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Friday, September 13, 2013

Ethics while running a business

My topic today is about Ethics and the various experiences I have witnessed that illustrates these points. I believe as entrepreneurs, we will encounter many circumstances which test us and it is up to us how we react. How we react will determine what kind of a person we are. I am a firm believer in living a good and moral life and in the innate goodness of man. When I die, all I achieve is worth nothing as I cannot bring it along. So i would want to die knowing i did right at best as I can.

For me, it also helps tremendously that my cofounder and life partner is even more clear on ethics than I am. So with us reinforcing each other, it helps a lot.

1) Overpayment. You will be surprised that some clients procurement will make mistakes and overpay us for an invoice. Figure can range from hundreds to $10K! Our policy is to always notify the client nicely and pay back.

2) Honoring our mistakes. You or your staff will sometimes make mistakes too and basically misquote to the client. My policy is to always come clean and admit it is a misquote. And we will try our best to either honor that misquote or at least give a sweetener to show that we know we made a boo boo.

I have been on the other receiving end of this before. I had an association who owed us money. And the Executive Director had the cheek to call us down and say that his manager (who had left) signed the contract and used the services without his knowledge. I told him that even if this was true, he still owed us the money (about $4000) since i had a manager's signature in black and white. This guy actually threatened me (back then 27-28 year old) and told me that he will not pay. In fact, if we do not back off, he will complain about us to his university contacts who were my partners.

I felt so bad at that time because i could not believe i was being threatened because his organization made a mistake. (and that is assuming he was not lying). Managed to resolve this by basically giving him face and accepting half payment and the other half in contra. And i think he agreed simply because i played on his ego. In front of his staff, i counterproposed and told him we are already giving in and he should not bully a startup. But i left the room with 2 thoughts.

First, i wrote off that man and never thought well of him subsequently. Anyone who does not honor their word and who tries to bully because they can does not deserve any respect from anyone.

Second, I resolved to never do that to another person. We will honor our word even if it costs us.

3) Conspiring to cheat. Early in my business, i had a potential acquirer who was running a decent sized executive search firm. Founder claimed to be a Goldman Sachs MD. At that time naive me thought that an MD was a big shot. Now i know it is just a middle ranking position in IB. Pays about US$600K a year all in. Its the partners that earn the real money. Anyway, this guy pretended to be all interested in investing in us and naive us believed him as he had a fancy car and office.

After a bit of discussion, this guy called us and said they will invest. My partner and i were so happy we bought an $800 spa espirit spa package as a reward. Next thing we knew, they wanted our jobportal functional specs and made copies of it. After that, we never heard from them and they later when chased, said change of mind. Couple of months later, they launched a job portal. Of course it died a few years later. It was run by his mistress.

This experience taught me to be a lot more careful about people. Luckily my line depends on execution and day to day effort. Not some incredible piece of IP. It also taught me that i will never want to do that to another person.

Nowadays i take extra care to always declare conflict of interests and to always make sure i am transparent in my dealings. Many times i have had people come to me for investments who are in my job portal or related space. I always take care to tell them not to reveal anything that is proprietary and to remind them that i run a job portal which may be a competitor to them.

4) Dishonest to investors/cofounders. I think trust between cofounders is most important. Even if intentions are the best, there are already sure to be areas of conflict over roles, compensation, alignment of interests etc. But it gets worse if cofounders consciously do something that affects the basic trust. For me, if someone is willing to work with me and embark on a major risk like a new business, then he or she deserves my trust and faith unless proven otherwise. And i will feel very betrayed if my cofounder does anything to betray that trust. In fact, i think if it happens, i will probably start to work out how to disengage the offending co-founder already.

For investors, i have heard and witnessed startups who are really selfish. They signed on an  investor for a venture which requires them to work full time on it and by extension that means to put in their full 110% effort like any startup. However, with a bit of setback or perhaps out of greed, they start to create a business plan for another new venture and basically try to raise funds for that. I don't know if it is naivety or stupidity but which VC will fund a founder that is unable to focus and who is perfectly willing to screw their original set of investors? And word does get around in our industry. SG is really small.

5) Sweat the small stuff. It is easy to cheat your own company. All you need to do is to claim entertainment expenses that aren't strictly entertainment, or pay your personal mobile, petrol bills via the company. My stand is that this is fine if you own 100% of it since technically that is your own money. But if you have external investors or other cofounders who are not aware of this, then it is their money you are stealing. It is better for cofounder dynamics to be transparent and just work it in?

From investor angle, most investors will not sweat the small stuff and will not begrudge you some extra claims that are actually for personal use.  We rely on your personal integrity and how you view things. Strictly speaking, the shareholder agreement will say that your annual compensation cannot exceed $XXK without their agreement and so you can declare such items to be part of your legal compensation. So do that.

6) Sales people who lie. Wow! I have seen so many examples of this. Basically it is quite common to hire sales staff who seem to view ethics as something that one can be creative about. You can create the best commission systems to tie reward to actual performance but there will be sales staff who will spend time and effort to game the system. And this includes outright conspiring with the client if they have a good enough relationship.

My philosophy in office is to accept no unethical behavior. If we can prove that you tried to cheat us, we will terminate on the spot without recourse and i will be happy to tell all subsequent background checking employers the reason for termination. I dont care how much money you bring in for the company. I strongly suggest readers do the same, life is too short to have to hang around cheaters.

I am sure you will encounter many more experiences that will test you. So try to do the right thing!

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