Any company can sell Product X or provide Service Y, but what differentiates you from everyone else in your field is your company philosophy. A company's philosophy is a distillation of its culture or ambience into a group of core values that inform all aspects of its business practices. Having a strong company philosophy is a good way to guide your employees at decision-making crossroads, but it can also be a strong branding tool, and generally make your workplace more congenial.

For example, Tony Hsieh, Zappos' CEO and a respected culture crafter, sometimes tells the story of a customer service representative who got a call from a woman whose husband had died in a car accident after she had ordered boots for him from Zappos. The day after the call, the widow received flowers that the rep had sent her on the company's dime without consulting a supervisor. At the funeral the widow related the experience to her friends and family.

So by fostering a culture in which employees can make such a call--the first of Zappos' 10 core values exhorts employees to go "above and beyond the average level of service to create an emotional impact on the receiver"--Hsieh walks away with a hat trick. His staff was able to be decisive when it counted; his brand gained a powerful addition to its narrative, plus a devoted customer; and the call center rep felt empowered by being granted such license.

How to Create a Company Philosophy: Keep it in Context

How does a company's philosophy relate to other values-oriented parts of your company such as your mission statement or your code of ethics? "In some ways these terms all overlap. They are attempting to create an identity for the company that distinguishes it in the marketplace," says David Ulrich, a business professor at the University of Michigan and co-founder of the RBL Group, a consultancy that advises businesses on human resources, leadership, and organization.

Not every company needs to have a mission statement, philosophy, and code of ethics but one example of a company that has all three is Google.

•    Mission statement: A mission statement should succinctly summarize what you do or what your aims are. Google's stated mission is "to organize the world's information and make it universally accessible and useful."

•    Philosophy: A philosophy should flesh out the mission statement, which is pithy and almost sloganlike into core ideas or values that the company and its members hold dear and adhere to in their business dealings. Google's philosophy includes such principles as "fast is better than slow," democracy on the Web works," and "you can be serious without a suit."

•    Code of ethics: A code of ethics or code of conduct expands even further on the philosophy and the mission statement to deal with specific types of situations and behaviors. Google, for example, lays out its policies on, among other things, conflicts of interest, customer service, and confidentiality.

Ulrich continues, "There are dimensions of this identity: the philosophy being a set of principles that govern work, the mission statement about why we work, and code of ethics about our values in doing work. But they all try to position a company's identity in the minds of those inside and outside the company."

How to Create a Company Philosophy: Don't Put It Off

Understandably, many companies set their sights on becoming profitable and delay the task of thinking hard about what they stand for and building that into their business. But experts say that founders and owners ignore crafting a philosophy at their own peril.

"What typically happens is that business people will want to talk about their products, their delivery systems, their profitability models. They'll want to get right down to the nitty gritty," says Alex Plinio, co-founder of the Institute for Ethical Leadership at Rutgers Business School. "But what tears businesses apart aren't necessarily those kinds of things. What tears them apart is people that don't get along with one another; they have different values."

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How to Create a Company Philosophy: Practice What You Preach

The principles in a company's philosophy have to come from, and be true to, the founder or CEO as a person. For example, "if you have a hard-driving, aggressive, Type A person [in charge of a business], having 'play nice with others' as part of your principles is not going to work," says Steve Priest, president of Ethical Leadership Group (ELG), a consulting firm specializing in ethics and corporate responsibility.

As the founder or owner of your company, you should extrapolate your values by running through a number of hypothetical scenarios. Create quandaries for yourself, in which there are tradeoffs between profits, customer experience, and ethically questionable practices. See how you think the company should behave in each of these circumstances and a picture of your values will begin to emerge. Other exercises can include brainstorming what words or concepts you want people to associate with you and your company, or perhaps more tellingly, seeking out your biggest critics and soliciting their input.

Two examples of CEOs whose values suffuse the products and strategies of their companies are Steve Jobs and Jason Fried. The Apple CEO is notorious for his micromanagement style and the same need to control every detail manifests in the rigid control over the App Store. By contrast Fried, the head of 37signals, has created multiple open source tools such as Ruby on Rails, a programming framework, and Prototype, a Javascript framework. This openness is mirrored in Fried's willingness to experiment with things like four-day work weeks and funding employees' passions.

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How to Create a Company Philosophy: Keep it Simple

For a philosophy to really be actionable, it should be succinct, something any employee can hold in mind when they come to a decision-making crossroads. Priest recommends keeping the number of tenets down to three, though he breaks his own rule. He summarizes ELG's values in four principles: serve clients, make money, have fun, and change the world. Still, if you go far above three or four, Priest says, the "retention rate, which is linked to actions, decreases considerably."

