March 18, 2019

How to Fire People

by Without Fail

In 1998, Patty McCord joined a new company called Netflix. Her title was chief talent officer. And over the next ten years as Netflix grew (and grew), she and CEO Reed Hastings built a new kind of workplace. They threw out all the usual rules -- no more expense authorization forms or vacation requests -- and focused on creating a culture of excellence. But that culture of excellence didn’t come only through hiring the right people. Patty had to get good at firing, too. 

See the original Netflix culture deck here: https://www.slideshare.net/reed2001/culture-1798664

Transcript

ALEX: From Gimlet, I’m Alex Blumberg and this is Without Fail, the show where I talk with entrepreneurs, artists, athletes, visionaries of all kinds about their successes and their failures, and what they’ve learned from both. 


And today, I’m talking to an HR maverick. Now, those two words -- HR and maverick -- they might not sound like they belong together. Mavericks are exciting, they push against the rules. HR, human resources, it’s synonymous with the rules, procedures. Bureaucracy. HR is often seen as the backwater of the corporate org chart. 


But this reputation of HR has never made sense to me. Because HR should be the opposite of a backwater. It’s the place in any company that’s most focused on the most important asset, the people. 


My guest today would agree with that. And in fact there’s almost no one alive who has done more to change HR’s reputation, to elevate it to its rightful spot on the pantheon of corporate functions, than my guest, Patty McCord. She’s most famous for a document that she co-created with her boss, Reed Hastings. Reed is the CEO of Netflix. Patty was his head of HR. Her official title was Chief Talent Officer. And Reed and Patty created something that became known as the Netflix Culture Deck. It was a radical reimagining of what HR could and should be. In 2009, Reed posted this culture deck, which up until that point had been internal, publicly online. And it caught fire. It has now been viewed tens of millions of times. And one of those tens of millions of views … was me. 


ALEX: I’m really excited to talk to you because I -- you know, five years ago I started my own company after not ever having done anything like that for my whole life. And ah… and our company has gone through and is in the midst of some growing pains that I feel like your very famous culture deck identifies perfectly. So I can’t wait to talk to you about that experience for you and the experience for us. 

PATTY: Yeah, we get an interview and a free consultation session, this works out great.

ALEX: Exactly! You figured it out. In fact there is no podcast, it’s all a ruse.


I’m very excited to bring you my conversation with Patty McCord. We get deep into the ideas that she layed out in the culture deck later in the episode. But we started at the beginning. Before the culture deck, before Patty was an HR maverick. Back when she was an HR traditionalist, in the ‘80s, when she had a succession of jobs at big technology companies. She worked as a recruiter, she headed diversity programs for Sun Microsystems.


And then in the early ‘90s she was looking around for a new job. Something exciting, with a little more promise. And she found out that a colleague of hers had gone to a start-up that was run by an impressive young CEO… Patty wanted in. So she called up her colleague. 


PATTY: I said, "You know, you should hire me to run H.R. for that company." And he said, there's nothing I can do about it. The CEO's name is Reed Hastings." And I hung up the phone. And back in those days what you did was you dialed *69 and it would redial.

ALEX BLUMBERG: Oh!

PATTY MCCORD: So it redialed, and Reed's sister who was the receptionist answered the phone, and I said, "May I speak to Reed Hastings?"

ALEX BLUMBERG: Did she connect you to Reed Hastings?

PATTY MCCORD: Of course! 

ALEX BLUMBERG: And what'd you say then?

PATTY MCCORD: I said, "You don't know me but you should, because I'm going to be -- I'm going to run H.R. for you." And he said, "Fine. Then, you know, get an appointment. Talk to you later." And when I had my interview with Reed, he asked me about what my H.R. philosophy was. And remember at the time, I spoke fluent H.R. I mean, I'd worked at Sun Microsystems. 

ALEX BLUMBERG: And Sun Microsystems was, like, how many employees? That was like thousands of employees? 

PATTY MCCORD: Oh, yeah. Yeah. 

ALEX BLUMBERG: So you were running big corporate ...

