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Full file at https://fratstock.eu Chapter 02 - Small Business Ethics: A Key to Long-Term Success 2-1 CHAPTER 2: SMALL BUSINESS ETHICS: A KEY TO LONG- TERM SUCCESS Chapter Summary This chapter defines basic ethics terms and theory. It explains why ethics is so important for small businesses and how small businesses use good ethical practices to build social capital through legitimacy. The ethical planning process is introduced, as well as a plan to handle small business crises. Learning Objectives After studying this chapter, the student should be able to: 1. Define ethics, and ethical dilemmas, and the relationship between them 2. Find out why ethics is a big part of small business 3. Understand why there aren’t any “do this” and “don’t do this” types of lists for ethical decisions 4. Learn Ethics Planning, a three step process to help you make ethical decisions 5. Learn the techniques of building social capital through legitimacy. 6. Learn the basic skills for handling a crisis Focus on Small Business: Tobin Real Estate and Development Martin Tobin, one of the owners of Tobin Realty & Development was facing an ethical dilemma. The builder he had hired found a problem and told Tobin that he’d have to pay for the extra expenses. While Tobin realized that this was probably necessary, he worried that he’d set a precedent. Of course if Tobin didn’t pay, this opened up several other problematic scenarios. Discussion Questions These will vary based on students’ initial orientations toward ethics and responsibility as well as the “stickiness” of chapter material before class discussion or lecture.

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CHAPTER 2: SMALL BUSINESS ETHICS: A KEY TO LONG-

TERM SUCCESS

Chapter Summary

This chapter defines basic ethics terms and theory. It explains why ethics is so important

for small businesses and how small businesses use good ethical practices to build social

capital through legitimacy. The ethical planning process is introduced, as well as a plan to

handle small business crises.

Learning Objectives

After studying this chapter, the student should be able to:

1. Define ethics, and ethical dilemmas, and the relationship between them

2. Find out why ethics is a big part of small business

3. Understand why there aren’t any “do this” and “don’t do this” types of lists for

ethical decisions

4. Learn Ethics Planning, a three step process to help you make ethical decisions

5. Learn the techniques of building social capital through legitimacy.

6. Learn the basic skills for handling a crisis

Focus on Small Business: Tobin Real Estate and Development

Martin Tobin, one of the owners of Tobin Realty & Development was facing an ethical

dilemma. The builder he had hired found a problem and told Tobin that he’d have to pay

for the extra expenses. While Tobin realized that this was probably necessary, he worried

that he’d set a precedent. Of course if Tobin didn’t pay, this opened up several other

problematic scenarios.

Discussion Questions

These will vary based on students’ initial orientations toward ethics and responsibility as

well as the “stickiness” of chapter material before class discussion or lecture.

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1. Does Tobin have any responsibility toward resolving this problem?

Students’ responses will range from Tobin having no responsibility because

the contract states the builder pays for all digging costs, including soft spots,

to Tobin having at least some responsibility to the home buyer to get the

house done well and on time. Some may respond that, due to small business’s

unique position within a “visible” community (actions by small business

owners are accrued to the owners themselves) they have a responsibility to

maintain their excellent reputation within the community. Others may respond

that, because Tobin had a good working relationship with Sarski prior to this

build, they have a responsibility to help out a fellow small business owner

who is having a tough financial time. Another possible response would be a

short-term responsibility that a successful business might have toward a

struggling one during a prolonged economic trough.

2. What are the main facts to consider when deciding what the right thing to

do is?

Tobin has no legal obligation to pay for the dig, but may have a contract with

the buyers to have the home done within a certain time frame. Students should

also consider the nature of the relationships involved to determine relevant

facts. Tobin and Sarski have worked well together in the past. Sarski is having

financial cash flow issues due mainly to a prolonged bad economy; it may be

relevant to some students that Sarski’s financial issues are arising from

circumstances outside of his control, rather than because he mismanaged his

money. The homebuyers expect a well-built house to be finished within an

agreed-upon time frame; there should be, however, enough flexibility within

that contract to allow for successful digging out of the spot. Tobin may have a

difficult time finding a replacement builder if Sarski walks off the job, but

Sarski certainly could be replaced. The longer-term negative hit to Sarski’s

reputation is also a fact students should consider.

3. What are the options for resolving this dilemma? How would you rank

them?

Ranking will vary, but options include:

a. Tobin pays for the entire dig out because Sarski cannot afford it. The build

continues with Sarski and the homebuyers probably never know about the

problem.

b. Tobin refuses to pay for the dig out and forces Sarski to honor his contract

to pay for the dig out. Sarski could go bankrupt and not be able to continue

the build for Tobin, or he could walk off the job in search of work that will

be more financially viable. He could find alternative financing that allows

him to continue the build (making up for the cash flow loss).

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c. They could share the cost of the dig out and continue the build as planned.

d. They could work out some other arrangement wherein Tobin pays for the

dig out and frees up Sarski from having a cash crunch, such as Sarski

including some additional services on a different build or a discounted

service on another house.

e. Tobin could pay for the dig out and refuse to use Sarski’s services again.

4. Why is this problem an ethical dilemma?

The right thing to do in this situation is unclear, making it an ethical dilemma.

There may be some personal values that are in conflict, such as responsibility

toward a fellow business owner vs. honoring a contract. Although there is a

clear legal path, legality is not ethics. Making the right ethical decision means

considering many more angles to a particular situation than if it is simply

legal. Tobin should consider his relationship with Sarski as a valuable, on-

going source of working collaboration, potential referrals, and community

goodwill. Sarski has done good work for Tobin before and is having troubles

because of a bad economy. There is a community issue here, too, since small

business owners, their decisions, and their businesses are often conflated into

one entity in peoples’ minds! If Tobin makes a decision that works out badly

for Sarski, there may be community repercussions in terms of lost goodwill,

negative press coverage, and the like.

