Long before Netflix became a Hollywood mainstay with a market capitalization of more than $315 billion, the company was struggling to stay afloat. In the aftermath of the dotcom bust, the then-DVD rental business was forced into its first major round of layoffs in 2001, cutting roughly one-third of its workforce.

For Netflix cofounder Reed Hastings, the experience drove home a lesson about how to think about a company: it may be a tight-knit team, but it is not a family.

“People respect great teams, and they respect families and how we operate,” Hastings recently told Semafor. “But if you describe yourself as a family at a company, you better not ever do a layoff. You would never lay off two of your kids, right? Then people get very cynical if you say it’s a family but don’t operate that way.”

Netflix soon found a path forward, capitalizing on the rise of DVD players by pivoting to a subscription-based DVD delivery service and going public in 2002. But Hastings argued that letting colleagues grow too close can leave employees feeling protected even when their performance falls short.

“We realized, Wow, maybe we should do a one-third layoff every year,” the 65-year-old said. “And of course that’s impractical—but we said, how about if we keep the bar high and really think about us as a championship sports team rather than a family.”

Hastings has said the 2001 cuts produced an outcome the leadership did not expect: rather than sinking, the smaller team’s energy and performance improved, an account he detailed in the 2020 book No Rules Rules: Netflix and the Culture of Reinvention, co-written with INSEAD professor Erin Meyer. The team-not-a-family framing became the foundation of Netflix’s culture deck—a slide presentation first circulated internally in 2009 by Hastings and then-Chief Talent Officer Patty McCord that later drew millions of views online and became one of the most widely shared management documents in Silicon Valley.

Hastings, who has an estimated net worth of $4.4 billion, served as Netflix’s CEO from 1999 to 2023. He then became chairman before stepping down from that role earlier this year, though he remains on the company’s board.

Netflix managers use a ‘keeper test’ to identify top talent—and ‘part ways quickly’ with those they wouldn’t fight to keep

Like most major companies, Netflix has endured additional rounds of layoffs throughout its history—including roughly 450 jobs cut across several rounds in 2022, as the company confronted its first subscriber decline in more than a decade. But Hastings said the goal has never been simply to cut costs or reduce headcount. The point, he said, is making sure the company has the right roster to compete—and making changes when it does not.

“If you say it’s like a championship sports team and we’ve got all these competitors and we want to win the championship, then people understand why the coaches make changes throughout the year to try to do their guess of the best way to win the championship,” Hastings said.

Today, Netflix defines success by performance rather than seniority, tenure, or loyalty. Managers are also expected to regularly apply what the company calls its “keeper test” to their employees, a standard set out on Netflix’s website.

“We expect leaders to be strong developers of talent,” the company states. “And to ensure they have the right player at every position, we ask them to apply what we call the ‘keeper test’—asking ‘if X wanted to leave, would I fight to keep them?’ Or ‘knowing everything I know today, would I hire X again?’ If the answer is no, we believe it’s fairer to everyone to part ways quickly.”

Those high expectations are paired with considerable flexibility. Salaried employees at Netflix are not bound to traditional nine-to-five schedules or even a prescribed vacation calendar, and the company offers unlimited paid time off and parental leave.

“While time away may be observed differently depending on your location and role, we believe in taking the time you need so you are bringing your best to work,” Netflix’s website says.

From Airbnb to Shopify, CEOs push back on the ‘company as family’ mentality

Hastings is hardly alone in concluding that the family metaphor can create problems, particularly when companies must make difficult decisions about their workforce. The question has taken on renewed weight since 2022, as large technology companies from Amazon to Meta and Google carried out successive rounds of layoffs involving tens of thousands of workers.

Airbnb CEO Brian Chesky has admitted he learned that lesson during the pandemic. As he laid off roughly 25% of his workforce, he told employees in a letter that he had a “deep feeling of love for all of you.” Looking back, he said he realized the language blurred an important distinction.

“I wrote that letter fairly quickly,” Chesky said on the ReThinking podcast in 2024. “I didn’t have a lot of time, and so I wrote what I felt, and that’s what I felt, and I was pretty emotional when I was writing it. And it is true that a company’s not a family. In fact, we had to make that pivot.”

He added: “We used to refer to ourselves as a family, and then we did have to fire people, or they’d have to leave the company, and you don’t fire members of your family.”

Shopify CEO Tobi Lütke reached a similar conclusion. In 2021, he warned managers against describing the e-commerce company as a family, arguing that doing so could make it harder to hold employees accountable.

“The very idea is preposterous. You are born into a family. You never choose it, and they can’t un-family you,” he said in a letter published by Business Insider.

Lütke specifically pushed back against employees using the term “Shopifam,” especially among younger employees.

“The dangers of ‘family thinking’ are that it becomes incredibly hard to let poor performers go,” he added. “Shopify is a team, not a family.”

This story was originally featured on Fortune.com.