

Should Entrepreneurs Lie? - hellacious
http://blogs.hbr.org/cs/2010/04/is_it_ok_for_entrepreneurs_lie.html

======
grellas
Hyping, shading and puffing are normal in entrepreneurial circles and,
properly limited, are probably expected to some degree. People discount the
statements accordingly.

Misrepresenting material facts or omitting to disclose something major (like
the loss of your major customer the day before a funding) constitutes
securities fraud and can get you in a heap of trouble, notwithstanding how it
may have worked out in a particular case such as that cited in this piece.

There are also limits to hyping if it amounts to misrepresenting material
facts. I was once approached by an entrepreneur whom I turned down as a client
and who later got busted for securities fraud for having done a demo claiming
that certain of his company's whiz-bang technology was in fact doing something
stupendous when it was in reality just a rigged demonstration designed to
simulate what he claimed his technology could already achieve. Having raised
$7 million based on such demonstrations, mostly from gullible investors, he
went to jail for his "over-hyping" of his product.

When it comes to issues such as lying, there are moral issues and there are
legal ones. If you are an entrepreneur who wants to avoid serious problems,
the rule should always be: never lie in a way that amounts to fraud or
misrepresentation (legally speaking), no matter what the supposed benefit. It
is _not_ worth it.

Concerning moral issues, the issue for me is one of integrity. Just as we all
can stretch something when it helps us, and just as we all do so to some
degree, so we can stretch it to the point where it amounts to a pure
fabrication. Mild stretching might be considered a gray area. Fabrication is a
character issue that can reflect badly on the entrepreneur. Of course, this
depends on context as well. If it is clear you are speculating (such as about
growth rates), that is one thing. If you are knowingly misrepresenting facts,
the natural thought that occurs to people you are dealing with is, "If he will
do that once, how can I trust him not to do it again." You might think it is
innocent in your mind, but crooks make a living off such misrepresentations.
And there is no percentage in aligning yourself with that which is unseemly. I
have repeatedly seen the consequences of such activity in courts of law, and
they are not pretty in cases when things do blow up.

~~~
wisty
Another test is: Would the victim be annoyed if they found you had lied? I
doubt a VC would get annoyed at inflated sales forecasts (they know it's part
of the game), but they would be annoyed if you lied about the feasibility of
your project.

~~~
stretchwithme
I think the best VCs appreciate an entrepreneur who is able to squeeze all
possible value from the available facts without resorting to deception.

The sharpest people can back up everything they say. Avoid making ridiculous
claims and you appear smarter.

Lying is often an indicator of laziness and a lack of the right kind of
creativity.

------
rgrieselhuber
I was talking with one investor late last year. Things were going pretty well
in one direction with my company and I decided that it would be a good time to
fund additional growth. Just before I closed the deal, however, some key
relationships that I had been counting on fell through. Ever the optimist, it
didn't cause me personally to doubt what I was doing and didn't think it was a
big deal in the long term.

One thing that I think is true of technical people is that we are comfortable
disclosing difficult things. We tend to view them as just bugs to work out and
expect that everyone involved will have enough belief in the end goal to find
workarounds to any challenges. So, perhaps naively, I told the investor what
was going on and how I planned to proceed.

He (being a certain type of investor) took this as an opportunity to try to
completely change the terms of the deal we had agreed upon. So, I ended the
talks without taking any money.

I wondered for a few months afterwards if I had made the right decision in
being so honest and came to the realization that some investors do expect you
to only paint a rosy picture.

At the end of the day though, I realized that I don't to work with that kind
of investor and, as things turned out, it was a very good thing to not take
money from him. Since then, some unbelievably good things have happened and
couldn't have taken place if I was tied to some investor in Japan who didn't
believe in me.

