Rule-Breaking in Silicon Valley Startup Culture

business_ethics_highlights_2Entrepreneurs are rule-breakers: their stock-in-trade is convention-defying novelty. Does it matter which conventions they defy and, if so, are they defying the wrong ones?

The legal philosopher H. L. A. Hart distinguished two socially-relevant senses of rule. The first sense captures the notion of habitual or recurrent practice: “As a rule, I get a latte at Starbucks.” The second sense captures the notion of normative obligation: “It is a rule that I must notify my manager before taking a vacation day.” Defying the first kind of rule isn’t blameworthy: if I defy the rule often (say, by getting a cappuccino – instead of a latte – when I visit Starbucks), it’s the rule, not my character, that is called into question. Defying the second kind of rule may be blameworthy: it depends upon the social significance of, and the underlying justification for, the rule. If notification is integral to managers meeting staffing requirements, then it is blameworthy to defy the notification rule; if notification is a mere formality, then defying the rule may not be blameworthy.

One way to read the linked article is as raising the question, “Are Silicon Valley entrepreneurs defying the wrong rules?” That is: are they (increasingly) defying significant normative obligations—ones playing key roles in maintaining a well-functioning market order? Is the startup culture blurring important distinctions—for example, between puffery and fraud? >>>

LINK: The Ugly Unethical Underside of Silicon Valley (by Erin Griffith for Fortune)

No industry is immune to fraud, and the hotter the business, the more hucksters flock to it. But Silicon Valley has always seen itself as the virtuous outlier, a place where altruistic nerds tolerate capitalism in order to make the world a better place. Suddenly the Valley looks as crooked and greedy as the rest of the business world. And the growing roster of scandal-tainted startups share a theme. Faking it, from marketing exaggerations to outright fraud, feels more prevalent than ever—so much so that it’s time to ask whether startup culture itself is becoming a problem.

Breaking the rules makes you a Silicon Valley hero. That’s great if you’re breaking a dumb rule, not so much if you’re breaking an important one. Startup mythology is packed with stories of That Time Steve Jobs the Genius Did Whatever It Took to Win, and That Time in the 1990s that Larry Ellison the Badass Calculated Revenue the Way He Damn Well Pleased. Today’s founders cite Airbnb’s famous “farming” strategy (it spammed people advertising rentals on Craigslist to lure them to Airbnb). They speak breathlessly about how “T.K.”—Uber cofounder Travis Kalanick—has repeatedly ignored legal roadblocks. Admirers see an aggressive attitude and a $70 billion valuation, ignoring Uber’s careful, behind-the-scenes negotiations with regulators in many cities, notes Bradley Tusk, a political consultant for Uber.

The romantic lone-cowboy tales make it easy for founders to rationalize questionable decisions. “The whole ‘fake it till you make it,’ ‘move fast and break things’ attitude—all those sorts of battle cries are misinterpreted by some folks into making things up,” says Jakub Kostecki, founder of StartupFactCheck, a consultancy that helps investors conduct due diligence on startups. Three-quarters of the 150 early-stage startups he has investigated have pitched investors with misleading or purposely incomplete information, like identifying as “customers” people who are merely using a free trial, or taking full credit for past projects they played only a small role in.

By definition, entrepreneurship requires promoting the heck out of things that don’t exist yet. Even a founder with a strong moral compass and a heart full of good intentions has to persuade investors, engineers, and customers to believe in a future where their totally made-up idea will be real. “That’s not ‘My cola tastes better than yours.’ That’s ‘Let me explain to you how the world’s going to be.’” says Chris Bulger, managing director at Bulger Partners, an investment bank that advises technology companies on acquisitions. “Is that person lying when they turn out to be wrong?”

What do you think?

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