Objective
"Ethics" may be an afterthought for many entrepreneurs who are focused on (a) building and delivering a product or service for their customers and ensuring that they can both, (b) deliver value that alleviates the customers' pain points, (c) capture a slice of that value by monetizing, and (d) ensure that they can mobilize the necessary resources, including funding and being responsive to the investors. This is a daunting list for first-time entrepreneurs. Ethics may, then, take a back seat as they pursue their vision, their start-up and pour their creative energies into meeting deadlines and creating MVP and talking with mentors. However, the teams must realize that their work must remain true to their own values, adhere to moral and ethical norms and standards, and respect regulatory and compliance requirements. In other words, ethical concerns must be one of the cornerstones for their efforts. On this page, you will find resources that elaborate these considerations and suggest strategies that you can use as you develop your own start-up.
Disclaimers
The Bentley Perspective
Bentley University's business programs are focused on preparing students to be leaders who can create positive change in the world, while also doing business. Bentley's "Business for Good" philosophy is based on the idea that businesses can improve social and economic conditions in their communities while still increasing profits. We believe good business can impact more than just the bottom line – it can change the world. This perspective permeates our efforts in building and bringing to the community education, connections and opportunities for entrepreneurship.
Ethics for Entrepreneurs
The phrase "Ethics for Entrepreneurs" describes the unique ethical challenges individuals from the Bentley community (as founders, as members of a team building a start-up, as corporate intrapreneurs) face as they attempt to conceive, launch and grow their own businesses. Examples of concerns, challenges and dilemmas that entrepreneurs face in this context include: (a) Honesty with investors and customers, (b) Intellectual property and fair competition, (c) Ethical fundraising and resource allocation, (d) Balancing rapid growth with ethical standards and others.
These concerns, challenges and dilemmas makes "ethics for entrepreneurs" a subset of the broader field of business ethics (studied extensively by the W. Hoffman Center for Business Ethics at Bentley). What makes ethics for entrepreneurs different is that it tailors their examination and education specifically for a high-stakes, high-uncertainty environment. Entrepreneurs are the architects of future businesses. Their ethical decisions set the foundation for the business culture, policies, and reputation that will later fall under the umbrella of traditional business ethics.
An Analogy
If business ethics is the code of conduct for a cruise ship, then we may define ethics for entrepreneurs as the ethical compass of an individual or a team building their own boat. This individual or team may face several ethical dilemmas that they must address alone or within the small team, with limited resources, without established guidelines, and as they are attempting to keep their start-up venture afloat with resource constraints. For example, the team may discover that exaggerating product capabilities can attract more investors. Now the team faces an ethical choice: make misleading claims for short-term gains that may lead to severe consequences for potential users or remain honest and risk losing funding and with that, the prospect of building the start-up venture. As the example illustrates, both (ethics for entrepreneurs and business ethics) are vital. One feeds into the other. A startup guided by strong ethics today will form the foundation of an ethical business tomorrow.
The Unique Environment of a Start-up
Entrepreneurs operate in a unique environment characterized by resource scarcity, high uncertainty, and immense pressure for growth and survival. These factors often magnify ethical dilemmas and make them more personal and immediate compared to larger, established businesses. In addition, the high-stakes environment in a start-up often means that there are few ethical guardrails or structures in place (with limited resources, a start-up can ill-afford these capabilities). This places the founders, along with their inner circle, in tempting and morally hazardous situations where they must (a) recognize ethical dilemmas that present themselves, and (b) make appropriate decisions in these situations.
Key Ethical Considerations
Here are eight ethical considerations that are likely to surface as entrepreneurs pursue their start-up. The table describes each with a simple example and points to a case study where this dilemma played out.