PATTY MCCORD: Big corporate H.R., right? And so I said something like, "You know Reed, I believe that it's -- it's of huge importance for each individual to draw a line to the corporate vision by being empowered and engaged," and whatever. And he looked at me and he said, "Do you people even speak English? Did that sentence make any sense to anyone on the planet?" And I got riled up and I said, "Well you know, you don't know me. What a dumb question to ask about my philosophy…”  

ALEX BLUMBERG: Wait, so you fought back with him though, in that moment? You were like ... 

PATTY MCCORD: Yeah! 

ALEX BLUMBERG: That was a stupid question. 

PATTY MCCORD: Yeah, I was like ...

ALEX BLUMBERG: And you're calling my answer stupid? I'm going to call your question stupid. 

PATTY MCCORD: I was like, you know, "Ask me a better question then, if you want a better answer." And so I came home and my husband said, "How did it go?" And I said, "Well you know, I kind of got in a fight with the CEO."


Turns out, didn’t matter. Reed Hastings was impressed with Patty even though she fought with him in the interview… or maybe because she fought with him… She wound up getting the job.


Now the company that Reed Hastings was starting back then was NOT Netflix. This was the company he started before Netflix. It was a company called Pure Software. It was a real estate holding company. Just kidding. It was a software company. And Pure Software grew quickly... buying up its competitors.


PM: Every time we acquired another company, we would double. So we were a hundred, two hundred, four hundred, eight hundred, you know, sixteen hundred. And that part of the story is really important, because how we operated was I would take their employee handbook and our employee handbook and I would smash it together and try and create as few policies as we could that would piss off the fewest amount of people. But, you know, the policy manual became two or three volumes. And we spent a whole lot of time in a whole lot of meetings discussing should our e-mail be PMcCord at, or Patty dot McCord at, or -- I mean, it was just this endless bureaucratic policy nightmare.

ALEX BLUMBERG: Uh huh… // I’m going to ask the question you said Reed was dumb for asking… At that point had you started to -- had you started to develop a philosophy of H.R.?

PATTY MCCORD: No, I would say not. 

ALEX BLUMBERG: If you had to outline the philosophy of standard HR, what would that philosophy be?

PATTY MCCORD: Well it's different in every company, but there's a baseline that says, "We make the rules and people follow them. And we're in charge." You know, it changed over time in my H.R. career from being, "We make the rules and people follow them," to "We're protecting the company from those evil employees that might sue us," to, you know, the HR global initiative du jour to, "maybe we should make them extraordinarily happy. Let's do ropes courses and celebrations..." Right? 


Patty stayed at Pure Software, practicing standard HR and feeling a little ambivalent about it, until, eventually, after acquiring all of those other companies, it was Pure Software’s turn to get acquired.


And an acquisition can be emotionally complicated for the company getting acquired. It can mean success, money, but also, it can be bittersweet. The thing we built, our baby, it has a new owner. What are saying goodbye. It can feel like a loss. But what Patty noticed, she and Reed, they had almost none of that second feeling. They weren’t really sad. In fact, Patty wondered at the time, why are we not sadder about this? And she noted that lack of sadness. Filed it away. 


And then, she moved on. She started consulting. Building herself a new career. And one day, she ran into Reed again.


PATTY: So I'm driving in a parking lot of a strip mall here in town one day in the -- early in the morning, and I see Reed with his kids in his double stroller. And I said, "What are you doing?" And he goes, "Well, I'm taking the kids for a walk." And I said, "To OfficeMax?" And he said, "I just bought this postage meter and, you know, I found that I can mail CDs to myself and they don't break." And I said, "What?" And then he told me the idea of Netflix DVD-by-mail, and I really -- I remember thinking I should be nice to him, because it's a really ridiculous idea.

[laughs]

PATTY MCCORD: Yeah, I know. It just -- it was just so implausible. 

ALEX BLUMBERG: If everybody else saw it, it would have happened already.

PATTY MCCORD: Like all start-ups. 

ALEX BLUMBERG: Yes, exactly. 

PATTY MCCORD: Right, if it was obvious, somebody would be doing it. 


Now this, remember, was pre-high-speed internet. And back then, the way you rented movies was by going to Blockbuster. Remember Blockbuster… it was an actual store. You’d walk into it. They’d rent you videos that you’d play on a thing called a DVD player.


