Sticky Situations

Company ethics are the stuff of headlines. Each of the following entrepreneurs faced ethical decisions in their start-ups that shaped who and what their companies would become. What would you do in these situations?

• Customer conflict:
• "There was a client [project] we'd worked on at our former employer, and for that client, we developed a unique re-search methodology," says Aaron Keller, 33, co-founder with Brian Adducci, 36, of Capsule, a brand development firm in Minneapolis.

After finishing the project, they decided to start their own business and seek out their own customers. However, those former clients managed to track them down. "This client had gotten the proposals from our former employer for the next research project, and because it was a research methodology that no one else had, it was incredibly valuable. They said, 'Can you pitch this? You developed the methodology and can easily put it together.' Even though [it would have been] by far our biggest client out of the gate, [we said no]. It just wouldn't be appropriate. That's just not something you want to have hanging over you for the rest of your business."

• Financial dilemma:
• "I started organizing the accounting for this company-it was one of my first clients," recalls Frances McGuckin, 53, founder of SmallBizPro.com Services, a small-business consulting service in Langley, British Columbia. "They were looking for investors. And when I did their first set of financials, there was a loss on the bottom line."

The company asked her to change its financial statements to show a profit, but McGuckin refused-and she ended up losing the client. "What I learned was, Don't just go for the dollars you're going to get now. Look long-term, and build an [honest] reputation. Unethical practices will always come back and hit you."

• Privacy matters:
• "As soon as we had any employees, we intended to have a group health policy," says Daniel Grossman, co-founder and CEO of MetroKitchen.com, an online retailer of high-end kitchenware in Atlanta. But after talking with agents, he realized that doing so would compromise employees' privacy, since rates are negotiated based on their medical conditions.

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"I just think it's creepy if the boss knows what diseases they have—I think it makes the employee uncomfortable, and I'm invading their privacy more than I'm comfortable invading it," says Grossman, 40. Instead, he has employees get their own policies and give the bill to MetroKitchen.com each month.