In the world of startups, success is never guaranteed. Unfortunately, some promising businesses have failed due to the illegal actions of their owners. From fabricating data to committing bank fraud, these actions can lead to the downfall of even the most promising companies.
In this blog post, we explore some examples of startups that could have become big-name brands if it weren’t for the misguided actions of their founders. We also examine the motivations behind why some young entrepreneurs engage in fraudulent activities and the consequences that can result from such actions.
High-profile startup errors
There have been several high-profile cases of startups failing due to the illegal actions of their owners, including the following companies that became household names, for all the wrong reasons.
Theranos was a blood testing startup that claimed to be able to perform hundreds of tests with just a few drops of blood. However, the founder of the company, elizabeth holmeshe was accused of fraud in 2018 after discovering that the technology did not work as advertised.
Zenefits was a software startup that provided companies with an easy way to manage employee benefits. However, the company’s founder, Parker Conrad, was forced to resign in 2016 after it was revealed that Zenefits employees were selling insurance without proper licenses. Companies can hire internal auditors to help them stay on the right side of the law.
Clinkle was a mobile payment startup that raised more than $30 million in funding before going bankrupt. The founder of the company, lucas duplanhe was charged with mismanaging company funds and spending money on lavish parties and personal expenses.
What did juicer Popular was his high-tech juicer machine that could squeeze juice from specially designed packets of fruits and vegetables. However, company founder Doug Evans was accused of falsely claiming the machine’s capabilities and exaggerate the company’s financial prospects.
Under 30 Who was wrong?
There are some startup founders under the age of 30 who have crashed spectacularly, and The Guardian mentions Charlie Jarvice, the founder of a student financial aid startup named Frank, who has been charged with wire and bank account fraud by the Department of Justice.
He allegedly inflated the number of clients his company had in order to sell it to JPMorgan Chase for $175 million.
Damning evidence in the public domain includes Javice saying on LinkedIn that Frank had served more than 5 million students at more than 6,000 universities. The reality, however, was that the company only had about 300,000 customers.
To get at the inflated numbers for the customer database, Jarvice is accused of recruiting a data scientist to create a few million customers.
No one knows how it wasn’t a red flag for JPMorgan Chase during its due diligence. Unfortunately, Javice’s actions can carry a 30-year sentence. Javice denies all the accusations against him.
Charlie Jarvice is not alone; there are plenty of young entrepreneurs who fail to keep it real, including:
- Martin « Pharma Bro » Shkreli
- Ivan Pavlich – Hipernet
- Obinwanne Okke – Invictus Group
Shkreli was convicted of securities fraud.
Although they are unaware of each other’s activities and therefore not related, the promise of making a fortune through cryptocurrency proved too tempting for both Pavlich, a New Zealand scientist, and Okke, a businessman from Nigerian business. Despite their promising careers, they were drawn to the potential wealth that could be gained through illegal activities associated with investing in cryptocurrency. Unfortunately, their quest for cryptocurrency riches ultimately led to the downfall of their careers.
Why young startup founders fail
What drives successful young entrepreneurs to engage in illegal activities like bank fraud?
It is important to note that engaging in fraudulent activity is not a characteristic of successful young entrepreneurs. However, in cases where a young entrepreneur engages in bank fraud, a variety of factors could lead to such behavior, including ego, greed, desperation and more.
1. Financial pressure
Starting a new business can be expensive, and entrepreneurs may feel pressured to meet financial obligations, such as loan payments or investor expectations.
If an entrepreneur feels unable to meet these financial obligations, they may resort to fraud to cover their expenses or maintain their lifestyle.
Entrepreneurs are often seen as risk takers, which can sometimes lead to overconfidence. Entrepreneurs may participate in fraud because they are convinced that their business will eventually be successful enough to cover the losses.
Also, an inflated ego can disturb your reality check, and as such, you may genuinely believe that you can get away with doing things that are borderline right or simply illegal.
Suppose entrepreneurs struggle to keep their businesses afloat or face bankruptcy. In that case, they may feel desperate and be more willing to engage in fraudulent activity as a last resort to keep their business going.
Unfortunately, some people are simply motivated by greed and will engage in fraudulent activities to enrich themselves at the expense of others.
5. Lack of ethics or moral compass
Finally, some young entrepreneurs may not have a strong ethical or moral compass and may engage in fraudulent activity simply because they see nothing wrong with it or because they believe the ends justify the means.
It is important to note that these factors are not excuses for fraudulent behavior and that engaging in such activity can have serious consequences, both legal and professional. As such, it is important that young entrepreneurs prioritize ethical behavior and seek support and resources when facing financial or business challenges.
fake it till you make it
It is the expression:fake it ’til you make it » responsible for the young entrepreneurs who make the success of your business?
Hypernet’s Ivan Pavlich said it was at Stanford University that he learned to develop a « risk-taking » mentality. Clearly, he went a step too far.
The phrase « fake it till you make it” suggests that if you act as if you have confidence and competence in a particular area, you will eventually develop that confidence and competence. While this can be a helpful mindset for people who lack self-confidence, engaging in illegal or unethical behavior is not a license.
Some young entrepreneurs may be tempted to manufacture the success of their business, especially if they believe that doing so will attract investors or customers. However, such behavior is not only unethical but also unsustainable. Eventually, the truth will come out, and the consequences could be serious, including legal action, reputational damage, and loss of customers.
Therefore, it is important that entrepreneurs focus on building their businesses in an ethical and sustainable manner. This means being honest about your strengths and weaknesses, seeking advice and mentoring when necessary, and being transparent with investors, clients, and other stakeholders. By doing so, they can build a solid foundation for the success of their business and avoid the pitfalls of dishonesty and deceit.