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Chapter 3
Men Are Cheaper Than Guns


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Intellectual Capital And Bootstrapping


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Ethics In Business

Ethics are very important to all business people. Yet, many neglect ethics as an important concept that has a major impact upon a person's success as an entrepreneur and investor.

Consider something as simple as sales. Many would-be entrepreneurs actually hate the sales process, which is a serious disadvantage, given that generating sales is a company's most important activity.

In Flying Solo: How To Start An Individual Practitioner Consulting Business, Stuart Walesh says new consultants often associate negative connotations with marketing. No doubt this comes from associating marketing and sales with pushy sales people who want to make a sale whether or not the sale is really in the customer's best interest.

Walesh writes: "To the extent you learn to view marketing as earning trust and meeting client needs... you may conclude that not only is it an ethical process, but also a very satisfying and mutually beneficial one."

Walesh divides consultant marketing into three parts--Ethos, Pathos, and Logos. Ethos means trust. Pathos means empathy and understanding. Logos means logic.

To be successful in sales and marketing, Walesh emphasizes that you need the three in order. First, potential clients must trust you and your reputation. Lacking this, they won't hire you or your company for a job. Secondly, to adequately fulfill the client's needs, you must listen to the client and learn what those needs are. Thirdly, and, finally, you must implement a logical and reasonable solution for the client, even if that means recommending another consultant or company.

Walesh says too many new consultants try to start at the end. They focus upon the 'logical' solution for a client before the client trusts them and before the client has had a chance to express the client's goals, desires, and problems.

The same sequence is also important in investing in smaller companies. If a potential investor doesn't trust the people running the company, any sophistication of the business plan or proprietary technology means little. Entrepreneurs seeking money must gain the trust of potential investors, and potential investors must evaluate the personal credibility of entrepreneurs seeking their money.

Company insiders will always be closer to a company's checkbook than investors and company insiders can always find ways to enrich themselves at the shareholders' expense. Monitoring sales and expenses and having an adequate accounting system help, but, by no means, makes oversight flawless.

Consider the recent and widely-publicized bankruptcy of Enron. While employees were prevented from selling their shares and investors were fed flawed accounting, high-ranking members of the management team found clever, and not so clever, ways to enrich themselves as the company sank.

It's a sad fact that there is an entire class of entrepreneurs who have acquired millions upon millions in wealth while never successfully building and growing a company. Rather, they have effectively and, often legally, managed to siphon off a great deal of investor money while the company made a steady march toward bankruptcy.

Yet, ethics or a lack of them isn't always easy to see. Two people might undertake the exact same course of action and attain the exact same result. One had fully honorable intentions, while the other had a devious plan from the start. It's not easy, and maybe impossible, to see into the mind of another person and evaluate his true goals and motivations.

For example, two entrepreneurs each start a company, take it public, and sell millions of dollars in shares, becoming personally wealthy in the process.

One person never really cared about the long-term success of the business. The person understood the IPO process and only planned to keep the company functional long enough to cash out some personal shares. After that, the eventual bankruptcy meant little to the person and might even have been eagerly anticipated because it freed up his time because the person would no longer need to run a business.


The other person also takes a company public and sells personal shares. The company also fails and enters bankruptcy. But, in this case, the entrepreneur did his best to succeed and had a true long-term goal of creating and building a successful company. Same actions, same fate, but ultimately internal motivations and plans separated the honorable from the dishonorable. And, the outsider is left scratching his head wondering which really happened.

Putting money into your own company is always the safest investment you can make from a trust standpoint. Even if you don't always trust your ability as a business person, at least you can trust your motivations. No one will look after your money and interests like you will.

But, if investing in another's business, what due diligence can you do to be sure you at least have a fighting chance of success? One sign is the desire of the lead entrepreneurs to tie their personal credibility and name to the company in question.

As I wrote in my new book, Becoming An Investor: Building Wealth By Investing In Stocks, Bonds, And Mutual Funds, what you're looking for is a Michael Dell. Someone who puts his or her name on the company and someone who holds a high image of themselves. Someone who values their reputation will unlikely associate their personal name with a non-sincere business venture.

Hewlett-Packard, Ford, Dell Computer, and many other great companies bear the names of their founders. When these companies started, the names meant nothing to the broader population. But, they meant a lot to their founders.