Do you ever wonder what dishonesty looks like? Do you find yourself replaying Enron: The Smartest Guys in the Room, so you can study Jeffrey Skilling’s facial expressions while he testifies before Congress? I found myself doing this after being surprised by the extent of someone’s dishonesty--someone that I had dealt with for years. In hindsight, though, there were plenty of little clues along the way. Over time, they should have added up. But I ignored them. 

It’s not just that people lie (although they do). Some people are so wrapped up in a delusion, and tell themselves a story so many times, that it becomes reality in their mind. Someone who is also a smooth talker can be a master of generating excitement and momentum. If that person has a title or position with some prestige, or perhaps has been a media magnet, the pull to jump into their opportunity can be even more compelling. “It’s got to be a winner,” you might say.

No, it doesn’t. And all that excitement can cause you to discount the little red flags that pop up along the way. Don’t make my mistake – pay attention to those red flags. Dishonest people are banking on the fact that you won’t want to dig into their story, for fear of ruining the opportunity or being left out in the cold. You need to dig.

Here are four red flags you cannot ignore:

  • Unwillingness to answer questions directly. Honest people answer questions directly. Period. If you ask about customer interest in a product, and the answer starts with, "We are talking to...," that means there are no committed customers. A company needs to be honest about where they are in their sales process, because it is key to revenue generation.
  • Any roadblocks to due diligence, especially the phrase, “We need to stay stealth.” Anything that hinders your due diligence is a problem for your decision-making process and for your potential partner’s ability to raise capital down the road. You want to know that your would-be partner has clean financials and truly owns any intellectual property he or she claims to have. Any savvy investor would want the same assurances. I've seen the "we need to stay stealth" excuse used to obfuscate patent assignment issues that later became a nightmare. Don't fall for it. 
  • An opportunity that is so 'hot' that other people aren’t asking the right questions. It's easy to be taken in by people who manipulate details to create the illusion of massive momentum. Their ultimate goal is to get others to come to rash decisions, without asking too many questions or negotiating. Only later will you discover that the reality doesn’t match the pitch: the funding hasn’t actually closed, the other team members haven’t actually committed, and what was billed as product development is really a science project with titanic levels of technical risk.
  • A would-be partner who acts as if their title or status as a media darling should put all your concerns to rest. Just because someone has a prestigious chair at a top university or is frequently featured in the media does not mean you can trust them, unfortunately. Only some people get to the top because of their own brilliance. Enough said.

I’m not advocating paranoia, but a cautious skepticism can be healthy. Integrity (or lack thereof) travels with people: deal to deal, institution to institution, company to company. Stick with good people, and save yourself a lot of grief.