Behind the Startup Spark

This post was written by Abhishek Vajjala and Sarah Rezaei, researchers at the Department of Economics and Psychology, respectively, at Monk Prayogshala.

Startups are often seen as hubs of innovation where creative minds come together to build a sort of ecosystem that thrives on audacious visions, ambition, and an unwavering commitment to advancement. Nevertheless, not all creative endeavors within the startup realm have led to positive outcomes or, rather, were driven by noble intentions. Over the past decade or so, the media has documented numerous instances that serve as examples of how the line between genuine innovation and deceptive practices can become hazy. Although this may be detrimental in many ways, it gives us valuable insights into the "darker" side of creativity.

Source: Nick Chong / Unsplash

In mid-December of 2022, Futures Exchange (FTX) founder Sam Bankman-Fried’s arrest and subsequent extradition to the U.S. on criminal charges made headlines across the world. Sam Bankman-Fried, or SBF as he was commonly known, was accused of misappropriating over a billion dollars in customer funds and accessing them through his private hedge fund, Alameda Research. The revelations since then have left many holding the proverbial bag—the companies Mr. Bankman-Fried had bailed out during a previous rough spot in the cryptocurrency sector; the investors, many of whom featured the likes of industry giants like Sequoia, BlackRock, and TigerGlobal; and last but not least, customers who were unable to withdraw their funds when FTX froze all withdrawals at the beginning of November 2022.

Cases like that of FTX and SBF aren’t particularly rare, and one does not even need to look in unregulated sectors to get to know them. Take Frank, a financial service startup established by Charlie Javice to help individuals have an easier time accessing student loans. After a successful acquisition by JP Morgan, the new owners tried to get in touch with Frank's supposedly large customer base in a marketing campaign, only to discover that they might not have existed in the first place. The incident rapidly snowballed, and Javice is now at the center of a number of litigations brought on by JP Morgan, financial regulators, and the government.

And there’s more to go on. Elizabeth Holmes and her (failed) attempt to create an all-in-one medical diagnostic device through her company, Theranos. Or Trevor Milton and his gross exaggeration of the electric and hydrogen-based technologies possessed by Nikola, the company he founded. This is not to say that the startup scene is rampant for scams, but could it be somehow naturally susceptible to it? A founder in the startup space has to come up with ideas and solutions that go beyond the initial business prospect. From selling the idea to investors and consumers to navigating roadblocks and pitfalls, if existing methods fail, then one has to think of new workarounds. Creativity thus becomes a tool to be used for good or bad at the user's discretion.

What drives people to commit these frauds?

Antecedents of darkly creative behavior include both extrinsic and intrinsic factors; however, one that is relevant to discuss here could be the need for resources—money or other similar tangible resources. Embezzlements, frauds, and scams are largely committed with one motive in mind: more money. The necessity to secure funding would sometimes mean painting the rosiest picture possible for potential investors, and sometimes this may be achieved by manipulating numbers, fudging data, or promising more than what can be realistically delivered. The line between being optimistically ambitious and deceitfully misleading can get dangerously thin, and the drive towards hedonic gain may be a motivator for dark creativity.

Then there's the aspect of competition. In an era where everyone wants to monopolize the market, the temptation to cut corners, push out half-baked ideas, or outright put customers at risk can become all too real. The underlying belief might be that a little scam today can be justified by success tomorrow. The need for power and achievement is a documented antecedent to dark creativity, especially if we are talking about it in the context of startup companies desperately trying to make it big. Perhaps those who find themselves in a position of low power (a startup in its early stages) may find (darkly) unconventional and ingenious methods to get to a position of power, especially if such power can be realized through creativity.

Source: Startaê Team / Unsplash

For some ambitious startup founders, however, power may not solely be about establishing dominance in the market or staying ahead of copycats. It is more abstract—it is about being perceived as a visionary and a trailblazer. Someone who leaves an indelible mark on the world.

This desire to be acknowledged as a "powerful" individual can sometimes overshadow ethical considerations. Take, for example, Elizabeth Holmes and her obsession with becoming an iconic figure, akin to Steve Jobs, which was evident in the dozens of notes she wrote to herself. While her company promised revolutionary blood-testing technology, the promises ultimately crumbled under allegations of fraud. Holmes's journey shows how perilous the path of prioritizing personal legacy as such over genuine innovation can be.

These instances in the startup scene allow us to focus on the rather interesting interplay of creativity, ambition, and competition within this world. They are a reminder that while startups can act as springboards for novel ideas to take shape, they are also breeding grounds for dark and potentially harmful ideas to transpire. These stories serve as reminders that creativity can manifest in various forms—sometimes aligned with integrity and other times veering off course into a dark alley. Exploring the possibilities of how these ideas form in the real world can be an ongoing journey worth undertaking.