But everyone knows the reality is more complex, so I’m calling this “When Should Entrepreneurs Lie?”
Many times entrepreneurs lie because they expect that the people they’re talking to will discount what they’re saying in any case. This seems to be generally considered acceptable. The first time I did work for a startup I helped them sell advertising. I was shocked (shocked!) to discover that we weren’t actually charging what we claimed we would charge. Our rate card was just a guideline, or rather a basis for a negotiation (and never negotiate up). And in fact, this is standard practice for selling online ads.
And of course there are many more businesses where nobody pays the list price. Consultants and investment bankers, especially in the wake of the econopocalypse, don’t get paid what they claim to charge. Some of the big hushed stories are about the heavy discount such or such veeeery prestigious firm took to get a gig that would supposedly be beneath them.
When I started my first company, my partner and I decided our prices by adding 20-50% to the prices we actually wanted, because we were going after big enterprise customers and we knew they’d talk us down — in part because they knew the prices we were listing weren’t the ones we were expecting. Is this “lying” when “everyone knows the score”?
I know of an entrepreneur (a big, famous one in France), who applied to MBA programs and then went to banks with his acceptance letters to get student loans. He then used these loans to start a business which is now very successful. We all know the story of at least one entrepreneur whose first “venture capitalists” were AmEx and Visa. I’m sure credit card contracts have clauses against running up debt to start a business.
The HBS post includes many other similar experiences of “justifiable” or sometimes not so justifiable lying — for example a company raising a big round on the basis of a large company partner that bailed out before the fundraising. The entrepreneur waited until after the investment was closed to tell his partners. Things worked out. To me that’s obviously off limits because, even though I’m not a lawyer anymore (and I certainly know very little about securities law), but this sounds a lot like fraud to me.
Another bit of personal experience, one that would make me agree with Chris. I work a lot with startup founders, and there’s something I noticed: the most successful entrepreneurs I met were also the most open and forthright. I don’t know where the cause and effect relationship is. Is it that you can’t be a great entrepreneur when you’re not actually honest? The story of Facebook’s founding (and many others) would seem to bely that. Is it that being open about your flaws acts as a spur to action? It might also be because running a lot of startup involves countless challenges and saying the truth is just simpler, because you don’t have to remember as much, so it allows you to focus on execution? I think this could have a big impact. I also think that a policy of radical honesty could help you stand out. Or is my sample of entrepreneurs just not representative?
Anyway, I want to know what you guys think. When should entrepreneurs lie? Should entrepreneurs lie at all? Even the “white lies” that “everyone tells”? Are entrepreneurs who don’t lie more successful?
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