I am currently reading No Rules Rules, a book on Netflix culture by co-founder Reed Hastings, and organisational culture expert Erin Mayer. It takes the format of a back and forth conversation between Erin and Reed, and highlights three general rules which Netflix thinks have been essential to Netflix’s success: increase talent density, increase candor, and remove controls. I won’t go into all the wonderful examples that Erin and Reed give, but I will explain what each of these mean. If you find this topic interesting, check out an interview with Erin on how Netflix managed to keep their culture consistent across nationalities.
Sustained “B” performance, despite an “A” for effort, gets a respectful severance package.
Netflix Culture Guide
The first rule is increase talent density. Talent density is what the average talent of the organisation is. At most organisations there will be variation between the high performers, the lazy, the jerks, and the well-intentioned but incompetent. What Netflix seeks to do is to remove everyone from the organisation that isn’t a high performer. Not only does this let the high performers do what they do best without being hamstrung by everyone else, but when people are surrounded by other brilliant people, they start to perform better themselves.
We know this level of candor and feedback can be difficult for new hires and people in different parts of the world where direct feedback is uncommon.
Netflix Culture Guide
Second is increasing candor. Netflix has worked hard to make it clear that everyone in the organisation is able to give feedback to anyone else. This helps people to perform better, and helps work relationships to be more honest. However, Reed and Erin are careful to make it clear that there is a difference between being candid and being a jerk. As such, Netflix makes sure to coach people on how to give feedback in a way that is kind, helpful, and growth oriented.
Our policy for travel, entertainment, gifts, and other expenses is 5 words long: “act in Netflix’s best interest.”
Netflix Culture Guide
The final element is to remove controls. This allows people to do what they do best, and to use their judgement when deciding how much holiday to take, what hours to work and how much to spend on the company account. This avoids the bureaucracy that comes with extensive rules processes, but also means that employees feel a much greater sense of ownership and trust within Netflix, leading to better performance.
We model ourselves on being a team, not a family.
Netflix Culture Guide
This working culture quite different from the majority of the US, where Netflix originated. But the differences are even more striking when compared to the normal working cultures of other countries, like Brazil and Japan where Netflix has other offices. Each of these countries has struggled aspects of this culture. For example, Brazil struggled with thinking of Netflix as a team instead of a family, and thought that it meant that they couldn’t eat together and have coffee together like a family. For Brazil, where work is very relationship oriented, this was difficult, and needed careful corrections to the culture guide to maintain what was good about the original culture but also to change aspects that were important to Netflix’s success.
Overall I would highly recommend buying No Rules Rules if you have an interest in organisational culture or management, or even if you want an insight into what has become one of the most influential media makers in the world. Buy it from Waterstones or Blackwell’s.
Good Morning, and welcome to the end of the year!
Nothing about this year has gone to plan, but I dare say the what happened for me has been even better. The plan was to finish university, attend May Balls, travel in South-East Asia, and start working at CVA. Instead I finished exams at home with my girlfriend, started a company, and got a job at Bain. Yes, the year was very stressful, and there were dark periods that are easier to look back on than to live through. However I think that appreciating what happened is a valuable skill.
Our perception of time has been weird this year, in part because our perception of time is based on locations that we visit, so it is very easy to forget how much has changed over the year. To appreciate the vast quantity of stuff that you’ve managed to accomplish, take a brief look through your calendar from the last year. I think you’ll probably be amazed at how much you you got done, even in a year like this.
This week I talk about strategic acquisitions, and specifically the acquisition of Precor by Peloton, I talk about setting goals for next year, and about a revolution in psychedelics.
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Have a nice week, Callum Macdonald
Peloton Acquisition
View Original Article. Peloton has had a bumper year. Over the last year they have brought in $2.35bn, a 129% increase over the previous twelve months. Their stock value has gone up 6.2X in one year, 5.5X better than the S&P average. However, some people think that Peloton’s success is only temporary, and that people will stop buying expensive home fitness equipment when gyms reopen. It’s clear that some of the stock market thinks this – when the Pfizer vaccine efficacy was announced, Peloton stock dropped 20%.
However, Peloton’s recent purchase will cement their presence as a fitness-technology giant. Even at a $420mil price tag, it might be the smartest move they’ve ever made. In this article I will explore Peloton’s purchase of Precor, a gym equipment manufacturer, and how the two companies fit together in what might be the most strategic acquisition of the year.
