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With all-powerful visionaries at the helm and a culture which celebrates bravado and rule breaking, Dr Tim Weiss explores whether the current state of startups makes them susceptible tomisconduct
When we hear of the spectacular rise and fall of once visionary entrepreneurs, we are horrified and enthralled by the excesses of these charismatic founders. How did they get away with it? How did the man behind WeWork manage to to his own firm for $6 million? What went wrong?
Common wisdom has it that these are bad apples one-off men and women who broke the rules and brought their employees and investors down with them. Theres Adam Neumann who convinced investors his a loss-making startup once valued at tens of billions of dollars could change the world. Or Elizabeth Holmes, founder of Theranos, now for claims made by her seemingly revolutionary blood testing business which was once valued at $9 billion.
With few formal controls, we are relying on an individuals moral compass to do what is right
We venerate plucky, visionaryentrepreneurs. Business school graduates seek to emulate them and popular culture elevates them to celebrity status. But does the hype around startups encourage bad judgement from those who bankroll them and those who work for them? And if it does, what could help them stay on track?
Rather than being the preserve of a few bad actors, are fraud and a willingness to cook the books more widespread in the startup world than we realise? Are these outliers in fact the result of a systemic issue?This appears, on closer view, to be a failure of scrutiny within the entrepreneurial ecosystemand the result of a who dares wins culture which spills over into rule breaking.
The allure of visionaries
Entrepreneurs grab attention if they are visionaries. Neumann sold a unique philosophy promising to rethink the nature of work itself. Holmes told a story of her own fear of needles and the transformative power of Theranos diagnostic technology. The greater the potential, the more investment, and the heavier the pressure on entrepreneurs and their ventures to live up to their own hype. And this can create a lack of oversight.
Early-stage investors might be sucked into a business because they know the founder personally or are drawn to a vision, but they may be compromised by a lack of knowledge of a technology or a sector, or by personal connections blinkering their professional judgement. Theyve placed a bet, and are often rewarded with a seat on the board and responsibility for monitoring a business, but are ill-equipped to do the job, and may have little incentive to do it well.
Entrepreneurs bring people on board through personal connections and vested interests but accountability goes out the window
Holmes famously recruited former US secretaries of state George Schultz and Henry Kissinger to her board neither of them experts in medical technology. Both men chose to back Holmes over whistleblowers, even when one employee to sound the alarm was Shultzs own grandson.
Heavyweights recruited to the Theranos board personally invested and had much to lose reputationally and financially if the ship went down, yet these were the very people with responsibility to exercise control and supervise conduct. This is a structural failure entrepreneurs bring people on board through personal connections and vested interests, but accountability and control go out the window when investors and directors are compromised.
Pushing boundaries
The dynamism and boldness which startup culture celebrates can be dangerous. This bravado the fake it till you make it and the fail fast, fail early and fail often can be a licence for bad behaviour. Rule breaking is allowed and positively encouraged its creative disruption after all.
Arguably, its this culture which encouraged embarrassed cybersecurity entrepreneur Robert Boback to with twinkling lights in an attempt tomake his company Tiversas software appear flashier and more sophisticated. Andwhichpermitted Trevor Milton torelease a apparently showing atruck driving on the road powered byhis hydrogen fuel cell startup, Nikola.
Startups are not subject to the kinds of oversight that control professions within law, medicine, engineering, education and more. In the absence of clear boundaries and internal controls, its difficult to distinguish when an enterprise tips over from optimism into misconduct. How can you tell when what you are doing is no longer acceptable? With few formal controls, we are relying on an individuals moral compass to do what is right.
While not all misconduct is so blatant, startup culture enables individuals to justify wrongdoing through anticipation of the ultimate benefits. Cooking the books is the logical conclusion of the combination of pressures, expectations and a lack of checks and balances.
Examples weve looked at are just those which have reached public attention how many more have passed under the radar? We certainly dont yet know the whole story, but the problem may be far more widespread than we believe. At a policy level, more oversight may be required. At an individual level, we might need to ask ourselves "how much am I buying into the startup cult? Is this still legal?"
This article draws on findings from by Dr Tim Weiss (51勛圖厙 London) and Donald Palmer (University of California).
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