Fibbing or Fraud: Where’s the Line?
What is a lie? “A lie is a statement made by one who does not believe it with the intention that someone else shall be led to believe it” according to the Stanford Encyclopedia of Philosophy. In the technology industry, statements are derived from the capabilities of living, changing products. The promises that these products or services may deliver a certain feature or capability could render an original untrue statement true..at a later and more convenient point in time.
This week, another potential fraud roiled the tech & investment community regarding the auto company Nikola. They were flagged by an independent short selling researcher, Hindenburg Research, for making false claims about their technology. Nikola is a publicly traded company that does not have a product in market. On its face, this is pretty rare. In the current era of SPACs and quicker liquidity, Nikola is available for any would be speculator to own a piece of its future prospects. And, as the fallout of Hindenburg’s publication has spread, the Founder & CEO Trevor Milton stepped down from his position and left the company this week.
The research report and corresponding reaction gives rise to a basic question, eloquently posed and expanded upon by Alex Danco in a blog post last week: are founders allowed to lie?
One might argue throughout the course of a company’s development that sometimes the definition of the truth is actually…in motion. What is a lie when it comes to joining (and participating) in a startup’s incomplete vision of the future? The answer, as always, is plotted somewhere on a broad multicolored spectrum of scenarios.
One aspect is relatively consistent if you look over the history of the past decade regarding fraud when it comes to product promises: there are different thresholds for hardware vs. software. Hardware gets in trouble more often, Theranos being the prime example. Part of that reality could be due to the ramifications of poor performance. Hardware is more likely to hurt people. It’s also easier to prove a tangible untruth than an intangible (changing) one.
From a company development standpoint, you probably have a longer rope and more leeway the earlier you are in a company’s lifecycle. That rope, like a support system that employees, investors, and customers depend upon tightens with time and forward progress.
Would some hypotheticals help?
- If an early stage startup delivers a software product but some of the back end work is more manual than some marketing materials may suggest, that might be OK
- If a later stage company pitches that their hardware is fully automated when there is evidence to suggest otherwise, that might be towing the line..
- If a company’s products or services affect humans and their potential safety, expectations are set higher. And probably regulated. Promises must be kept
- If a company has raised money from the public markets, the rope is going to be tight and the expectations lofty. When the value of the business is predicted each day on changing business prospects, and that business makes alleged untrue statements…that is definitely NOT going to be ok
Ironically, by Google’s dictionary results, the definition of lie is to “be, remain, or be kept in a specified state”. Apropos when describing a hydrogen fuel powered truck that may or may not actually be able to move by hydrogen fuel at all..
What is a lie? And when is it ok to stretch the truth? Ideally, never. With a product in development at an early stage there’s a broader spectrum than a public company with higher demands on its use of time, scale, and deliverance of a promise. It will vary across hardware and software. Certain people will get more slack than others for their positioning. And, at the end of the day, you yourself on the inside will know the difference. It’s an internal relationship with oneself that should probably be upheld first. Err on the side of self respect and preservation. Employees, decision makers, and founders alike.