Case Follow-up: Martin Tobin knew he had to make a decision about the soft spot—

and fast. He called his cousin and business partner, Frank, into the office to discuss it

with him. Martin wondered if there was going to be a good solution to this problem,

and hoped Frank had some ideas! (Video vignette follows this scenario).

Extended Chapter Outline

Note: Key terms are in boldface.

Teaching tool Internet application

International application Group activity

Objective 1: Define ethics, and ethical dilemmas, and the relationship between them

1.1 Businesses often face not just a simple decisions but a set of decisions due to

ethical implications among the various choices.

1.1.1 Small businesses are more visible in their communities and the ethical

decisions they make are also more visible.

1.1.2 Everyone uses ethics to make decisions about what is right and wrong.

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1.1.3

1.2 Unfortunately these decisions often involve a number of choices where our ethical

values may conflict – an ethical dilemma.

Objective 2: Find out why ethics is a big part of small business

2.1 Ethical decision making has community impact.

2.1.1 Unethical decisions cause sales to drop off.

2.1.2 Employees will lose jobs if sales fall off enough.

2.1.3 Unemployed people do not have money to spend in the community nor do

they pay taxes.

2.1.4 State governments have additional costs in the form of unemployment

payments.

2.1.5 Customers avoid doing business with firms they consider unethical.

Teaching tool: Pull the business section from the local newspaper and find

several articles discussing the decisions a business has made. Ask what

possible negative consequences might be faced due to this decision. Have the

students speculate what alternatives the company may have considered.

Assuming that the firm made the most ethically sound decision, what might

have been the negative consequences of the other possible decisions – and

possible sources of the firms’ ethical dilemmas?

Teaching tool: Review some of the decisions or alternatives from the previous

teaching tool. What impact would these have on the community?

Teaching tool: Contact your local BBB and find out statistics for your area. If

you think it’s appropriate, tell students some of the businesses that have BBB

records and why. Debate the fairness of judging a business based on its having

a BBB record--is it right to judge a business based on someone else’s

complaint?

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2.2 Ethical decision making leads to trust.

2.2.1 Trust is integral to the firm’s survival.

2.2.2 Customer, suppliers and employees must be able to trust that they will

receive fair treatment in their dealings with the firm.

2.2.3 Often the reputation of the firm is the same as that of the owner – they are

considered one and the same.

2.2.4 While trust can be a competitive advantage (as it was for John Bauer) it

can backfire when the firm betrays this trust.

2.2.5 Communities expect personal accountability from the owners of small

businesses.

2.2.6 Even the appearance of unfairness or untrustworthiness can have negative

consequences.

2.3 The organizational culture the owner establishes goes a long way to setting the

ethical tone of the business.

2.3.1 When owners model the behaviors they expect their employees to use,

employees are likely to do so.

2.3.2 Owners must also be consistent in their decisions and their decisions

should exhibit visibility.

2.3.3 Personal values of the owner are often reflected in the ethical standards

he/she set up in their business; this is called the “spillover” effect.

Small Business Insight: How Trust Pays Off

John Bauer as achieved trust for himself and his construction firm. While other firms

have delays due to paperwork, John is able to do much on a simple handshake – and

thus is able to do more, quicker.

Small Business Insight: The Horrors of the Unsatisfied Customer

David and Veronica Sullivan of Starlit Dry Cleaners had always tried to satisfy the

customer and maintained high levels of ethical integrity, but one disgruntled customer

ruined that. In this case, the customer was clearly in the wrong and the Sullivans still

offered to pay half of the cost of the jacket. The customer took the settlement and

continued to bad mouth the Sullivans and Starlit Dry Cleaners at every opportunity.

Years later, customers still question their abilities, citing the story of a customer whose

jacket was damaged.

Teaching Tool: Solicit examples from the students of times where their trust

was lost in a business and how they responded. Would they go back again?

This also would work well as an opening exercise to the chapter.

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2.3.4

2.3.5 There are times, however, when what an owner would do personally

conflicts with what he or she thinks is best of the business.

2.3.6 Business owners suffer these dilemmas mostly with customers and

employees than with different stakeholders.

2.3.7 The more closely a business’ values correspond with the owner’s values,

the fewer ethical dilemmas will occur.

2.3.8 Consider also the personal ethics of your employees. If they make

decisions in their personal life that you disagree with, they are likely to do

so also in their business life.

2.4 The flexibility of a small business offers additional opportunity for unethical

decision making.

2.4.1 Flexibility means not having a lot of rules, policies and procedures and

allowing employees to handle multiple job responsibilities in the

company.

2.4.2 Even if the owner wanted to establish rules, there are a lot of first time

situations that they cannot anticipate until they happen.

2.4.3 This flexibility can cause employees to use their personal ethics in making

decisions – deciding in ways differently that you would prefer.

2.4.4 Modeling ethical behavior is a good way to alleviate some of these

problems.

Teaching tool: A model often used for ethical decision making shows that an

ethical decision = a person’s own ethical background + corporate culture +

opportunity. Place this on the board or on an overhead and have the students

discuss how this relates to the chapter and what they have learned about ethics.

Teaching tool: Chapter 19 on Human Resources indicates that cross training

and giving job autonomy are good procedures for small business owners to

follow, so simply trying to eliminate these possible chances for errors or crime,

isn’t really the best policy. Another example of an ethical dilemma an owner

must face!

