Intellectual honesty in startups — What is it good for?

In my journey in the startup scene around the MENA and Pakistan region, I’ve met a lot of founders and reviewed many pitch decks assessing their potential to grow and become the next Uber.?

The assessment usually revolves around product/market fit and the team initiating the project. But I found what matters the most is the Intellectual Honesty of the whole organization… which is what I want to discuss in today’s Special Edition.

What is intellectual honesty?

Intellectual honesty is the most important virtue for any business. It means “always seeking truth regardless of whether or not it agrees with your own personal beliefs” (source ). For a business, that means that your decisions are grounded by facts -- and NOT by your position within the company.

Intellectual honesty is a trait I always seek in the startups I invest in. When found, I can be assured that this organization will definitely not be a one man show. It will be innovative and foster a learning culture within the leaders and employees.?

Don’t fall into the trap of fast growth on papers to hide whatever happens in real life.?

I understand that being a startup founder means that you are under immense pressure from the minute you start your funding journey and once you secure your investment – as you usually have 18 to 24 months to achieve profitability or grow so fast to achieve your next financing round.?

This pressure can sometimes push you to present your work in the most positive way possible, neglecting important aspects you need to fix or just playing the numbers.

Let’s take Adam Neuman’s WeWork as an example. Whether you’re up to date with the WeWork story or you’ve watched the popular WeCrashed series, you probably know by now that this startup – and especially its founder, Neumann – weren’t intellectually honest at all.?

“I am WeWork.”

Adam Neuman, CEO?

In the years since WeWork’s founding in 2010, it was growing ridiculously fast and the investors were pumping money to achieve Neumann’s dream of creating a “community.”?

Along the journey, Neumann was blind to the unethical nature of conflicts of interest that he constantly created and then rationalized. He bought property and leased it to WeWork without full disclosure.

By 2018, Neumann received over $12 million in rent, with more than $100 million lined up for future payment. However, as the company was filing for an IPO to go public, it was discovered that Neumann had actually sold more than $700 million in WeWork stock. He restructured the firm to lower the tax rate on his stock to below what his employees were paying (source ).

Investors who once valued WeWork at $47 billion settled for a valuation at about a fifth of that, not mentioning the employees who lost their jobs following this scandal.?

There’s also the story of Elizabeth Holmes’ Theranos, Founding it at the age of 19, Holmes was set out to revolutionize laboratories through blood tests that could be performed rapidly while using very small amounts of blood. By age 31, she was worth $9 billion – the youngest self-made billionaire in the United States.

Fast forward, Holmes was on trial in California for fraud. Through whistleblower revelations and the research of a Wall Street Journal Reporter, it came to light that more than 200 blood tests that Theranos advertised could not be performed on the company’s specially developed “Edison” machine. Patients were misdiagnosed with everything from diabetes to cancer.

Holmes also promised investors a much higher company profit than Theranos actually made. At the start of 2022, Holmes was found guilty on four charges of fraud (source ).

No one would argue that having a charismatic founder/leader is a cornerstone to a successful company… but fear of failure and a lack of intellectual honesty can undermine even the most confident and charismatic entrepreneurs.?

Intellectual honesty, if implemented in the right way, creates a framework for open, objective discussions, and allows companies to effectively address problems and achieve long-term goals by:

1. Allowing for the best ideas to emerge

Great leaders view ideas based on evidence, not on their beliefs. Efficient problem solving with rapid iteration is critical, particularly for emerging companies and those in creative areas.

2. Constant learning and improvement

When employees feel that their ideas will be treated fairly and objectively, it encourages more sharing. In turn, there’s an opportunity for everyone to learn and potentially challenge each other, fostering a culture of innovation, trust and transparency.

3. Efficiency and changing market needs

Intellectual honesty allows teams to move at a better speed as it focuses on what’s best for the company’s product (and ultimately consumers) rather than relying on “nostalgia and protectionism” (source ).

When I decide to invest in a startup, I don’t want it to be the next WeWork or Theranos. I want to deal with ethical leaders and transparent organizations because I believe honesty is the basis for any mutually beneficial long-lasting relationship.

I’m always looking for innovative business ideas to invest in across Middle East and Pakistan.

If you’re ready to pitch for funding, just DM me and let’s co-create the next big “honest” startup.