STEVE HENN, HOST:
One of my favorite economists, Dan Ariely, tells this story about a locksmith. When the locksmith was new at his job, when he was an apprentice, he took a really long time to open a lock. And people saw him working away, struggling, really having a hard time. And often they'd end up giving him a tip. But then when locksmith got better at his job, when he got so good at his job he could open pretty much any lock in just a minute or two, then his customers started complaining. They were like, you want $200 for that? This took you, like, 30 seconds.
STACEY VANEK SMITH, HOST:
And you can see why, right? I mean, we tend to think the harder someone works, the more they should get.
HENN: Yeah, but it's also kind of ridiculous. I mean, this guy was better at his job. When you call a locksmith, you want to get into your car or your house as fast as possible. And that was what he was doing. He was giving customers what they really wanted. But they felt cheated. His bills suddenly felt unfair.
VANEK SMITH: A lot of companies operate under exactly this principle. They reward people for how much they work. The person who stays late at the office, the person who comes early, they are more likely to get a promotion.
HENN: But maybe this is wrong. Maybe hard work is irrelevant. Maybe what should matter is what we create. Maybe companies should be measuring our output and not keeping track of our input. What would happen if you ran a company based on that idea? What would that look like? Hello, and welcome to PLANET MONEY. I'm Steve Henn.
VANEK SMITH: And I'm Stacey Vanek Smith. Today on the show, we find out. We have the story of Patty McCord, one woman who has waged war against the idea of rewarding hard work in the workplace. You may not know her name, but chances are pretty good she has already affected your life.
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HENN: Patty McCord is kind of an accidental crusader. As a kid, she moved around a lot. She grew up in West Texas, then moved to Florida, then Northern California. After high school, she got a job in a lumberyard. Eventually she quit that job, put herself through college and landed at a small startup in the late 1990s.
VANEK SMITH: The startup was sending people DVDs through the mail - movies, television shows. The startup was Netflix. And Patty McCord helped build Netflix from this tiny startup into what it is today.
PATTY MCCORD: If I die tomorrow, other than my family, this is the thing I'm most proud of in my whole life. I mean, we - just a bunch of people came together who made this up.
VANEK SMITH: At Netflix, Patty was in charge of hiring and recruiting people. And the company was growing really fast.
HENN: But in the beginning, Patty says the company was actually just this tiny group of people and a kind of junky office working from a bunch of card tables.
MCCORD: We were poor. You know, in the early days of Netflix, we had to buy DVDs and stamps and envelopes.
HENN: So this was the scrappy-startup phase of Netflix history. This was long before it became a giant, multibillion-dollar company. In the early days, it almost went bankrupt.
VANEK SMITH: And this was a formative event, maybe even more than the company's successes, because it led them to rethink the whole idea of how a workplace should function.
HENN: This was around 2001. The tech bubble had burst. The company was limping along, running out of money fast. And Patty, who had been in charge of hiring people, was now in charge of firing them.
MCCORD: So we laid off a third of the company - a third. We were only 120 people or so, but still that's one, two, three, one, two, three.
HENN: Patty and the company's CEO, Reed Hastings, had to come up with a list. They got rid of some movie reviewers - actually all of them - some engineers. And you know how every company has that one guy in the corner, and you're like, what exactly does he do? That guy, they fired that guy. And they got rid of lots of people who had been there since the beginning, but who maybe weren't completely essential.
VANEK SMITH: For people at the company, this was awful. It was a terrible time. And then weirdly, it was kind of great. They came into work and realized the company was just working better. John Ciancutti was an engineer there at the time.
JOHN CIANCUTTI: The experience that I had was much greater freedom. Nobody was there who didn't have a job that felt critical to our success.
HENN: And everyone who was left was really, really good. Bill Kunz, another engineer, says after work they could just haul.
BILL KUNZ: We can get this done with a small group of people. We have to. We have no choice. So now we've got double the reason to do it. So let's go, you all.
HENN: Was that fun?
KUNZ: Oh, yeah. Oh, yeah.
HENN: The company was still losing money. It was still going to have to raise a lot more cash or die. But the entire vibe had changed. The bureaucratic garbage was pushed to the side. There were no more travel approvals, fewer expense reports, fewer meetings. They were all doing more, accomplishing more work with fewer people.
VANEK SMITH: In those days, Patty McCord and Reed Hastings, Netflix CEO, would carpool to work.
MCCORD: We're in the car driving, and I'm like, why is this so fun? I can't wait to get to work. I don't want to go home at night. I mean, we're working so hard. What is it about this? Reed's like, go find out. (Laughter) Let's find out. Let's write it down.
HENN: And at that moment, Reed Hastings and Patty McCord decided they wanted to build a big company that would always work this way, one that had exceptional people, a company that rewarded employees not for trying hard or showing up or being there from the start, but for actually accomplishing great things. They decided to try and change the social contract around work.
VANEK SMITH: And bit by bit, they wrote down their ideas. And eventually it became this legendary slide presentation.
