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Start-up Advice

Should Entrepreneurs Lie? It’s A Tricky Question

In the hustle of the startup world, entrepreneurs often drop little white lies – and don’t even consider them to be lies. Where’s the ethical line?

Jason Feifer

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Gary Hirshberg knew the exact amount of money he needed to save his company: $592,500. It was 1988, and his fledgling yogurt brand, Stonyfield Farm, was near collapse – rocked by the closing of its third-party manufacturer, hemorrhaging money as it struggled to fulfill orders and unable to find new investors. But with that exact amount of cash, Hirshberg and his co-founder, Samuel Kaymen, calculated, they could open their own facility and regain their footing.

So Hirshberg drove down to his local SBA office with an informal proposal. “We’ve got a bank willing to provide the loan,” he told an officer, and he said his shareholders agreed to put up $100,000. All he needed from the SBA was its 85 percent loan guarantee, which would make the bank comfortable executing the financing.

The SBA liked what it heard, and that positive response set in motion the funding that would save Stonyfield Farm and enable it to grow into one of today’s most recognisable yoghurt brands. But in truth, the SBA didn’t know the whole story. Hirshberg didn’t have a bank lined up. His investors hadn’t committed the money. All he had was a vision for his company, a plan to save it…and, ugly as it may sound, a lie that would pull it all together.

Let’s put it bluntly: This is common. Entrepreneurs lie. It’s not like they regularly drop Theranos-level falsehoods to defraud customers and investors, but the scrappiness of entrepreneurship inevitably leads to some kind of deception. People say their company is bigger than it is, that they’re more prepared than they are, that they know how to do something they don’t. They spot an opportunity and they lie to get it, and that becomes part of their story – an origin that may one day even be celebrated, like how Steve Jobs famously faked his way through the first iPhone demo at Macworld even though the device itself was a buggy mess.

But here’s a question the entrepreneurship community has been struggling with for centuries: Is it OK to lie? And when does a lie go too far?

It’s tricky, because most entrepreneurs don’t see their deceptions as lies at all. Hirshberg doesn’t. “I mean, look – you beg, borrow, steal, stretch. You do what’s necessary,” he says today. In truth, the editors of Entrepreneur can get drawn into this logic. Just recently, this magazine ran a series of articles on bootstrapping, which featured a number of stories about entrepreneurs stretching the truth. One of them, for example, was about Anthony Byrne, the CEO of a Dublin-based company called Product2Market.

In the start-up’s early days, Microsoft considered hiring it but first wanted to conduct a site visit to make sure Product2Market had the necessary manpower. In reality, it didn’t. So in advance of Microsoft’s site visit, Byrne brought friends, family and neighbours into his office, having them pose as employees to make his startup seem twice its size. It worked. Microsoft signed on.

Related: 10 Successful SA Women Entrepreneurs’ Top Advice On Balancing Work And Family

After that story ran, an Entrepreneur reader emailed an objection. “I don’t think the magazine should be promoting people who got ahead by lying as an example for others to follow,” he wrote. But Byrne doesn’t think of his action as lying; he sees it as a simple act of survival. In a crowded industry dominated by big players, he needed to look larger and capable.

“As soon as we got our first big deal, I did in fact hire the right number of people to fulfill the contract,” he says.

This is also how Hirshberg of Stonyfield Farm sees his own circumstance. Rather than lying, he was creating an opportunity he knew he could fulfill. True, he didn’t have a bank or his investors on board with his plan. But he knew a banker that was interested in his brand and figured that if the SBA seemed on board, the bank and investors would follow. And that’s what happened. “It’s OK as long as you ultimately do deliver,” Hirshberg says.

But context is also important, he thinks. If entrepreneurs lie for the sake of lying, or for their own personal gain, that’s a problem. But what if it’s for a common good? Consider his plight, he says: Stonyfield Farm may have been small at the time, but it was employing people and supporting their families. Hirshberg’s wife was pregnant, and his mother-in-law and other family and friends had put significant money into the company. He’d tried repeatedly to save it by more direct means. He even found a potential manufacturer that promised to step in and help – but at the last second, the manufacturer tried changing the contract to steal the brand away.

Hirshberg and his co-founder nearly gave up. Then they made one last-ditch effort — going to the SBA. “I believe that determination is the most undervalued and essential ingredient for success,” he says. “More than a great product. More than financial acumen. More than great marketing. It’s just absolute determination, and as a corollary, believing in yourself when no one else does.” If they went out of business, lots of people would lose. He was determined for that to not happen. The lie was worth it, he says. It was just an entrepreneur doing what was necessary.

Not everyone is going to accept this. Purists will surely say Hirshberg and Byrne and others are just liars justifying their actions. But Tomas Chamorro-Premuzic, a professor of business psychology at University College London and Columbia University, who has written about lying in entrepreneurship, thinks they’re onto something.