Precor is an international fitness equipment manufacturer and supplier, building and selling fitness equipment to gyms around the world. The deal, to be completed in 2021, consists of $420 million in cash to the current owners of Precor. The synergies for Peloton go beyond the usual revenue and cost synergies that most case studies examine. Peloton’s purchase of Precor allows them to complete the Peloton ecosystem.
Before we dig into the synergies and the ecosystem, we should appreciate the timing by Peloton. Just one month ago Precor was looking to be bought for $500 million. Peloton’s $80mil discount will be because gyms around the world have been closed, and closed gyms don’t buy new equipment, which means that Precor will probably be struggling with getting enough demand, and hence would be eager to rush a sale. On the other side, had Peloton waited any longer then Precor might have started to see signs of economic recovery, driving their asking price up.
Of the synergies, the most obvious is in supplying the bikes. Peloton currently has problems – they can’t make enough bikes to keep up with demand (the wait on their Bike+ is over 10 weeks). This isn’t the worst problem to have, but it does mean that they aren’t selling as many bikes as they could, and are missing out on revenue. Precor can help with this as they have manufacturing facilities across the US, which would allow Peloton to expand its manufacturing capacity without the expense of building new spaces, or the lag involved in hiring and training manufacturing staff.
Another possible supply side synergy is Precor could help Peloton make their bikes cheaper to construct. This might be possible through greater scale advantages, or through having access to the large amounts of manufacturing expertise at Precor. I have doubts about whether or not the acquisition would help with gaining cost advantages, but then again, I don’t know what changes they might be able to make to the construction materials and process to bring costs down.
As mentioned above, the Precor acquisition comes with manufacturing and product design expertise, including over 100 R&D staff. As Peloton has recently released Tread, their running machine, we can tell that they are interested in spreading outside the world of bikes. Precor’s R&D facilities and experience might allow them to be able to branch into rowing machines and assault bikes too. If Peloton is able to position themselves as the premium, best in business cardio machines across disciplines, then I can see some of the wealthier rowing clubs in the world spending more to have a Peloton rowing machine.
On the other side of the business are the revenue synergies. This is where Peloton might be able to gain the most over the next couple of years. First, Precor already has access to and has relationships with a large network of gyms, hotels, universities, and offices. Peloton probably expects to leverage these relationships to sell Peloton equipment into these locations. Not only does this give them access to a larger market than the personal use market, but it also means that their business model is more resilient to post-Covid demand changes if people go back to gyms for good.
Having bikes in hotel gyms and office gyms provides an additional benefit to Peloton that most people might not have considered – advertising. The narrative that I can see occurring is the following: Someone, while on a post-Covid business trip, visits the hotel gym. In this gym, thanks to Precor’s international sales network, is a Peloton Bike. The business traveller has heard a lot about Peloton in the news, but doesn’t know anyone with one, and hasn’t yet been convinced to part with the cash to buy one. Because they are interested, they try the bike. They like it enough that, when they get home, they look into buying one.
This process of trying and liking a Peloton bike can move preferences both ways: it is also possible that someone who has a Peloton at home might aim to pick a hotel that also has Peloton bikes. This would be so that they are able to continue to train on the same system, logging into the bike to keep their streaks up or so that they don’t have to adapt their training when travelling, or even so that they can catch their favourite trainer’s classes.
The final part of the Peloton ecosystem is the gyms near home. If you have enjoyed using a Peloton bike while travelling, you might not have room for a bike in your apartment, but you might be interested in paying a little bit more to go to a gym with Peloton bikes. Again, Precor makes this possible. Even in the intermediate world where gyms are open but classes aren’t allowed, Peloton can thrive.
“Peloton was never just to replace any other type of workout. It was to supplement it and make sure that you had no excuses, that you had the convenience in your home”
Emma Lovewell, Peloton Instructor
The overall goal for Peloton is to get as many people as possible into riding Peloton bikes, and to be able to profit regardless of how those people want to ride. The Peloton ecosystem is going to be key in reaching this goal, and this acquisition goes a long way to making this ecosystem a possibility.
Year End Reviews
View Full Article. I’m a big fan of New Year’s resolutions. They can be great motivators and can help make you healthier, smarter, happier and more interesting to be around. And yes, I know that only around 8% of people who make New Year’s resolutions keep them. But a couple of years ago I started using a format for New Year’s resolutions that has helped me keep over half of my resolutions each year. People always overestimate how much they can get done in a day, but underestimate how much they can get done in a year. What will you get done this year?
