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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.

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Start-up Advice

Start-ups Need More Than Money To Succeed – They Need Smart Money

Start-ups need investors who bring not only cash to the table, but also their networks and business acumen.

Max Lyadvinsky

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Ask any start-up what the single most important element to success is and – more often than not – the answer will be money. Financing always ranks as a high priority for the small fish trying to make it happen in the big pond of business – but often discussed with less fanfare is where this cash comes from and what will come with it. These are actually the most important details to a start-up.

That is not to say that money is not important. In fact, the second most common reason for start-up failure is lack of funding, according to CB Insights. Although, perhaps ironically enough, the top reason for start-up failure is lack of market need – a problem which could have been identified and avoided by investors who bring money with direction and money with experience.

Start-ups don’t just need money, they need smart money.

Start-ups need investors who bring not only cash to the table, but also their networks and business acumen. Essentially, they bring experience and direction to outfits that are usually inexperienced or directionless. So, let’s talk smart money and the start-up.

What is smart money?

“Smart money” refers to investors who are simply more intuitive and aware of market movements and business health. The Financial Times describes “smart money” as “sophisticated investors who tend to pick the right moment to buy or sell assets because they can identify trends and opportunities before others do.” These investors calculate based on history and profit and invest accordingly. Where they go, other investors follow.

These business heavyweights are invaluable to a startup because they put more than simply their money where their mouth is; they also invest their expertise. A start-up could have all the money in the world but it will fail more without the proper business direction and market placement.

Smart money works best for start-ups when nascent businesses pair with investors who provide a holistic approach to business. They can help in hiring the best talent, attracting interest from the most relevant stakeholders, securing a continuous presence in the press, avoiding pitfalls and, ultimately, fulfilling ambitions.

There are more than a few ways that money can be termed as smart. Perhaps the cash infusion also comes with experts in thought leadership and strategy, or executional capacity, or the ability to increase sales and raise funds. Whatever the method, smart money brings something more to the table than dollars. This becomes abundantly clear when conducting post-mortems of the startups which have failed.

Related: Government Funding And Grants For Small Businesses

Why do start-ups fail?

Start-ups fail all the time – and it is important to understand why. As mentioned above, the top reason start-ups fail is simply the lack of market need. Tackling problems that are interesting to solve rather than those that serve a market need is the most common issue start-ups cite for their downfall. The next most common reason for start-up failure, as likely predicted, is money. Smart or not, money does need to flow into any start-up to make it possible. Meanwhile, the third most common reason for startup collapse was team composition. More to the point: Start-ups need to comprise a diverse team with different skill sets.

These top three reasons for start-up failure could be solved with the right management approach from the top down. Each of these reasons can be addressed with smart money. The right business and management structure will allow the right hires to be made and course to be charted. Smart investors can identify the right people for your team and help you to hire staff who will take the business to the next level.

While start-ups think money is the key, it is not the end-all and be-all for their potential success. They need skills and networks. Business and innovation expert Rosemarie Truman explained this misunderstanding best: “A common mistake entrepreneurs make in their struggle to find funding is focusing too much on getting the money under specific terms and not paying enough attention to who is providing the funds.”

Show me the (smart) money

Savvy entrepreneurs recognise their businesses need more than cash to be successful – especially those at the top. Alibaba chief executive officer Jack Ma, who ranks as one of the richest people in the world, described the need for smart hires and smart staff as thus: “At first, I knew nothing about technology. I knew nothing about management. But, the thing is, you don’t have to know a lot of things. You have to find the people who are smarter than you are.”

Smart business owners want to work with investors who provide not just money but also their expertise, time and access to networks – and this is especially important for businesses looking to scale. The proof is in the research: Take for example a paper by Morten Sorensen, professor of finance at Copenhagen Business School, about venture capital and its impact on an overall business. Sorensen found that companies funded by more experienced venture capital funds were more likely to go public, and also that more experienced venture capital funds invest in better companies, leading to better long-term business health.

