Chapter 3 - Small Business Environment: Managing External Relations

caveat emptor

"let the buyer beware" -> often used to put the burden for consumer protection onto the customer

3 classes of ethical standards

- employees should be dependable citizens - do not do anything that will harm the organization - be good to customers

developing networks

- know how to grow and sustain each is a key skill - both forms are a way to work trust, reciprocity, and long-term relationships into your daily business operations - they help build your company's expertise - key is building a network of people who trust each other and reciprocate help and advice - seek to build your reputation

costs to unethical behavior

- level 1 costs: government fines and penalties - level 2 costs: administrative and audit, legal and investigative, remedial education, corrective actions, government oversight - level 3 costs: customer defections, loss of reputation, employee cynicism, lost employee morale, employee turnover, government cynicism, government regulation

product-based legitimacy indicators

- many owners think the most important source of legitimacy comes from understanding the product/service - if customer doesn't understand it, company is unlikely to succeed - goal is making sure the customer knows about the details of the product and has company assurance to back it up

three forms of legitimacy

- people - product - organization

universalism

ethical model that suggests there is a code of right and wrong that everyone can see and follow

golden rule

ethical model that suggests you should treat others the way you want to be treated

utilitarianism

ethical model that supports seeking the greatest good for the greatest number of people

legitimacy

lies in the impressions/opinions of customers, suppliers, investors, or competitors

handling a crisis

- admit you're in trouble - get to the scene as soon as possible - communicate facts you do and don't know to employees, customers, and suppliers - have 1 person serve as the firm's spokesperson - separate crisis management from everyday management - deal with the crisis quickly

approaches to managing relations with the environment (external relations)

- building legitimacy - developing your networks

developing social networks

- challenge is deciding which platform and strategy to use - key is realizing where your target customers already are - may owners have their businesses on multiple platforms

building legitimacy

- challenging for new small businesses, especially "different" ones - major goal of an existing business that's gone through significant change - means building trust

integrating lessons of legitimacy into business structure

- craft codes for legitimacy, networking, customer service, sustainability, crisis management, and ethical decision making - discuss expectations when hiring employees, subcontractors, or service providers - use external relations relapses as a learning experience and bring up your expectations - do not get emotional when counseling about external relations issues, be specific and consistent - remember you are a role model

making ethical decisions

- define the moral problem - generate alternatives that meet your ethical, legal, and economic goals - implement the best solution and monitor the situation

internal environment

- directly involved in the organization - owner, employees, and board of directors - some groups may be considered internal or external

external environment

- everything outside the firm's boundary - task environment: components that directly relate to your firm performing its basic business tasks - general environment: seven sectors (economic, international, political-legal, demographic, ecosystem/infrastructure, sociocultural, technological)

sustainable entrepreneurship exploits opportunities to make a profit in a manner that:

- minimizes the depletion of natural resources - maximizes the use of recycled material - improves the environment - achieves any combination of these outcomes

developing personal networks

- not all contacts are equal - PSED shows information is the leading type of help requested - most powerful connections are face-to-face meetings - mutuality is the idea and action of each person helping the other - building social capital is called personal networking - can use customer relationship management software to organize contacts

six types of resources

- property/physical - relational - social capital - organizational - financial - intellectual/human - technological

how can entrepreneurs manage a firm's impact on the environment?

- recycle everything you can - perform a "green audit" (needed to obtain ISO 14001 certification) - consider specialization in LEED certification if you're in the construction industry

organizational culture

- set of shared beliefs, basic assumptions that demonstrate how things get done - common, accepted ways of dealing with problems and challenges

people-based legitimacy indicators

- the owner is the business & most important element of social capital - make sure employees work in the best, friendliest, and most professional way

low-cost, fast ways to monitor the environment

- using trade press - asking customers, suppliers, and other groups for their thoughts on future trends - keeping note of things that bother you about how work is done and look to improve - use a custom news feed - use a "real options" approach and establish benchmarks, timetables, and a formal review process for decisions

organization-based legitimacy indicators

- whatever gives customers confidence in the quality and survivability of the firm helps increase sales and trust - good codes of ethics reflect the owner's passion, culture of the firm, and classes of ethical standards

skills for making the right decision

1. handling a crisis 2. achieving sustainability 3. making ethical decisions

best practices of social networking

1. make it easy for people to contact you 2. take initiative to ask others on the network to link with you and then help them out online 3. find and link up with network mavens then help out when you can 4. keep at it - successful online networking requires consistent involvement

3 step process for preparing for disasters

1. plan to stay in business - use a disaster plan 2. talk to your people 3. protect your investment

social capital

characteristics of a business, such as trust, consistency, and networks, that represent potential social obligations that are assets of the firm or entrepreneur

entrepreneurial ecosystem

components are government, universities, investors, service people, mentors, and large organizations

organizational identity

composed of the name, description, and distinctive elements of a firm, such as trademarks, uniforms, logos, characters, and stories

goal of managing external relations

create social capital, the major component of "goodwill"

billboard principle

ethical model that asks whether someone would be comfortable having his or her decision and name advertised on a billboard for the public to see

ethical dilemma

occurs when a person's values are in conflict, making it unclear whether a particular decision is the right thing to do

environment

sum of all the forces outside the firm or entrepreneur

goal of personal networking

to make sure you keep track of your social and business contacts to keep relationships fresh