To start the goal setting process, I start by reflecting on the past year. To try to get a comprehensive and complete understanding of the past year, I try to list at least one thing that went well each month and one thing that didn’t. From this list of positives and negatives, I start a second list, on which I place any behaviours that would have prevented the negatives from being as bad, or would have improved the good ones further. This isn’t the list final list of goals, but more of a brainstorm that can help next year be better.
Now, to construct the actual goals I start with a structure to make sure that I think about enough areas of your life (there are two structures here, but use any sufficiently broad list of categories). I think that it is important to have a variety of interests: it keeps your life interesting, it makes you more interesting, and actually makes you more likely to be successful.
There are several important rules I follow in this goal making process. First, I design them so I can’t fail by February. Secondly, I make the goals objective or measurable. Instead of “I will eat less meat” or “I will get better at speaking Spanish”, I think of an objective goal like “I will cut meat to twice a week” or “I will pass my B2 Spanish Exam”. Third, when I design each goal, I think about three possible activities that would help me to meet that goal.
Finally, to help me reach my goals, I set reminders every couple of months to read through my goals. I like to use Google Keep, and I set a reminder on the note for March, and then for every month after that. Being reminded of the goals can help you get back on track, no matter how badly it went wrong in the first couple of months.
I hope that you find this process helpful, you can view the whole goal design process here. Over the past couple of years, I have read more, gotten tidier, learnt to drive, visited Paris, and become more mindful of the way I communicate. 2020 has been a weird year, let’s make 2021 the year we bounce back.
The Psychedelic Revolution
LSD, magic mushrooms, peyote and even ketamine are all getting a second look from the medical community, and by everyone else. Last week in my Long Reads I recommended Have A Nice Trip, the Netflix documentary on psychodelic drugs. This week I read about the mechanism through which psilocybin (the active component in magic mushrooms) works, how psychedelics can even be used to help otherwise healthy people, and how ketamine can be used to treat depression and anxiety. Today I’m going to summarise some of the most recent research, and put it in a practical perspective, and I’m going to start with ketamine.
For most people ketamine is either a party drug or a horse tranquiliser. But last year I came across a study that showed that ketamine was protective against stress induced depression in rats. But the more recent evidence has shown it effective against existing depression in humans. As a study by The Lancet has shown how effectective current depression medication is: amitriptyline achieves an odds ratio of 2.13 (people on this drug are 2.13 times more likely to recover from depression than on the placebo). Meanwhile ketamine is achieving an odds ratio of around 9.87. That is very significant. For a first person perspective on taking ketamine to handle anxiety check out this.
But ketamine is a minor player in the revolution. In the above studies ketamine has not been shown to result in a sustained response, so if taken into a clinical setting people would have to take ketamine on a regular basis. Psilocybin, however, is effective after one dose. In one study, 54% of participants who took psilocybin were in remission from major depressive disorder thirteen weeks after their dose. And it isn’t just depression that psilocybin is efficacious for – one study found psilocybin to help end 80% of the participants addiction to cigarettes, where normal therapies are only 35% successful.
But there is another side to these drugs, a side for people who are otherwise healthy. Studies have found that micro-dosing psychedelic mushrooms enhances both convergent and divergent thinking, and others have found creativity to increase after taking ayahuasca. One of the more common drugs that people microdose is LSD, which has been found to help with reduced anxiety and depression as well as improved focus.
We currently don’t know how psychedelics work, or how they are having these effects. Some studies indicate that psychedelic experiences downregulate areas of the brain that limit information flow and regulate our sense of self, while other theories point to changes in the brain’s network state, and others look at the brain’s serotonin neurons. The true answer likely won’t be uncovered for years, probably decades.
But, for the moment, none of this neuroscience matters. What matters is that these drugs work reliably and safely. If we are able to prove this, then these wonder-drugs will be available from the pharmacist for anyone and everyone.
Long Reads
First, here is the AI girlfriend seducing China’s lonely men. Second, here is the history of Cancel Culture. Is the worry overhyped? Is it a trend to be concerned about? Finally, relevant because I’m reading Irresistible: The Rise of Addictive Technology and the Business of Keeping us Hooked, I thought this piece by someone who went on a phone detox was a fun read.
I hope you’ve enjoyed this week’s article, if you have then be sure to sign up to receive the next one in your inbox below, and to share the article with anyone else you might think is interested.
Callum Macdonald 