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I like to believe that business provides an incentive to be honest. If you bend the rules, lie or cheat then your reputation will be trashed and it will be harder for you to do business in the future. Since you need to do business, you want to be honest and preserve your reputation.
That is, of course, ridiculously untrue.
It’s so untrue that it’s hard to believe I even want to believe it! I am naively optimistic, and I always want to see the positive side of things, but this is a stretch even for me.
Some markets do have incentives like what I describe, such as direct-trading marketplaces. If you say you’ll sell me something and then take my money without delivering, you can get banned from the marketplace. Of course, it’s rarely that simple, but it does happen. These markets usually have some kind of regulator or supervision overseeing all transactions, like the SEC monitoring stock markets.
Some markets have the opposite incentives. Specifically, some markets have no punishment for being a bad actor so it’s actually a disadvantage to be honest! Anonymous crypto markets were a classic case of this, but there are many including stock trading forums where pump-and-dump schemes are constantly hatched.
Chances are that your market lies somewhere in the middle. There is no regulator watching everyone closely to make sure they play by the rules, but it’s also not a total wild west where people lie to get ahead. These are the markets where playing the honesty game is the hardest.
For example, imagine you are an enterprise software company with a few competitors. Should you lie to prospective customers about the capabilities of your competitors? Those competitors are likely lying about you. Is the best strategy to try and lie better or to take the high road and be honest? How would you know if you picked the right option?
One way to think about honesty is through long term and short term incentives. Lying today might help you win a deal, but lying over time might degrade your reputation and make it hard to win deals in the future. On the other hand, you might not exist in the future if you can’t win deals today! So one question is whether you are playing for the short term or the long term.
Another way to think about honesty is a game that you can win. If a competitor lies about your product and you prove they are lying, you are more likely to win that deal! Likewise if you lie and they catch you, you are less likely to win the deal. Which way are you more likely to win or lose?
If it seems like I’m posing more questions than answers, I am. Where you decide to fall on the honesty spectrum is part of your company culture, and a key strategic decision. Some companies want to push the boundaries of honesty, while others want to be seen as the reliable, honest player. It influences who you hire, how you work with customers and what your brand means.
So, the best way to think about honesty is as a strategy. The choice you make depends on your goals, your style of leadership and the market that you are competing within.
Personally, I’ve always chosen to be an honest player. Even if every other player is lying, we’ll stick with the truth. This sounds noble, but it’s a hard decision. In advertising, where everyone lies about their metrics, it can put your company at a steep disadvantage. Trust me, I learned this the hard way.
Still, for me the long term benefits outweigh the short term gains. Trust is hard to build, but if you build it then you will have higher win rates and higher customer retention. But, only if you survive long enough to get there.
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