Ethics & Expectation Management in Entrepreneurship  

by Jason Allen

Blog post: April 14, 2021

Investors don’t often understand—or don’t remember—how difficult it is to start a business, or what it’s like to take equity out of a house for startup capital. At MassVentures, we have an investment team that has worked at startups or have been startup founders themselves, and our team understands the operational skills needed to bring a startup from zero to 1. We also look for highly ethical founders who understand how to manage expectations.

In speaking with a number of entrepreneurs at different stages of the investment process, I believe that there is an inherent tension between being highly ethical on one hand and ‘selling their business’ on the other.  And no, don’t expect a definitive answer from me—that’s why I’m so fascinated with the tension. But we’ve got great founders in our portfolio, like Julie Johnson Roberts (Amored Things), Grant Deken (Unstack) and Paulo Garcia (Kytopen) or Bill Bither (MachineMetrics). They all know that an entrepreneur needs the ability to recruit top talent, fundraise from investors and sell the business to customers.

When does this tension run afoul in one way or another? If an entrepreneur is ‘too honest’ about how fast their business is growing, for example, will they lose the opportunity to raise funding? On the other hand, if the entrepreneur is great at selling the business, but has no substantive interest in the product, do they set themselves up for a dramatic fall? 

Here are some common phrases you may be familiar with, and what I think these phrases really mean, in italics.

 WHEN RECRUITING A STELLAR EMPLOYEE:

“Work for us if you want to join a Rocketship.

Reality: Work for us if you want to ride in a Ferrari.

“We’re a family here.”

Reality: We’re a family, but very extended family-like 3rd or 4th cousins

“You need to be 100% committed.”

Reality: You need to get your work done and communicate.

WHEN FUNDRAISING:

“We’re in talks with multiple investors – I expect this to close quickly.”

Reality: This will take another 3 months to close but we’re confident it will close

“We have no competition.”

Reality: There is competition but its not relevant to us right now.

"We won’t need to fundraise again.”

Reality: We feel good about our plan, we don’t know what our capital needs will be in the future.

WHEN SELLING TO CUSTOMERS:

Our product is way (faster, better, stronger) than Acme Corp.”

Reality: Our product is better in this market; their product is better in that market.

“Sure we can do that!”

Reality: We absolutely cannot do that and my Customer Success person is going to be mad at me.

This gap in reality happens time and time again. The question is, where can entrepreneurs find a happy medium? How can they ethically sell their business to each stakeholder? 

There are no clear answers, unfortunately—but here are a few observations I’ve gleaned from founders in our portfolio who are trying to build a massive business ethically. Note, I am most impressed by founders who can 1) manage stakeholder expectations effectively, 2) clearly communicate what they need, and 3) put mentors, advisors, board members and team members in place to act as a sounding board. 

Managing Stakeholder Expectations

I think this is the most difficult thing to do because so much is unknown about startups. You do not know what will happen the next month, let alone the next year, but you can set expectations for you and for your stakeholders.

Employees

There are so many stories of ‘promises being made’ in the interview process like, “We’ll start you as a marketing manager, but within a year you can grow into a director of marketing.” 

The employee holds on to those words and works hard, but when the company doesn’t raise enough money to warrant the raise, or if the employee doesn’t meet expectations, they don’t get the promotion. Next thing you know your Glassdoor rating takes a hit. The entrepreneur had no idea what the future held and made a promise they shouldn’t have to attract an employee. 

To avoid that scenario, entrepreneurs should set expectations with the employee: “Here is where we are as a company; here is what you can expect from me and here is what I expect from you. If you are interested in a promotion and raise over the next 12 months, these are the things that need to happen.“

Customers

From a previous career in sales, I know how frustrated a customer success or solution engineer can get with promises that are made in the sales process that can’t be kept. This is a tough one because it varies by industry and customer persona and I defer to great sales leaders on a lot of this. What I will say is that the culture of the sales organization comes from the CEO and early in the company’s history it’s the CEO who interfaces with prospective customers. CEOs need to set the example as early as they can and manage expectations. 

Investors

This is also a tough one for me. Investors get a bad reputation for ghosting entrepreneurs or not responding to outreach. I do think you have to sell your business and show that you can raise money throughout your founder journey, and creating momentum or ‘FOMO’ is a big part of that. How can you create that momentum ethically? Again, no definitive answers from me but here are a few ideas:

For Fundraising

Research the investor and the firm – be very deliberate here. Pay attention to what deals they’ve done and what they talk about and write about. I hate to see entrepreneurs, who may have good ideas, lose opportunities because they didn’t read about the firm’s thesis or recent deals. 

Stage your strategy – When you do your research, create a list of potential firms that fit with what you’re doing. Create a category for firms that lead rounds vs. firms that follow on. 

Network with people you know who have a connection to your targeted firms – I do not recommend a ‘scattershot’ cold email approach.

At MassVentures, we sometimes offer support in pitch deck feedback, advice on where to find funding sources, and/or introductions to potential investors when appropriate.  (It’s impossible to give this level of feedback to every entrepreneur.) 

For Existing Investors

Set expectations for how they can help you besides providing capital;

Create a skill matrix for how investors add value to your needs (i.e. Who can introduce me to Series A investors? Who can introduce me to customers?);

Set boundaries where appropriate.

We have founders in our portfolio who are great at this, and we look for that ability in entrepreneurs to manage expectations with investors during our process.

Conclusion

At the end of the day, you know your business. How you set and manage expectations with everyone involved in your business will help you attract the best employees, find the right customers, and facilitate quality relationships with your investors. The way I look at it is this: each relationship is a two-way contract – what are the expectations of you and what are the expectations of me. Hopefully, this can help you attract the right people to your business.

 

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