Three-Rule Test for Effective Company Values
by Will Larson on January 7, 2024
Will Larson's framework for creating meaningful company values focuses on three essential criteria that separate effective values from empty platitudes.
The Three-Rule Test for Effective Company Values
1. Honesty
- Values must reflect what your company actually does, not aspirational ideals
- "Good values have to be honest... you actually do what you claim you do"
- There are no universally "correct" values - different successful companies operate with opposite values
- Example: Stripe's "optimize globally" vs. Uber's implicit "do what's good for your team and ignore everyone else"
- Dishonest values undermine confidence when employees see the disconnect between stated values and actual decisions
2. Applicability
- Values must help teams make real decisions in their daily work
- They should provide clear guidance when facing trade-offs
- Effective values can be directly applied to resolve conflicts or prioritize work
- Example: "Should I optimize for my team or for the organization?" is a question where values provide meaningful direction
- Values that don't influence decision-making are merely decorative
3. Reversibility
- A value must have a meaningful opposite that another reasonable company might choose
- If the opposite of your value sounds absurd, it's not a useful value
- "Identity values" like "we care about customers" fail this test - no company would claim the opposite
- Example: "We're a family" has a meaningful opposite in Netflix's "We're a sports team, not a family"
- Values without meaningful opposites don't help teams make decisions
Common Pitfalls in Value Creation
- Cargo culting: Copying another company's values without understanding if they fit your reality
- Too many values: Having more than 4-5 makes them impossible to remember and apply
- Identity values: Statements that feel good but don't guide decisions (e.g., "integrity," "we build good software")
- Aspirational vs. actual: Values should describe who you are, not who you want to be
- Universal appeal: If a value doesn't exclude anyone, it's not doing useful work - it should be clear who doesn't fit
Values are most effective when they honestly reflect your company's priorities, provide actionable guidance for daily decisions, and represent meaningful choices rather than universal platitudes.