10/20/2010 03:11 pm ET Updated May 25, 2011

No Really, Be Honest

It starts out with one harmless white lie, then another, and another.

The challenge of starting a service-oriented business or any small company is that you have no corporate work history, no client referrals, no resume with your company name on it. Often times you feel like a small fish in a very large ocean and no one even knows you're there. This gets reinforced by creditors yapping about a lack of financial history and vendors demanding large six-month deposits just to do business with them. By the time you get in front of a client, there's an instinct that says "Act bigger than you are."

2010-10-20-SBA.jpgMany of the businesses I've helped set up run into this trap. They believe they have to spend a lot of money on furniture and expensive office space with fancy monitors and cool art in the reception area (even if they don't have a receptionist). And only a few like to admit they work out of their garage, let alone their bedroom. I myself spent money I didn't really have on letterhead I could have just as easily printed out and business cards with a cool smooth finish just to appear established.

Customers are precious and often scarce at the beginning. You would do almost anything to keep the clients you have and try almost anything to get new ones. It starts with things like under-bidding a job to get your foot in the door. Which may lead to agreeing to unrealistic time lines. Next comes committing staff that doesn't exist or promising materials you don't yet have. I'm not saying that these are outright fabrications. Rather, you have convinced yourself that this is the only way to get and keep the job. And so you stretch the truth, and with it you over-extend your bandwidth, put a strain on your employee relationships, and risk your reputation.

Entrepreneurs are a confident breed. We think we can accomplish anything and overcome any obstacle thrown our way. And we often can. But long term, running at 110 percent all the time takes its toll. What if at least some of it could be avoided?

A friend of mine started her own company right around the same time I did. From the start, she ran things differently. She called it "Brutal Honesty." Confident and secure in her own skin, she would tell her clients that yes, her offerings were more expensive, but she offered the best service and no one would take care of them like she would. With sales partners, she would define the relationship with no uncertain terms that were clear on how she intended to do business.

At the time, I was just starting to work for two of the largest companies I would have as clients. The dot-com bubble had burst and many companies were redefining how they were going to spend money on Internet development. All we had worked for -- the clients we had developed -- had all but disappeared and it looked like this would be my last shot at success. I decided then to be honest. I would be honest to myself about how much I could do, honest to my clients about what we could accomplish, honest about the work, our capabilities, and how much it would cost. In short, I began to manage expectations.

The change was incredible. The work was still hard, and there were still many late nights, but I no longer worried about what I would say when clients called with questions or concerns. I opened up the lines of communication. Difficult discussions about monetary issues like budgets, overtime pay and rush fees were candid and, in turn, became easier. They strengthened relationships. Though no project ever runs completely smooth, the unexpected became a challenge to overcome rather than something that could put the whole thing at risk. And from that, more opportunities began to present themselves.

Startups confront challenges every day. Little decisions can have dramatic effects on how your business runs. People look to you for solutions and, even though it may seem easier to just tell people what you think they want to hear, don't. A little honesty can go a long way.