Reed told Patty he was building a competitor to that. A movie rental company that would send you DVDs through the mail. He was calling it Netflix. And a short while after running into Patty in the parking lot, Reed called her and asked her to come help him build it. 


PATTY: When he called me and asked me to come to Netflix I said, "No, it's a really dumb idea, and secondly I'm consulting now. I make a bunch of money. I'm home a lot. My kids know my name. I mean, why would I do this?" And he said "Let's create the kind of company that if it was successful we'd still want to work there." And I'm like, "Wow! That's -- that's compelling." And I said, "If we did that how would you know?" Right? How would you describe it, Reed?" And he said, "I'd want to come in the door every day and solve these problems with these people." 

ALEX BLUMBERG: Oh, he would -- it would be like, I would want to come into work every day excited to solve the problems before us with the people around the table, in other words.

PATTY MCCORD: Good. Perfect. Yes, exactly that. And so he asked me what would my, you know, my nirvana play be and I said, "Wouldn't it be cool if we were a great company to be from?" You know like, we were like an Apple or a Microsoft or, you know, whoever. Where you saw the name on your resume and you thought, "Oh, that's cool. You were there."


For an HR maverick in the making, it was an enticing vision. So Patty joined Reed at Netflix… And for the first couple of years, it was a scrappy little company taking scrappy measures. 


PATTY MCCORD: We literally took everybody in the company out in the parking lot every Friday, and we went through basically what was the executive dashboard, right? We would walk them through the P&L. We would talk about how many subscribers we had, how it was growing, how many we were acquiring, what it cost to acquire them. I mean, walking everybody through the metrics of the business, so... 

ALEX BLUMBERG: And you're doing this in the parking lot? 

PATTY MCCORD: Yeah.

ALEX BLUMBERG: Why? 

PATTY MCCORD: Because we didn't have a room big enough for everybody to be in. 

ALEX BLUMBERG: So every Friday or whatever, you would take the whole - the whole company, which is like, what, 100 people?

PATTY MCCORD: Yeah, yeah. 

ALEX BLUMBERG: I'm just imagining you all out in the parking lot, like ...

PATTY MCCORD: We learned later -- we learned later that, at one point Blockbuster sent spies to the -- to the other parking lot that was adjacent to listen in. 

ALEX BLUMBERG: You're like, "Who are those people in the -- in the blue golf shirts over there?"


For Patty, all of it was exciting. It was a fast-growing startup… they were trying to something new. And it’s around here, in the early 2000s, that we get to the point in the story where the official seeds of what would become her masterpiece, the culture deck, get planted. So what happened was Netflix was growing fast… but there was a lot of bad stuff happening too.


PATTY: The growth for, particularly in the DVD-by-mail business, the growth was killing us. It was a terrible dilemma, right? Where every time we acquired a new customer, we had to buy three DVDs and stamps and envelopes and pay the labor to send it to them.

ALEX BLUMBERG: So the more customers you got, the more -- the less money you had. Like, each new customer wasn't adding to your bottom line, it was taking away from your bottom line.

PATTY MCCORD: Yes, they did -- because it was subscription, they would add to the bottom line over time. 

ALEX BLUMBERG: Uh-huh.

PATTY MCCORD: But we had -- but because, you know, if the economics of the subscription model means that, once your base is deep enough and wide enough to sustain your growth, then it just keeps feeding the machine. 

ALEX BLUMBERG: Right. 

PATTY MCCORD: But -- but we hadn't gotten to that baseline economics yet. 

ALEX BLUMBERG: Got it.

PATTY MCCORD: Right? And we weren't really sure whether or not it would work. And we had a very small window to do it before we ran out of money and/or went public, whichever came first.

ALEX BLUMBERG: Right. And so you were doing this, and your plan was to go public, and you had been building toward that, but then ... 

PATTY MCCORD: We'd been building towards that. We had been, you know, on the sidelines waiting for our IPO, and then the 2000 and, you know, September 11th happened, the economy went to hell happened, the Bay Area dotcom bubble burst. That was where our customers were. 

ALEX BLUMBERG: And so you guys were just like, "Oh, no!"

PATTY MCCORD: Oh, no! Oh, no! All our plans may be up in smoke, right? 