Chapter 19 on Managing Risks, as well as other chapters, offer tools such as

separation of duties that help remedy some of the tempting situations

employees may find themselves.

Teaching Tool: Ask students to write down what they think their values are

(what they stand for, what their morals are) and what they think their current

company’s values are. (If many students do not work, a list of well known

firms may be used, assigning a name to each student. Is there a match?

Where are points of disagreement? How might any mismatch affect the way

they made decisions while at work?

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2.5 While innovation can be one of a small firm’s greatest assets, it is also an

opportunity for ethical issues and other problems.

2.5.1 Innovations can challenge the status quo and push limits as to what is

acceptable and not.

2.5.2 Successful innovations often make a small business a target for big

businesses with deeper pockets.

2.6 Small businesses are faced with a unique set of characteristics and situations that

makes small business ethical decision making a different prospect than for many

larger businesses.

Small Business Insights: The Bleeding Edge of Innovation

Carl Moore’s Rx Depot re-imported pharmaceuticals to the US from Canada, thereby

saving his customers up to 60% on many drugs. Moore’s business was on the cutting

edge of innovation, but the US Justice Department shut him down claiming that

Canadian drugs were not as safe as US ones. Technically, re-importation is against the

law, however Moore believes that charging US customers – especially senior citizens –

so much more is unethical.

Get more information about the Rx Depot story by Googling “Rx Depot.” You’ll find

many stories, including the warning letter sent to Carl Moore’s store manager Harry Lee

Jones from the FDA at http://www.fda.gov/foi/warning%5Fletters/. Discussion could

center on the government’s tactics in trying to shut Rx Depot down as well as a more

standard discussion of whether students believe it’s ethical to operate a business like Rx

Depot (re-importing).

There are other instances when doing the “right” thing may be illegal. For example,

restaurants, grocery stores and other food vendors sometime run afoul of health laws

when trying to donate food they cannot use.

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2.7

Objective 3: Understand why there aren’t any “Do this” and “Don’t do this” types

of lists for ethical decisions.

3.1 A rules list for ethical decision making would be ideal but since each situation

tends to be unique, there are no hard and fast rules. Even if there were, holding to

them would often cause more trouble than breaking them in certain situations.

3.1.1 Ethical decisions are tough for small businesses because the stakes are so

high – your reputation and the viability of the company.

3.1.2 Using the ethics planning process can help you make ethical decisions.

Included in ethics planning is the establishment of first principles.

3.1.3 The need for ethical decision making is reduced if you are only in business

to make money for the short term; if you plan to be out of business soon,

your reputation and other benefits of ethical decision making are not

nearly as important.

Small Business Insight: Treating Temps Right

Phil Jamieson runs a chili-pepper farming business in New Mexico and hires a lot of

temporary workers. Although costly in the short term, modeling ethical business

practices and holding his temporary employees to the same code of ethics as him has

created loyalty in these seasonal workers.

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Objective 4: Learn ethics planning, a three step process to help you make ethical

decisions

4.1 Ethics planning is a three step process:

4.1.1 Step one: ask the four questions.

4.1.1.1 The four questions.

4.1.1.1.1 Who will be hurt and how badly?

4.1.1.1.2 Who will benefit, and how much?

4.1.1.1.3 What do you owe others, if anything?

4.1.1.1.4 What do others owe you, if anything?

4.1.1.2 Answering these questions will help you determine what is

important and not so important in your business

4.1.1.2.1 Are the outcomes (the answers to the first two

questions) balanced or do they give clear indication that

a certain action should be or should not be taken?

4.1.1.2.2 Can you quantify these outcomes?

4.1.1.2.3 The last two questions focus on the obligations a

business has.

4.1.2 Step two: creating options for actions

4.1.2.1 There are two ways to think about solutions: integrative and

distributive.

Thoughtful Entrepreneur: Thinking Through an Ethical Dilemma

A typical small business situation is given and the student has the opportunity to apply

the four questions to see if there is a clear-cut path to take.

Like many business decisions, there is an element of ambiguity in the decision, an

ethical dilemma. Have students think of other decisions they may have made or that a

small business may make that have two equally “right” outcomes.

Teaching tool: A recent high-profile case of having a distributive vs. an

integrative view is the 2004-2005 National Hockey League labor dispute. For

the first time in American professional sports history, a professional league lost

an entire season to a labor dispute. Following a timeline of the story at

http://sports.espn.go.com/nhl/feature/featureStory?page=nhlcba could allow

students to see an almost entirely distributive view, and how costly it was for

everyone involved.

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4.1.2.2 Since community relations are important to small businesses,

integrative decisions are clearly the only choice.

4.1.2.3 This step is comprised of several sub-steps:

4.1.2.3.1 Check for obvious solutions; you may not need to

reinvent the wheel.

4.1.2.3.2 Check for creative solutions; think outside the box and

ask others – even outsiders – how they might solve the

problem.

4.1.2.3.3 Fill in the details for each option; consider costs and

eliminate those too costly.

4.1.2.3.4 Check for mismatches; which ideas go against your

personal ethics and which go against your company’s

ethics.

4.1.2.3.5 List all your remaining options.

4.1.2.3.6 Apply the integrative view; consider what is best for

everyone and how to share costs.

4.1.2.3.7 Make a new list, rank order them and choose.

4.1.2.4 No decision is perfect, but using this process can reduce the

chances of it being unethical.

4.1.3 Step three: The ethical tests:

4.1.3.1 Especially if step two leaves you with several possible options,

there are ways to decide with one is the best.

4.1.3.2 Ethics and legality are not the same; there are times when you may

want to discard legal rights in order to make the better decision

(e.g., the Focus On Small Business case).

