(Editor’s note: In this excerpt from the book “I.D.E.A. To Exit: An Entrepreneurial Journey”, author Jeffrey Weber (who founded Technology Resource Center, Inc., eventually selling it in 2006 to a Fortune 100 listed firm) discusses the role honesty and ethics play in your business.)
The topic of honesty and ethics may seem trite. Most new entrants to entrepreneurism don’t give it a thought in their business development process because at the moment it is not a functional component. It is not a visible aspect of the company that has to be created in order to begin business.However, it is an important bullet point to detail in your own personal business plan. Introspection gives you time to pause and think of what type of person you are going to be when you are faced with ethical decisions. When you take a dry run in your mind and contemplate what could become defining moments in your journey, you will be better prepared when you abruptly face them.
You can find plenty of stories of CEOs, founders, and politicians going to jail over fraudulent business practices. Hopefully, your thought is that would never happen to you as that is certainly my mindset. What you don’t anticipate is that temptation may come right to your doorstep in the form of a familiar face, as it did to me.
A past associate of mine called me one day asking if I would be interested in a cooperative advertising deal. What was instantly confusing was that he was now with a competing computer reseller. I agreed to meet with him at my office to hear his proposal.
His proposition was for my company, TRC Inc., to include his company’s advertisements in our daily customer shipments as a box stuffer. We would “stuff” a paper flyer in the box going to our customer and in exchange his company would pay us. This was a common practice; however, you never stuffed a competitor’s flyer in your own boxes—it doesn’t make sense.
The caveat was that instead of paying TRC cash his company would pay us in product, which again was somewhat customary. He suggested I select around $10,000 worth of computers, printers, or whatever I wanted that his company sold in exchange for this service. This marketing method was legal and prevalent in the industry, but it made no sense to do it with a competitor. I didn’t get it.
To his dismay, my past coworker had to be blunt and explain that I didn’t have to actually put the flyers in the boxes. I could throw them in the trash as far as he was concerned. In fact, the flyers never needed to be printed. His plan, as he explained, was for me to take $10,000 worth of his company’s product for this bogus service but to send him an invoice for $20,000. Guess who was getting the additional $10,000 worth of product?
This guy was starting a business of his own on the side, and he wanted computer equipment for his own enterprise. Since he was an executive with this reseller, he could submit the paperwork without anyone ever questioning. Now I got it!
This scheme would be easy to pull off, and no one would ever find out. His company was very large, and they were doing deals like this all the time. In addition, he was the one in charge of the program. Nothing could point back to me because I could just say I put the fliers in our customer’s boxes per the agreement. If this guy skimmed product off the top, it wasn’t my problem.
Well, I could have gone through with it and received a windfall of much needed computer equipment. Instead, I threw him out, and told him to stay the hell away from my company.
Consideration of ethics is not exclusively self reflective; you need to consider how you will address and prevent these potential issues with employees, vendors, and customers. Most likely, you will be faced with some type of fraud or theft during the term of your business—in fact, I guarantee it. Attacks on your company may come from outside sources such as the Internet, but most fraud develops from within.
The best prevention is to remove temptation and install checks and balances into the processes surrounding your most sensitive assets: your cash and your merchandise. Pay special attention to areas such as check processing, petty cash, payroll processing, expense reimbursements, and invoicing. Thinking through policies and procedures and understanding those tasks upfront will decrease opportunities for fraudulent behavior.