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Can Entrepreneurs Be Totally Honest?

Can Entrepreneurs Be Totally Honest?

Feb 01, 2010 -

As I get ready to teach my spring semester entrepreneurship classes, I have been reviewing my lecture and case notes.   The topic of “ham and egging” caught my eye and I thought it would be a good topic to write about.

Professors Amar Bhide of Columbia University and Howard Stevenson of Harvard Business School coined this term to refer to the need for entrepreneurs to convince different stakeholders - like investors and customers - to support their venture simultaneously.  Because the entrepreneur’s venture won’t succeed if she can’t get both investors and customers on board, the entrepreneur needs to convince the customers that investors are committed and convince investors that customers are committed.  Since both will often commit if they think the other has committed and neither will usually commit if they think that the other has not committed, Bhide and Stevenson explain “the ultimate ham and egging solution is for the entrepreneur to simultaneously convince each participant that everyone else is on board, or almost on board.”

Bhide and Stevenson acknowledge the ethical issues involved in ham and egging, saying “not all entrepreneurs … feel comfortable trying to [pull this off.]”  But that brings me to the point of this post.  Can entrepreneurs succeed if they are scrupulously honest all of the time?

If stakeholders will only buy in if other stakeholders buy in, entrepreneurs will be unable to attract any stakeholders to their ventures if they are completely forthright and tell their customers and investors that the other is not yet committed.  Brutal honesty might preclude entrepreneurs from getting their ventures up-and-running.

On the other hand, the willingness to engage in “ham and egging” might set entrepreneurs down a slippery moral slope with no good stopping point.  Therefore, it might be better if only those entrepreneurs who are scrupulously honest and catch a lucky break with stakeholders manage to get businesses going.

I don’t know that there’s a right answer here.  Maybe the rest of you disagree. 

Nevertheless, I think that it’s valuable to take what is usually discussed business school class and move it out into cyberspace to see what people think.

* * * * *

Scott Shane is A. Malachi Mixon III, Professor of Entrepreneurial Studies at Case Western Reserve University. He is the author of nine books, including Fool’s Gold: The Truth Behind Angel Investing in America ; Illusions of Entrepreneurship: and The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By. 


Tags: entrepreneurs, scott shane, financial management, small business trends, financialmanagement

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Article Comments (3)

  • Patrick Koppula

    http://www.linkedin.com/in/koppula
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    Entrepeneur: ffwd.com, iLike.com,…

    (Feb 01, 2010)
    I've never been in a bona fide situation where "stakeholders will *only* buy in if other stakeholders buy in" [emphasis mine]. Rather, in starting up a business, I expect to dish out risk to stakeholders as they have appetite for it. That is to say, Bhide and Stevenson's "alternative" is actually my norm and *requires* honesty. Furthermore, I would think that all other things being equal, the lower information density of the "ultimate ham & egg" would initially disadvantage a business relative to a similar one started by the "alternative" (unless of course the business model is based on manipulating asymmetric information, for instance a ponzi scheme).

  • Senior Writer, Wise Bread

    (Feb 02, 2010)
    I hadn't heard of ham and egging but a similar dilemma described as a chicken and egg syndrome; that is, which comes first? Specifically in the case of expanding ports for import/export: build infrastructure and hope customers will come; or recruit customers and see if they'll deal with inconveniences of smaller facilities and then justify the need for expansion. Building relationships seems to be a key to solving the problem -- meeting customer needs that were unmet otherwise; but still involved taking risk but risk more clearly defined.

  • Craig Carrel

    http://www.linkedin.com/pub/craig-carrel/1/476/4ab
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    Owner, Team 1 Plastics

    (Feb 02, 2010)
    I believe it is a slippery slope and it is best to be upfront with all parties. Investors should clearly understand all the risks involved and requires open and honest dialogue. Customers are looking for how you can benefit them and add value. You do not have to volunteer information and if they do not ask you do not have to tell but it is best to a answer truthfully when asked.
    Our experience is that we have the best outcome being honest and it has not ended well the times we skirted the truth.

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Scott Shane

(Case Western Reserve University)

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