Exaggeration Nation

Russell Simmon's big fib points to an unattractive fact: Few business owners tell the whole truth and nothing but the truth.
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In the there-ought-to-be-a-word-for-it department, where is the term to describe being caught doing something that everybody does? If such a word existed, there's no doubt it would have been rolled out to describe the recent public humiliation of Russell Simmons.

For those who missed it, the hip-hop impresario was outed for serially -- and wildly -- inflating the revenue of his company, Phat Farm. Appearing on CNBC in 2003, for example, Simmons claimed sales of $350 million; in Newsweek, the figure was $240 million. And in his book Life and Def, he cited 2001 sales of $150 million. Unfortunately for Simmons, he's stuck in litigation with a former business partner; in a deposition, he was forced to reveal that his actual sales never topped a mere $14.5 million.

Why did Simmons -- one of Inc.'s "Entrepreneurs We Love" in 2004 -- stretch the truth so far? The inflated figures, he said in his deposition, were a "good brand-positioning statement." He's right, of course. Torrid growth sends a powerful message. In today's hypercompetitive environment, where success often is measured by the scorecard of growth, the temptation to fib is intense.

Torrid growth sends a powerful message. In today's hypercompetitive environment, the temptation to fib is intense.

In my industry, where agencies are generally measured by their billings, Simmons-esque metrics are so commonplace (at least for the CEOs of privately held firms) that people often ask, "What do you say your billings are, and what are they really?" While we'd never exaggerate by a Phat Farm factor of 20, I have to admit, somewhat reluctantly, that we're not always completely straight. And let's face it: Few privately held companies are.

Indeed, it is precisely because "everyone does it" that everybody does it. After all, if your competitors appear to be robust and booming, what's the advantage of telling the truth and appearing puny by comparison? In this kind of arms race, honesty actually becomes a business disadvantage -- and on more than one level. Just like Simmons, you need to market your brand to the media, customers, potential employees, even potential acquirers. And all of them want to be associated with a brand that's skyrocketing. What's more, claims of rapid growth attract attention from potential customers, which turns the whole thing -- one hopes -- into a self-fulfilling prophecy. It's an equation of deceit that's a dirty little secret of business today.

It's a reflection, needless to say, of a supersize-me culture in which overstatement is epidemic. There's grade inflation in the academic world, the steroid mess in baseball, McMansions sprouting up everywhere, Hardee's new 1,420-calorie Monster Thickburger. In this world, if your business isn't growing 40% a year, you feel like a failure.

Of course, companies that grow rapidly often fail rapidly, and the toxic pressures of reporting constant rapid growth are behind the never-ending spate of Wall Street scandals. What's more, the irony is that exceedingly fast-growing companies aren't always the best ones to work with. You may want to buy a pair of jeans from a hot company, but do you really want to hire an IT company that added several hundred employees in the last year -- or doubled its revenue -- with all the attendant problems of growth and integration? There's a powerful argument to be made for measured and strategic business growth. But moderation has no appeal in a winner-take-all world.

Sooner rather than later -- and the moment may already be here -- no one will trust any financial numbers at all, whether they come from Maurice Greenberg or Russell Simmons. And just as there's now a cynical generation that gets its political news from The Daily Show, maybe Comedy Central will dream up a mock business-news show that will serve the same purpose. Or, more optimistically, perhaps the pendulum will swing the other way. Could single-digit growth become the new black? Phat chance.

Adam Hanft (grist@inc.com) is founder and CEO of Hanft Unlimited, a Manhattan-based consulting, advertising, and publishing firm.

Last updated: Jul 1, 2005




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