I’ve recently returned from São Paulo and Rio, where I had a series of meetings with some founder-led leadership teams. (A highlight: a helicopter ride from Angra dos Reis to Rio, during which we crossed over Paraty, my favorite Brazilian town, where my daughter took the picture we’re using for this post). The teams had participated in several DM100 meetings or workshops and each had worked intensively to a) define their insurgency, b) define the three or four key capabilities that supported their insurgent mission and c) translate these into what we call nonnegotiables in conjunction with their “kings” (those people accountable for delivering the company’s customer promise). Crucially, they had also begun to understand the difference between nonnegotiables and values.
Before I draw an example, though, let me review some terms. First, we have been working with a lot of founder-led companies to figure out how they can continue to grow rapidly without accumulating the complexity that almost always erodes the Founder’s Mentality® (an insurgent mission, an owner mindset, an obsession with the front line). Second, we have defined a path for these companies, called the Journey North, which can help them retain these powerful cultural attributes as they grow so they can fully benefit from the advantages of size (more scale and scope, better learning systems, and increased market power and influence).
Step 1 on this Journey North is to maintain the insurgency. It requires the leadership team to define its insurgency precisely and then lay out the three or four critical capabilities the company needs to execute on it consistently. We talk about companies celebrating their “spikiness” in a few things, rather than trying to do well at all things. Once these capabilities have been defined, we recommend that the leadership team work with its kings to define a set of nonnegotiables. These are, in effect, a social contract, where the leadership team and kings agree to follow the same set of behaviors and routines every day to maintain the insurgency.
The whole idea of a nonnegotiable is that it guides specific actions and behaviors. It is far more precise than a generalized mission statement or a list of aspirational values. While both of those are good to have, they rarely provide practical guidance for frontline employees striving to serve customers according to plan. Nonnegotiables are the essential actions and behaviors without which strategy would drift and become meaningless.
Here’s a story I collected in Brazil that brings this to life.
One founder-led leadership team I met with explained that their company had never had a problem with intent when it came to values. “The spirit is always willing,” the founder said. “But we occasionally screw up in execution.” One value the company has is “customer first.” The intent is clear to everybody—you do whatever it takes to delight customers, but sometimes that is not enough to guide you in the moment, especially when you are faced with competing demands, the team explained.
The founder said that on a trip to one of the company’s branches the managers revealed they had put in place a complex customer return policy that involved seven steps and took an hour to complete. “I asked them, ‘How you could put in a return policy like that and say you are “customer first”?,'” the founder said. “Their response was interesting.” It turns out the branch had experienced trouble with customer returns, and the managers were afraid the losses would force them to raise prices for loyal customers. “They said they did this precisely to be ‘customer first,'” the founder said. The problem was, the bad returns turned out to be just 1% of 1% of total customer returns.
“A little bit later, we started working on the Journey North,” the founder said. “We understood our insurgent mission, and we knew a key spike was around customer service. We needed to be amazing.” The team discussed the return policy and realized that for seemingly all the right reasons (but all the wrong outcomes), the company was building systems to cover the small minority of customers who might hurt the best customers. “So we came up with this nonnegotiable,” the founder said. “Our customer policies will be focused on empowering and delighting the 99.9% of great customers, not protecting us from the rare behaviors of the 0.1%. We have used that nonnegotiable to start to simplify several others processes. It has been really clarifying to our people.”
This story might remind you of an anecdote shared by John Timpson in his book Upside Down Management, which we wrote about in a previous post. Timpson noted that a lot of the policies and procedures that add to overhead and complexity are designed to stop the rare behaviors of the bad apples (both customers and employees), rather than support the good apples. But the Brazilian founder’s tale also helps clarify how nonnegotiables do a better job of guiding frontline actions and behaviors than mere value statements. There is nothing wrong with clarity on things like mission, vision, purpose or values. They matter a lot. But to be simple and inspirational, they have to be vague, and because business decisions rightly demand trade-offs between conflicting goals, it is inevitable that two people can advocate two opposite strategies using the same imprecise company value to defend their positions.
Things don’t fall down on intent—no one pursues a “customer last” strategy. Things fall down in execution. Simply put, nonnegotiables increase the odds of execution success.