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Bureaucracy Sucks. 2 Things Your Company Needs to Fight It.

Leadership Lessons from Reed Hastings and Netflix.

Photo by Štefan Štefančík on Unsplash

“Founders are important not because they are the only ones whose work has value,” wrote Peter Thiel in Zero to One, “but rather because a great founder can bring out the best work from everybody at his company.”

Every company — at one point — started with a founder. And most startups live or die by the founder’s ability to see a market opportunity, compile the right team, and develop a breakthrough technology.

This is what draws people to startups. It’s what makes work exciting. Moving fast. Making changes. Influencing markets. Mainly, seeing how a small group of people can make a real difference in the world.

Just as every company begins with a founder, every company was at one point a startup. Yet few companies are able to maintain the excitement and the agility that comes with the startup mentality. Speed is replaced with caution. Autonomy is replaced with rules. And slowly today’s startup becomes tomorrow’s bureaucracy.

In a world that sensationalizes the short-term, we need to actively plan for long-term growth. As Reid Hoffman discussed in one Masters of Scale podcast,

“Very few companies have managed both ‘scale tremendously’ and ‘age gracefully.’”

Bureaucracies are Grown, Not Born

“Don’t quote me regulations! I co-chaired the committee that reviewed the recommendation to revise the color of the book that regulation’s in. [hardens his tone] We kept it gray!” — Bureaucrat No. 1, How Hermes Requisitioned His Groove Back, Futurama

Bureaucracies rarely start as bureaucracies. If they did, they likely wouldn’t have survived long — with government facilities being the obvious exception.

Startups begin with a core group of people, all looking to change the world in the same way. Everyone knows the mission. Everyone shares the same long-term vision. And everyone has the competence — or is actively working to gain it — that they need to be successful.

But as startups grow, they hire more people. People who don’t have the full technical competence. And people who don’t understand the long-term mission.

As companies grow, they have more to lose. They have more responsibility. So speed needs to be tempered with responsible decision-making. Once Facebook matured as a company — and Zuckerberg matured as a CEO — the trademark motto, “Move fast and break things,” became the slightly less catchy, “Move fast with stable infrastructure.”

In many ways it’s a necessary adjustment. We need stable infrastructure to protect our companies. We need to backstop training with processes and supervision. No one likes the idea of untrained, unconnected workers deciding the company’s future.

But with each additional layer of management, employees have less authority. And with each new generation of hires, people become distanced from the central mission.

Until we’ve turned our company into the establishment it was designed to disrupt.

Bureaucracies Thrive on a Lack of Responsibility

“Bureaucracy destroys initiative. There is little that bureaucrats hate more than innovation, especially innovation that produces better results than the old routines. Improvements always make those at the top of the heap look inept. Who enjoys appearing inept?” — Frank Herbert, Heretics of Dune

I don’t need to sell you on the evils of bureaucracy. They slow down decisions, remove authority from the people doing the work, and crush motivation. They frustrate innovation, breed inertia, and generally create companies where the biggest goal of most employees is to simply make it through the day.

But above everything, they breed a lack of accountability — and as a result, a form of tyranny. As the celebrated German-American political theorist Hannah Arendt wrote in her timeless meditation, On Violence,

“In a fully developed bureaucracy there is nobody left with whom one could argue, to whom one could present grievances, on whom the pressures of power could be exerted. Bureaucracy is the form of government in which everybody is deprived of political freedom, of the power to act; for the rule by Nobody is not no-rule, and where all are equally powerless we have a tyranny without a tyrant.”

Arendt rightly argues that if we consider tyrannical governments as those who aren’t accountable for their actions, then a bureaucracy would be the most tyrannical of all. Everyone operates in a mindless mode, slave to orders and procedures.

A company where no one’s truly responsible. And no one can really be held accountable for their actions.

The alternative is to embrace responsibility. To encourage individual accountability. And celebrate each employee’s freedom to make responsible decisions.

And one company has demonstrated this ability beyond almost any other.

Would You Watch a Show from Kibble?

“Being an entrepreneur is about patience and persistence, not the quick buck, and everything great is hard and takes a long time.” — Reed Hastings

In a recent issue of The Mission’s podcast The Story, Chad Grills recounts how Reed Hastings and Marc Randolph overcame the odds and revolutionized the entertainment industry. They leveraged their flexibility and vision to come back from repeated rejection and struggles to take over the movie rental industry. And thankfully changed the company name to Netflix, from their original choice: Kibble.

Even more impressive, after Netflix had developed a loyal customer base and proved its DVD mail subscription service, it pivoted not once but twice. As Chad Grills put it,

“Reed never lost his long-term vision. He knew that Internet speeds would eventually improve and that streaming would eventually become the preferred viewer experience.”

Netflix changed from a DVD mailing company to a streaming company. Then, after dominating the streaming market, moved into the business of original content creation.

