When companies are faced with difficult choices, clear principles can help them make better choices. Principles are not the same as corporate values or mission statements, although they are often inspired by them. Principles provide guidance on how organizations pursue their strategies, and some of the rules are even memorable.
Good principles are clear and actionable. Box, a cloud-first file-sharing company, tells employees to prioritize "giving users everywhere access all the files and information they need to do their jobs." Tableau Software, a data visualization platform, communicates its quality standards by declaring that "we won't release the product until we use it ourselves." Facebook's motto, "Act fast, break the mold," has spread widely in Silicon Valley, defining the operating principles of an era. Each of these principles underpins the company's identity and is a core part of its strategic success.
Our belief in principles is rooted in 40 years of mentoring students and entrepreneurs, which led the Center for Entrepreneurship (STVP) at Stanford Engineering to support us in developing a course: "Principled Entrepreneurial Decisions." Our work is also inspired by Ray Dalio's book, Principles. Dario's book focuses on his personal principles and how they contributed to Bridgewater's success, but we created a common and actionable framework for all organizations to develop and put corporate principles into practice.
In the future, as organizations grapple with geopolitics, climate change, and accelerating technological advancements, the number of difficult decisions to be made will continue to increase. Corporate principles are essential for an organization that is able to make the best decisions in such an unstable environment. Here's how companies should express their principles.
What are good principles?
Many individuals and organizations use a mixture of "values" and "principles." Mixing them up leads to missed opportunities. Values convey a set of values that an organization finds meaningful. For example, Berkshire Hathaway's Code of Ethics promotes "honesty," "integrity," "long-term orientation," and "customer focus." Lyft's core values are "Be Yourself", "Elevate Others" and "Make Dreams Come True". Values are an important starting point for creating a company culture and making commitments. However, unlike principles, they are not effective in guiding individual decision-making within an organization, especially when choices involve important trade-offs or competing options. Values convey aspirations, not strategies. Principles are more instructive. "Product Excellence" is a value. "We don't release products before we use them ourselves" is a principle.
In our work, we have found that there are five key attributes of a strong principle. They are:
Uniqueness. Principles are unique to a particular organization and are often quite different from those of competitors. Robinhood Markets, for example, aims to provide a simple, inexpensive secondary market access and trading service through its investment trading app (disclosure: Scott, one of the authors of this article, is a former member of Robinhood's board of directors). Unlike many other brokerage firms, Robinhood prioritizes users over pure profits, hence the principles of "safety first," "participation is power," and "extreme focus on the customer." In December 2018, the software update resulted in a handful of options trading orders being flipped and therefore submitted incorrectly, which could lead to user losses. Initially uncertain as to which orders were affected, Robinhood was faced with a difficult choice between closing options trading altogether and allowing users to continue trading. Closing a trade reduces the overall participation in the market by preventing the user from entering any options trades. Some argue that preventing unaffected transactions from proceeding would violate Robin Hood's principle of "participation is power." However, allowing the transaction to proceed will carry the risk of further loss of revenue and negative publicity for the user, and fail to put user safety first. After careful consideration, and following the principles it upholds, the company decided to cease operations, which ultimately led to a two-hour service interruption and order cancellations. In making this decision, Robin Hood respected the principle of "safety first" rather than the principle of "participation is power."
Principles help not only in making decisions, but also in implementing them. In this example, Robinhood's principle of engagement keeps it vigilant, and the user is compensated if they initiate a valid claim for damages caused by the cessation of trading. And once its security principles are taken into account, the participation principle guides the company's actions.
Controversial. Sometimes people oppose some principles out of reasonable and good intentions. Tableau Software aims to redefine data analysis and visualization, eschewing old-school features like static PDF export and 3D images (disclosure: Scott, one of the authors of this article, is a former member of Tableau's board of directors). Its principles, including "the customer isn't always right" and "for leads that want a different product, it's okay to give up", may seem counterintuitive to many, especially to startups eager to get on their feet. But these principles came in handy when Tableau became popular and faced with initially excluded feature requests.
Despite the large number of orders and the attraction of easy growth, the company adheres to these principles. That's because co-founder Christian Chabot launched a substantial grassroots education program for employees and customers that aligns sales strategy with company principles. These principles are effectively communicated, resulting in a cohesive sales team and a healthy customer base over time.
Portability. The principles are formulated in such a way that they can be applied to a variety of scenarios across business units and roles. Google is best known as an internet pioneer with a mission to "organize the world's information to make it universally accessible and useful." What is less well known is the core principle it disseminates to the company's employees: "Focus on the user, and everything else will follow." Over time, many of the important decisions the organization has made that reflect the repeated application of this principle. For example, Google offers free, high-quality web products such as search, gmail, and maps, and expects ad revenue to follow this "user-centric" principle, which also guides other decisions, such as keeping the homepage interface simple to build user trust, and removing disruptive ads for a cleaner user experience.
Wholeness. Principles are at the heart of an organization's work and are necessary to address the challenges of the industry. Bloom Energy, for example, is committed to bringing affordable, accessible clean energy to a world without electricity where more than 1 billion people live every day. One of the company's principles describes how Bloom achieves this mission: "We must control technological innovation as a core competency. "When Bloom won a $10 million grant from the Department of Energy to develop a technology for **, it faced a dilemma. Complying with DOE regulations would result in companies offering products that were only intended for DOE use, contradicting the company's mission of "broad accessibility" and, perhaps more importantly, would also risk DOE control over its technology. Bloom had to decide whether to focus on product development for the Department of Energy or the global market. The CEO of the company, K. Sridhar r.Sridhar) and its investors decided to return the grant, faithful to Bloom's principles. This decision also helps to strengthen the company's mission among employees and investors.