It was time for drastic action, which meant layoffs. And as head of HR, that was Patty’s department. She started looking at the staff and figuring out who it was essential to keep, and who they could let go. 


And they had to let go of a lot of people. People who’d been there from the beginning, who’d worked hard, poured their hearts and souls into building the company. By the end, she’d cut a third of Netflix’s workforce. It was agonizing and painful.


But after it was all done, Patty said she and Reed noticed something. They were getting twice as much done, with a third fewer people. 


PATTY MCCORD: Reed and I sat down together and went, "I'm totally excited about coming to work. How about you?" He's like, "It's the most fun I've ever had. What is it?" You know, "What is it? What -- what -- can we -- can we write down this, what's happening here and see if we can codify this into the way we operate?" 

ALEX BLUMBERG: So you're -- you're saying that you were -- you -- you had laid off all these employees, and then you and Reed come in and you're realizing, "Wait. I like working here way better, because we're accomplishing more with fewer people."

PATTY MCCORD: Mm-hmm. 

ALEX BLUMBERG: At that point, when did you start to notice at that point that the company was turning around? 

PATTY MCCORD: Oh, we could see it in the subscriber base. 

ALEX BLUMBERG: So the subscriber base, was just growing.

PATTY MCCORD: Yeah. The subscriber base was just growing organically and exponentially. And we were making so many improvements in the service very, very rapidly. And we had assembled a really incredible team on both ends of the DVD-by-mail business: on the -- the web side and the people working on the personalization algorithms, and that whole software side. 

ALEX BLUMBERG: Right. 

PATTY MCCORD: And we had a really brilliant team of people sort of reinventing the back-end logistics software to move DVDs through the U.S. Postal Service as efficiently as anybody on the planet. So things were really clicking along. And you know we used to listen to the Blockbuster earnings call on a polycom in the conference room, right? We'd stuff as many people in as we could.

ALEX BLUMBERG: To listen to the Blockbuster earnings call. Your biggest -- your biggest competitor.

PATTY MCCORD: Our biggest competitor. Who were 100 times bigger than we were at the very least, right? 

ALEX BLUMBERG: Yeah. 

PATTY MCCORD: And some -- one analyst asked John Antioco, who's the CEO of Blockbuster, what do you think of this company Netflix? And he says -- he gets mad. And he goes, "They are nothing. They are a gnat. They are nobody. People go to video stores. They'll never ever use this service." And I remember we were sitting around a table in a conference room. Behind this row of people is a whiteboard that shows our customer growth. And it's -- that line is just up and to the right. It's practically straight up. And we looked to each other realized, he doesn't know.

ALEX BLUMBERG: Wow!

PATTY MCCORD: And then -- and then, you know, internally that was a very, very difficult time because the employees were like, "Kill them! Deal the death blow!" And we were like, "No, we gotta wait them out."

ALEX BLUMBERG: We gotta wait them out.

PATTY MCCORD: You know, lay low, make it great, wait 'em out, you know? And that was our company mantra for a number of years. And that was a -- that was one of the hardest things there was to do. 

ALEX BLUMBERG: Because killing them would have been like, raise a ton of money and just, like, destroy them.

PATTY MCCORD: Super Bowl ad. Yeah! Right? Gloat at how good we are and how bad they are. And they would have squashed us like a bug.

ALEX BLUMBERG: Right.


Netflix of course did not get squashed like a bug. Instead, in 2002, it finally went public. 


Which put it back into the category of company that Patty had worked at earlier in her career. A big public company. With boards, and auditors, and of course, HR manuals, filled with HR policies. 


PATTY: Now, um, the auditors are showing up and the Sarbanes-Oxley people are showing up, and our -- the board, and everybody's saying, you know, you're going to be grown-ups now, it's time to be grown-ups. It's time to have policies just like grown-up companies have. Because at that point, we had sort of gotten rid of everything.

ALEX BLUMBERG: Mm-hmm.

PATTY MCCORD: And it was when, as our executive team, we started saying, "Really? Do we really have to tell these adult, brilliant, hard-working people to ask permission to spend money?" 

ALEX BLUMBERG: Right. 

PATTY MCCORD: Do we really have to have them clock in and out, when half the time, you know, they work from home or work at night. Or like, do we really need a time-off policy?