| Ethical Concern | An Example | A Case Study |
Honesty and Transparency with Investors Entrepreneurs often rely on external funding from investors. The pressure to secure funding can lead to exaggerated claims about product capabilities, market size, or future profitability. This is a unique concern for Startups because they often lack proven track records, relying instead on projections, charisma, and vision. This creates a moral hazard where entrepreneurs may overpromise to secure funding. | A Tech Startup An entrepreneur building a SaaS platform may claim to have 10,000 active users during a pitch to investors. In reality, only 1,000 users are active, and the rest are inactive trial accounts. The temptation to inflate numbers is common in tech startups because investor interest is often tied to metrics. | Theranos (HealthTech Startup), Founder Elizabeth Holmes Theranos claimed its blood-testing technology could run hundreds of tests using just a few drops of blood. These claims were exaggerated and not scientifically validated. This misrepresented product capabilities and clinical results to investors and the public. With no established track record, investor faith relies heavily on founder charisma and ambitious claims. |
| Intellectual Property and Fair Competition Startups often face temptations to cut corners on intellectual property (IP), such as using unlicensed software, copying competitors' ideas, or bypassing patent protections. This is a unique concern for Start-ups because they may often be tempted to take shortcuts without considering IP when faced with scarce resources and pressure to deliver quickly. | An AI Startup A startup may use open-source AI models with licensing restrictions but fail to properly attribute or adhere to licensing rules. It feels justified in IP shortcuts under the guise of being a "small player." However, disregarding licensing can harm the broader innovation ecosystem. Respecting IP rights from the start can build credibility and avoid legal challenges. | Zynga (Gaming Startup), Founder Mark Pincus Zynga was accused of cloning popular mobile games, copying mechanics and designs with minor tweaks, and releasing them under its own branding. Startups in the gaming industry face immense pressure to create viral hits quickly. Instead of innovating, Zynga took shortcuts by replicating existing successful games. |
Social and Environmental Responsibility Entrepreneurs often face pressure to cut corners to reduce costs and speed up growth. Ethical dilemmas arise when choices affect social welfare or environmental sustainability. This is a unique concern for Startups because they may not have dedicated CSR (Corporate Social Responsibility) policies or resources to invest in sustainable practices. | A Fast Fashion Startup A new e-commerce clothing brand may source cheap fabrics from factories with poor labor conditions to keep prices competitive. Startups in fast fashion are under immense pressure to deliver trendy products at low prices quickly. Unlike established fashion giants, startups lack established supply chain auditing processes. | Shein (Fashion E-commerce Startup), Founder Chris Xu Workers in Shein’s supplier factories were subjected to harsh working conditions and extremely low wages. Additionally, the startup’s rapid production cycle contributed significantly to textile waste. This led to exploitation of workers and environmental harm from ultra-fast fashion production as Shein scaled rapidly without implementing robust supply chain oversight and prioritized affordability and speed. |
Data Privacy and Security Startups handling user data must ensure privacy and security even when resources for cybersecurity are limited. This is a unique concern for Startups because unlike established businesses with robust data security frameworks, startups may prioritize building features over securing user data. | A Fintech Startup A fintech startup that is building a digital payments app may collect sensitive financial data from users but skip implementing robust encryption because of cost and time constraints. Startups in fintech handle critical financial information, and even small oversights can have devastating consequences for users. | Zoom (Tech Startup - Video Conferencing), Founder Eric Yuan Zoom claimed it used "end-to-end encryption," but investigations revealed that data could still be accessed by the company. Additionally, security vulnerabilities exposed user data to breaches. This amounted to misrepresentation of encryption protocols and mishandling user data. Startups like Zoom often experience explosive growth, outpacing their capacity to implement robust security protocols. The pressure to scale quickly can lead to oversights in data protection. |
Product Integrity and Customer Safety Startups may rush products to market without adequate testing, potentially compromising user safety or product reliability. This is a unique concern for Start-ups because they may face intense pressure from investors and customers to release Minimum Viable Products (MVPs) quickly, sometimes overlooking safety concerns. | A Food Tech Startup A startup aimed at providing meal replacement shakes may release the product without conducting sufficient nutritional studies, leading to adverse health effects for customers. Startups in food tech face pressure to scale quickly, but cutting corners can have severe health consequences. | Juul (E-Cigarette Startup), Founders James Monsees and Adam Bowen Juul aggressively marketed its vaping products on social media, indirectly appealing to teenagers. It also failed to conduct comprehensive long-term health studies before launching products. This targeting of underage consumers with marketing and insufficient health safety testing were both ethical breaches. Unlike established tobacco companies under heavy regulation, Juul, as a disruptor startup, operated in a gray regulatory area where oversight lagged behind innovation. |
Fair Treatment of Employees Startups often ask employees to work long hours, accept lower pay, and take on multiple responsibilities. The risk of exploitation is higher in early-stage ventures. This is a unique concern for Startups because the startup culture often glorifies “hustle” and “grind” mindsets, blurring the line between dedication and exploitation. | A Health Tech Startup A health tech founder may ask software engineers to work weekends for months without overtime pay, framing it as “passion for the mission.” Startups often have limited funds and rely on employees' emotional buy-in. However, emotional leverage can cross ethical boundaries if it leads to burnout or unfair treatment. | Uber (Rideshare Startup), Founders Garret Camp, Travis Kalanick Uber faced numerous allegations of workplace harassment, gender bias, and mistreatment of drivers who were classified as independent contractors instead of employees (denying them benefits). In its rapid growth phase, Uber prioritized scaling and market dominance over building a healthy organizational culture. Startups often lack established HR systems to manage issues such as workplace culture and employee well-being in the pursuit of rapid growth. This creates systemic ethical failures. |