Customize. Principles establish norms that will be in focus in a moment of calamity. Apple, one of the world's largest tech companies, declares its concern for privacy as the main reason why consumers should choose its products over those of its competitors. Apple expresses the stakeholder principle that "privacy is a fundamental human right." In 2015, after a terrorist attack in the heart of the San Bernardino Interior area in California, the FBI obtained a court order requiring Apple to open a back door on the iPhone so that the FBI could collect data from the suspect's phone. Apple has released an open letter announcing its opposition to the court order. This action demonstrates to its customers and employees that it will do its utmost to comply with the principles of protecting the privacy of its users.
Three types of principles
We've found in our work with a variety of organizations, from start-ups to multi-billion dollar companies, that it's helpful to provide them with an overarching framework based on taxonomy principles. Under this framework, there are three types of corporate principles:Stakeholders, Operations, and Organization.
Stakeholder principlesCommunicates best practices relevant to customers, employees, and investors, and makes it clear how to prioritize stakeholders when there is a conflict of interest.
When Google turned to Alphabet, the founders clearly stated in an open letter the principle of "we keep a long-term focus". The message to investors is that alphabet will continue to invest in projects with strong returns, even if they are risky or perhaps the market will not be able to properly assess them.
Operational principlesProvide guidance for the daily activities of the entire business of the enterprise, from R&D to customer service. They often enable employees to make decisions independently while aligning with the organization's mission.
"A B test everything" is a principle used by Playdom, the developer of social network games, for many years. Before release, each change is tested by a small group of users. Experiments will be relentlessly vetted to ensure an increase in key metrics such as revenue and user engagement. This principle guides the company's progressive development process and is markedly different from those of Tableau and other technology organizations, which prioritize product mission alignment over revenue.
Organizational principlesHelps shape the culture, processes, and structure of the organization, including how information flows and decisions are made. "Organization" here is defined in the broadest sense.
"Disagree and Promise" is a well-known organizing principle that was originally established by Sun Microsystems and became popular on Amazon. It sets the expectation that smart and rational employees can and will disagree with company decisions, even implying that they have a responsibility to do so. It then fosters an action-oriented culture that rejects afterthought and retreat. When a team leaves the room, all leaders support the decisions made in the discussion, whether they agree or not.
Create and instill principles
Formalizing the principles can be a daunting task. We've helped dozens of organizations, large and small, develop, enhance, and implement their principles, and we recommend the following approaches.
Start with what differentiates you from your competitors. Outlining what differentiates an organization from competitors, peers, and other members of the industry is not only a concrete starting point, but also an important building block of strategy. Remember, uniqueness and controversy are two of the five attributes of the strong principle;Divergence and refinement are part of the health of the process. These differentiators can be shaped into transferable, customizable, and insightful principles that code an organization's competitive advantage.
Review the turning point of the company. Looking at those difficult decisions and turning points in the history of the organization can give important insights about the organization. For example, ask yourself, "When we choose to terminate that R&D program, what principles are at work, which principles are considered the most important, and which are not so important?"You can also consider questions like, "How do we wrestle with the principles of product, sales, marketing, and strategy when our user base grows tenfold in a month?".”
Principles may initially require explanations and cases to help team members feel their nuances. But as the organization becomes more deeply rooted in its principles, employees will internalize what those principles mean to the company.
Convene employees to develop and revise principles. Having employees on the working group results in more realistic, usable principles and more buy-in from employees who rely on them. Some leaders choose to come up with an initial set of principles with a group and then schedule a dedicated meeting or an offline meeting to further refine and adopt the principles more broadly. At larger gatherings, we suggest examples of crowdsourced decisions where specific principles may be useful.
Provide each employee and new employee with a written list of the company's values and principles. Onboarding provides a unique opportunity to instill principles. We recommend providing examples of how corporate principles have been used to make critical decisions in the past. Stories are helpful;Memorable stories can become legends of an organization. They make principles a real tool, not just words on the wall. Take, for example, an investment firm whose principles are "universally recognized" – in other words, employees should strive to make a positive impression on anyone they interact with. The value of the principle is even more evident when a CEO gives a good recommendation to the CEO of another company because it performs better in the review process, even if the company decides not to invest in him.
Align goals, key metrics, and budgets with values and principles. This will help ensure that the company's strategic goals are aligned with its actions and focus on the tactical decisions of its employees. For example, every item in Robinhood's budget is tied to one of its three main principles.
Refer to principles when making decisions. When a team is discussing what to do in a difficult situation, articulating a principle can keep the discussion going.
Mention company principles when communicating decisions. Employees often emulate the organization's senior leaders, so those who articulate why and what are effective in instilling principles in their teams, leading to more consistent decision-making across the organization.
Principle is not just an abstract organizational concept. They are a practical beacon for decision-making, help in effective communication, and help activate the company's strategy. As the world faces a range of challenges, from geopolitics to digital disruption, companies that articulate and uphold strong principles will be better positioned to navigate these inevitably difficult choices.
Jack Fuchs, Scott Sandell, Vikram Shanker|Wen.
Jack Fuchs is an operating partner at Blackhorn Ventures and a lecturer in entrepreneurship at Stanford University. Scott Sandel is the chairman, CEO, and chief investment officer of NEA, a venture capital firm. Vikram Shank is an MBA candidate at Stanford University's Graduate School of Business and an MBA Venture Fellow at NEA. (Disclosure: NEA is or has been an investor in several of the companies mentioned in this article.) ）
Feishu, Claude |Translated by Cheng Mingxia |Edit.
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