How entrepreneurs justify their lies

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Most entrepreneurs who bend the facts under such conditions usually don't see themselves in a negative light. They frequently excuse their conduct using one or more of three rationalizations that are strongly tied to mainstream ethical views about what constitutes right or improper behavior. However, even a cursory philosophical examination reveals that each is incompatible.

 "It's for the greater good." In 2018, Entrepreneur interviewed Gary Hirshberg, who transformed Stonyfield Farm from a two-person (and seven-cow) side hustle into one of the world's leading organic yogurt producers. Stonyfield's prosperity did not always appear destiny. Hirshberg described a sequence of crisis situations and the deceptions that saved the company, including lies to vendors and a loan officer at the Small Business Administration. He provided numerous rationales, all of which were shared by entrepreneurs and were based on well-known ethical ideas.

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"I think lying, if we want to call it that, which I guess is what it should be called, for the common good, because in the end it didn't help the vendors for me to go under either, is OK as long as you ultimately do deliver," said Hirshberg. This "ends justify the means" justification is reminiscent of Jeremy Bentham and John Stuart Mill's utilitarianism, which holds that an action should be judged entirely on the basis of its consequences. "[I]t is the greatest happiness of the greatest number that is the measure of right and wrong," stated Bentham in his essay.

"I'm protecting my people." Hirshberg used a form of the "ends justify the means" rationale. "You do whatever the heck you have to do to make it," he went on to say. "We were fighting for employees' employment as well as investments made by our moms, mothers-in-law, and friends. Fighting for our lives. And I think anything goes as long as you don't hurt anyone." Friends, relatives, early equity investors, and employees are frequently prioritized over later-arriving stakeholders—in Hirshberg's case, the SBA and his vendors.

Of all, entrepreneurs cannot know whether their lies would result in better outcomes for their stakeholders or the most happiness for the biggest number. They are vulnerable to factors beyond their control, and many who lie "for the common good" will see their businesses fail. When this occurs, it comes at the expense of stakeholders who were duped into supporting them or hurt by risks they were not fully and honestly informed of.

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 "Everybody does it." Hirshberg commented about his vendors, "It's not like they haven't seen it before." According to this viewpoint, reality distortion is simply an element of the game, similar to "puffery" in advertising and bluffing in poker; it is not prohibited by the rules, and each player is responsible for understanding those laws. Sometimes the obfuscation is vague: During tech bubbles, some start-ups with only a modest IT component attempted to designate themselves as IT companies in order to increase their price. Other times, the deception is more obvious, such as when founders overstate expected revenue because they believe investors will dismiss their numbers. In that case, a founder may conclude, "I have to say we will generate $50 million a year, because investors will discount the figure and hear $5 million a year; everyone knows that." Founders may also manipulate their financial models to get the outcomes they believe VCs expect: a 10x return, a multibillion-dollar market. Those who do not exaggerate may be properly concerned about putting themselves at a disadvantage.

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Hirshberg is a wealthy entrepreneur, a generous philanthropist, and a well-meaning individual. His statements highlight the pressures that all entrepreneurs face, as well as the rationales that may lead them to distort the facts. However, they eventually fail to hold water; they are excuses rather than solid arguments. They delegate decision-making authority to abstract institutions with apparently uncontrolled and perhaps immoral norms. "Business is business," founders may argue, absolving themselves of difficult decisions. However, we believe that the business and start-up realms are no different from the rest of life and should be controlled by the same ethical principles.

The Honest Entrepreneur

Most entrepreneurs try to gain others' trust and prove themselves worthy of it. Few want to be scoundrels. The evidence demonstrates that lying and deception create significant stress for the great majority of people. According to studies, stress caused by recurrent ethical problems reduces job satisfaction and is a significant cause of burnout.

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There is a better approach, and it entails cultivating virtue in all aspects of life, including the professional world. This Aristotelian worldview holds that activities are correct if they are what a good (virtuous) person would do. In the following, we present two methods from excellent entrepreneurs with whom we have had the pleasure of educating, hosting, or cooperating.

 Present your evidence and assumptions. When entrepreneurs build a vision of what could be, it is not a complete fabrication; rather, it is an evidence-based prediction. The proof consists of the entrepreneurs' experiences, primary data gathered through experiments, traction obtained, and third-party data—in other words, what they know. Guesses are things people don't know but believe or hope will be true.

