Ask YC: Ethical Question, possible fraud

#1

Post by nobodynew » Sat, Jun 28, 2008, 5:44 PM UTC

Background Info:

I am a coder at an angel backed startup.. we have a couple paying customers and a handful of full time employees including a few founders. I started a few months ago after i saw an ad for the job, I did not know the founders previously, the company has been around for about 2 years. We sell software to fairly large corporations.

Ethical Dilemma:

The past couple weeks, I have overheard the founder of the company exagerrate/lie about key facts of our company to potential customers. ie. claiming that we have 20 customers worldwide. claiming the we have multiple offices. and 2-3 times the employees that we actually have. claiming that certain parts of the software are in use by other customers when these parts have never been used in production.. not positive about this but possibly misrepresenting investment incoming money as sales in financial due diligence documents or at least not going out of his way to make it clear that thats where incoming money is coming from.

I understand why he is doing this, because the kind of companies we deal with do not want to take the risk of working with an unproven brand new product.. but it seems wrong. Clearly unethical, but is it illegal too? Could people go to jail for this kind of thing? ( This is in the USA )

What would you do if faced with this situation?

Re: Ask YC: Ethical Question, possible fraud

#2

Post by lakeeffect » Sat, Jun 28, 2008, 6:03 PM UTC

You could definitely lose face, but i don't believe it is a jailable offense to exaggerate the logistics of your operation.

If he is exaggerating to get investors then he is most likely violating the law. This is really bad policy, since due diligence will wipe those illusions clear.

If exaggerating features of a product, again bad policy, if you are selling something you don't have you are going to end up with an unhappy customer. In this case exaggerating number of employees would be exaggerating features if he is selling support as a feature, bad policy to make promises that are not true.

Overall as long as they arent asking you to do anything you feel is not just, i wouldnt worry about it to much. These lessons usually end up making teachers out of themselves.

Re: Ask YC: Ethical Question, possible fraud

#3

Post by thinkcomp » Sat, Jun 28, 2008, 6:04 PM UTC

Leave.

Re: Ask YC: Ethical Question, possible fraud

#4

Post by vaksel » Sat, Jun 28, 2008, 6:11 PM UTC

well its understandable why the guy is doing this...gotta survive + almost everyone is doing this. But if you feel uncomfortable about it, just go looking for a new job.

Re: Ask YC: Ethical Question, possible fraud

#5

Post by DanielBMarkham » Sat, Jun 28, 2008, 6:11 PM UTC

Software is a funny business. I've known guys to run full-page ads for software that didn't even exist yet. The theory goes -- if the orders come in, we'll build it.

Some people are naturally prone to exaggeration. Immaturity comes in to this as well -- once you've been around the block a few times you realize that fake posturing is easy for customers to spot.

If it's not investment related, it's not criminal. I'd have a word with the guy, something along the lines of you can't lie your way into trusting business relationships. After that, I'd make a call as to whether it was worth staying or not. I wouldn't.

Re: Ask YC: Ethical Question, possible fraud

#6

Post by cmos » Sat, Jun 28, 2008, 6:16 PM UTC

Sounds like a salesguy!

But seriously, it's a no win situation for you. People will say a lot of things to close a deal, and even more to make payroll.

So either your founder is: 1. Desperate and willing to say anything, which means you might want to be cautious about the general health of the company 2. Just a sneaky and over the top exaggerating salesguy (ok, a liar) because that's the only way he know's how to sell. A shame, but you'd be surprised what salespeople will do to close a sale. 3. Has a 'corvette' complex. His lies are not about what amazing things his product will do and how it will transform the customers business, which is more common for a salesperson to 'embellish'. Instead, it's about how big and successful his company is.

If the company isn't healthy, and he's desperate, I'd figure out a way to either help or bail.

If the founder is just a liar, I'd go elsewhere. The thing about liars is they lie about everything, sometimes for no reason about absolutely trivial things. Life is to short to be around them. And the saddest part is that his customer might be looking for a nice, small company who really wants their business and will jump through hoops to get it as they would be a highly valued customer, not just one of many.

If it's the 'corvette' complex then run. He's starting a company to prove something to the bully in the playground.

And the bully is probably mowing lawns for a living.

Re: Ask YC: Ethical Question, possible fraud

#7

Post by jfarmer » Sat, Jun 28, 2008, 6:17 PM UTC

It sounds like you know what the right thing to do is. So, why aren't you acting on it?

Re: Ask YC: Ethical Question, possible fraud

#8

Post by mcescher » Sat, Jun 28, 2008, 6:25 PM UTC

Bill Gates did this stuff dealing with IBM et al.

If you CAN do X, and the only thing stopping you from getting the deal is the other side's perception of you, then influencing their perception (i.e. lying) can save the deal, save your company, and solve their problem -- all at the same time.

It can OFTEN be in BOTH your AND your client's best interest to lie.

And ask for forgiveness later after they are happy with you, IF it ever comes up...

Re: Ask YC: Ethical Question, possible fraud

#9

Post by gm » Sat, Jun 28, 2008, 6:36 PM UTC

There is a fine line between fraud and salesmanship... This is actually one of the things that lawyers learn at law school...

What I would do is not listen to that. They have their job (selling the software) and you have yours. If they commit a fraud, you will not go to jail for it.

Do you hear the car dealership mechanic tell the customers the cars was NOT really driven by an old lady to church every Saturday?

Now, where you KNOW there is a fraud, you have a legal obligation to disclose it. But fraud is very different than what you are describing.

I'd keep my mouth shut about it. It might not be what you would do, but it does not sound illegal.

Re: Ask YC: Ethical Question, possible fraud

#10

Post by prakash » Sat, Jun 28, 2008, 6:42 PM UTC

Ever heard of WinFS?

A good personal moral compass in such situations is whatever helps you sleep soundly at night. Life is rarely black or white, more shades of grey (can't remember where I read that).

Curious to know, what would you have said in the same situation, would you have said we have 2 customers, one office, couple of customers, you would be third if we are lucky and hey guess what you are going to beta test our product.

Also, think about the second order effects of this deal not going through. Can you company make payroll without it? Is this deal the break your company has been looking for?

I did technical sales for 3 years, first real job right after school, the 2 things that really helped me sell were:

1. Tell the truth and

2. Put your customers interest before your company's

Good luck!