So, the lesson for me was, be honest and be yourself. The people who believe
in you as an entrepreneur will be there through the ups and downs. And the
truth is a great way to weed out those of little faith.

~~~
mattm
This has been my experience in life as well. Doing the right thing, which may
cost you in short-term gain, usually leads to long-term gain.

You had the opportunity to find out about this man's character that he wanted
to take advantage of you. Better to find this out sooner rather than later.

------
mnemonicsloth
No, but look at YC's bio page at <http://ycombinator.com/people.html>

"Robert Morris is an associate professor of computer science at MIT, where he
is a member of the PDOS group. He has published extensively on wireless
networks, distributed operating systems, and peer-to-peer applications. _In
1988 his discovery of buffer overflow first brought the Internet to the
attention of the general public._ He has an AB and PhD in Computer Science
from Harvard."

Emphasize the positive.

But it only works if you have a lot of positive to emphasize, and if whatever
you're downplaying really isn't important.

------
rfrey
Even though I've been in business for 20 years I'll bet the number of people
who have knowingly, intentionally deceived me is very low, probably in single
digits. Maybe none.

That sounds naive, and maybe it is. But psychological and neurological
research all points in the same direction: that people perceive the same
situation radically differently, and even remember the same incident
differently. There are even physiological artifacts that accompany or cause
these divergences. So most of the time when people are 'lying' to me they
probably believe what they're saying.

That doesn't answer the original question, but it challenges the assumptions
in the article, that lying is commonplace and a constant temptation. It also
changes the way I (and I think others) should respond to a 'liar'. Assume the
person isn't lying, even if you think they're wrong and should know it. Accept
the data, evaluate, verify, and move on. Ascribing motives or morality might
be satisfying, but it's unhelpful. Worse, emerging science suggests it may be
a mistake.

~~~
mnemonicsloth
_when people are 'lying' to me they probably believe what they're saying_.

One one level yes, this is true. More than true, it's wise. The problem is
that we can deceive ourselves into holding self-serving beliefs...
_sincerely_. Upton Sinclair said it best: "It is very hard to make a man
understand something, when his job depends on his not understanding it."

And such people aren't lying or dissembling. It's just much cheaper, in terms
of mental effort, to develop beliefs that the world is the way you would like
it to be.

------
maxharris
No. Dishonesty (not limited simply to lying) is as impractical with your
customers and investors as it is with family and friends.

Context: assuming that you are dealing with civilized situations in which
neither party has initiated or threatened the use of force against anyone.

------
rhettinger
Hopefully, this article will be counter-balanced at some point by discussions
with successful entrepreneurs who had open, candid, and honest relationships
with their VCs and customers. In my experience, telling the truth builds
relationships and lets people focus on problem solving.

If being honest with your VC means losing funding, it may still lead to
funding of another, more viable idea.

------
suprgeek
"Fake it till you Make it" has become quite a popular mantra in this context.
Is this lying, stretching the truth, marketing your "brand", or something
else? It is for the individual to decide, no strict rules IMO...

------
inboulder
Entrepreneurs obviously need to spin their situation in as positive a light as
possible, see all the chatter around the monitization of twitter as an
example, but I doubt outright lies are going to be a winning strategy. (it may
work for Jobs, see woz-atari story, but is it worth the risk?)

I think it's important for the Entrepreneur to understand that VCs lie all the
time however, it is just their nature, despite how open they look, they're
especially good at lies of omission and manipulation of fund performance.

------
stretchwithme
Your most valuable relationships are with people who are smarter than you.

So, by all means, go ahead and lie to them. They'll know right away, while
everyone else will only know eventually.

------
bg4
Honesty is the first chapter in the book of wisdom.

------
eande
Playing the game, hyping or as some called it marketing is part of being an
entrepreneur. You always have to encounter that the information given to you
is often fashioned in that way. As long as the facts are not misrepresented or
blank wrong information which can get you in some serious trouble it is part
of business.

I personally stay away as far as possible on stretching the truth because of a
simple fact. When you start it you have to remember, what you said to whom,
how much you said and so forth. At some point it starts to catch up on you and
people start to remember it. Despite all the thinking it just gets messy and
integrity in business in the long run is key. Therefore I stick with facts and
truth which keeps it simple. That might sometimes mean that I do not get the
deals I wish, but I have a good sleep and no headache and for sure I will
survive.

