Since the beginning of Enable almost two years ago, I have tried to focus on the key things startups must take care of properly - right from the start. This included legal, financial, product development, marketing and many more business related issues.
Today, as part of our virtual university for startups, we cover what is probably the most important matter – business ethics.
As in all of our courses, we utilize the those who do should teach approach and call upon Scott Cook the founder of Intuit (NASDAQ: INTU) to teach us. What is especially nice about today’s Enable is that it utilizes extracts from an article written by Cook long before he achieved success. It appeared in Inc. magazine in September 1992. But he achieved success by practising what he preached. Cook’s thesis is that most startups fail to realize that, more than anything else, ethics will determine their long term success or failure.
I have been working with startups for more than 15 years and I must say that Cook is absolutely right. Startups must learn to do the right thing – right from the start. If they do, they will be on track to success. The startups that I have worked with that have indeed “learned to do the right thing” are still around and are thriving.
The full text of Cook's article, “The Ethics of Bootstrapping”, can be found at:
http://www.inc.com/articles/details/printable/0,3535,ART4288,00.html. Case studies on business ethics and a ‘self-test” can be found at http://www.inc.com/guide/item/0,,GDE71,00.html.
The Ethics of Bootstrapping
”When you're a little, struggling start-up, you're confronted by ethical questions almost every day. Your company has no visible track record, or a very limited one. Or, like us in our early years, a very shoddy one. We had a poorly selling product for several years, we had no money, and our two closest competitors were corporate subsidiaries that together spent $7 million on marketing during our launch year alone.
”That's the test of your ethics, when you're staring straight at the shame of failure. Each week your ethics are challenged by the promises you make. How much do you embellish your financial condition, the resources behind you, the success of your customers? What do you tell employees? Prospects? To get the sale, do you promise things you know you can't deliver? Do you make promises to your employees that you know in your heart you can't keep? I found I couldn't do those things. I just couldn't get my enthusiasm up for it; I had to do what felt right. Of course, no one would argue that businesspeople should do otherwise. But they do do otherwise, all the time. Because it's business we're talking about, and because it's cutthroat and you can rationalize almost anything, and because - especially when you're bootstrapping as we were - it's a matter of survival.
”But what I've learned, and what all too many bootstrappers can miss, is that being truthful is good business. Apart from moral judgments, consider expediency - and expediency is what bootstrapping amounts to. Business is about doing right by the customer and by your business partners, which include vendors and employees. If you do right by them, your business will flourish. If you don't, your business won't. You may solve some temporary bind by fibbing, but it will come back to haunt you. It's not just wrong; it also doesn't work. Being ethical isn't a fairyland, Boy Scout idea, nor is it naive. I wanted to build a business for the long term. And trust is one of the most important sources of your power…
”…And this is the point: while a lot of bootstrapping companies think about the consequences of failure - "Gee, if I don't fib about this, I'm going to fail, and if I fail, I'll lose all my money, and my wife and kids, and my self-respect" - I don't think they consider the consequences of success. What happens if you lie, and are successful? Your customers may know you lied, and employees will definitely know you've lied, and you've set up a culture in which lying's OK - or worse, in which lying is linked with success.
”The things that help make a company successful become the elements of its foundation, the stories through which new employees learn what's right and what's expected of them, and how they can succeed. Do you want those cultural legends to be about tricking others? You've got your choice.
”If you create the right culture, people will do the right thing. I remember when we were working on one ad, our graphic designer came to see me, and she seemed hesitant about it. I said, "What do your guts tell you?" She said, "I just don't think we're being straight with people." If her guts told her that, she was probably onto something. She talked to the marketing vice-president about it, and we never ran the ad.
”You have to realize that as a CEO, you're a role model and an example. People learn from your actions more than you ever believe. Now, we're not perfect; there are tough judgment calls every day, by people at every level in the company, and we don't always get it right. But I know that our chances of getting it right are highest only if our culture demonstrates the right values for people. The underpinnings of how you run the company give people rules they live by, and people will really believe in them and hold them dear.
”It's a rare thing, this opportunity to create a culture; there's almost no place in our world where you can do that. Normally, you take culture as a given. American culture is American culture; we lament that politicians can't lead us better, that kids don't study harder, that too many people are crooks.
”But when you create a company, you can create a culture - not in wide variance with what surrounds you, but you can move values, subtly and not so subtly, in the direction you want. It's the most powerful thing you can do, to seed that culture the right way, because ultimately, that will become more important to the success or failure of your company than you are. The culture you establish will guide and teach all your people in all their decisions. And if you've got a choice about the culture you create, why build it on a foundation of fraud?”
I have nothing to add, except to recommend that you read the article in its entirety for its concrete examples taken from business experience.
Published by Israel’s Business Arena on December 2, 2000