Business Ethics Assignment: Risks Associated with Startups

Question

Task: Prepare a business ethics assignment discussing the key risks and ethical issues to consider (1) as an entrepreneur when launching a start-up and (2) as an investor when investing in a start-up. Give examples using various case studies / businesses (including your own business if applicable). Justify your answers giving reference to relevant research.

Answer

Introduction
The current business ethics assignment sheds light on the risk, a major factor played by the startups as it hinders the capability of investing in a startup by investors. Risks and ethical problems are small and new businesses are prevalent in the recent business environment wherein one or more entrepreneurs commence the business operations with limited capital fund and experiences. In this study more emphasis is given on risk associated with startup funding and ethical issues in a startup. Moreover, it also discusses solutions required for mitigating the risks.

Part One: Risk
State 3 risks for launching or investing in Start-up Company
The three major risks associated with launching or investing in a startup is as follows

• Funding for the company: In order to fund a startup company money or funds are mainly required by the company to make it run. As opined by Lambert, Ralchevaet al. (2018), money is required for developing a product and bringing it to the market. Moreover, securing funds from government grants, loans and investors which is said to be unpredictable itself as paying back the debt is also equally important. Therefore, sometimes it might need to utilize the saving amount in the startup.
• Dealing with the competition:Ideas are now common in startup as many people might have similar ideas to the startup. As mentioned by Malyyet al.(2019), a crowd marketplace is moistly dominated by bigger companies is hard to break. Likewise, a non-existence marketplace may lead to company into difficult phase. Moreover, in an open market here are high chances of stealing ideas.
• Demand shifts: Technology can render and change the product obsolete, or a big company might buy the idea and add their spin to that idea.

Discuss ways of mitigating the 3 risks

• Having clear forecast to financial and working budget: This helps in mitigating the risk. As discussed by Wang et al.(2019), cash flows could be challenging for the large companies. It is important to take advice from an expert while marketing in the startup which enables in negotiating payment terms into flexible mode with the suppliers for making the early days unpredictable.
• Gaining patent rights for selling point: It is necessary to get the patented for the unique point of selling a product so that the competitors could not borrow. Keeping the ideas secret before launching in the market.
• Future proof of the business: It is important to make a future proof of the business and get prepared for the pivot is what startups should do. As opined by Angereret al. (2018), stealing of ideas which is common in startup makes the project vulnerable. Therefore, making it pivot with the competitor’s idea is necessary.

State the different viewpoints from the entrepreneurs and investors
From the perspective of entrepreneurs, the risk associated with startups is the funding issues as it becomes tough for the big firms to invest in a start ups which does not guarantee success in the future. As stated by Gura(2018), the other risk where the entrepreneurs find it difficult to invest is its standpoint in the market and lack of awareness about the product or service. However, these are the two major risks associated with the startups from the entrepreneur’s point of view.

Looking from the investors point of view for the risk associated with the startups is non availability of financial records before to analyze the profits made from the project. This tends the investors to pull back the decisions of investing on a startup.

List 3 case studies for each of the risk and solution mentioned
The case study of Fab, was one of the fast growing startup and then ultimately crashed. The case study of Fab tells about the details as when should a startup preserve or pivot. Fab underwent through variety of changes from product designing to flash site of sales. As mentioned by Pukala(2019), pivot allows the business to look forward in new direction during the case of strategy failure or opportunity gained. The Fab decided to pivot and then became a daily sales site flash for accessories, jewelry, and designer house wares and clothing.

The case study of Endeca talked about the fundraising efforts even before the start of the business long before. The company actually pitched to the investors for the funds in order to run the business smoothly. Moreover, it also talked about the efforts faced from the large firms for raising the funds.

The case study of Pretty Young Professionals where the business of this company dedicated for the female entrepreneurs and the problems faced within the team. The startup fell apart due to the legal issues, infighting within the team and bad communication. As said by Polishchuk, Kelemenet al.(2019), it is important to have a cordial relationship with the partners for making the startup business successful. However, in this case study due to mismanagement of the company had to face severe disturbance.

Part 2: Ethical Issues
State 3 ethical issues
The three main ethical issues faced by the startups are as follows;
Permit and licensing issues:Without getting the permit from the government leads to no authenticity within the business. As opined by Long and Blok(2018), ignoring these issues could be challenging from the activities of the business permanently as when caught up. Therefore, business license is considered to be the first priority while starting the business.

Not defining the policies of the company clearly:It has been seen many times that the startup business fails to lay policies for its company. Even after having a prop rook of policies reminder to employees is see very often. Therefore, not following the policies could turn the company into illegal and unethical actions through employees.