So, the question then becomes: Where does one access smart money? The answer will depend on whom is asked, but startups that have survived and later grown into viable businesses are a good place to start. The founders of collaborative blogging platform Niume, Daniel Gennaoui and Francesco Facca, have this advice for start-ups who are on the hunt for smart money:

“First, you need a strong founding team with complementary skills that can actually deliver on their promises. Second, you need a working minimum viable product (MVP), showing that there is traction and interest for the product and people willing to use and pay for it,” the founders said. “The actual amount they invest is far less important than the value they bring to your company.”

It is also worth noting that crowdfunding can be considered a form of smart money, as it brings an ecosystem of partners who will help to scale and countless brand ambassadors who have invested their hard-earned cash.

Related: The DTI Funding Guide You’ve Been Looking For: The What And How

It’s simply more than capital

Gaining start-up finance is not only venture capital or crowdfunding – it should also provide an ecosystem of business management and be viewed as such. It’s simply wrong to think funding is only funding. Start-ups can have all the money in the world but will fail more often than not without the proper business direction and market placement. Those who want to make a lasting impression in their given field need the guidance and support smart money brings.

This article was originally posted here on Entrepreneur.com.

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Start-up Advice

7 Lessons For The New Entrepreneur To Take Into 2019

You already have what it takes to make this year successful, but keep these points in mind.

Dr John Demartini

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Human behaviourist, Dr John Demartini upacks some important lessons that new entrepreneurs would be wise to take into the new year.

1. Find a need to fill that will also fulfill you as well

First and foremost, the most important thing an entrepreneur needs to do is to find out what exactly it is that businesses or people need, and make sure that this matches what is absolutely most meaningful and inspiring to you.

This need or value that you are going to fill must also be important to you and on your list of highest values so that you have a relentless drive to go and serve this need. In other words, it is important to make sure that you are doing something that’s meaningful and inspiring to you and serves a great number of people.

Related: Awaken Your Entrepreneurial Spirit

2. Clearly define all the functions required to build your business

Those functions are based on exactly what is systems and structures are required to fulfill your customer’s needs or values and to profit.

You must imagine every single step required to serve the customer. This helps build an infrastructure step by step.

3. Meet the need and generate the income

I think a great number of entrepreneurs set up fantasies that they have to depend on money to get their business started. Many have this grandiose idea that they’re going to do this, and then they need a certain amount of capital to get it going, instead of going in and actually meeting a need and generating income and then infusing capital into a proven model.

If you do it that way, then you don’t have to give away portions of your business and accumulate possibly unnecessary debt.  Ask how you can be paid up front to fulfill each essential step instead of how you can borrow to fulfill them. Sure selling in advance is often wiser than borrowing and gambling on what customer might want.

Those who decide to wait for capital before they start their business often feel they can’t get it started without outside capital. Then, a year later they’re still trying to get the capital together to get their business started. It’s often wise to actually make sure you have something that really meets a need and be willing to work from the grassroots up and prove yourself and then infuse capital based on what’s already produced and proven and build it that way.

Related: 7 Character Traits Every Entrepreneur Can Cultivate

4. Manage money wisely

Save a portion of the money earned, and take another portion and return it back into the business to grow it. It’s important to have a liquid cushion – it’s unwise spending all your money or putting all of it back into the business and then having no cushion to fall back on.

Make sure that a portion of the money is put into liquid cash. The greatest companies have a great reserve of cash. Liquid cash is important. Many entrepreneurs are gambling instead of investing and looking for a quick return instead of being patient.

5. Have adequate liquidity to prevent opportunity take overs

Watch out for opportunists – when you are running a successful business. There will be opportunists who come along and offer to purchase the business for much less than it may be worth.  That is another reason to have adequate liquid capital on hand, because without it, you can become vulnerable to others coming in and taking over the business. Leverage buyouts can occur.

Remember, cash is king. Cash grabs opportunities. So be sure to save and invest.

6. Keep focused

If you are not making money, then you must not be serving people. So make sure you are truly meeting your customer’s needs and serving them. Don’t take your focus off your mission. Don’t forget what got you to a point of success.

Related: Make A New Start In 2019

7. Be true to yourself

Don’t try to be somebody that you are not. Don’t envy and imitate other companies, you may end up not being authentic and true to what your values are. It is wiser to recognise where and when you already own the traits of those you admire according to your own highest values.  You already have what it takes.

