Sunday, August 23, 2009

Do "good guys finish last" in business?

I remember a few years ago the CEO of a then-successful startup told me in confidence he couldn't afford to care about ethics in his business because "you know, good guys finish last"!

That statement was shocking because that individual on a personal level had high integrity and good moral character. But market pressures combined with the demands of the Board had somehow convinced this CEO that doing right by the shareholders demanded that he put personal morality aside and do "whatever it takes" to increase the company's bottom line and competitive positioning.

This was not an individual driven by Enron-style greed or Madoff-style excesses, but someone who was merely trying to survive; someone who was simply afraid of finishing last. Was he being a good CEO or a lazy one?

When all your competitors are getting ahead through less-ethical practices (such as buying positive reviews for their product on the App Store or other social media outlets), what do you do? Do you sit back and concede the market to your competitors or do you also join in the game and start an arms race? How do you competitively price your product when your competition uses various schemes (ahem, scams!) to hide the real price of the same product from their users to give them the appearance of a bargain (as is a common practice in the calling card industry)?

The answer to these questions depends on whether you are trying to build a long-term, sustainable business or whether you plan on making a quick buck and run for the border. Because if you plan to stay in business, in the post-twitter information society, transparency is becoming the name of the game and your reputation as a trust-worthy business one of the single most determinants of survival: Sooner or later, the non-ethical businesses are found-out and abandoned by users/customers/partners/employees (I am not going to even talk about the legal dimension of unethical business practices here, and some argue that there is really no line between illegal and unethical to begin with).

My above statement is not a hypothetical or game-theoretical proposition (although there is plenty of academic literature around the topic of reputation effect in repeat-game vs. end-game scenarios - just google it), but an empirically proven observation: For instance, in ecommerce, many studies and A/B tests have proven that perception of "trust" has a very strong correlation to the conversion rates of your website. And just as an eBay-seller would not make it far without a positive reputation score, your company or service will not make it far without an overall online reputation that is positive.

Being one of the "good guys" will not ensure your success, but without it, you are guaranteed not to succeed.


  1. Touraj, great post. I do agree that unethical practices are eventually found out. Unfortunately, it's sometimes a bit too late.

    Here in Vancouver we have terrific examples of people making a lot of money off the backs of innocent bystanders (reference David Baines in every Saturday's issue of the Vancouver Sun).

    Fortunately, the world is becoming a small enough place that reference checks are easier than they would have been years ago!

  2. In the end, the only asset you can take with you throughout your career is your credibility.

    Mortgaging your credibility for short term gain is a foolish choice. While today's crisis always seems earth-shattering, tomorrow's is just around the corner.

    Or, to quote "Men in Black,"There's always an Arquellian battlecruiser about to destroy the Earth!"

  3. There are acts that are obviously dishonest, like astro-turfing product ratings, fudging with the account/statistics, bullying merchants into signing up (or else get a bad rating), etc. Luckily, I think that most companies today are run by sane management that do not endorse these type of acts. As you said, transparency is how many companies are striving for these days, and in those companies, honesty is a necessity.

    On the other hand, there will always be acts that are not as obvious... that border ethical questions. As a long time engineer, I honestly had the idea that as long you make a product that is solid and provides value, people will come. But after being in the industry for a while, I see that there is so much more than having a good product, like marketing/traction, deals, execution, momentum, etc... and as long as you need to market and to make business strategies and to create alliances, there will always be acts that will beg the question whether an act is ethical or not. For example, should [company X] provide censored search to China? Should [company X] deal with porn search because it generates Y millions a month? These are much tougher questions to ask than whether one should astro-turfing one's own product.

    While it's easy to say "Do no evil, we're good guys", in practice, we are often faced the the challenge of where to draw the line on being a good guy.

  4. Thanks guys for the feedback.

    Mark, I somehow always expect Vancouver/Canada to be above all this stuff, but it seems like "the sky is blue", no matter where I go.

    Chris, I love that MIB quote!

    KameraKevin, I was really referring to situations where people are pressured to do things they know to be morally wrong/unethical. The "gray area" stuff is usually an after-the-fact justification, IMHO.

  5. Apparently Pincus did well by being a bad guy at first then a good guy later :)

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