------
dedward
Lots of complex answers here.

Legal analysis aside, it's risk -vs- reward decision.

Best outcome - you Lie for strategic reasons, nobody ever finds out, and your
company is a success, everyone makes lots of money, everyone is happy, and
even if they find out you lied, they may not care if you've demonstrated
nothing but good behavior since. Maybe.

Lie, and then fail, and get found out - that may follow you around forever
doing untold damage to your credibility for the rest of your life. Trust is an
easy thing to lose and a hard thing to gain.

------
lsc
If you leave aside the moral/ethical issues (which are very real, and which we
each need to deal with for ourselves.) the usual rules of marketing apply; do
you expect word of mouth? do you expect repeat business? If so, a reputation
for dishonesty is going to kill the rest of your marketing.

(Of course, if you expect to encounter each customer once and only once, and
if you don't expect your customers to talk to potential customers, the rules
are clearly different, and you are mostly back to the ethical question I
glossed over.)

------
angelbob
I think his point about holding startups to the same standards of truth that
we do "the most mature public companies" is actually a good one. We expect a
_lot_ of lying from the marketing departments of mature public companies.

But we feel worse about it when there are so few people that lying means it's
Bob and Frank lying to us, not fifteen faceless people in a large department
who we'll never meet, and never assign blame to.

------
edw519
No.

Especially if you're a software entrepreneur.

Even more so if you're an internet entrepreneur.

We don't make products that our customers can touch and feel. We make ones and
zeros. All our customers have is trust and implicit promises from us.

Lie and we have nothing.

~~~
pw0ncakes
What about this scenario? VC wants to know how much interest there is in your
company. You claim to have 3 leads from other VCs although you have none.

IMO there is nothing wrong with this lie, because it doesn't lead anyone to
make a bad decision. If you're a good investment, you get funding faster and
on better terms. If you're a bad investment and the VC is any good, you'll get
rejected even if you have 1000 leads.

Or another example... you're 30 and have a successful track record but you
failed out of college at age 21. A VC is sizing you up and wants to know why
you didn't finish. You're a different person at 30 than you are at 21, so it
shouldn't matter, but you fear admitting the truth will kill the deal; VC's a
bit of an Ivy snob. You say, "I ran out of money, 6 months later had an
opportunity to do <X> and made a lot of money, and haven't had any need to go
back". Is anyone hurt by this lie? Absolutely not.

~~~
maxharris
VCs can just talk to each other and figure out that you're a fraud, which
alone is a great reason to not deal with you.

Don't lie! Morality is not just some arbitrary thing that you can make up as
you go along if you want to achieve anything. The proper standard of morality
for you and me and everyone else is _not_ what will help or hurt the other
party, it's what will help or hurt _you_ and your long-term rational self-
interest. Lying will necessarily prevent you from succeeding; see chapter 4 of
Tara Smith's book, "Ayn Rand's Normative Ethics", which is on honesty.

~~~
pw0ncakes
_VCs can just talk to each other and figure out that you're a fraud_

That's the danger: getting scumbagged behind your back.

How is that "fraud"? Claiming you have customers you do not is fraud.
Promising to deliver a project that you cannot or will not is a fraud.
Claiming that other VCs are interested in you is not fraud; it's just the kind
of thing you have to do if you weren't born into connections.

The only people who have a problem with that are silver-spoon assholes who
want to keep doors shut to people who didn't hang out with them in high
school.

~~~
maxharris
People that are in business and successful because they were in a high school
clique?

Just how many people does Steve Jobs hire because he knew them from school?
Zero, because his way of doing business is to hire the best. To the extent
that people are like Jobs in this regard, their businesses are successful.
People that hire friends, regardless of their ability will never rise to great
heights in business (or any endeavor).