Not everyone comes to the same conclusions from such inputs. Entrepreneurs owe transparency and truthfulness to people who have been asked to commit themselves or their resources to the venture. Of course, they must articulate a compelling vision. However, they should also explain the evidence and assumptions that support their vision. The principle is comparable to the instructions given by eighth-grade algebra teachers: Showcase your work. A competent venture capitalist will probe a founder's assumptions during a pitch meeting—but not all VCs will, especially if they're wooing a high-growth startup. Furthermore, prospective workers, partners, and other stakeholders are frequently denied the opportunity to carefully evaluate the data and assumptions and draw their own conclusions about the firm, team, or product they are being asked to support.

 

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Being compelling and straightforward may appear to be incompatible. Caveats and risk conversations are not suitable in all situations. A founder who happens to share an elevator ride with an investor simply tells a captivating narrative. In casual talk, what matters is the vision. Leaving out the dangers and downside potential is understandable and not dishonest.

 However, in a scenario where analysis and evaluation of the opportunity are key, such as a formal pitch or a chat with a possible hire, entrepreneurs must clarify evidence and assumptions while remaining compelling. We propose a "conclusion sandwich." The best entrepreneurs start and end with their conclusion—the extrapolation—and then insert their evidence and assumptions in the midst. A founder might say, "We'll have around $X million in gross revenue next year. Let me demonstrate the facts we have and the assumptions that underpin this." After going through the computations, the entrepreneur may conclude by saying, "Therefore, we believe $X million is a reasonable estimate." Listeners will not miss the takeaway and are free to draw their own judgments.

 

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Surround yourself with individuals who will encourage you to achieve your best. A wealth of psychological studies demonstrates that our social circles influence our morals. activities committed or condoned by others around us gradually become acceptable to us, whilst activities condemned by them become unacceptable. As a result, savvy entrepreneurs surround themselves with cofounders, mentors, board members, and investors who will guide them to their full potential.

Investors are very crucial in this sense. An entrepreneur may launch a few ventures in their lifetime, whereas the most seasoned investors invest in hundreds. They have witnessed the trials and tribulations of many entrepreneurs in numerous markets over the course of many years and have accumulated wisdom that founders cannot replicate. A skilled investor can "pattern match," is sensitive to the moral implications of specific situations, and understands which courses of action are "right" and produce the best results. The finest investors help entrepreneurs follow their better instincts.

Wise entrepreneurs surround themselves with cofounders, mentors, board members, and investors who will help them achieve their full potential.

 The wrong investors might spell disaster. This is especially true for people who put progress above all else. Consider the partnership of WeWork cofounder Adam Neumann and SoftBank's Masayoshi Son. Son is believed to have been dissatisfied with Neumann's level of intensity during their first encounter and encouraged him to go further crazy. Neumann complied. The subsequent SoftBank-funded development of WeWork was bizarre, to say the least; it included self-dealing (Neumann trademarked the name "We" and sold it to the company for over $6 million) and excessive spending (a $60 million private plane). WeWork rose to become the most valuable unicorn in the United States, thanks in large part to Neumann's messianic charisma and tremendous reality distortion field. It apparently took him only a few moments to persuade investors to back his vision. He was renowned, and is now mocked, for making exaggerated statements about the firm (for example, framing it as a "state of consciousness") and what it might do. Nonetheless, Neumann's WeWork came close to going public before crumbling. (As of this writing, a far more modest incarnation of the firm, led by new executives, was preparing to go public through a combination with a special-purpose acquisitions company.)

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It may be tempting to believe that deviating from the truth is just part of conducting business—that we work in a no-holds-barred capitalism arena in which all players are accountable for their own well-being and understand the rules of the game. Unfortunately, such cynicism feeds on itself: when we witness dishonesty or scandal, we get disillusioned and are more prone to indulge in similar behavior ourselves.

 Conclusion

Entrepreneurs are particularly pressured to lie. Vying for a fixed pool of VC funding, typically seeking to secure returns for friends and family, and chasing aspirations of greatness, they may believe they will be disadvantaged if they pursue their businesses with a strong commitment to the truth. Understanding the forces that tempt individuals to lie, as well as the strategies that can help them stay virtuous, can help to lessen the dishonesty that is all too often in this critical sector of the economy.

 

 

 

 

 

 

 

 

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