| Exit Strategies and Founder Responsibility When founders plan their exit strategies (e.g., selling the startup), there’s a temptation to prioritize personal gains over long-term business health. This is clearly a unique concern for startups because Founders often have disproportionate control in startups, giving them significant influence over exit decisions. | An EdTech Startup A founder may sell the educational platform that the Startup has been building to a company known for aggressive cost-cutting, knowing it will lead to layoffs and reduced service quality. Founders often face a choice between a lucrative exit and preserving their company’s mission and values. Ethical exit strategies should consider employees, customers, and stakeholders, not just financial gain. | WeWork (Co-Working Space Startup), Founder: Adam Neumann Adam Neumann secured massive financial compensation during WeWork's IPO while the company faced mounting debts and operational inefficiencies. Many employees were laid off without fair severance. This was an example of a Founder prioritizing personal financial gain during the company’s IPO and the subsequent downfall of the company. Startups with charismatic founders often give disproportionate power to those individuals, leading to unchecked decision-making. |
Balancing Profit with Purpose Entrepreneurs often start with purpose-driven goals but face pressure to prioritize profitability as investors demand returns. This is a unique concern for Start-ups because they are often placed in situations (due to resource constraints) where they must grapple with the conflict between mission-driven choices and revenue-driven decisions. | A Green Energy Startup A green energy startup may decide to use cheaper but less sustainable materials to boost short-term profit margins. Startups in sustainability sectors are expected to align their practices with their mission, even under financial strain. By making these choices they may give up on their purpose-driven values in the face of financial pressures. | BetterUp (Coaching Tech Startup), Founder Alexi Robichaux BetterUp, which started as a mental health coaching services platform, faced criticism from coaches who felt pressured to meet unrealistic targets and focus on sales metrics instead of genuinely helping clients. Mission-driven startups often face a tension between maintaining their purpose and meeting revenue targets from investors. This led to mission dilution with a pressure to demonstrate profitability for investors. |
Ethics for entrepreneurs is not just about avoiding scandals. It is about building trust, sustainability, and long-term success. Founders face immense pressure to grow quickly, often without the guardrails of corporate governance that established businesses enjoy. Here are a few suggestions (strategies) that founders and entrepreneurs can implement to proactively address ethical challenges across the startup lifecycle.
| Strategy | Actions | Example |
Build an Ethical Foundation from Day One Define and document the core values and ethical principles of the startup from the beginning. Ensure these values align with both the company’s mission and the personal integrity of the founders. | Communicate values to team members, investors, and customers. Embody the values in your actions as founders. Create an Ethics Charter or Code of Conduct. | Patagonia (a clothing/equipment retailer) Built its foundation on environmental sustainability. Its founders embedded environmental stewardship into every business decision from day one. |
Establish Transparent Governance Structures Implement basic corporate governance mechanisms early, even if the startup is still small. Governance should include checks and balances on key decisions, especially those involving money, product integrity, or sensitive data. | Form an advisory board with independent, experienced members. Create financial transparency policies—ensure investor funds are used responsibly. Regularly audit financials, product claims, and compliance with legal standards. | Buffer (a social media service) Implemented radical transparency around salaries, financials and more to build trust internally and externally. Instead of a power imbalance that founder-led startups may have, transparent governance can prevents unchecked or emotionally driven decisions. |
| Foster a Healthy Organizational Culture Actively shape a work culture that prioritizes respect, inclusion, and fairness. Encourage open communication and whistleblowing without fear of retaliation. | Implement anti-harassment policies and clear reporting channels. Conduct regular ethics training for employees. Provide anonymous whistleblower hotlines for reporting ethical concerns. | Asana (a productivity platform) Created a people-first culture by offering resources for mental health, strong HR oversight, and promoting work-life balance. Toxic cultures can take root early in startups and scale up as the venture grows. A healthy culture can reduce turnover and prevent scandals. |
Prioritize Transparent Communication Communicate openly and honestly with investors, customers, and employees, even when the news isn’t good. Avoid exaggerating product capabilities, growth metrics, or timelines. | Share regular investor updates with accurate data. Be honest about setbacks and failures—don't hide them. Clearly articulate risks and uncertainties to stakeholders. | Stripe (a digital payments solution ) Earned investor trust by being transparent about both successes and failures in their quarterly investor letters. Transparency builds trust, and trust builds resilience. It also prevents the snowball effect of small lies becoming large-scale fraud. |
Treat Data Privacy and Security as Non-Negotiable Make user data security and privacy a priority from day one, not just when breaches happen. Follow regulations (e.g., GDPR, CCPA) even if you operate in a gray legal area. | Implement end-to-end encryption for sensitive data. Perform regular security audits and vulnerability assessments. Be transparent with users about data collection and usage policies. | ProtonMail (an encrypted email startup) Embedded user privacy into its product design from day one, setting it apart from competitors - acknowledging that a data breach can destroy trust and cripple a startup before it scales. |
Fair Treatment of Employees and Contractors Pay employees fairly and respect their time, well-being, and contributions. Avoid using the "startup hustle culture" as an excuse for exploitation. | Offer fair compensation, even if it includes equity instead of large salaries. Respect work-life balance and prevent burnout. Clearly define terms for contractors and gig workers. | Basecamp Publicly opposed exploitative work cultures and prioritized work-life balance, even as they scaled. Unfair labor practices can lead to low morale, high turnover, and damaging lawsuits. |
Develop Ethical Marketing Practices Ensure all claims about your product or service are truthful and verifiable. Avoid manipulative marketing strategies, especially towards vulnerable audiences.