Do you want to work for someone mediocre, or someone great? Even if you were
successful in your lie, lying would only get you the mediocre job. A great
employer (someone of high caliber) would figure it out, or would be principled
enough to fire you when they figured it out.

~~~
pw0ncakes
_People that are in business and successful because they were in a high school
clique?_

I never said this. Obviously, it is not true.

I said that the people who'd consider it some kind of moral transgression,
rather than a strategic move, to tell a VC that you have other VC interest are
the kinds of people who want to keep "the doors" closed to the hoipolloi,
because their worst nightmare is outsiders getting into their club, so they
have to throw into place a moral "consensus" that judges such moves to be
wrong.

------
techiferous
People lie because they want more power in a social situation. In the "$10
million of VC investment" scenario, lying about the multinational customer
gives the entrepreneur more power than he otherwise would have had in the deal
with the investor. An investor-entrepreneur relationship works best as a
collaboration. So why would you want to start that relationship with an
obvious power play _against_ your would-be investment partner?

------
moe
The secret of success is sincerity. Once you can fake that, you've got it
made. -- Jean Giraudoux

------
mathewgj
i find a very helpful concept here is the 'appropriate level of abstraction'-
when making some assertion, make sure that the language you use and the claims
that you make are specific enough to be compelling, but abstracted enough to
be 'not a lie'.

------
huherto
Everybody lies. But you have to be careful since your reputation is very
important.

~~~
techiferous
"Everybody lies."

Gandhi.

~~~
techiferous
I'm not sure why this is being downvoted. I'm pointing out that it's simply
not true that everybody lies, at least not in the "intentional
misrepresentation of facts" sense. Anyone who has studied the life of Gandhi
knows that he would've never materially misrepresented a fact to anyone.

------
mcu
no.

------
pw0ncakes
Tough call, but here's the reality of business: everyone ends up "lying", even
the people who do their best to be honest (those tend to fall into the
overconfidence camp). Some people are just overconfident or have sunny
reflections on the past, but everyone lies, and mostly about things of no
consequence-- why they left their last job, who they know, their relative rank
and responsibility in previous companies.

I generally assume that it's okay to lie if it doesn't lead the other person
into a decision that will bring them harm, so lies to inflate one's social
standing are generally okay, but promises to deliver a product that one cannot
I'd consider very unethical, because the other person is going to get burned
when it doesn't come through.

An obvious example is engaging in "creative career repair" with respect to
previous job changes. Anyone who has spent 28 minutes in the professional
world knows that most people do this and that it's generally innocuous.
Everyone has a certain degree of the right to reinvent his or her own history.
General rule: it's unethical to claim skills you don't have-- and it's also
terrible for you because it means you're likely to fail at your next job; it's
fine to upgrade titles, relative performance, terms of leaving, status within
the group, and compensation to a reasonable degree (up to the maximum given to
someone of your standing and seniority, e.g. claiming top bonus).

Also, although I think it could be a tactical mistake, I'd have no problem
with someone lying about having more VC interest in a venture than there
actually is, in order to get better terms. This "lie" makes a good deal more
attention-getting, but it's not going to make a bad deal look like a good one,
except to a VC who doesn't do his own homework. (The danger is that the VC
will scumbag you and, behind your back, call up the VC you said was
interested.)

~~~
goodside
"I generally assume that it's okay to lie if it doesn't lead the other person
into a decision that will bring them harm..."

Humility is knowing you're not smart enough to know when other people are
better off being lied to. Once you start justifying your lies as being helpful
to the victims, you've crossed from malice to delusion.

Further, you've just admitted on a public forum read by many with deep
connections in the startup world (and others bright enough to crack whatever
anonymity you think you have), that you're _okay with lying to investors_.
This doesn't bode well for your career as a master fraud.

With skills like these, the Dark Side doesn't have much to offer you. Please
consider switching teams.

~~~
devinj
"You're deluded and have ruined your entire career for good." Really? How kind
of you.

------
davidmurphy
No. EOF [End-of-File, meaning "period!"]