ALEX BLUMBERG: Uh-huh.

PATTY MCCORD: So back up. Why are these policies in place in the first place? Because employees will screw you if you don't watch out. And I said, "Well, what if I took a different tack that says they won't?"

ALEX BLUMBERG: Uh-huh.

PATTY MCCORD: Right? Most people don't come to work and go, "Gonna screw my company today. How about you?" 

ALEX BLUMBERG: Right. 

PATTY MCCORD: Right? Most people come to work and go, "I want to accomplish something I'm proud of by the end of the day." 

ALEX BLUMBERG: Right. 

PATTY MCCORD: So if you do that, and then you follow the metrics and follow the money, then you'll find out if somebody misused the company's money or made a bad judgment call. 

ALEX BLUMBERG: Right. 

PATTY MCCORD: And so rather than following the rules, you now rely on people to have maturity and good judgment. And that's a big ask. 


It’s a big ask but one that seemed worth making. And Patty and Reed started expanding on this thinking. Started asking this question: is it inevitable that now that Netflix is a certain size, we have to adopt the HR practices that we’re sick of? And so they started asking hard, foundational questions about what is in fact the role of HR, and whether there’s a different, better way to do it. And the asking and answering of those foundational questions, over the next 10 years, grew into the Netflix Culture Deck. 


They started reimagining all sorts of things. Vacation policy, for example. Patty and her team realized, “You know what, we don’t need to babysit employee vacation requests. Here’s our policy: we have unlimited vacation. You just have to use it responsibly.


Same deal with expenses. They would no longer track expenses, and require employees to submit 8.5 x 11 sheets of paper with receipts taped on them in order to get paid back for some company expense. Their policy became. Use the company’s money wisely. We trust you. 


Patty and Reed continued down this path. Continued trying to build the HR practice for the company they wanted to work at. 


A company that did more and better work with fewer people. A company that had nimble teams with clear goals in front of them.


And they soon realized that building that company meant reimagining one more thing. Something they’d come to believe standard HR did very poorly. They had to reimagine firing people.


That’s after the break.



BREAK 1



Welcome back to Without Fail and my conversation with Patty McCord, the former chief talent officer at Netflix. 


The Netflix Culture Deck, the thing that Patty was putting together little by little as the company grew, it became famous when Netflix CEO Reed Hastings decided to post it online. He didn’t even consult Patty first. He just uploaded it, typos and all, and it became wildly popular. Sheryl Sandberg said it “may well be the most important document ever to come out of the Valley.”


And there’s one section in particular that spoke to me when I read it. It starts on page 45, and it points out a dynamic that felt very familiar: as companies grow, so does their complexity, and as complexity increases, things start to feel chaotic. And that creates pressure to start implementing rules and procedures. So... if you’re a company that wants to grow AND wants to avoid chaos… a certain amount of corporate bureaucracy starts to feel inevitable. 


But according to Patty’s culture deck, it’s not. Companies can grow while avoiding both chaos and bureaucracy. They can have it all. And they can do it by hiring high-performance people. High performance people, the deck says, can operate without as many rules. And having a high-performing company that runs informally… that helps you attract more high-performance people, because that’s the kind of culture they like. 


And you know, that sounds great, right? But there is this one other part of it. Occasionally, as you grow, someone who started out being excellent stops being excellent. The person who built the brilliant prototype maybe isn’t the best at running the entire division the prototype grew into. 


And so, you have to be ready to fire people. The culture deck says that, at Netflix, they will fire people for the simple reason that they’re just not excellent enough anymore. Or they’re excellent at a thing that the company no longer needs. 



And this is brutal, right? Starting a startup is a foxhole experience. It feels like you're part of a family. And Patty knew that. And so, she and Reed, they had to come up with a new metaphor. Netflix, it wasn’t a family. It’s a team. A pro team, that hires and develops great players. But also, lets them go when they can no longer perform. Teams and families both connote cooperation and community. But unlike families, you can get cut from a team. 


And Patty, she got really good at cutting people from the team. She’s had those conversations...


PATTY MCCORD: Millions of times. 

ALEX BLUMBERG: What was the first one?  

