Startups and Ethics

We have all read about high-profile unethical happenings at companies like Enron, Tyco and WorldCom, but unethical people exist at all levels and in companies both large and small.

To avoid having to deal with this in your startup, be observant for the following characters who can pop up anywhere. 

The Over-Promiser

Many of us have experienced overzealous salespeople promising customers features that are only being considered for implementation by the company. Some salespeople do this as a means to pressure the R&D team to raise the priority of some features that the salesperson considers to be high priority.

The salesperson thinks that, “We must build feature x into the next release; I have already promised it to customer y,” will be a convincing argument.

In one startup company in which I was president, the VP of Sales took this approach to an extreme. We had 2-3 features still in the conceptual stage, all of which required negotiations and signed partnership agreements with third parties. The VP of Sales did not just promise that we would offer those features in the future; in order to get their sales, he lied and told them that we offered those features today.

Not only did he create mistrust internally, potential customers quickly realized that promises were being made that couldn’t be kept.  There’s no way to restore that loss of trust.

After my repeated warnings, he continued his behavior, and we soon “parted ways.”

The Desperate Salesperson

In another startup, we had a team of three salespeople, all on base salary plus commission. They were an inside salesforce making outgoing phone calls to targeted customers.

All of us were in cubicles so we could hear each other’s phone calls fairly easily. One salesman, let’s call him The Desperate Saleperson, was pacing the halls while talking on his phone with a prospective client. I was able to discern quite easily that he was talking to a female executive (I later learned she was a CEO of a $5-$10M company).

She was not buying his usual sales messages, so he asked her out to dinner. Now, there are a few ways he could have asked her out to dinner, and this was definitely not the appropriate way. She turned him down and hung up on him. Then I heard him ordering flowers to be delivered to her office. Arggh.

Professionalism and integrity will survive long after sales are won and lost.  When colleagues are willing to compromise their values the outcome not only reflects on them, it reflects on you and your startup. Value and reward integrity above all else. 

He was fired the next day.

The Customer Without Integrity (CWI)

I joined my first startup in 1984 and was responsible for the company’s services division. I had worked for 5 months to secure a $500,000 subcontract with a large government contractor to perform configuration management services. Our purpose was to:

• Be the “keeper” of the official software baseline.
• Be the “keeper” of the complete list of outstanding bugs and enhancement requests and ensure that the list was consistent with the current software baseline.
• Ensure that each new proposed baseline was thoroughly tested for correctness relative to any bugs or enhancement requests that it was supposed to address before accepting it.

I had hired a staff of three to work on the contract but not yet hired the project manager, so I was filling that role temporarily. After a few months, the project manager for our client, let’s call him CWI, came to my office and handed me a large magnetic tape.

He said, “here’s the new baseline.” I asked, “which of the 1,200 outstanding bugs does it fix?”

CWI responded, “I have no idea. Nor does the development team. Just take this and make it the new baseline.” I explained that if I did that, we would no longer have any idea which of the 1,200 bugs still existed in the product and which were fixed. I explained that by accepting the new baseline without a trace to the associated bugs violated the basic principles of configuration management.

His answer was, “We have a meeting with our Navy customer tomorrow. And we promised we would have the new baseline approved. If you don’t accept this baseline, we will miss the deadline and we will be in default.”

I had worked very hard to obtain this contract, and losing it would be a major blow to our startup company, especially my division. But to follow CWI’s command meant violating the very purpose for our subcontract. And from a larger perspective, I was also helping my customer swindle the Navy. I just couldn’t do it.

I suspect that my raise, bonus, and stock options that year were less than I would have liked, but at least I was able to sleep at night. No revenue is worth loss of your personal integrity.

The Grade Changer

A few years later I was teaching a monthly course at a US Army base. Each class consisted of about 35 Army officers, mostly captains and majors, with an occasional 1st lieutenant and an occasional lieutenant colonel or colonel.

Each class also included 4-5 “allied officers.” These were guest officers from all branches from countries that were not (at least in my opinion) our most obvious allies, but were mostly from developing nations whom we seemed to be courting to become better allies of the USA.

During my first month of training as an instructor, the officer in charge of the school, let’s call him Colonel Potter (not his real name), explained to me that I may not give a grade lower than a “B” to any of the allied officers. I asked why not.

Colonel Potter told us that a few years ago, an instructor at this school had given a “D” to one of the allied officers, and when that officer returned to his country, he was executed for disgracing his country!

I understood and consented. In retrospect, some may consider such a practice to be unethical, but the policy did not (and still does not) stir up the unethical bits from the bottom of my soup pot.

The Contract Violator

I was teaching a course on entrepreneurship in Jos, Nigeria, a few years ago and we were discussing the fact that in the USA, founders usually must provide personal collateral if they want to obtain a loan. This led to a discussion of “terms and conditions” and “contracts.”

One of the students then asked, “Here in Nigeria, we have no civil courts to enforce violations of contracts. So contracts have no meaning here. What do you recommend we do?”

My response was heavily influenced by a lesson taught to me many years ago by Ben Sparks, attorney at law (if I misquoted you, Ben, it is entirely my fault!): “Contracts should be signed only by people who completely trust each other at the time of signing. And contracts are used as the basis of lawsuits only when that trust is no longer present.”

My recommendation to my Nigerian student was very simple: “only do business with people who you trust entirely.” When trust doesn’t exist in the beginning of a relationship, it definitely won’t exist at the end.

The One-Sided Boss

This story took place in a small company that had been around for 20 years, but it certainly could have occurred in a startup.

The owner of the company wanted to retire and decided to sell it to two of the employees. One of them decided to have one-on-one meetings with each of their former colleagues, who now have become their employees (not a bad idea!).

During one of those meetings, an employee remarked that she might have a difficult time working for his peer because he did not respect her. The new leader’s response was, “He’s the boss. He doesn’t need to respect you. You just need to respect him.”

Respect has to be built and earned over time.  When it doesn’t exist, or worse when it has been eroded, a great deal of honest work must be done to repair it. And above all, respect is always a two-way street.

Summary

If you recognize these people, don’t let them infiltrate your startup.  Only partner with those you trust and who have the qualities you need to make your business successful.

Please write your comments about these stories. Which have you seen yourself? Which are the most common? Which are the worst? Do you have you own stories of unethical people in your startups? Write about them in your comments.

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About the Author

Dr. Al Davis has published 100+ articles in journals, conferences and trade press, and lectured 2,000+ times in 28 countries. He is the author of 6 books, including the latest, Will Your New Start Up Make Money? He is co-founder and CEO of Offtoa, Inc., an internet company that assists entrepreneurs in crafting their business strategies to optimize financial return for themselves and their investors. Formerly, he was founding member of the board of directors of Requisite, Inc., acquired by Rational Software Corporation in 1997, and subsequently acquired by IBM in 2003; co-founder, chairman and CEO of Omni-Vista, Inc.; and vice president at BTG, Inc., a Virginia-based company that went public in 1995, acquired by Titan in 2001, and subsequently acquired by L-3 Communications in 2003.

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