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Crypto might be the latest technology associated with rug pulls ($2.8 billion worth in 2021, to be exact), but it’s hardly a new trend in tech. Scams have been around as long as technology, and even the original Apple iPhone demo was cobbled together from a collection of buggy, incomplete examples. The mock-up didn’t work as it appeared; Steve Jobs followed a carefully constructed choreography to mislead his audience into thinking it did. Was he lying? Or was he telling the truth prematurely?
Considering how many of you might be reading this on an iPhone, his big claims hardly constitute a swindle. After all, he did eventually deliver on his promises. However, industry scandals from the ongoing Elizabeth Holmes and Theranos drama to Trevor Milton rolling Nikola One trucks downhill (and getting a fraud conviction for his troubles) demonstrate just how tricky this market can be.
So, how did modeling this kind of behavior become a normal part of tech culture? “Fake it till you make it” is an expression for a reason, but some have taken it too much to heart. This industry has dug itself a hole it now needs to climb out of. Founders must find a way to balance idealism and confidence with self-awareness and follow-through.
The rule, not the exception
Sure, visionaries such as Jobs and Elon Musk are legends for executing successful Hail Mary plays, but it’s more common to overpromise, underdeliver or simply drop the ball. This up-and-coming cohort of startup founders and big thinkers are indoctrinated into a culture where it’s encouraged to talk big, but there are very real consequences when you can’t deliver on your promises.
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Holmes is the perfect example of that — there’s a reason they made a Hulu series about the scandal and that her trial is still in headlines today. It’s because most of us don’t believe anyone has the moxie necessary to barrel like Wile E. Coyote into a brick wall, knowing the thing was never going to work.
There are examples of college dropouts, ignoring the naysayers, hustling the wildest ideas that became everyday brands. But they’re the exception, not the rule. If your pitch relies solely on smoke and mirrors, you’re missing the point of what separates Jobs from Holmes and Milton.
This type of fast-talking strategy can be done, but it doesn’t mean it should be. So, how do we stop swindle culture?
The tech industry’s ruined reputation
The tech industry is filled with the next big disruptors. Just the other day, I saw a company selling Bluetooth saltshakers (with lights! and speakers!), and the only thing shaking is my head. It’s not a swindle — I just don’t know what problem they’re supposed to solve.
But outside of the bargain bin, the tech industry is filled with outsized successes that cast a halo over the industry. Billion-dollar acquisitors happen so often that we’re almost desensitized to them. There’s a force multiplier that can’t be matched because normal companies scale linearly, but tech companies scale virtually (and rapidly).
Facebook itself grew virally, the same way the insurrection that formed on its platform grew. Political extremists took Mark Zuckerberg’s “move fast and break things” a little too literally: The spirit of the phrase is supposed to be about breaking things to build them back up better, not just aimlessly destroy.
One of the traps startup founders fall into is what I call “visionary complex.” We grow up hearing the stories of people who bucked all the doubters and persevered to success because they alone had the vision and saw the right path. But nobody ever tells you about the valid feedback and advice these people gathered from the team around them. Even visionaries need the boundaries of reality to make the right decisions and chart the best courses.
Swindle culture is a spectrum as wide as tech culture itself, and it’s difficult to know the difference between sincere innovation and insincere scams. In fact, the worst part of what Holmes did was damage innovation as a whole; her actions created a chilling effect. Nobody is going to invest in a suspected “Theranos clone” for the next decade at least.
There’s not just blood in the water — it’s been poisoned.
The path to redemption
The cure for swindle culture starts with due diligence. Proper due diligence could have uncovered everything going wrong at companies such as Theranos and Nikola. Investors might have higher risk profiles, but there’s no reason to simply throw caution to the wind. There’s too much loose and easy money in Silicon Valley, and fads without substance do not deserve to be funded.
It’s not necessarily startup founders’ fault for having lofty goals. You can’t ask somebody not to dream. The only reason anything new gets made is that people have big dreams and figure out how to make them a reality.
But swindles like Theranos happen when investors pile into an opportunity and continue throwing capital at it without bothering to look at the underlying tech. The ethos at VCs, incubators, accelerators and all other investment firms needs to value authenticity over anything else. It’s OK to have out-there ideas, but it’s necessary to validate them early and much more often.
Earnest entrepreneurs are out there — encourage them
Incentivizing authenticity is the cure for swindle culture. There are plenty of founders out there who don’t want to be looped in with the charlatans in the world. There are earnest entrepreneurs genuinely acting in the common interest. All they need is the encouragement and support (all too commonly) given to people who, quite honestly, never deserved it.
The problem is this: If you’re going to be beaten by people who don’t follow the rules, you have very little incentive to follow the rules yourself. And even though founders like Holmes make headlines during tech scams, the truth is that she was only doing what her investors and board accepted and encouraged.
If we want to stop swindle culture before the next big industry scandal, we need to encourage good, honest, sincere founders who set an example for everyone else. Otherwise, we’re going to remain stuck in this vicious cycle. If we don’t do something soon, at least I’ll have something to watch on Hulu.
Chris Cardinal is a founding principal of Synapse Studios.
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