On the flip side, you don't want to oversimplify things. Your corporate philosophy should strike a balance. Ulrich warns that, "Only focusing on details makes [your philosophy] non-memorable and no one will wade through it; managing by slogan is superficial and does not lead to accountability or change." As mentioned earlier, the philosophy is at a level of specificity between that of the mission statement and the code of ethics. It should encapsulate your ideology in a memorable way without being reductive. One way to do this is to have a bullet point list of core values but expand upon each one in a brief paragraph.

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How to Create a Company Philosophy: Hire People Who Match the Culture

Understandably, many companies don't think about their principles until they start making hires. Priest put his company philosophy in place "as soon as I was hiring a full-time employee because I was hiring her from a much bigger company and her question was, 'what do you stand for,' so she challenged me."

Other experts suggest that a philosophy becomes essential when the number of employees starts to grow ungainly. "In small companies, the identity is shared like bumper cars where people talk, run into, and see each other daily. This identity does not need to be codified and disseminated; it is lived," Ulrich says. "Crafting a philosophy statement, or identity, becomes helpful when the 'bumper cars' no longer bump into each other" as may happen in larger firms.

Even when you have face time with all your employees, it's not enough just to talk about your values. You must assess them, say by kicking off a meeting with how recent accomplishments or setbacks fit into the framework of your different values or rewarding employees for behavior that is exemplary of the company philosophy. If you don't do these things, your employees will figure out what's really important to you and to the company, namely profits.

That's why, as the company grows, the human resources department is integral for showing new hires and current employees what company priorities are. Those priorities should be reflected in all HR processes including recruiting, performance evaluations, promotions, and rewards.

For example, if you're only hiring based on the skills of the job candidates, you're only getting half the picture. As Ulrich puts it, "Technical fit without cultural fit is a misfit, and the employee will be competent, but not contributing to business success."

You can craft your interview questions to elicit the traits you value most in prospective hires. For example, Jim Sheward, the CEO of the Internet-consulting company Fiberlink wants a staff with integrity so he asks interviewees about their biggest career mistake to date and looks for reflective individuals who have learned from their errors.
Odder questions can often give you more insight into people's personalities. Robert Baden, the CEO and president of Rochester Software Associates asks potential hires, "If I stood you next to a skyscraper and gave you a barometer, how could you figure out how tall the building was?" There's no correct answer, Baden is simply trying to gauge the applicant's creativity and quick thinking.

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How to Create a Company Philosophy: School New Hires on Company History

Even if you ask some pointed or provocative questions in the interview and get the answers you're looking for, your newest recruit isn't going to be integrated into the company culture on day one. Zappos has a four-week course for new hires in which they learn about the company philosophy and history. At the end, they are offered $2,000 to quit, and clearly many decide to stay.

You don't necessarily need to spell out how the company ethos affects daily job responsibilities. Let new employees breathe in the culture and apply it creatively to their tasks and their attitude towards their work. Of course providing examples can help make nebulous and heady ideals seem much more concrete and give employees something to emulate. Of course there's any number of ways to introduce new hires to company history, and you don't want to get too didactic.

Last year, New Belgium Brewing sold over half a million barrels of beer, which makes it all the more remarkable that CEO Kim Jordan doesn't have any employees. Okay, she has employees, 345 of them to be precise, but she refers to them as co-workers. It seems like a minute distinction but it's part of New Belgium's larger culture of involving all its members in the decision making process.

New hires get introduced to the company's history, and to it's ecological commitment, on a bike ride that passes the three locations the brewery has held in its 20 year of existence. "I think one of my roles as a leader here is to keep the story of who we are--our creation story as well as our evolution--alive and vivid and active," Jordan says.

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How to Create a Company Philosophy: Fixing a Broken Company Culture

As a company grows, it's possible for the leadership or the employees to lose sight of the founding values. This can lead, among other things, to ethical lapses. When companies come to Priest "a third come to us because the blade of the guillotine is at their neck," he says.

Evaluating the problem is easy. Priest and his colleagues use a focus group method to interview employees, clients, and suppliers and they readily apprehend what the company's strengths and weaknesses are. Then comes the hard part: "holding the mirror up to the leadership," Priest says. Management can often become dissociated from the way people on lower tiers of the corporate ladder experience daily life at the company. Often, though, when Priest presents them with the evidence they see the need for serious change.

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* The Ethical Leadership Group and consulting firms like it serve companies who have gone astray from their philosophies and are looking to get back on track ethically.

* The RBL Group and firms like it provide advice on human resources, leadership, and organization and so might be more helpful in scaling your company culture as you grow.

* Many companies including New Belgium Brewery and Zappos have lists of their core values on their websites. These can serve as models for business owners looking to clarify their own aims.