PATTY: Oh god I don’t know, I mean it goes so far back…

ALEX: Like the first, tell me an early one where you were like “Oh my god, I have this conversation and I really don’t want to.

PATTY MCCORD: I'll take somebody on my team, maybe. You know, somebody who worked really, really hard and sorted their resumes and made nice stacks and passed them out, and didn't really understand the technology of what they were recruiting for or the person that they were talking to. And when I hired them, I just need somebody to work hard and be friendly. 

ALEX BLUMBERG: And now you needed what?

PATTY MCCORD: And now I needed somebody who really needed to understand what this team was trying to build. And who didn't roll their eyes and go, "Oh, God. The engineers are so weird!" Right? I needed somebody to go, "You know what? I just --" somebody to spontaneously say to me, "You know I did today Patty? I sat next to somebody writing code for an hour and I watched them. That is amazing what they do."

ALEX BLUMBERG: Here, I'm gonna play the role. I'm -- I'm -- I'm that person in the H.R. department that was sorting resumes. And you have been sort of like fearing the conversation, but knowing that it has to come.

PATTY MCCORD: Yup.

ALEX BLUMBERG: And you knock on my door. What do you say to me?

PATTY MCCORD: I say, "I think you've gotten kind of the vibe that I'm not particularly happy about the way things are going."

ALEX BLUMBERG: What? I have not.

PATTY MCCORD: Because -- oh, yeah yeah. Right. "But I have not." And then I'm like, "Okay, so I haven't been very clear about that. So here's the team that I'm trying to build. And I need to have people that really understand the technical people and understand what they're doing and what their timelines are, and what's important to them. And I don't get a good sense that you know that."

ALEX BLUMBERG: But I do, Patty. I do. I -- I -- I've -- like, what -- what gives you the sense that I don't know that?

PATTY MCCORD: Okay, so when you're in the engineering organization right now that you support, can you tell me what the top three technical issues that are facing them are? 

ALEX BLUMBERG: Ahh something about -- latency periods. I don't know.

PATTY MCCORD: Okay, so tell me what latency periods are. 

ALEX BLUMBERG: I don't know. 

PATTY MCCORD: Okay, so that's a kind of problem.

ALEX BLUMBERG: But you never told me that was a problem.

PATTY MCCORD: Okay, I'm telling you now. And I'm late, right? I need to -- I need to own -- I need to own telling you that I probably should have told you this a fair time ago. And we're -- I'm kind of under the gun, because we gotta hire a lot of people to solve this latency problem very quickly. So, if I were to start over again with you walking in the door knowing what you know, I'm not sure I'd hire you. 

ALEX BLUMBERG: Mm-hmm.


Patty says that having a conversation like this, as difficult as it sounds, is way better than what she did in her previous career, in traditional HR.


PATTY MCCORD: Let's use the example we just did. I would put you on a performance improvement plan.

ALEX BLUMBERG: Uh-huh. 

PATTY MCCORD: A 90-day performance improvement plan. And I don't really think you can do it anyway, right? What I really want to do is get rid of you. So every Wednesday morning at 11:00 o'clock I'm going to sit down with you and I'm gonna prove that you're incompetent in writing. Now every Tuesday night I'm going to drink a lot. And so are you. And by the third Tuesday night, third Wednesday morning, you're just going to start crying when you walk in the door and probably I will too, because it's going to be a really horrible conversation, right? So not only are you and I miserable, because we both know at some point it's a farce. 

ALEX BLUMBERG: Right. 

PATTY MCCORD: But your bad performance has gone to hell, or you're trying desperately to do something that you don't know how to do. 

ALEX BLUMBERG: Right. 

PATTY MCCORD: So you have three months of severance already in your pocket. Instead of wasting that three months of time for you, the person and the rest of the team...

ALEX BLUMBERG: Right. 

PATTY MCCORD: I can sit down and go, "I got to make the call. I'm in charge, and I don't think you're going to make it. And I am not going to set you up to fail. And I want you to take what you've learned here and find the right job at the right place for you. But it's not here, okay? So let's not do this. Let's not spend the next three months doing it. Here's a check for three months' salary." And that's already in your budget. 

ALEX BLUMBERG: Right. That is -- you're good. 

