By Ariel Tseitlin, Partner, Scale Venture Partners
This article originally appeared in Fast Company.
I joined Netflix at the beginning of 2011, just as the company was making the transition from operating in the data center to the public cloud. My job was to help build out Netflix's cloud platform and manage streaming operations. It was an incredible three-year experience seeing the company scale its people, culture, and technology.
In my life since then as an investor, I still apply what I learned in my time at Netflix to companies big and small. These lessons I picked up there might not save your life, but they might save your business.
1. BUILD A HIGH PERFORMANCE CULTURE
What separates winning companies from their competitors often has nothing to do with the products or services they offer but with the cultures they build around employees. Netflix's, of course, is renowned. One thing Netflix knows well is that a company's ability to execute depends hugely on culture, which comes either top-down from the founding team or through formalized process and training.
As I consider companies to invest in, one thing I look for is a culture that encourages results and healthy competition. That's a no-brainer. But less appreciated is that culture takes different forms even while emphasizing the same goals, like transparency and high performance. If I see a company that’s heavily compartmentalized or relies on a command-and-control structure, that’s a red flag.
There’s no question that companies known for strong work cultures are outperforming their peers. What’s more, when these companies unveil a new policy, others take notice. Mark Zuckerberg’s recent paternity leave, for instance, has raised the issue of work-life balance for tech and non-tech companies alike. Netflix unveiled its own unlimited paid parental leave policy last year. Issues like these have become powerful recruiting and retention tools for tech companies, which is why some of the most prominent ones are following suit.
2. PLAN FOR SUCCESS
Building something without planning for how it will work when it gets popular is one of the easiest ways to not only kill off a great product, but sometimes the company itself. During my time at Netflix, we were driven to build for scale by necessity—you knew that if something was successful it would be used by millions of people.
Imagining our products at scale influenced the way we thought about building the company as a whole. The choices you make at the beginning of development matter when you go from 50,000 to 50 million users, so planning for mass adoption from the start helps companies grow rapidly and at the same time keeps them ahead of the curve, instead of rebuilding features to handle new users.
What's more, there’s little incremental cost to building for scale. It’s easier to spend 20% more while you’re developing the core product than spending 100%–200% more once your decisions are set in stone. For developers, an ounce of prevention really is worth a pound of cure (and then some).
How your startup handles growth will ultimately determine how large it becomes. Automation and self-service tools and processes enable startups to scale efficiently instead of becoming victims of their own success.
3. MAKE MANY MISTAKES, JUST KEEP MOVING
Tech companies get upended by newer startups every day. The companies with staying power have learned how to disrupt themselves instead of letting another company push them into obsolescence. Ultimately, the best way to avoid getting disrupted is to maintain a high rate of innovation and move quickly. Mistakes are a natural consequence of speed. If you aren't screwing up, you won't find out how much faster you could be going.
Netflix made waves in 2011 when it announced plans to spin off its DVD business into a new company called Qwikster. This decision—coupled with a new pricing model—didn’t sit well with customers. Netflix CEO Reed Hastings eventually apologized for moving the company too quickly and abandoned plans for Qwikster.
The knee-jerk reaction after such a mistake would be to slow down in order to prevent future errors. But there’s no way to do that without stifling innovation, and what impressed me about Netflix was that even in the aftermath of those decisions, the rate of innovation never slowed down.
Don’t avoid mistakes at the expense of innovating as quickly as you need to. One of your competitors will come out with a better product if you don’t move fast enough—and by then, it could already be too late.
4. LOOK BEYOND THE CAP TABLE
Netflix taught me more about building a startup than I ever learned at business school. Founding a startup is a challenge like no other, but there are things you can do to make it easier and increase your odds of success. Financials aside, what sets Netflix apart from other companies that have emerged out of the latest tech boom is its dedication to employee culture and shared values, its ability to design products for mass adoption, and the energy it spends anticipating what could disrupt its business model.
These lessons aren’t specific to cloud computing—they apply to startups as a whole. As an investor, I perk up when founders mention these differentiators. They just might signal the next meteoric tech startup.
Ariel Tseitlin is a partner at Scale Venture Partners focused on investments in the cloud and security industries. He currently sits on the board of directors at Agari and CloudHealth Technologies. Previously, Ariel was director of Cloud Solutions at Netflix.