Entrepreneurs face many challenges and temptations when starting their businesses. Ethics usually is not at the top of the list. Ethics is doing the right thing when no one is looking. We currently live in a culture where the means justify the end. For entrepreneurs, it is easy to cut corners to gain an advantage when the stakes are so high. Many times, entrepreneurs risk everything. They are not worried about moral judgements or bending the truth. The uncertainty and pressure to succeed quickly is at the top of their lists.
New start-ups lack the infrastructure to create standards of policies addressing ethics. They do not have the time, or desire, to monitor behavior (Hanson 2015). They know the odds of success are against them. All energy focuses on establishing the business plan, obtaining funding, bringing products and services to market, and possibly an IPO. What are some of the ethical temptations facing entrepreneurs?
Should The Play at All?
Family, friends, and other relationships could pay a steep price for an entrepreneurial venture. Starting a company is time consuming. It is not uncommon for entrepreneurs to work 80 -100 hours per week. It should be a family decision. An entrepreneur should discuss the benefits and challenges of the venture. They will likely miss kid’s baseball games, dance recitals, and other family events. They need to be 100% focused on the business. They cannot be a marriage counselor too (Hanson 2015). What if they risked everything and lost it all? As mentioned earlier, a high percentage of start-ups fail. What if the wife has to go back to work to a job she does not like? Who will take care of the kids? All of these questions need to be taken into account. Many times an entrepreneur will ignore the input and start the venture anyway. Ultimately, they will have to answer the question: is it worth it?
Who Owns the Intellectual Property?
Many start-ups build on earlier ideas and developments (Hanson 2015). What if an entrepreneur took an idea from their previous job then quit and started a new business? Yes they are adding value. But what do they owe to their previous employer? It is possible they may not even know where the idea originated from. An entrepreneur at least has to check for patents and copyrights. Even if they meet the bare minimum, what do they still owe to others? This is an area an entrepreneur should be prepared to spend some time in court with.
Who is Really on the Team?
Every entrepreneur believes their contributions are essential to success (Hanson 2015). But does every partner contribute equally? What if there is a difference of opinion on how equity in the start-up should be divided, especially if it ends in an IPO? Here is where one of the seven deadly sins rears its ugly head: greed. What if your co-founders are family and friends? Are you willing to end those relationships? These are tough questions that need to be answered.
Should We Lie to Funders and Investors?
Obviously we have an ethical dilemma when we start with the word lie. Should an entrepreneur exaggerate the business plan in order to get seed money? I would advise against this as these people are smart and will find out. How about embellishing successes and covering up failures to receive additional rounds of financing? What if these issues arose two weeks before a scheduled IPO? These are the kind of things that not only lead to failure, but could get you in jail.
Should We Lie to Our Customers?
Here is that word lie again. It is never a good idea. But, an entrepreneur must decide if they will embellish on what the product can do to boost revenues. If they are pressed up against a deadline to deliver a product, and they discover a flaw or that it doesn’t work at all: what do they do? Do they delay delivery and risk the product reputation and lose sales? Or do they cover up the flaw and deliver the product anyway to meet the deadline? This breach of trust between the seller and customer is almost surely to end in failure.
Should We Lie to Meet Our Numbers?
Many times, entrepreneurs of start-ups are compensated in stock options. Of course, these options derive their value from the underlying stock price. The value of a stock is largely determined by earnings. Will they inflate sales or hide expenses, in places like research and development, to meet their targets (Hanson 2015)? What if they have already adjusted their lifestyle to this new found wealth (Hanson 2015)? It is not easy to do a complete 180.
What is the End Game?
Finally, what if an entrepreneur does succeed and cashes in on an IPO? Do they spend their wealth on pleasure and live the life of luxury? Or do they give back and help others for the social good? How much do they leave to their children, and do they have a plan to make sure they don’t lose it all? Do they employ their plan immediately or wait until retirement? If they do wait, can they change from the lifestyle they are accustomed to?
As we can see, entrepreneurs face a lot of questions, most of which do not have easy answers. We’ve used the word lie a lot. But there is a fine line between telling a lie and embellishing or exaggerating. But one thing is clear: entrepreneurs face a lot of pressure trying to start a business. They get it from all angles: Insiders like family and friends, and outsiders like investors, funders, and customers. Without a formal policy dictating ethical behavior, it is easy to go down the unethical road. The ultimate question they have to answer is this: is it worth it?
Hanson, Kirk. “The Ethical Challenges Facing Entrepreneurs.” The Wall Street Journal
23 Nov 2015: Print.