Every few years, it seems, another promising entrepreneur goes to jail. Elizabeth Holmes and Sam Bankman-Fried appeared to be true stone-turners. They fought to turn contrarian ideas into category-defining companies. Then they broke bad.
Imagine if they had been founders in AI, synthetic biology, and dual-use technology. And imagine if they didn’t break the law overtly but still put their narrow self-interest over humanity’s. The stakes would have been much higher.
Can we screen for founders who will do the right thing before we empower them with capital, fame, and history-bending power?
The Contrarian Compounding series closes on this dark but ultimately hopeful question because entrepreneurs wield more power with fewer guardrails. This should be a chief concern for the international policymakers who inspired this series with their efforts to build entrepreneurial ecosystems that rival Silicon Valley.
I believe two qualities separate the founders who, no matter what, will try to do what’s right: open-minded conviction and ethical depth.
How Ethical Compromises Compound
In my introductory article on contrarian compounding, I described how a founder with a right, contrarian idea can build a category-leading company. Holmes, the imprisoned founder of Theranos, was once on that path. She aimed to transform blood testing with a small, affordable device that could screen for hundreds of health issues in one drop of blood.
However, Holmes insisted that the device have an Apple-ish aesthetic and not exceed arbitrary dimensions. She prioritized miniaturization over accuracy despite pushback from her company’s scientists. Theranos built inaccurate blood-testing devices that misdiagnosed conditions and jeopardized people’s health. Holmes lied about this to investors, the media, and the public.
Best as I can tell, Holmes began to conflate her mission with the celebrity persona she established in pursuing it. To remain a self-made female billionaire and the second coming of Steve Jobs, she gradually sacrificed the patients she purported to serve. That’s how ethical compromises compound.
Where Conviction Becomes Arrogance
In an alternate reality, Holmes could have been open-minded about Theranos’s design struggles and forthright with investors. Under those conditions, she might have iterated and fast-forward failed into creating a remarkable device. Why couldn’t she get there?
Founders need conviction to pursue contrarian ideas that others doubt. Conviction oscillates between two states of mind I’ll call “push mode” and “pull mode.” When pushing, founders operate in a solitary state, elaborating and fortifying ideas. Pushing builds confidence in their convictions. Pull mode is a deliberate choice to be open-minded, vulnerable, and humble. Pulling founders drop their guard, welcoming critique and help.
The founder stuck in pull mode is in perpetual doubt. Though unlikely to do anything unethical, they are prone to abort their missions. Founders locked in push mode cling more and more tightly to their convictions despite clear evidence that they need to evolve. Like Holmes, they refuse input, even on matters where they lack expertise. Holmes thought she had two options: fail or lie. She was too closed-minded to see a third option: learn and do better.
Obedience to the Unenforceable
Close-mindedness can set a founder on the path to compounding lies. Though this may be damaging, such founders aren’t nearly as dangerous as those who lack ethical depth, which I’ll try to define.
Lord John Fletcher Moulton, a British judge and parliamentarian, coined the term “obedience to the unenforceable” in a 1924 speech delivered at the Author’s Club of London. He outlined a space between the law and absolute free choice and feared that overuse of legislation would encroach on this domain “where spontaneity, originality, and energy are born.” Essentially, he wanted to protect the space where contrarians thrive.
Moulton worried that the public would neglect this new freedom: “I am not afraid to trust people — my fear is that people will not see that trust is being reposed in them.” Founders today don’t fail to see the trust being placed in them. Rather, many want the benefits of that trust without any of the accountability.
Separating Good Apples from Bad
Founders with open-minded conviction don’t have to lie and manipulate, because they learn instead. Founders with ethical depth do that and go further: They turn down massive contracts, partnerships, and funding deals to obey the unenforceable.
That’s why people are impressed with Anthropic CEO Dario Amodei. The Pentagon said it would only contract with AI companies that allow “lawful” use of their models. Amodei refused to let his models be used for mass domestic surveillance or fully autonomous weapons — and lost the contract as a result. That said, Anthropic allegedly trained its LLM on more than 7 million pirated copies of books, raising some questions about Amodei’s ethics.
Unfortunately, no pre-canned list of questions can predict how a founder will act in such a scenario. As investors, we can ask founders about their missions, and we can ask about the most difficult ethical dilemmas in their lives. Ultimately, though, the ecosystem of entrepreneurship is responsible for earning and preserving the public’s trust. Lawyers, accountants, consultants, employees, partners, and, yes, policymakers share in this duty.
Which is why I end with this call to policymakers: Consider the risks, not of failing and wasting public funds, but of stimulating entrepreneurship beyond your wildest expectations. With its newfound power, will your entrepreneurial ecosystem win or lose society’s trust?
Philipp Stauffer WG04 is the cofounder and managing partner of FYRFLY Venture Partners, an enterprise deep-tech venture firm based in Silicon Valley and Switzerland. Having grown up in a family of entrepreneurs, Stauffer followed his passion for innovation early on, launching consumer products to the European markets right out of school. He has held roles at the frontier of technology innovation and technology as a founder, a leader, and an investor, working with companies such as Accenture, Salesforce, Amazon, Micron, Interpublic, and Google. He is an honorary ambassador to Switzerland and currently lives in the San Francisco Bay Area.