4.1.3.3 Utilitarianism or is my solution the best thing for most people?

4.1.3.3.1 The action resulting in the greatest good for the greatest

number of people is the correct one.

4.1.3.3.2 This rule considers the long term view.

Teaching Tool: It will help students if there is a real example to “resolve.”

Check if there is a local or national story where students can apply these steps.

Some possible suggestions include some student government-administration

controversy, a controversial planned or current building project, or controversial

proposed legislation.

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4.1.3.4 Universalism or what if everybody did what I want to do?

4.1.3.4.1 This concept is key to your upbringing, religion and

education as well as companies’ codes of ethics.

4.1.3.4.2 Based on a code of what is right and what is wrong

accepted by a particular society.

4.1.3.5 Golden Rule or am I treating others the way I’d want to be

treated?

4.1.3.6 Billboard Principle or how would I feel if my decision (with my

name) was posted on a billboard in my home town?

4.1.3.7 Eliminate any that fail these tests.

4.1.4 Select the best from the remaining and do it.

4.1.5 Some help for making ethics everyday reality include:

4.1.5.1 Crafting and ethics code.

4.1.5.2 Discuss your ethical standards with all you hire or subcontract.

4.1.5.3 Use ethical lapses as learning tools.

4.1.5.4 Learn how to council ethical issues properly.

4.1.5.5 Be the role model.

4.1.6 While the chapter discusses tools, the best way is practice.

Objective 5: Learn the techniques of building social capital through legitimacy.

5.1 Ethical decision may be made because of our own personal convictions or

because we feel like it’s the best way to keep in business.

5.1.1 A key benefit of ethical behavior is to build social capital.

5.1.1.1 Businesses with high social capital are trusted, checked up on less,

treated more fairly and given the benefit of the doubt when

something bad does occur.

5.1.1.2 It acquired by treating all publics fairly and honestly

Teaching tool: Universalism is particularly difficult to use in international

settings since it is based on the codes of a particular society. Rules that seem

silly in the US – do not touch the head in Thailand; do not show the bottoms

of your feet or shoes in Arabic countries – to rules that seem horrible – jihad,

child labor, suttee, etc. – cannot be justified by US universalistic principles,

while our rules cannot be justified by their principles. This causes a number

of difficulties in international business. Try an international culture website –

for example: http://www.cyborlink.com/ (this site lists innocuous ones such

as what colors to wear) or http://www.transparency.org/ (which tackles

bribery and corruption) to promote discussion.

http://www.seagate.com/newsinfo/citizenship/work_environment/internationa

l_ethics.html is a Website that shows how an international company chooses

to deal with the ambiguities of international ethics.

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5.1.1.3 It is an asset that can be “spent” and that increases the value of

your firm (accounting goodwill).

5.2 Building legitimacy is one way of building social capital

5.2.1 Legitimacy simply means that customers and suppliers believe that the

firm is worthy of doing business with.

5.2.2 There are three general forms of legitimacy:

5.2.2.1 People-based legitimacy comes from having employees that are

well-known or well-regarded, achieving public recognition (owner

or the firm), selling brand name merchandise, belonging to trade

and business associations, professional attire like uniforms and

similar factors.

5.2.2.2 Product based legitimacy comes from having publicly stated

guarantees, super customer service, meeting or exceeding quality

standards, ISO certification, winning the Baldridge Award,

customer testimonials, trademarks, patents and other such factors.

5.2.2.3 Organizational-base legitimacy comes from being visible in the

media, operating for a long time, having “regular and normal”

hours of operation, having a dedicated phone line answered by

humans, being a corporation, partnership, or LLC and similar

factors.

5.2.3 Most business will not incorporate all 29 legitimacy factors, but should

attempt to have two or three from each category and lock them in.

5.3 Building a social network is another way of achieving legitimacy.

5.3.1 Social networking builds trust, reciprocity and long-term relationships.

5.3.2 Networking helps identify people who could be useful to the firm and to

whom you can be useful – mutuality.

5.3.3 Your reputation helps build your network and your network helps build

your reputation.

5.3.4 Knowing who to ask for help is only the first step; more important is

building the relationship or partnership with them.

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5.3.5 Social networking has ethical implications:

5.3.5.1 Ask for help, but be respectful of the time and effort you are

requesting.

5.3.5.2 Be willing to reciprocate when asked.

5.3.6 Networking also has the ethical implication of being willing to share as

much information as you request and provide social support and approval.

5.3.7 Social networking is much easier with the Internet including sites such as

Facebook.com and MySpace.com.

.

Skill Module 2.1: Asking for Help

This exercise gives a seven-step approach to asking others to help:

1. Request from people you trust.

2. Ask for specific behavior.

3. Do not be defensive.

4. Do not over- or under- react.

5. Summarize what was said for understanding.

6. Explain what you are going to do about feedback.

7. Thank the person for input.

Have students role play to practice these skills.

Skill Module 2.2: Networking Skills

This exercise provides a seven step networking procedure:

1. Know who you are.

2. Know whom you want and why.

3. Buddy-up.

4. Bone-up on small talk.

5. Do not forget why you are here.

6. Make the connection.

7. Follow-up.

Combined with the previous skill module, the student should now have the skills

necessary for social networking – or, at least, know where he/she is lacking.

Encourage an action plan to develop these skills.

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Objective 6: Learn the basic skills for handling a crisis

6.1 Sooner or later, all businesses will face a crisis; knowing what to do can be a very

specialized and emotionally demanding form of ethical decision making.

6.1.1 There is a six step procedure that can help:

6.1.1.1 Admit you’re in trouble – quickly.

6.1.1.2 Get to the scene as soon as possible. Show caring and

accountability.

