Honesty Is the Best Policy - Trust Us

Some of the clearest thinking about integrity in the Internet economy comes from Darlene Mann, 39, a general partner at Onset Ventures, in Menlo Park, California. Her firm has bankrolled dozens of startups, and she has worked inside numerous high-tech companies. If executives want "integrity" to be more than just a buzzword in a mission statement, she says, they need to think hard about three issues: the growth goals that they promise to customers and investors, the career opportunities that they promise to employees, and the tone that they strike in day-to-day negotiations with business partners. In some cases, Mann acknowledges, keeping one's word carries extra short-term costs. But wiggling away from the truth can be disastrously expensive in the long run.

The point, says Mann, isn't that startups need to let go of their ambitious dreams. But they do need to ensure that promises made to the outside world are believable to their own people. Otherwise, they will be built on a foundation of cynicism and distrust.

What's more, in the current culture of hype, companies that undersell their strengths can win remarkable loyalty. Last year, when Carl Russo was CEO of Cerent Corp., an optical-networking company, he signed up Calico Commerce to build his company's Web site. "Unlike everyone else, they were very subdued in what they promised us,'' recalls Russo, 44, now a VP and a general manager at Cisco Systems, which recently acquired Cerent. "But they came across as very reliable, trustworthy people.'' Russo had a good experience with Calico, and now he is one of that company's most valuable customer references.

As the Internet sector undergoes a shakeout of sorts, people are paying a lot of attention to the explicit or implicit promises that companies make to employees and managers. No one ever said that working for an Internet startup was a lifetime job. But some top executives and board members have done a good job of communicating, each step of the way, what could go right and what could go wrong -- a practice that makes it easy to regroup when times change. By contrast, other business leaders have opportunistically hired what they thought was a winning growth team, making grand promises without building the kind of stability that gets a company through hard times.

At Onset Ventures, Mann tells some executive recruits to work in their new job for a few months, and to make sure that it will work out, before relocating their families. She also preps candidates on the risks that come with taking a given job. That may make it a little harder to wrap up recruiting efforts in a hurry, but Mann's honesty usually pays off when tough times arise. A person who knows the risks of a job up front, says Mann, "is much more likely to be a good hire in a difficult situation.''

Less dramatic, but every bit as challenging, is the issue of how high-tech startups treat their business partners. Perhaps the most common failing of a young, ambitious Internet executive is the tendency to squeeze every possible advantage out of negotiations with an outsider -- whether the deal in question involves a $40,000 supply contract or a $20 million marketing alliance. That's just not wise, says Ram Shriram, 43, a former Amazon.com vice president who is now an angel investor. It leaves an undercurrent of bitterness -- and a very small list of partners that will want to continue doing business with such a razor-sharp deal maker.

In the long run, argues Scott Sandell, 35, a partner at New Enterprise Associates, a Menlo Park-based venture-capital firm, a more even-handed approach may be the best bet -- even in the fast-paced world of Internet negotiations. To illustrate his point, Sandell tells a story of the financing negotiations that got CenterBeam in business. New Enterprise had planned on being one of two firms that would bankroll the business. But at the last moment, a third firm, Accel Partners, swooped in.

That was good news for CenterBeam and for its CEO, Sheldon Laube -- but potentially bad news for the earlier investors, who might have ended up getting a smaller stake in the company. Rather than unilaterally reworking CenterBeam's financing terms, Laube asked his early backers if they were willing to add Accel to the financing group. And he didn't revise the deal until they said yes.

According to Sandell, it's all too easy to think that because everything moves so fast in the Internet economy, there just isn't enough time to fuss over the fine points of integrity. In fact, he says, the urgency of Internet-based business means that "there is no time for lack of integrity. Without it, everything becomes more complicated, because you can't depend on people to do what they say they will do.''

Sure, we live and work in a world where "the Internet changes everything." But it's heartening to see that some of the Web's smartest mavericks believe that honesty is still the best policy.

George Anders (ganders@fastcompany.com), a Fast Company senior editor, is based in Silicon Valley.