PATTY MCCORD: No. No, it took me years! It took me years! I was -- I mean, I really was an H.R. professional. It was -- but those were like, when I started paying attention to -- I'm the one that was in all those meetings.

ALEX BLUMBERG: Uh-huh.

PATTY MCCORD: And I'm thinking, "Why am I lying to this person? We both know this is a game. It's so cruel. This is crueler than saying goodbye." 

ALEX BLUMBERG: Is it? You've now done it both ways. You've had the experience and obviously every firing is ...

PATTY MCCORD: So much so. So much so. Yeah, but it's -- but it's part of the whole system that I'm describing to you. And the bigger system says, "Hey, you know what? Bunky, I hired you because you're an incredible builder. And for the past four years you have built something that will stand the test of time. You should be so proud of yourself. You're done. You’re done. We're not going to build another one of those." Right? And this new thing that we're building, you actually don't know how to do. But there's plenty of companies in the world who could use your expertise. Let's figure out how we do that for you." 

ALEX BLUMBERG: Right. 


Coming up, this conversation that Patty McCord had with so many other people… someone has it with her. That’s after the break.



BREAK 2



Welcome back to Without Fail.


My guest, HR maverick Patty McCord, had a long run at Netflix, from 1998 until 2012. Her departure came at a pivotal moment for the company. Netflix had been through a bruising time where it decided to split the DVD-by-mail part of its company from its streaming business. In the process it hiked membership fees by 60 percent, and subscribers revolted. 


Not only that, but House of Cards was on the horizon, and that meant a new future for Netflix. The company was pivoting to become a content creator. And Patty… who was really good at hiring engineers… didn’t have the skillset for this new world of entertainment. 


So Reed Hastings, the CEO of Netflix, had a conversation with her.


PATTY MCCORD: Reed did exactly what I just described to you. 

ALEX BLUMBERG: To you. 

PATTY MCCORD: Right. Yeah. If I walked in the door tomorrow for the company that I'm building, would I -- would I hire you? Maybe. Maybe not. Right? Maybe it's time to draw a new card.

ALEX BLUMBERG: Did you know that it was coming? 

PATTY MCCORD: Oh yeah. I mean it'd been a rough year. Yeah. So I mean, was -- is anybody completely prepared for that conversation? No. Was I as prepared as anybody? Yeah. Was I sad? Of course.

ALEX BLUMBERG: Did you understand? Did you have the feelings of, like, I want to argue back with him, I want to -- I want to stop this?

PATTY MCCORD: Of course. I'm human. I mean I remember saying to Reed, I'm like, "What if I leave and something great happens and I won't be here?" He's like, "Something great is going to happen. You won't be here." 

ALEX BLUMBERG: Uh-huh. Did you know -- did you see yourself from both… the reason that I'm interested in it is this is -- there's two reasons. One, you are one of the very few people who has, like -- who was in the position of going through the thing that you had been on the other side of for many, many, many, many times. And -- and I'm just curious about, like, that perspective, as, like, somebody who both knows what's going -- knows probably exactly what Reed is going to say. But then, you're hearing the words instead of saying them. I'm just curious about, like, what that felt like.

PATTY MCCORD: You know, what I was surprised by was the profound sadness that I wouldn't be part of it anymore. That -- that was the emotion that surprised me. Not any of the other ones: the anger and the crankiness and the fighting back and all that. I mean, that's just human nature, right? And we both kind of knew that was going to happen, so we just sort of had to work through that. It was more about the feeling left out.

ALEX BLUMBERG: Yeah. Did you think at the time that that was happening that like, "Oh the -- the -- this -- this -- this culture that I have built is now -- has now… turned on me?

PATTY MCCORD: Sure. Of course. 

ALEX BLUMBERG: You're like, "Why did I ever -- why did I ever write that deck in the first place?"

[CROSSTALK]

PATTY MCCORD: No, no, no, no, no, no, no, no. We -- so -- so we had a ritual, Reed and I going back forever. We'd take the company to Sundance and then he and I would get together and we'd have a bottle of wine together. Got progressively better by the way, over the years. 

ALEX BLUMBERG: Yes. The wine.