6.1.1.3 Communicate facts you know (and those you don’t) to employees,

customers and suppliers.

6.1.1.4 Have one person serve as the firm’s spokesperson. It is best if it

can be the owner.

6.1.1.5 Separate crisis management from the everyday management of the

firm.

6.1.1.6 Deal with the crisis quickly. Take steps to solve the problem, and

make the process of dealing with the problem as open as possible.

Key Terms

Baldridge Award: an award given by the US government to businesses that have been

judged outstanding in seven measures of quality leadership.

Billboard principle: an ethical model which posits if the person would be comfortable

having their decision and name advertised on a billboard for the public to see.

Consistency: maintaining the same behavior, attitude or value over long periods of time.

Distributive view: an ethical overview which involves thinking of problem-solving as a

win-lose deal. Compares to the integrative view.

Ethical dilemma: a situation which occurs when a person’s values are in conflict,

making it unclear whether a decision he or she is thinking about making is the right thing

to do.

Ethics: a system of values that people use to determine whether actions are right or

wrong.

Ethics planning: a three-step process for making better, more ethical decisions.

First principles: basic ideas about what constitutes right behavior.

Flexibility: the behavior of not having lots of rules, policies and procedures.

Golden Rule: an ethical model which suggests you treat others in the manner you wish

to be treated.

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Innovation: the behavior of creating something new, or trying something for the first

time.

Integrative view: an ethical overview which involves considering what is best for

everyone involved in the situation. Compares to the distributive view.

ISO: stands for the International Standards Organization and refers to a certification for

having met a standard of quality that is consistently evaluated around the world.

Legitimacy: the belief that a firm is worthy of consideration or doing business with

because of the impressions or opinions of customers, suppliers, investors or competitors.

Modeling: when an owner acts in ways she wants her employees to act.

Mutuality: the idea of each person helping the other.

Networking: interaction with others done to build relationships useful to the business.

Obligations: the idea that people who make decisions have responsibility to act ethically

because the actions they take affect many other people.

Organizational culture: a set of shared beliefs or basic assumptions or common,

accepted ways of dealing with problems and challenges within a company that show how

things get done.

Personal accountability: a process where people take responsibility for themselves for

decisions and consequences of decisions.

Personal ethics: beliefs about what is right and wrong which guide decisions in everyday

life.

Personal values: attitudes regarding what a person believes are important in life, and the

best way to live one’s life.

Social capital: characteristics of a business like trust, consistency, and networks, which

represent potential social obligations which are an asset of the firm or entrepreneur.

Social network: the set of relations and contacts with individuals and institutions.

Trust: a feeling of fairness in all business transactions in which the firm engages, such

as financial transactions, employee matters, regulatory compliance, and complaint

resolution.

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Universalism: an ethical model which believes there is a code of right and wrong that

everyone can see and follow.

Utilitarianism: an ethical model which seeks the greatest good for the greatest number

of people.

Visibility: demonstrating a behavior, attitude or value in ways that are evident to others.

Discussion Questions NOTE: many questions allow for a number of different answers. Below are some

suggestions

1. Why is ethical action important to small businesses? Give at least three

reasons.

i. There are five key actions that small businesses take that are impacted by

ethics: community impact, trust, culture, flexibility, and innovation. Arguably,

a small business will be less successful if they do not pay attention to the

ethical nature of actions in any of those five areas.

ii. People avoid doing business with companies they perceive as unethical, so

unethical decision-making jeopardizes a small business’ very survival.

iii. Trusting the small business owner is key, because the owner and the business

are often the “same” in peoples’ eyes. If potential customers perceive the

owner as untrustworthy, that business has just lost a customer. If that happens

repeatedly the firm will not survive.

iv. Owners set the culture for their small business, and employees watch owners

to know how to act. If owners act unethically, so will their employees.

Unethical actions can cost both dollars and customers, threatening the firm’s

very survival.

v. Small businesses don’t have lots of policies and rules, so owners and

employees don’t have clear-cut guidelines for how to resolve ethical

dilemmas.

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2. How can the owner of a start-up business help promote an ethical

organizational culture?

Small business owners need to “walk the talk” of acting ethically. They are the

strongest role model for showing employees how they are expected to act

(modeling). Consistency and visibility are also cornerstones of creating an ethical

culture. Owners have to behave ethically with everyone, day in and day out

(consistency) and in front of everyone (visibility). Rewards have to match the

type of culture owners want to support, and owners have to coach employees

(guide them step-by-step) in how to act ethically sometimes. Finally, owners have

to consistently pay attention to ethics during day-to-day operation of the business.

If something unethical happens, the owner needs to point it out and coach for

change, reward or punish as is needed, and set the expectations for moving

forward. The worst thing an owner can do is ignore ethical violations.

3. Why is flexibility important to the survival of a small business? Is it all right

for ethics to be flexible in a small firm?

Small businesses survive and thrive when owners and employees are able to take

on multiple roles and responsibilities, and when they are comfortable with a fast

pace of change that doesn’t always allow for meetings or discussion of “what

next?” Small businesses are, by design, less structured and policy-driven than

larger organizations. This can be a great benefit to both owners and employees,

but can pose some challenges to knowing what the right thing to do is because

there are so few set policies and procedures. It’s especially important that the

owners model what kinds of behaviors they expect from their employees.

Employees decide how to act more often based on how the owner acts, rather than

relying on a rule or policy.

