For her debut article in the Harvard Business Review, Associate Dean of the Schulze School of Entrepreneurship Laura Dunham collaborated with faculty from Yale, Stanford and Duke.
In the article, titled “Entrepreneurs and the Truth,” Dunham and her co-authors explore the ethical challenges that entrepreneurs face due to the pressures of engaging and persuading investors, employees and more.
Dunham’s connection with her three co-authors started when Tom Byers, one of the co-authors and a professor who holds the endowed chair in entrepreneurship at Stanford University’s School of Engineering, reached out to her after reading one of her articles. Byers introduced her to Jon Fjeld, a professor of strategy and philosophy and the director of Duke University’s Innovation & Entrepreneurship Initiative, and the three began working together at conferences and in a series of convenings that St. Thomas hosted, to engage more entrepreneurship faculty in discussions around better addressing the ethical challenges of entrepreneurship.
Co-author Kyle Jensen, a senior lecturer, associate dean, and the Shanna and Eric Bass Director of Entrepreneurship at the Yale School of Management, approached the group to collaborate on an article and suggested the topic.
The Newsroom recently connected with Dunham on why entrepreneurs often bend the truth and how the problem can be solved. This interview has been edited for length and clarity.
In the article, the four of you write, “Chicanery is too common in the start-up world.” Why is that the case?
With so much at stake, entrepreneurs often feel pressured to exaggerate when courting investors and other important stakeholders. While most entrepreneurs are honest and ethical, they have the very difficult task of gaining critical support at a time when their ventures are often very undeveloped, unproven and highly uncertain. They have to convince people to see an opportunity that they see, to get excited about a world that could be but is not yet. Just think of Apple co-founder Steve Jobs. In the article we quote Andy Hertzfeld, who was a member of the original Apple Macintosh development team during the 1980s. He said that Jobs had a “reality distortion field, a confounding mélange of a charismatic rhetorical style, an indomitable will, and an eagerness to bend any fact to fit the purpose at hand.”
What are some common examples of deception among entrepreneurs?
Scholars call these “legitimacy lies,” those exaggerations and fibs entrepreneurs tell to build their venture’s legitimacy in the eyes of key stakeholders – these might include things like exaggerating how far along they are in product development, or how close they are to signing customer contracts, or how attractive their margins will be, etc. Sometimes these exaggerations become full-out deception – Elizabeth Holmes, the Theranos founder and Jobs devotee, is getting ready to face trial for fraud. She not only misled investors about the capabilities of her blood-testing device, she endangered people’s lives with false blood tests. A more typical example that we cite in the article is Gary Hirshberg, who built Stonyfield Farm, and who admits to various fibs he told, including lies to vendors and a loan officer at the Small Business Administration, to keep his company alive when it was in danger of failing.
What makes Elizabeth Holmes’ case different? She is one of few entrepreneurs to face criminal fraud charges.
The scale of the deception, the amount of money raised and how Theranos could have risked lives made that case hard to ignore.
What toll does deception take?
It takes a tremendous toll. Most people are uncomfortable with deception, and the stress takes a personal toll on entrepreneurs. But it also greatly harms the individuals who are lied to, and who make decisions and take risks based on false information. Lying destroys relationships and locks up resources in ventures that are not as attractive as they are presented to be and perhaps doomed to fail.
What advice would you give to entrepreneurs to solve the problem?
Transparency is the No. 1 thing. Entrepreneurs need to inspire and excite, but they can do it while being clear about their assumptions and the evidence that supports those assumptions. And they should look at their social network and surround themselves with co-founders, mentors, board members and investors who will help them be their best selves. People can be ethical entrepreneurs and have tremendous success.