with an employee how they’re doing, I mean constantly. Where they’re encouraging people to be looking outside to understand am I fairly compensated? To be understanding how do my peers view me? It’s so communications intensive. And it has to be because when you don’t perform, how often do you think it’s a surprise to you? And the answer is if you’ve communicated adequately it’s almost never a surprise. And quite frankly, it’s very rare that you want this particular job so badly that you’re willing to come to work every day and be unhappy because you can’t do it well.

Marc Randolph: I am not saying that when you do have the hard conversation with someone that this is not working, that they’re not upset. It’s disruptive, there’s economic impact but people get it. And I genuinely believe that in some piece of their mind there’s a relief there. No one wants to do something they can’t keep up or can’t do well and they recognize that. And I think that is what contributes to the fact that Netflix does not have that. And that’s from the internal person left. How they feel is they’ve been given an opportunity to see what are the expectations of this position and why it’s clear they’re not meeting them. But remember I said that the huge communications of culture is who you hire and who you fire and who you reward. And that doesn’t just come from, “Hey, this person’s no longer here anymore. You figure out which part of this wasn’t working.”

Marc Randolph: No, you sit down with the entire team or the entire company depending upon the person and you explain why that person is no longer there You explain where that person was falling short, what skill they may have lacked, why it was not a good fit. You have to provide context because if it looks like you were fired capriciously, then of course everyone’s terrified because it could be them next for reasons they don’t see coming. If you’re extremely clear why this person is no longer there, people can make this judgment about am I at risk of that? And certainly and correct it if they believe they’re verging toward that.

Sam Corcos: Yeah. That’s just something that I found is not often discussed I think because it’s such a sensitive topic. I wonder tactically how these things are communicated to the team. Is this like you tell all the managers to have one-on-ones with everyone on their team to explain why they were let go, a company-wide email. Tactically, how does that information get communicated within the team?

Marc Randolph: I’m not at Netflix now so I don’t actually see how it’s done in these larger groups. [crosstalk 00:42:00] from when I was involved earlier, it was literally done in a group setting with the whole team there so people can ask questions about it. And certainly if you can do it when the person who’s leaving, if they’re in that position to be able to talk about it, it’s a great thing to do. And listen, sometimes usually these things are not necessarily someone’s fault. You have the classic example at Netflix, when we were starting into streaming we had some of the smartest people in the world who were building the whole streaming infrastructure. And then not long after that it became apparent that we didn’t need to build this because Amazon was going to build the distributed streaming architecture that we could use.

Marc Randolph: We no longer needed the smartest people in the world but they were involved in this decision about should we buy or should we make? And then once that happens, the people who are very best people at building streaming architecture don’t want to go. “We can have a job for you. Now you can do search.” No. Let me help you find a job at Amazon. Let me help you find a job at some other company who’s doing this who will appreciate you. And so that person can certainly get in front of the whole group and explain what’s happening and why they’re leaving.

Sam Corcos: Yeah, that’s really helpful. This is always going to be one of these things. It’s a balance and you have to use some intuition on it. But in your experience with these things, how often has it been the case that if somebody on the team wants to take on a larger area of responsibility, how much emphasis you put on moving people into new areas of responsibility versus hiring people in who you’re confident already have the experience? There’s a balance I think with both. Some of it is just… I don’t know if team morale is the right word but people like to know that they have the opportunity to move up and to be able to take on more ownership and responsibility within a company. But they maybe haven’t proven themselves in that capacity. How do you think about that trade off as the company grows?

Marc Randolph: Yeah. It’s always a challenge to balance opportunity versus performance but I think the thing that I use when I’m struggling with that is to recognize that my obligation is to the team, not to the individual. And I try and set expectations the very beginning. When I’m hiring the person, when I’m moving them into a new role is that this is about this role. I’m hiring you to do this job and I’m not ruling out the fact that you may turn out to be phenomenal and be able to do something else but I’m know to be really careful not to set an expectation that it’s a given that it will happen. I also though have to recognize these are people. We are not automatons. We don’t get everything right the first time. We’re not a hundred percent right. And I don’t want someone to feel that if they make a misstep I’m going to cut their head off.

Marc Randolph: That’s where the balance and the nuance comes in is to recognize is someone have the capacity to do this reasonably soon and what gets you in trouble though is when you stick with someone for the wrong reason. One is because they’re pushing so hard for something that you’re willing to keep on giving them a shot and the more common one is that you really like them. That they really do a lot for morale. That they’re a mascot. There’s all these reasons why you go, “We’ll let this slide.” But I’ve realized that there’s this damaging thing that happens when you don’t act on it. And unfortunately it all comes back on you because the rest of the team is watching this happen and they are coming to two conclusions, which I’m not sure is the worst of the two. Either they’re concluding that I’m stupid and that I can’t see that this person isn’t getting it. That this person is causing our team to lose because you have them at first base and they can’t play first base.

Marc Randolph: You have them in the goal and they can’t stop the ball and so why are you doing this? Marc’s stupid but worse is they go, “Marc sees it and he’s not doing anything about it so he’s weak.” And that’s why I say as long as I keep centered on the fact that my obligation is to the team… And I’m saying I using a generic leadership role. This is not just the CEO’s responsibility. This is any team lead’s responsibility. At Netflix a manager has very narrowly defined responsibilities. And one of them is what we’re talking about now is making sure they have the right people in the right seats. They have to hire well and they have to cut well and they have to reposition well and they spend a lot of time doing that.

Marc Randolph: And the second thing they spend all their time on is providing context. Making sure the team has all the right information so that they can make good decisions independently. Do they know what the company’s objectives are? What the competition is doing? What engineering is building? What do they need to know so that you can walk away and have them make decisions. And explicitly the role of the manager is not make decisions. Explicitly the role is not approved decisions. It’s are the right people in the right seats and does everyone have the right context? And that piece of it, that I’m willing to give someone a shot here but my job is if it’s not working out, my job to the team is to do something about it.

Sam Corcos: This has been really informative for me. So I appreciate you making the time.

Marc Randolph: It’s been a pleasure Sam. And listen, I think the fact that you’re doing it when you’re at 30 employees is really laudable. Most companies that I speak to often at an auditorium and the company has 20,000 employees and the CEO’s going, “We’re trying to get everyone to be bigger risk takers.” And I go, “You’re about 9,970 employees too late to try and make that happen.” The time to make it happen is when you have 10 because the second 20 take it from the 10 and the next 60 take it from the 30. And so getting it right now, being thoughtful about those things, it’s why culture eats strategy for breakfast as they say.

Sam Corcos: Well, it’s been great having you Marc. So where can people find you for more for information on this?

Marc Randolph: I mean, probably the place to find all things Randolph is the website, which is marcrandolph.com. But especially for people who are interested in the topic of corporate culture and a lot of the decision makings that entrepreneurs need to make, a really valuable thing is the podcast I do called That Will Never Work where I’m mentoring early stage entrepreneurs. People at a very similar stage to you and walking them through the real problems you go through trying to start and build a company so I think that’s a great place for people to start.

Ben Grynol: What we are thinking of doing is kicking it off. So that I would just be a backseat driver here just on mute the entire time. So we can run it that way where you and Sam have… I’ll even turn off my video so it’s not distracting but just you and Sam have a conversation about culture and startups. So we can do that and keep it where it’s very much a two-way dialogue or if you wanted to we can have a three person conversation. But I always think it’s more interesting when it’s just two people that are diving really deep into a topic.

Sam Corcos: Yeah. Marc to be perfect.

Ben Grynol: Okay Well, so that means Sam is officially the host. So I will go on mute and turn off my video now.