HENN: It's actually still shown to all new employees at Netflix. And it's had a huge impact. A few years ago, they posted it online, and it went viral. It's gotten 12 million views. And Sheryl Sandberg, the COO at Facebook, called it the most important document to come out of Silicon Valley.
VANEK SMITH: So, Steve, you were showing me these slides, and if you've ever wondered what life is like in Silicon Valley or why these companies become so successful and grow so fast, these slides tell you a lot.
HENN: One of the key slides reads - here it is - (reading) hard work - not relevant. It says, quote, "we don't measure people by how many hours they work or how much they're in the office."
VANEK SMITH: In other words, we don't really care how hard you work, how much effort you put in. We only care about results. We care about your output, not your input.
HENN: Netflix now offers unlimited vacation time. And it pays more than pretty much any other company out here in Silicon Valley. But to get a job there and to keep it, you have to accomplish great things. So here's another slide. And this one feels a little bit harsher. It says, quote, "we are a team, not a family, and we are a pro sports team, not a kids' recreational team."
In other words, if they don't need you anymore or the business changes or if things aren't working out, you will be cut. Don't expect this to be a job for life. Don't expect to stick around forever. And Netflix lives by this philosophy, even in really good times.
VANEK SMITH: Like when Netflix started streaming movies and that took off, the company started growing like crazy; people loved streaming movies. They thought, this is so much better than ordering a movie through the mail. I can just see the movie I want, click on it, watch it right away.
HENN: Netflix at this point starts growing so fast it was about to break the Internet - I mean, really break the Internet. Streaming online takes a huge amount of data, and Netflix just wasn't equipped to deal with it if suddenly the entire country decided to start streaming.
But it looked like that was about to happen soon. Executives figured they had less than a year to fix this problem, so they went to this brilliant team of engineers - the same people who had made streaming work in the first place - and they said, look, we've got to fix this.
MCCORD: And they're like, no worries, we'll build it. You guys go exec something. We'll build a cloud - you know, we'll build a cloud-based computing - we can do that. We're like - actually you guys probably could, but not in nine months.
VANEK SMITH: But not in nine months.
HENN: That was streaming D-Day. That's when they had to get this done by. So they had this incredible team. But the executives decide they're going to have to hire someone else to solve this problem. And they did. They hired Amazon. They used Amazon data centers and Netflix's engineers were not happy.
MCCORD: They're like, well, are we toast? Right, if we're going to go to somebody else to do it, what happens to us? I'm like, I don't know, but we've got to be honest about it.
HENN: The honest truth was they were toast. There wasn't going to be a role there for them.
VANEK SMITH: I mean, this is a team of engineers that were so talented that they had basically taken Netflix to this point of explosive growth. And now the company is just going to get rid of them because there's nothing for them to do at that moment. That just seems so crazy.
HENN: It's actually not that crazy. I mean, the entire team had read the slides. They knew the deal. They were at Netflix because they wanted to solve really interesting problems. When their role didn't exist anymore, they left on their own. Patty actually didn't need to fire these people. They went out and found new jobs before she had the chance. In a way, the system worked.
But this is still a big shift in terms of how you think about a job. Some people came to Netflix and expected that they'd be able to stay as long as they worked hard and did good work. Patty remembers one worker who did product testing, and she was about to lose her job because basically it had become automated. And this worker was so upset.
MCCORD: So I called her up. I'm like, what's up with you? She's like, I can't believe you treated me this way, I mean, after all of this time. I'm like, get in here. So she comes. She sits down. I'm like, what part of this is a surprise? She said, well - I'm like, we've been talking about this as a strategy for years. You've been in every - I've been in - I've sat next to you (laughter). I mean, we've talked about this. And she goes, yeah, but I think you could find me another place in the company. I'm like, I can, but the same thing's going to happen. I mean, I really can't - I'd be making something up for you. And she said, well, you know, I've worked really hard. This is really unfair. I'm like, and you're crying. She's like, yeah. I'm like, you dry your tears and hold your head up and go be from Netflix. You're the - why do you think you're the last one here? Because you're the best. You're incredibly good at what you do. We just don't need you to do it anymore.
HENN: Patty has a lot of experience doing this. She became what she calls the queen of the good goodbyes.
How many people do you think you have fired?
MCCORD: Oh, I would really like to remove that word from our vocabulary because for one thing, I hate all of our militaristic terminology in tech. We don't shoot people, and we're going to have long careers, you and me. I mean, we're going to work at a lot of different companies. And if we can start as employees thinking of our careers as journeys and places that we go and things that we explore, then we're going to not get all wigged-out out when things change and it doesn't work out.
HENN: OK, what word do you like? Severed is no less pleasant than fired.
MCCORD: No, you just move on.
HENN: How many people have you moved on?
MCCORD: Oh, hundreds.
VANEK SMITH: I don't know, Steve. This makes Netflix sound like a really hard place to work.
HENN: Yeah, for some people, I think it is. A lot of people I talked to really liked it. But there's a downside to working at a place like Netflix. Some employees there talk about a culture of fear. It's not like that for everybody, but for some people, it definitely is. And you know, you can look at that slide - hard work doesn't matter - we don't track hours - and think, great, I'll just finish early and then take the rest of the day off. I'm an adult. I'm in control of my life.
