Dollinger index

372 ENTREPRENEURSHIP

tain euphoria prevails. The entrepreneurs are in a very positive state of mind and want

to show the new venture in the best possible light. They give positive impressions about

the new venture even though they recognize the dangers, risks, potential pitfalls, and

barriers to success. They must weigh the costs of revealing all this negative information

against the benefits of being completely honest—the promoter dilemma. It is not clear

at what point in the process and to what degree promoters are obligated to communi-

cate their darkest fears about the new venture.

Innovator Dilemma. The creation of new businesses often means the creation of new

technologies, products, and combinations. The entrepreneur frequently has to decide

whether to go ahead and expedite production and distribution or to engage in a long

process of product testing for safety. Even if there is no reason to believe the product is

unsafe, there is always the risk of the Frankenstein effect: If the unwitting entrepreneur

creates a monster, a product that does—or is perceived to do—harm, the new venture

will never recover. If the entrepreneur waits until the risk and uncertainty are eliminat-

ed, someone else may be first to market—the innovator dilemma.

Relationship Dilemma. Over the course of creating a new venture, the entrepreneur

becomes a member of a number of different networks—groups of individuals and

firms—and conflicts of interest frequently arise because the ethical demands of member-

ship in one group conflict with those of another. For example, the scientist/entrepreneur

belongs to academic societies that insist that studies be peer-reviewed and published in

professional journals to ensure scientific validity. But this may require revealing impor-

tant proprietary information that is a source of SCA for the new enterprise—the rela-

tionship dilemma.

A different type of relationship dilemma arises from some of the entrepreneur’s trans-

actions. One example involves investor relationships: If one investor’s commitment

depends heavily on that of another investor, the entrepreneur may attempt to “ham and

egg” it. That means telling the first investor that the second has made a commitment,

and telling the second investor that the first investor has done so. From the point of view

of the new venture, complete honesty might mean getting no investor commitment. On

TABLE 9.3 Ethical Issues: Comparison between Managers of Small and Large Firms

Small Firm Manager More Tolerant of Large Firm Manager More Tolerant of

SOURCE: J. Longnecker, J. McKinney, and C. Moore, “Do Smaller Firms Have Higher Ethics?” Business and Society Review,
Fall 1989: 19–21.

1. Padded expense accounts


2. Tax evasion


3. Collusion in bidding


4. Insider trading


5. Discrimination against women


6. Copying computer software
   
   
   1. Faulty investment advice
   
   
   2. Favoritism in promotion
   
   
   3. Living with a dangerous design flaw
   
   
   4. Misleading financial reporting
   
   
   5. Misleading advertising