Not securing business trademarks:Most of the startups business does not consider protecting the trademark as an important factor. Due to this it can lead to some legal issue to infringement of trademark. This may also affect the status and sales in the market and also requires huge amount of money to get back the trademark done.

Discuss 3 ways to manage the ethical issues
The three ways for managing the ethical issues are as follows;
Promo tong values with examples: With the application of promoting every service andproduct with the proportionvalue could lead the business overcome from unethical practices. Implementing system for reporting unethical behaviors: This resultedboth the victims of unethical behavior share their experiences that leads to such fighting. As stated by Fernandhytia, and Muslichah(2020), implementing a system can reduce the unethical practices in a company.

Providing ethical training:The startup should make sure in providing training on ethical practices to its employees most often as this helps in conducting the business wisely with honesty.

Consider the different viewpoints from the entrepreneurs and investors

From the viewpoint of entrepreneurs for the ethical issues in a startup it is equally important to lay the policies and principles of the company before starting or hiring the employees. As said by Armstrong et al.(2017), this results in promoting a better workforce within the company.

Looking at the viewpoint of investors it also checks the policies and framework of the company before investing on it. Therefore, it is more likely to have a distinct legal framework that entails the set of rules and regulation set by the company for its employees.

List 3 case studies for each of the risk and solution mentioned
The case study of Cylent where the founders mainly focus on hiring the employees on the basis of skills needed for accomplishing goals. If the employees work hard and are lucky enough to reach the goal quickly with the team which performs well then it may put question to those having many qualifications but could not do more. However, in this situation the culture of the company becomes loose as stated by the founder’s personalities.

The case study of Massroots gives a great example of community built even larger than the return on investment. The members of the company failed to follow the policies and legal framework of the company which lead to cause deeper community from infringement.

The case study of Grockit depicts very well with the legal issues and permits issue faced by the company during the time of starting the business. As mentioned by Öhman and Floridi(2018), hindrance caused due to legal permit to start the business may lead the startup of stealing ideas by the competitors. This creates a huge loss to the company before starting the business.

Conclusion
It can be concluded that the startups face many risks like funding, shifts in demand and infringement. The objective of the start-up business is to earn as well as to maximize profits. However, the process of earning profits is often ignored by the small companies relating to risk and following unethical issues. Moreover, it also discussed about the ethical issues like issues related to permits and legal document required for starting the business. Hence, it is mandatory for all businesses to comply with the required ethical norms for conducting businesses.

References
Angerer, M., Niemand, T., Kraus, S. and Thies, F., 2018. Risk-reducing options in crowdinvesting: An experimental study. Journal of Small Business Strategy, 28(3), pp.1-17.

Armstrong, A., Francis, R. and Grow, H., 2017. Ethical issues in the employment of expatriate leaders in corporations. Journal of Economic and Social Development, 4(1), pp.71-80.

Fernandhytia, F. and Muslichah, M., 2020.The effect of internal control, individual morality and ethical value on accounting fraud tendency. Media Ekonomi Dan Manajemen, 35(1), pp.112-127.

Gura, O., 2018. Start-up as a tool for implementation of investment decisions. Economics.Ecology.Socium, 2(2), pp.1-11.

Lambert, T., Ralcheva, A. and Roosenboom, P., 2018.The crowd–entrepreneur relationship in start-up financing.In The Economics of Crowdfunding (pp. 57-78). Palgrave Macmillan, Cham.

Long, T.B. and Blok, V., 2018. Integrating the management of socio-ethical factors into industry innovation: towards a concept of Open Innovation 2.0.

International food and agribusiness management review, 21(1030-2018-2278), pp.463-486.

Malyy, M., Tekic, Z. and Golkar, A., 2019. What drives technology innovation in new space?: a preliminary analysis of venture capital investments in earth observation start-ups. IEEE Geoscience and Remote Sensing Magazine, 7(1), pp.59-73.

Öhman, C. and Floridi, L., 2018. An ethical framework for the digital afterlife industry. Nature Human Behaviour, 2(5), pp.318-320.

Polishchuk, V., Kelemen, M., Gavurová, B., Varotsos, C., Andoga, R., Gera, M., Christodoulakis, J., Soušek, R., Kozuba, J., Bliš?an, P. and Szabo, S., 2019.

A fuzzy model of risk assessment for environmental start-up projects in the air transport sector. International journal of environmental research and public health, 16(19), p.3573.

Pukala, R., 2019. Start-ups as an Element Supporting the Development of the Mining and Energy Sector.In E3S Web of Conferences (Vol. 105, p. 04015).EDP Sciences.

Wang, W., Mahmood, A., Sismeiro, C. and Vulkan, N., 2019. The evolution of equity crowdfunding: Insights from co-investments of angels and the crowd. Research Policy, 48(8), p.103727.