PATTY MCCORD: And the conversation we would have is, you know, am I the right person for what's in front of us next year. And we had -- both of us had it. So very, very early on we had this conversation where he said in front of a bunch of people, "You know, McCord, I could fire you in a hot minute," or something like that. And I brought him in a room and I said, "Hey, newsflash. I could quit in a hot minute." You know, like, "I am a professional, you know? You know, you're not the only game in town, and did you know it kind of hurts my feelings when you say that?" And he says "Oh, come on. Really? What hurts your feelings?" And I'm like, "It hurts my feelings. Makes me feel bad." And I'm talking to him -- we're having this conversation in, like, 1999.

ALEX BLUMBERG: Right.

PATTY MCCORD: And I said, "Really Reed, I can't imagine anything worse than, like, publicly failing. Like, if you don't think I'm the one you got to tell me." And he goes, "Yeah, okay. Under one condition." And I'm like, "Why is it always one condition with you?" And he goes, "You tell me. I've never done this before." So every year, you know, in January at Sundance we'd sit down and go, "Wow, what do you think are the pros and cons?" Like, when we -- when we knew that DVD-by-mail was going to take off I'm like, "You realize that the vast majority of the employees are going to be working in warehouses?" He's like, "Yeah, yeah, yeah." I'm like, "And there's going to be drivers all over." He says, "Yeah, yeah, yeah." I'm like, "I don't know what minimum wage is, Reed. I mean, I think they have to be bonded?"

ALEX BLUMBERG: Right. 

PATTY MCCORD: Like, I mean I can go work this stuff out. But he's like, "God, right. You'd probably suck at this. Okay, well if it turns out to be that that's critically important, then it's going to be somebody else, right? But it's hard for me to believe we're going to get somebody else like that who really understands, you know, a personalization algorithm."

ALEX BLUMBERG: Mm-hmm.

PATTY MCCORD: "Um, so go see if you can find somebody to help you run that and then let's just check in with each other to see if that's working out." 

ALEX BLUMBERG: Got it. 

PATTY MCCORD: So I mean those conversations were not, "No!"

ALEX BLUMBERG: Right. They were very -- they were very -- they were very straightforward.

PATTY MCCORD: Yeah. The wine helped. 

ALEX BLUMBERG: Yeah. I know. It's interesting, though. I feel like the thing that you -- the thing that people come away -- like, there's -- there's two mistakes that -- that you sort of make as a leader, and they're sort of the opposite ends. Like, and I think I was very much -- I think when you become a leader for the first time or like, you know, or sort of find yourself at the head of a company or -- as I did, you -- it's really scary to, like -- I wanted to make everybody feel good. I'm a people pleaser. And I -- and that works for you for a lot of -- worked for me for a lot my career, and then it was like -- it was really terrifying to, like, have -- make people upset. And so I think there's that. But then I think the other way that it goes is like, "Well, I got to do this. This is business." And so I'm just going to, like, harden myself and just do it, and I'm not going to show any emotion.

PATTY MCCORD: Mm-hmm.

ALEX BLUMBERG: And then -- and then that's the other option. And what you're saying is sort of like, there's a way to do this ...

PATTY MCCORD: No, there's a middle ground. Yes, there's a middle ground. You can do it with love and respect. You know, it's funny because I talk a lot about how companies are a team not family. And -- and I meet a lot of people who say to me, "Wow, you're a lot nicer than I thought you'd be. You know, you're actually kind of warm. And so are you and Reed friends?" And so now I say you're a team not a family and, you know, family is the wrong metaphor. But I am not saying that you can't make the most important friendships of your life at work. 

ALEX: Yeah.

PATTY: I mean, you know, I've known Reed 25 years now. Longer than that. Gosh, I'm thinking of how old our kids are, but -- but we're -- we're friends for life. And so now I look at what's happening with Netflix, and I'm just thrilled to death.


That was my conversation with Patty McCord. She tells the story of writing the Netflix Culture Deck in her book Powerful: Building a Culture of Freedom and Responsibility. And if you want to check out the Netflix Culture Deck for yourself, we'll provide a link in the show notes.


Without Fail is hosted by me and produced by Molly Messick. It is edited by me and Devon Taylor.


Music and mixing by Bobby Lord


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