While flexibility is a necessary part of small business, ethical breaches can be a

much bigger deal in a small business because it usually has fewer resources at its

disposal than a larger firm. Unethical behavior, like stealing money or

merchandise, matters much more in a small business and can even determine

whether the company stays in business or not. Owners need to be consistent in

how they respond to ethics issues to show employees their expectations.

4. What are the three steps in ethics planning?

Step One: The Four Questions. This is a process of thinking about an ethical

dilemma and who will be impacted by actions taken. It helps you figure out what

the important facts are in the situation. They focus both on outcomes of potential

actions, as well as on obligations a business owner might have to various people.

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Step Two: Creating Options for Action. Step Two helps owners think about

maintaining relationships that are so important to small businesses. It outlines the

distributive view and the integrative view of potential actions. The distributive

view is a win-lose way of thinking about an ethical situation while the integrative

view helps show that you’re interested in what’s best for everyone involved in the

situation.

Step Three: The Ethical Tests. The ethical tests are a “big picture” way of

evaluating potential actions that give owners a different vantage point from which

to view the impact of what they’re thinking about doing to resolve an ethical

dilemma. The focus is on defensible decision-making that is visible to many

people, so owners want to make sure they can stand by their decisions.

Ethics planning gives three distinct ways of viewing ethical dilemmas and is

unique in that it provides actionable steps to undertaking thorny ethical decision-

making.

5. How does your time-orientation as an owner make a difference in ethical

decision-making?

It’s all about relationships and maintaining your place within a community. If you

have a short-term view of business, meaning, you’re in for the quick hit to make

as much money as possible and then you want to get out, then you really don’t

have to worry about ethics or maintaining relationships. If, however, an owner

wants to retain their business for a long time and actively be a part of the

community in which the firm is placed, then ethics is a critical success factor.

Making good ethical decisions as a small business owner means always

evaluating the impact on business and personal relationships, since those

relationships are the web of success for any small business.

6. What are the four questions of ethical decision-making?

The four questions are:

Who will be hurt, and how badly?

Who will benefit, and how much?

What do you owe others, if anything?

What do others owe you, if anything?

Notice that the first two questions are about impact of actions, and the last two are

about obligations to others regardless of outcomes.

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7. What are the four major ethical tests?

The four major ethical tests are:

Is my solution the best thing for the most people? This is utilitarianism and

has a strong community focus.

What if everyone did what I want to do? This is universalism and helps you

think about what standards of behavior you want to promote.

Am I treating others the way I want to be treated? This is the Golden Rule and

is rooted in reciprocity—another key success factor for small businesses.

What if my decision was advertised on a billboard? This gets at transparency

of decision-making and how defensible your decision would be to other

people if they were to find out about it.

8. What are the three general forms of legitimacy? Give two examples of ways

to build legitimacy in each general form.

The three general forms are:

People-based, where people judge your business by the people involved in it.

Product-based, where customers judge your business by the product itself.

Organization-based, where people judge your business by how they

understand your firm.

Tables 2-4, 2-5, and 2-6 provide responses for ways of building each type of

legitimacy.

9. Why is a social network important for a small business?

Remember how important relationship-building is to a small business. Social

networking is the day-to-day manifestation of trust, reciprocity, and long-term

relationships. You build your social network every day by the way you deal with

customers, suppliers, employees, etc. A social network is also about contacts,

which can be important lifeblood of new business for any small firm.

10. What are three keys to success in building your network using a social

networking website?

1. Make it easy for people to contact you.

2. Take the initiative to ask other on the network to link with you.

3. Find and link-up with network mavens – people who like to gather and share

their enormous networks.

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11. What are the six steps of handling a crisis?

The six steps are:

1. Admit you’re in trouble, quickly. It is better to say, “If there is a problem, I

will find it and fix it,” than to delay an admission until fact finding is done.

2. Get to the scene as soon as possible. Your job? Show caring and

accountability.

3. Communicate facts you know (and those you don’t) to employees,

customers and suppliers.

4. Have one person serve as the firm’s spokesperson. It is best if it can be the

owner, but an articulate employee, family member or outside professional

(e.g. lawyer) can stand in.

5. Separate crisis management from the everyday management of the firm. If

you are doing both, try and take time to do each, separately. Delegate as

much as possible of the everyday management to employees or family

while you are concentrating on dealing with the crisis.

6. Deal with the crisis quickly. Take steps to solve the problem, and make the

process of dealing with the problem as open as possible.

Experiential Exercises

1. When talking about codes of ethics, you were encouraged to do a Google

search. One of the sites that may have turned up is the Center for the Study

of Ethics in Professions at the Illinois Institute of Technology. Check out the

site’s collection of Codes of Ethics. Select one in an area that matches your

small business interests (e.g. Business, Management, Real Estate, Service,

etc.] and look at one of the codes for that area. What do you need to do to

prepare yourself to understand and follow that code when you enter your

business?

Answers will vary based on areas selected.

2. Your instructor will show you one or more several video clips of role plays

and ask you questions about what you think was going on and how you might

handle it using the idea presented in this chapter.

Please see detailed instructors manual for the videos at the end of the chapter.

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3.

4. Complete and discuss the self-assessment in the textbook.

a. For the college items 1-4, who is harmed and who benefits from these

behaviors?

When people cheat, it’s mainly a matter of being harmed. For the cheaters

themselves, they short-change themselves by not truly taking away the

learning offered to them in college, and the learning for which they are

paying! Other students are harmed, because their honest behaviors go

unnoticed and their grades may be lowered by cheaters doing better on the

exams and assignments. It is a question of time orientation-- while

cheating may benefit the cheaters themselves in the short term and in a

narrow way, in the long-term cheaters are harmed by not knowing what

others (like employers) think they know. Professors are also harmed by

cheating behaviors in that trust for the whole class declines, they have to

spend more time ferreting out cheating, and the course may even be

modified to try to eliminate cheating. An example would be removing an

outside research paper assignment from the course due to the possibility

(and past experience) of buying the paper from a web site.

b. For job items 5-24, select the three (circle their numbers) that you

consider the most severe unethical behavior. Who is harmed and who

benefits from these behaviors? Would it matter if they were in a small

business or a big company? Why?