“If you can somehow measure harm to others, that is the limit,” Chamorro-Premuzic says. He believes most entrepreneurs tell lies when they think the falsehoods will do no harm. Had Hirshberg failed to get bank financing, the SBA simply wouldn’t have offered the loan guarantee. Had Byrne been caught, his deal with Microsoft would have fallen through. They were largely victimless crimes, wasting little more than someone’s time.

Related: “See The Gap, Be Decisive And Love What You Do” – Advice From A Fempreneur

The way Chamorro-Premuzic sees it, the greatest lie we all tell is that we don’t lie. “There’s a reason why we have to all pretend the world is more honest than it actually is,” he says, “and that’s because we’re part of the same world that thrives with at least a certain level of getting away with some deception.” And he says creative people — the kind of fast-thinking, big-dreaming people who often become entrepreneurs – tend to lie more than others. The truth, he says, is that people in business expect some kind of transactional lie – whether it’s from a job applicant, a potential partner, or someone else.

“The system is encouraging at least some form of fact distortion, and rewards it,” he says. “If you ask an interviewee if they enjoy working with others and they say, ‘Most of the time I don’t,’ they won’t get brownie points for being honest. You’ll say, ‘This guy is antisocial.’”

So what’s an entrepreneur to do? Simple, says Chamorro-Premuzic: Treat lying as a tool to be used in very particular moments. It cannot result in harm to individuals. It must lead to an opportunity you can genuinely succeed in. And very critically, it cannot become a foundation you build on with other lies. “The brands that people trust, the products that people trust, clearly are created and run and owned by cultures that respect the customer,” he says. “Long-term focus requires honesty.”

Seen this way, a lie is a gamble – a slight tilting of the odds in a critical moment. But what follows must be truthful, because, as our liars say, that’s the only way to build an honest company.

This article was originally posted here on Entrepreneur.com.

Jason Feifer is the editor-in-chief of Entrepreneur magazine, and the host of two podcasts: Problem Solvers, about entrepreneurs solving unexpected problems in their business, and Pessimists Archive a history of unfounded fears of innovation. He’s @heyfeifer on Twitter and Instagram.

Start-up Advice

Put On Your Wellies: It’s Time To Wade Into Risk

Entrepreneurs aren’t all leaping into the unknown like lemmings off a cliff, but they do need to consider it…

Chris Ogden

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You’ve had a great idea. You’ve looked into its development. You’ve recognised that it has potential beyond just what Auntie Mabel and Mike From The Grocer think. And you’ve clearly nailed a pain point that can make money. Now it is time to take the risk of running with it.

Every big idea comes with risk. You can’t step out into the world of entrepreneurial thinking and business development without it. Your idea may fail. It will also be time consuming, demanding, hungry for money, and hard work. It is unrealistic to expect that your project will leap out into the world and be an unmitigated success.

It is also unrealistic to assume that it isn’t worth taking this risk.

There are steps that you can follow to ensure that your risk is managed so you aren’t blindly leaping off that cliff…

Step 01: Do your research

No, canvassing your neighbours, friends and family is not doing research. You need to know that your idea will appeal to a broad market and that it will have significant legs. This may sound like daft advice, but you would be surprised how many people think an idea will take off just because Susan in Accounting said so.

Step 02: Understand the costs

Projects are hungry for money and investment. Realistically work out your budgets and how much it will cost to take your project off the ground and then stick to it.

A calculated risk is a far better bet than one that shoots from the hip and hopes for the best. You can also use this as an opportunity to draw a clear line under where you will stop investing and end the project. If it keeps eating money and isn’t getting anywhere with results you need to be able to walk away.

Step 03: Know when to walk away

As mentioned before, this can be defined by a line you’ve drawn in the proverbial sand (and budget) but no matter where you draw this line, you have to stick to it. Often, when time, money and energy have been poured into a project it can be incredibly hard to walk away.

You think ‘but I have put so much into this, just one more’ and then it gets to a point where the ‘just one more’ has taken you so far down the line that walking away feels impossible. Leave. Learn the lessons. Apply them to your next project.

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Start-up Advice

Mind The Gap

The entrepreneur’s guide to finding the gaps and building the right solutions.

Chris Ogden

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Innovation may very well be the key to business success but finding the gap into which your innovative thinking can fit is often a lot harder than people realise. Some may be struck by inspiration in the shower, others by that moment of blinding insight in a meeting, however, for most people finding that big idea isn’t that simple. They want to be an entrepreneur and start their own high-growth business, but they need some ideas on how to find that big idea.

Here are five…

1. Network

It sounds trite but networking is actually an excellent way of picking up on patterns and trends in conversation and business problems. The trick is to note them down and pay attention. Soon, you will find patterns emerging and ideas forming.