But another way to read that slide is that hard work is not necessarily enough. Working hard is no guarantee you're going to make it, and most of the employees and former employees of Netflix who I talked to, they work crazy hard.
ANGELA LOSASSO: I'm Angela LoSasso. I think I was employee, like, number 32.
HENN: Angela was hired to do marketing, but ended up in the early days doing just a bit of everything. She even spent one Christmas Eve sorting DVDs. And she loved this company. She lived and breathed and bled Netflix red. She was super loyal. She worked until she was exhausted, slept, then got up and did it again and again. And eventually she worked so hard, she got sick. She developed chronic back pain that just kept getting worse.
LOSASSO: When I was initially hurt and I needed some time away, I just went into Patty and said, I to take a break. They don't want me to type. They don't want me sitting - all this kind of stuff. She's like OK. That's all she said - OK. Let me know when you're feeling better.
I was out for weeks, and I kept checking in. Like, I'm thinking, they going to fire me. They're going to find somebody else. And I'd just send her a note saying, they still want me to rest. She'd write back, OK, hope you feel better.
Six weeks, eight weeks, 10 weeks - I finally went to her and I said, you know, maybe we should formalize this. Maybe I need to go on short-term disability or something like that. And she goes, if that's want you want to do. I said, well, I'd love to come back. She goes, yeah, kiddo, I don't know. And I'm like, OK. And I knew it immediately. It's like, OK, they've already pivoted.
VANEK SMITH: Oh, Steve, that's a really hard story to hear.
HENN: I mean, to be fair, Netflix was struggling at that point. And Angela knew there was no job there that they needed doing that she was capable of doing. The company had to move on. But you know, when I hear her tell that story and I hear her talking about Netflix, I can't help but be reminded of that slide - we're a team, not a family. You know, for Angela, working at Netflix was one of the best times of her life. She still loves the people who she worked with there. But the deal at that company is just different.
VANEK SMITH: But maybe not that different, at least not anymore because Patty and these slides have had a huge impact all over Silicon Valley and all over the country. People have looked at these ideas and have adopted them.
HENN: And Netflix sees this as a big reason for its success. The company's business has gotten bigger and bigger and bigger. But its workforce is lean and flexible. I mean, when DVDs were no longer a thing, fine. Netflix mastered streaming. Then when Hollywood decided to raise the prices for TV shows and movies, no problem. Netflix started making its own. Ten years after the layoffs, the company seemed unstoppable.
MCCORD: Reed was on the cover of Fortune. He was the best CEO of the year. We were acquiring a million subscribers a month. We were rolling in dough. We were like, we - I'm amazing, and you know what? So are you. Wait - so are you. We're amazing. What can we do? Anything we want. And everything was golden. There's no way we were going to fail.
HENN: You can guess what happened next.
VANEK SMITH: They failed.
HENN: You know, some of you may remember this because it made customers furious. Netflix announced it was going to split into two separate companies, one for streaming and one for DVDs. And that meant that if you wanted to get both, you had to pay twice - two bills instead of one. And it was a big price increase. Customers revolted.
VANEK SMITH: Yeah, I actually canceled my Netflix membership over that.
HENN: They lost something like 800,000 customers in a month. During this period, every morning Patty would wake up, open her laptop, check the headlines and the backlash, it was right there on the front page of every paper.
MCCORD: I'd read that stuff, and then I'd go throw up. It was a hard time. It was so hard.
HENN: And this is when that lean, efficient machine Patty helped build, this monster of a company, reached up and got her. Patty had been a big supporter of splitting Netflix in two, and it had been a disaster. At the same time, Netflix was also evolving. They were moving to Hollywood, making shows like "House Of Cards" and "Orange Is The New Black." And Patty had no experience in entertainment, no experience hiring directors for that kind of production. Her skills were no longer needed, and at the end of that year, she and Reed Hastings had a conversation, and Patty moved on.
She still doesn't like to talk about it. But she said leaving was terrible and painful and sad. Today she's in a good place. She's in demand as a consultant. She's happy. But when she's talking about Netflix, she still uses the pronoun we to describe her company. And no matter what those slides she helped write say, the people who built Netflix with her still feel like a family, even though really they are a team and Patty has been cut.
We always like hearing what you have to say about the show, and if you have something to say, you can email us at email@example.com, or tweet at us @planetmoney. Our episode today was today was perused by Jess Jiang, Alex Goldmark, Frances Harlow and edited by David Kestenbaum.
VANEK SMITH: And if you're looking for another podcast to listen to, try Ask Me Another. It's like trivia night, but a lot funnier. On the latest episode, they have Sir Patrick Stewart. He talks about living in Brooklyn, becoming a knights and his new show, "Blunt Talk." You can listen now at npr.org/podcast or on the NPR One app. I'm Stacey Vanek Smith.
HENN: And I'm Steve Henn. Thanks for listening.
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