Entrepreneurial values – Nice people can finish first!


Recently, I was involved in a discussion with a friend on entrepreneurial ethics and values. With both my children already having become entrepreneurs, this is something I keep debating with myself – on how to articulate this best. Here are some of my beliefs and thoughts.

Intellectual honesty: It is the first thing one expects from an entrepreneur. An entrepreneur is dealing with wealth – which can be dangerous and tempting. I would say, in order to qualify to build and handle wealth, intellectual honesty is a prime attribute an entrepreneur must have. It is like the cashier of a company, who handles large cash regularly, is expected to have an impeccable integrity with cash.

Walking the talk: On ethics and values, if you do not believe in them deeply, it is easy to talk and far more difficult to walk that talk. You will have to strongly internalize and believe on the values deep from the guts, for you to honestly practice and demonstrate in your day-to-day actions.

Unwritten promises: There are many written agreements and contracts. But the key issues are often unwritten. An entrepreneur known to me was in a situation where one of his venture investors wanted to be bought out at a very nominal value. It will be a virtual write off for the investor. It was a new investment manager taking over and he wanted to clean up the stable. The entrepreneur believed the company is turning around. He could have easily allowed the investor to exit, making himself and the other shareholders richer. But, he asked for a meeting with the head of the investment firm, pleaded with him and convinced him to stay for another year so that he can provide a better exit. The investor was impressed and agreed. And one year later, he exited with an attractive IRR. I think there was no other way in which the entrepreneur should have behaved. The entrepreneur had accepted funds to generate value in return. If the investor pulled out for whatever reason with a negative return, the entrepreneur has failed in his most important and sacred duty and promise to return ROI – that was an unwritten promise.

Returning value to community: I can’t agree less with Guy Kawasaki when he says “an entrepreneur has to make the world a better place and reap some economic rewards for doing so.” The entrepreneur surely has profits and wealth creation in mind. But he has another noble duty of building value for the community; he has taken the responsibility for using some human and financial resources put at his disposal, in an ecosystem provided by the community around him. Without the community, he would be dead. We are not saying the extreme left view of putting wealth distribution far ahead of wealth creation. But there is a problem when the created wealth stops with the entrepreneur and does not reach the community. Of course, by the simple act of building a successful enterprise, an entrepreneur pushes oxygen into the society – increased cash flow and economic activity through the community, creation of new jobs, taxes that are put to useful results by the Govt., etc. One can argue, “My job as an entrepreneur is to create wealth. It is the job of the Govt. by means of the taxes they collect from me to serve the community.” I disagree. There has to be a conscious effort by the entrepreneur more than just paying his taxes. The entrepreneur is an innovator and problem solver. He is in a position to solve many problems directly or indirectly. He mustn’t shy away from those opportunities. Often, such actions don’t affect his primary responsibility of building wealth. On the contrary, they will be beneficial for the enterprise in the long run. When considered carefully, the enterprise can always make an impact on the community.

Sharing the wealth: Create massive wealth and also share them with everyone – starting with the employees. I read an article last fortnight in NYT. Goldman Sachs’ 2006 compensation for its people was up 40% and reached an average of $ 623,000 per employee. I have no idea how much Goldman Sachs thinks of the community. But I am impressed with the distribution to its employees. A secretary gets $ 120,000. The shareholders can’t complain; they are very happy too. The company generated an average of $ 350,000 as pre tax profits per employee. It is more than GE, Microsoft, and Google, another very successful wealth generating machine. As a % of revenue, they took much less as compensation compared to the industry peers. And, their fixed comp was much lower than their competitors. They did not gain at the cost of the shareholders. They have outperformed everyone else. On the other hand, it may sound a bit obnoxious though – how can people take such a huge pay, while even in the US, there are people who are starving and working at far lower wage levels; the inequality it creates is worrisome. But having a large group of highly paid employees is far better than building a single super rich Billionaire owner. And, capitalism rewards those who take risks and adapt best to change and create profit opportunities. As an old adage goes, “Capitalism is surely the worst economic system on the planet except for all the others”. When employees get part of the wealth, it spreads. Equity stock options are another key wealth distribution mechanism. When you make your employees rich, the sharing begins, and it percolates out. Some of them may go out and start another successful venture themselves. That is good for the community. By treating fairly your vendors, your service providers, your clients and others the sharing continues.

Treating the vendor fairly: Two of India’s top companies differ dramatically in the way they treat their vendors. Both negotiate hard and get the best terms. In the case of one, every vendor is an unhappy soul. The vendor feels cheated; treated with no consideration; promises are never kept; and never paid in time. In the case of the other, the vendors respect the company; they are treated fairly; and when it is time for payment, the company calls the vendor asking to collect the check. And the latter is the far more respected and successful company in the country. Vendors as well as other eco system of business need to be treated well. This does not mean don’t negotiate. Negotiate hard. But treat them fairly. The vendor is part of the system and is a partner in a way and he has to benefit. It is not a zero sum game.

Transparency: It is said about justice – Justice must be done and it must also be seen to be done. The perception is equally important. The transparency in an entrepreneurship makes a huge difference to the investors, employees, shareholders and others. It is not a secret society with key decisions being known only to the top man. In a transparent environment, all decisions can be related to the core values of the enterprise.

Fairness: The entrepreneur is often told that he has to be ruthless to succeed. This puts many in the wrong path. Yes, you will have to be tough, and be ready to make difficult calls; but there can be an underlying fairness in whatever is done. Chenghis Khan built the biggest empire in human history. He was very successful in doing that. He was considered ruthless. But, he also had a great reputation for being fair. That was a key reason for his success.

Well, will all these make it difficult to run an enterprise? Will the enterprise end up making less profit and fail in a basic commitment to the shareholder? No. It is hardly so! In the hands of a good entrepreneur, all these will add to additional value for the venture. A transparent and community conscious company will be respected more in the equity market; vendors when treated well will never let the enterprise down; they will give that extra effort; employees, treated fairly, will stick to the company and treat it as their own; they will go that extra mile. It all adds up. You really need not be mean to be successful. It is possible to be nice and also come first. Look around carefully, and you will find many examples.


No comments

Be the first one to leave a comment.

Post a Comment