Answers will vary widely as to harms and benefits. The discussion about

small vs. big business should focus on the five key actions of why ethics

matters most to small business: community impact, trust, culture,

flexibility, and innovation. Small businesses are affected more deeply by

ethics breaches and in fact may be threatened with going out of business

depending on the size of the problem.

Teaching tool: Instructors may want to break classes into small groups, for

more effective sharing and less threatening self-disclosure from students.

Whole-group debrief could follow questions b, d & e and application question

h. These questions are the least threatening as part of a “public” discussion and

are framed overtly in the small business context.

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c.

d. If you observed unethical behavior but didn’t report it, why not? If

you did report it, why? What was the result? Was it worth it to you to

report the behavior?

Answers will vary widely. Discussion could focus on outcomes (questions

1 and 2 of the four questions) vs. obligations (questions 3 and 4 of the four

questions). Discussion could also surface students’ values systems and

how differing values fundamentally affect ethical decision making. Some

students, for example, think reporting unethical behavior (whistle-

blowing) is ratting out a fellow employee; their loyalty is toward other

employees. Others will believe that unethical behaviors should always be

reported, regardless of potential retribution or charges of disloyalty to

fellow employees.

e. As a small business manager, you know unethical behavior can

threaten the company’s existence. If you know some of the employees

are stealing from the company, would you tell the owner? Why or

why not?

Answers will vary. Here again, values systems will come into play.

Discussion will also focus on the value of the stolen property, allowing for

a rich discussion of “how much is OK to steal?” Instructors can ask if any

student has ever stolen office supplies (like a couple of pens, or a pad of

Post-it notes) from work. Is this OK? What about eating the company’s

food without paying for it if the company is a restaurant? Where is the line

between OK and stealing? Another tack to take is how the owner models

behaviors that should be acceptable. Does the owner engage in what

employees think is questionable behaviors? If so, students should see that

it is much easier to justify employees’ stealing from the firm if they

believe the owner also behaves unethically.

f. If you were a small business owner and you caught your employee,

who is also your friend, doing any of the three behaviors you circled

in Question 2 (most severe), what would you do?

Answers will vary widely. Discussion may focus on loyalty and

obligation—what should we expect from our friends in terms of ethical

behaviors? Do we cut our friends slack when they behave unethically,

even if we stand to be harmed by it?

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Application questions:

g. What did I learn from this exercise?

Answers will vary.

h. How might I use this self-understanding in the future if I either own

my own, or manage a small business?

Hopefully students will see that personal values systems play an integral

role in how employees behave in the workplace, and that how owners

behave and model acceptable ethical dilemma resolution is equally as

powerful. Understanding one’s own values, like what’s important to

someone and what someone would be willing and unwilling to

compromise on, are critical to managing and owning small businesses.

i. As a small business owner, what can I do to prevent unethical

behaviors?

Model what you want from employees; be visible in making decisions. Be

consistent in how you respond to potentially problematic issues. Create a

culture of professionalism and respect by treating everyone associated

with the firm with respect and care. Take care of unethical behaviors

immediately, by removing the employee from the business, hiring another

vendor, etc. Acknowledge and discuss ethical issues and both tell and

show your employees how the issue was resolved.

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Student Workbook Critical Thinking Exercises

Learning Objective 1

1. Ethical dilemmas occur when there are two or more ethical principles that you

hold that conflict in a certain situation. Below are a list of some commonly held

ethical principles and some situation where they could conflict. Match the

situation with the two (or more) conflicting principles.

Ethical principle

1. Do not lie.

2. Do not cheat on an exam, homework, etc.

3. Do not steal.

4. Do not hurt/kill others.

5. Be polite and respectful.

6. Family comes first.

7. Be a good friend.

8. Obey your parents, your boss and others in power.

9. Protect yourself, your family, your country.

10. Spend your money, time, etc. wisely.

_______ a. Your parents expect you to do well in school, but economics just

doesn’t make any sense to you regardless of how hard you study.

_______ b. Someone physically threatens you.

_______ c. Your friend has a new dress – a horrible choice. She asks you how

she looks.

_______ d. Your boss wants to enter a new market. Although you agree, the

numbers just don’t look good. He asks you to suppress some of the

bad numbers in your presentation.

_______ e. Your sister calls you at work. She has just had a messy break-up

with her boyfriend and really needs to talk to you.

_______ f. A telemarketer calls and you just can’t seem to get them to leave you

alone. You know you either have to buy something or just hang up

the phone on them.

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Answer:

a. 2 and 8

b. 4 and 9

c. 1 and 5 or 7

d. 1 and 8

e. 3 and 6 (Stealing time from your employer)

f. 5 and 10

2. Using the ethical principles above or others that you can think of, identify three

other situations where there could be an ethical dilemma.

Answer:

Answers will vary. Others that often come up include “do not kill” with “serving in

the army during a war” or “police work.” “Spending your time wisely” may conflict

with “relaxing.” “Telling the truth” can conflict with “someone asks what you got

them for Christmas” or “exaggeration.”

Learning Objective 2

3. Kim was having lunch with her friends. She said, “Marla’s Flower shop is the

greatest. When I used to work for her, Marla was always fair and considerate

about overtime and hours worked. Once a supplier forgot to bill her for the rush

shipment charges and Marla immediately called to tell them their mistake.

