I chuckled to myself when I read about the seven deadly business-killing sins that entrepreneurs should avoid. It’s not because they weren’t spot on, but because of what was missing.
The enumerated sins were familiar: (1) sloppy accounting, (2) unrealistic pricing, (3) na?ve hiring, (4) fear of firing, (5) lack of standards, (6) lack of controls, and (7) poor branding. Each of these seven sins has a legal dimension that magnifies the impact of the misdeed and raises it to its own level of malfeasance. That’s why the missing element and my top choice for deadly business sin number eight is not anticipating the legal consequences of your business decisions.
Sloppy accounting, for example, is definitely a business no-no. The problem gets compounded when casual bookkeeping becomes a vehicle for fraud (a la Enron and its ilk, and Mr. Madoff). Not only can senior managers wind up in jail, but such activity can shake the company to its core, leading to a humiliating bankruptcy and loss of shareholder value that destroys the careers and retirement prospects of thousands. That type of management irresponsibility not only triggers a public backlash, it causes Congress to enact new legislation and regulation.
How ‘bout unrealistic pricing? It brings housing bubble to mind and the appraisals used to support sub-prime mortgages plus the derivatives they were later sliced and diced into. The financial wreckage it created is still being picked over and is once again triggering new legislation and regulation.
Missteps in the hiring and firing process can also cost businesses big bucks. Take for example, the recent $4.1 billion arbitration award against iFreedom involving the case of a member of senior management who was terminated without cause. When he was hired his compensation agreement provided that he would be paid a 5% commission on gross sales on an ongoing and permanent basis if he was terminated under those conditions. The case is a comedy of errors that has the plaintiff, not the company laughing to the bank.
The lack of standards and poor controls are the yin and yang of another set of serious legal consequences. Without standards and controls it’s exceedingly difficult to deliver a consistent work product to your customers and clients. As a result you will not only lose customers, but eventually be faced with lawsuits for breach of contract, and/or product liability claims, and more.
Finally, while poor branding can be fatal to your product or service, it also represents missed opportunity for the creation of trademarks. Trademarks that are synchronized with your brands and your marketing plans are assets that can be leveraged to create greater value.
The seven deadly business sins can all hurt your business. But since businesses operate on a legal playing field, ignoring the legal consequences of such poor business practices brings on a set of problems that not only exacerbate matters and detract further from your business, but are significant problems in their own right. It’s a lesson for small and big businesses alike.