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Start-up Advice

Outdoor Versus Indoor: How Different Conditions Will Impact Your Budding Marijuana Business

When starting out you should know the difference between indoor and outdoor production and why it matters to your future cannabis business.

Nicole Crampton

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If you’re looking to start growing and cultivating a strategy in the hopes that weed will be legalised, you’ll need to do some experimentation. Growing marijuana is a science and will require more than just a splash of water every other day like normal house plants.

Firstly, you’ll need to determine if you can grow your “crop” outside or if you’ll need to set-up a space inside. Here is what you need to know about growing cannabis inside versus outside:

Optimised versus natural

Deciding which option will work better for you depends on your unique circumstances. If you have access to an outdoor area you can use the natural resources of the sun and wind. If, on the other hand, you prefer to grow your crop inside you’ll need to cater for the natural elements you’ve lost, but you can also optimise the environment to give you exactly what you’re looking for.

When growing indoors you can control:

  • Temperature
  • Light source
  • CO2 production
  • Humidity.

This will create a stable habitat for your weed plant to grow in, without having to risk any outdoor elements. Keep in mind, no bulb is going to be able to produce the same spectrum of light as the Sun, which will leave you will smaller yields and less vigorous plants.

You’ll also find it challenging to simulate the natural environment. For example: wasps, ants and ladybugs are natural helpers against mites, you won’t be able to mimic this ecosystem indoors, and if your plants become infested with mites it can be difficult to control. To avoid using pesticides and insecticides some cultivators could find the trade-off of growing outdoors appealing.

Outdoor growers will need a suitable climate for cannabis production such as:

  • Good sun exposure
  • Hot days, warm nights
  • Low humidity.

cannabis-production-pros-and-cons

Related: 6 Fundamental Steps To Consider Before Venturing Into The South African Cannabis Industry

Can you afford to grow indoors versus outdoors?

planting-marijuanaWhether you’re growing indoor or outdoor there will be significant initial costs, however, the difference will come in when it comes to long term costs.

An indoor climate control system can be quite capital intensive compared to outdoor where the majority of the costs are in the initial start-up.

The expected labour costs for indoor and outdoor are also quite different. There is always work that needs to be done to create an optimal environment with indoor marijuana growing. With a smaller yield, like in indoor growing, pruning, trellising, watering, feeding and harvesting are more demanding and continuous.

When growing cannabis outdoors, you’ll work on one crop throughout the seasons. A farm with a large output typically can sustain four full-time workers until harvest, when more employees will be needed.

You can recoup the high cost of indoor weed farming through:

  • Breeding projects
  • Year-round harvests
  • Potent products
  • Higher selling points.

Indoor marijuana farming also allows you to cultivate strains that wouldn’t thrive outdoors.

Pro tip: Keep in mind, with the rising cost of energy and an increasing demand for more product within the current marketplace, outdoor farming could produce quality product at a more reasonable price.

indoors-versus-outdoors-pros-and-cons

Related: 12 Cannabis Products You Can Legally Start Selling Right Now

Will outdoor or indoor offer you better quality?

Being able to optimise your environment and accelerate breeding has allowed indoor cannabis to hold the title of top of the line product and generate beautiful strains with powerful flavour profiles. With indoor marijuana growth you can increase the CO2 level increasing bud growth and producing higher THC levels, which are difficult to obtain outdoors.

Indoor buds also remain in pristine condition as they aren’t exposed to the elements. Having an indoor operation enables you to harvest crops at peak conditions and curing the product in a controlled climate.

On the other hand, many users prefer the sun-grown organic marijuana. Although the actual plants tend to be more damaged, so the product isn’t as pristine. However, once you’ve gained enough experience you should be able to produce products of the same high quality as indoor growers.

outdoor-quality-pros-and-cons

Related: 10 Cannabis Business Opportunities That Can Grow Your Wealth

The best of both options

There has been a growing trend of commercial greenhouse marijuana farming. This seems to capture the best of both methods. It produces high quality cannabis, while using natural elements and optimised environments simultaneously.

Both styles of farming offer positives and negatives, and as a consumer or a future producer, you’ll need to continually educate yourself on the current trends. Continue to evolve your process, try something new and keep your mind open to possibilities.

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