2. Look for pain

Just as networking can reveal trends in the market, so can spending time reading. The latter will also help you find common business pain points. These are the touchpoints that frustrate people, annoy business owners, affect productivity, or impact employee engagement.

Be the Panado that fixes these pains.

3. Luck

luck

This is probably the most annoying of the ideas, but it is unfortunately (or fortunately) very true. Luck does play a role in helping you capture that big idea. However, luck isn’t just standing around and random people offering you opportunities. Luck is found at networking events, it is found in research and it is found in conversations with other entrepreneurs.

4. Luck needs courage

You may have found the big idea through your network, a pain point or pure blind luck, but if you don’t have the courage to take it and run with it, you will lose it to someone else.

Being bold in business is highly underrated because most people assume that everyone is bold and prepared to take big leaps into the unknown. However, not all brilliant entrepreneurs were ready to throw their family funds to the wind and leap into an idea – they were courageous enough to figure out a way of harnessing their ideas realistically.

5. Pay attention

This is probably one of the most vital ways of finding a gap in the market. Often, people are so busy that they don’t really pay attention to that niggling issue that always bothers them on a commute, or in a mall, or at a meeting. This niggling issue could very well be the next big business opportunity. Pay attention to it and find out if that issue can be solved with your innovative thinking.

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Start-up Advice

5 Things To Know About Your “Toddler” Business

As you navigate this new toddler phase of your business, here are five things to bear in mind.

Catherine Black

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Ah, toddlers. Those irresistible bundles of joy bring a huge amount of energy, curiosity and fun to any family – but there’s also frustration and worry that comes with their unpredictability, as they grow and start to become more independent. If you own a business and it’s successfully past its “infancy” of the first year or so, it’s likely it will also go through a toddler stage of its lifecycle.

Pete Hammond, founder of luxury safari company SafariScapes, agrees with this. “Our business is now three and a half years old, and we’ve found that we’re not yet big enough to justify employing a large team of people to handle the day-to-day admin tasks, yet we still need to grow the business as well,” he says. “As a result, our main challenge is finding the time to step back and see the bigger picture. Kind of like when you are raising a busy toddler and you spend most of your time running after them!”

As you navigate this new toddler phase of your business, here are five things to bear in mind:

1. This too shall pass

Everything in life is temporary – and that goes for both the good and the bad. It’s as helpful to remember this when you’re facing the might of a toddler temper tantrum, as it is when you’re facing throws of uncertainty in your business. If your new(ish) venture is going through a rough patch in its first few years, it can be easy to think about giving up – but don’t. As long as you have an overall big idea that you believe can add value to your customers, keep pushing through the rough parts until you come out the other side.

2. Appreciate what this phase brings

The toddler years mean that the initial newborn joy is officially behind you. But these small humans also bring their own kinds of joy, as you watch them learn new skills, say funny things, and give affection back to you. While your two-year-old business may not hold the same exhilaration for you as it did during those first few months, there are now different things to appreciate about it: Maybe you’re expanding your product range, or employing new people who can take the workload off you.

3. Establish boundaries

Toddlers thrive on boundary and routine – and your toddler business will too. As it grows into a new phase, try and establish limits in terms of the type of clients you want to work with and the type of work you’ll do. It’s also a good idea to make a decision about the hours you’ll work and when you’ll switch off, which will help you establish a good work-life balance.

4. Take a break

Every parent with a toddler needs a break every now and then, even if that means a walk around the block (on your own!), a dinner out with friends, or even a few days away. The same is true for a demanding small business: every so often, remember to take time out to rest properly, where you switch off your laptop and completely unplug. You’ll return much more inspired and resilient to deal with the everyday uncertainty that it brings.

5. Give it space to make mistakes

While the unpredictability of a young business can be stressful and tiring, it’s also a time for trying new things without the risk of huge consequences if they don’t quite work. After all, it’s much simpler to change your USP if you’re a small business employing a few people, rather than a big company where 50 people are relying on you for their salary, or where you’ve received a huge amount of investment capital. While you may fail in some of the things you try with your business (in fact, this is almost guaranteed), see it as a toddler that’s resilient enough to pick itself up, dust its knees and keep moving forward.

During this phase of business growth it’s also essential to have the right type of medical aid cover. There are medical schemes such as Fedhealth which has a number of medical aid options and value-added benefits to ensure that your health and wellness is taken care of too. After all, the healthier you and your staff are, the more productive your business will be – during the toddler (business) stage and beyond.

While this phase can be frustrating, it’s a sign that your business is growing and adapting, rather than remaining in its infancy, and that can only be a good thing! So embrace the difficulties, learn from them, and watch as your business strides forward confidently into the next exciting phase.

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