Now, six years after it started developing original content, Netflix rivals Disney in the funds it invests in original content creation. Netflix, under Reed Hastings’s leadership — continues to embody the identity of its founder — and thrives on breaking into new areas and avoiding the bureaucratic trap.

A feat they’ve managed by focusing on two key principles: freedom and responsibility.

Freedom

“Our goal is to inspire people more than manage them. We trust our teams to do what they think is best for Netflix — giving them lots of freedom, power, and information in support of their decisions. In turn, this generates a sense of responsibility and self-discipline that drives us to do great work that benefits the company.”Netflix Culture

Netflix leaders — including Reed Hastings — believe that people do their best work when they don’t need to constantly ask for approval. They consider that when people have the freedom to make decisions, they’ll put more effort into making those decisions responsibly.

Encapsulated in the culture deck that went viral several years ago, Netflix employees have the freedom to implement the company’s strategy into their own jobs and use them to deliver the best value they can. As a result, there’s no shortage of employee-developed innovations, including new content, diverse hiring, and social media campaigns. Employees also decide their own vacation time, maternity leave, and travel expenses rather than having the company impose rules.

Netflix leadership hires highly qualified people, provides them with clarity of the mission, and encourages them to make decisions that align to this mission. Every level of management is expected to set context and provide information so that decisions can be made by those that will be responsible to carry them out. In this way, people fully own their work. And they’re engaged to deliver the best quality that aligns with the company’s vision. As Hastings recently told TED’s Chris Anderson,

“I pride myself on making as few decisions as possible in a quarter.”

Yet all of this freedom doesn’t come without expectations. Employees are expected to understand the culture deck and actively debate it with their peers. Everyone is expected to represent the company’s best interest in their own decisions, as well as those they see around them. In Reed Hastings words,

“To disagree silently is disloyal.”

In this way, Netflix fosters candid debate and gives people the benefit of multiple perspectives, as well as the opportunity to continue learning from their actions. As one Netflix HR executive put it,

“It’s not necessary for us to implement control mechanisms. We want to help people learn and give them oxygen to make mistakes.”

Responsibility

“You might think that such freedom would lead to chaos. But we also don’t have a clothing policy, yet no one has come to work naked.”Netflix Culture

When Reed Hastings developed his first company, he prioritized process as a means of quality. With each problem, they developed a procedural solution. In Reed’s words,

“We were trying to dummy proof the system. And eventually only dummies wanted to work there.”

When the market changed, as markets inevitably do, Pure Software was unable to change with it. By Hastings’s own admission, it was staffed with people who thrived in following procedures and were unable to adapt quickly to changes.

Reed brought this lesson to Netflix and vowed to avoid past mistakes. The company actively resists allowing process overreactions to unnecessarily limit employee freedom. Instead, they focus on individual responsibility.

Each employee is held accountable for their behaviors and the expectation that they’ll act in the best interest of the company. Management communication is frequent so that people understand how their performance measures up to expectations and are given the opportunity to improve and adjust.

In one of the best criteria I’ve ever seen, managers decide whom to retain within the team based on the “keeper test.” As Netflix describes it,

“If one of the members of our team were leaving for another firm, would the manager try hard to keep them from leaving?”

Employees are given the freedom to make decisions that best align with the company. And they’re held accountable for the results. What more could any quality employee want?

Freedom and Responsibility

“Success is neither magical nor mysterious. Success is the natural consequence of consistently applying basic fundamentals.” — Jim Rohn

The Harvard Business Review asked members of the HBR community to gauge the extent of bureaucracy within their organizations using a Bureaucracy Mass Index tool. After over 7000 responses, the results don’t speak well for the state of most workplaces.

Nearly two-thirds of respondents identified scores that correspond to bureaucratic drag. With two-thirds also identifying that their organizations have become more bureaucratic — more centralized and rule-bound — over the past few years.

Sigmund Freud once said, “Most people do not really want freedom, because freedom involves responsibility, and most people are frightened of responsibility.” Yet in my experience, this isn’t true. People want freedom. They welcome the responsibility. And they need to have both of these virtues within their organization if we expect them to perform truly great work. As Albert Einstein put it,

“Everything that is really great and inspiring is created by the individual who can labor in freedom.”

As our organizations grow, and move from dynamic startups into larger companies, they’re in constant danger of turning into the bureaucracies that history continues to make irrelevant. With each layer of management and each new generation of employees, it takes a conscious push to ensure we retain the adaptability that will support long-term success. We need to hold onto that founder mentality. And keep the focus on freedom and responsibility. Returning to the prophetic words of Peter Thiel’s Zero to One,

“It’s up to us. We cannot take for granted that the future will be better, and that means we need to work to create it today.”

Thanks, as always, for reading! Any additional best practices to stave off the choke of bureaucracy? Feel free to share, I’d love to hear from you. And if you found this helpful, I’d appreciate if you could clap it up 👏and help me share with more people. Cheers!

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Jake Wilder

Jake Wilder

I don’t know where I’m going. But at least I know how to get there.