| Validate claims before advertising. Avoid targeting vulnerable audiences (e.g., children, addicts) irresponsibly. Include disclaimers for products still under development. | Headspace ( a meditation app startup) Ensures its marketing claims about health benefits are backed by scientific research. Exaggerated claims might bring short-term success, but they erode trust and credibility long-term. |
Plan Ethical Exit Strategies Plan for exits, acquisitions, or IPOs with stakeholders' interests in mind. Avoid "cashing out" at the expense of employees or customers. | Consider how acquisitions will impact employees and customers. Avoid financial engineering that prioritizes personal wealth. Include ethical clauses in acquisition or exit agreements. | Founders ensured user privacy protections remained intact when selling to Facebook (though these protections later eroded under corporate leadership). A founder's ethical responsibility doesn’t end at an exit. Mismanagement during this phase can harm customers, employees, and brand legacy. |
Hire an Ethics Advisor or Create an Ethics Committee Have someone responsible for ethics oversight in key decisions. Bring in external advisors to provide unbiased perspectives. | Appoint an Ethics Officer or integrate ethics into leadership roles. Include ethics as part of board meeting agendas. Seek external advisors for high-stakes decisions. | Salesforce Has a Chief Ethical and Humane Use Officer to ensure responsible AI and data use. Having dedicated oversight ensures ethics isn’t sidelined during rapid growth. |
Stay Informed About Regulations and Compliance Keep up with industry regulations and legal requirements across all markets of operation. Don’t rely on "regulation gaps" to cut corners. | Hire legal consultants early. Stay updated on evolving regulations. Build regulatory compliance into product development. | Robinhood (A fintech Startup) Faced backlash and fines due to regulatory oversights in its trading practices. Ignorance of the law isn’t an excuse, and fines can be crippling for startups. |
Here are some additional resources for you to explore:
- Jenset et al. 2021. Entrepreneurs and the Truth. Harvard Business Review. https://hbr.org/2021/07/entrepreneurs-and-the-truth
- Hyper-Write. Undated. Entrepreneurial Ethics and Social Responsibility. https://www.hyperwriteai.com/guides/entrepreneurial-ethics-and-social-responsibility-study-guide
- Meridian University. 2023. The Crucial Role of Ethics in Entrepreneurship. https://meridianuniversity.edu/content/the-crucial-role-of-ethics-in-entrepreneurship
Movies about entrepreneurship (and sometimes, about entrepreneurial mis-steps)
- The Inventor: Out for Blood in Silicon Valley. HBO. 2019. On Max. On Wikipedia.
- WeWork: Or the Making and Breaking of a $47 Billion Unicorn. Hulu. 2021. On Hulu. On Wikipedia.
- WeCrashed. AppleTV. 2022. On AppleTV+. On Wikipedia.
- The Social Network. Netflix. 2010. On Netflix. On Wikipedia.
- Steve Jobs. Universal Pictures. 2015. On Wikipedia.
- Jobs. Open Road Films. 2013. On Wikipedia.
- Startup.com. Artisan Entertainment. 2001. On Amazon Prime. On Wikipedia.
- Generation Startup. 2016. On https://www.generationstartupthefilm.com/
- Start-up. Observational Documentary Mini-Series. 2020. On Amazon Prime. https://www.amazon.com/Start-up/dp/B08DL75V6Y/
This page is a summary of important considerations and jump-off point for additional exploration, not a comprehensive reference.