“She always delivers exactly what’s ordered and uses the freshest flowers. When

a customer discovered she’d been overcharged once, Marla not only made it

right, but gave her a discount off her next order. She tells us to do whatever it

takes to make the customer happy.”

Kim continued, “We had one customer who was pretty particular about his orders

– telling us exactly what kind of flowers he wanted and the colors as well and

when exactly he’d like them delivered. He was my customer and I always took

care of his order, but one day, when I was swamped, Marla did it. (She always

jumps in and helps wherever she’s needed.) We were out of the ribbon he wanted

– the shipment wasn’t due until after his requested delivery time. Marla decided

to send it with a different ribbon. The next day was my day off and when the

customer came in and complained about me, she took the blame. I wasn’t even

there; she could have said it was my fault, but she didn’t.”

Marla practiced a number of things we’ve learned in this chapter. Use Kim’s

comments to show how Marla developed trust, showed personal accountability,

tried to create an ethical organizational culture, modeled ethical business

practices and showed flexibility.

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Answer:

Note: many of these overlap and may be acceptable answers in several areas.

Trust: was always fair, considerate about overtime, immediately called to

tell them their mistake, delivers exactly what’s ordered, uses the freshest.

Personal accountability: she took the blame.

Ethical organizational culture: She tells us to do whatever it takes to make

the customer happy.

Modeling: She always jumps in and helps wherever she’s needed, made it

right, gave her a discount.

Flexibility: She always jumps in and helps wherever she’s needed.

4. Randy was proud of his new veterinary clinic. He hired Regan as a part time

animal groomer and Mandy as his receptionist. He told them, “Regan, you take

care of the grooming end of the business. You set your own fees, collect them and

put them in the cash drawer and at the end of the month, we’ll settle up. When

you aren’t grooming, you can fill in as receptionist, so Mandy can have lunch.

Mandy, you’ll be making appointments for both Regan and me and will be

collecting my fees and Regan’s too, when she’s busy. We’ll just jot everything

down in this notebook – who gets what money – and figure it out later.”

Anna had just opened her photography studio and specialized in portraiture and

weddings. She put together a book of poses to show prospective clients – ones

where they could select what they liked and didn’t like. Wanting to stay on the

cutting edge in her profession, she continues to take classes on photography

techniques and frequently experimented with new ideas. She just never got

around to adding them to her selection book and would just occasionally slip one

into a customer’s order.

Randy shows a good deal of flexibility and Anna, innovation. While a good thing,

this can sometimes cause ethical issues. Name a possible ethical problem that

could occur in each case.

Answer:

While several answers are acceptable and obvious, flexibility could become a

problem for Randy due to the number of people handling money and the chances

of some disappearing or not being accounted for properly. For Anna, her

experimentation may mean customer get photos they didn’t want and other

customers may not get the opportunity to see/buy some of her innovations.

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Learning Objective 3

5. Below is list of ethical principles that a business might follow. Think of a

situation where following each might not necessarily be the right thing.

a. Follow contracts to the letter.

b. Never deviate from the customer’s order.

c. The customer is always right.

d. Treat every customer exactly the same.

Answer:

There are again a number of possible answers but here are a few suggestions.

a. Follow contracts to the letter: A supplier adds a surcharge that’s not in the

contract; you may refuse to pay, but the supplier may not do business with

you again. A customer is a day late with his/her payment; your contract

may allow you to cancel future orders, repossess the product or even sue,

but doing so will likely loss a valuable customer and may result in bad

publicity

b. Never deviate from the customer’s order: If airlines followed this, you’d

never get upgraded. If restaurants did this, you’d never get a free dessert.

If bakeries did this, you might not ever get an extra donut.

c. The customer is always right: What if a car owner requested you rotate

the tires because their car was making noises and you discovered it was

really a bad tire?

d. Treat every customer exactly the same: Many “frequent shopper”

programs are based on giving your best customers something extra.

Learning Objective 4

6. Although Janice has two small children at home, she is trying to start up a

gymnastics center. Janice’s neighbor, Hannah has three young children who

would like to participate. Janice plans to charge $15/week for a half hour lesson.

Hannah can only budget $30/week.

What personal ethical value might Janice have with Hannah’s situation? Suggest

both an integrative and a distributive solution to Janice and Hannah’s problem.

Answer:

The personal ethic involved might be something along the line of “treat all

customers equal” or “show no favorites.” If Janice chose a distributive solution,

she might suggest that Hannah send only two of her children until she could

afford the third. (Or rotate her children, two at a time.) If Janice chose an

integrative solution, she might have Hannah baby sit her children once a week in

exchange for the third lesson.

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7. Legality and ethics are not the same thing. Sometimes the “right” decision from

an ethical point of view may mean breaking a law or not exercising your right

under the law. For example, a green light gives me the right to walk out into the

crosswalk (legality), but if I see a truck running his red light, the right decision is

to NOT exercise my right to walk.

Below are some laws that you have or will run up against frequently. Think of an

example of when you might make the right decision ethically and break the law or

not exercise your rights under the law.

a. The speed limit is 55 mph.

b. The contract says that your customer must pay in 30 days.

c. The sign posted on the beach reads, “No swimming allowed.”

d. City regulations allow your store to be open seven days a week.

e. Labor laws mandate a half hour lunch break.

Answer:

While several answers may occur to you, here are some of the more typical.

a. The speed limit is 55 mph. It is generally considered acceptable to break

the speed limit in an emergency situation. Ambulances, policemen and

firemen do it most times. On the other hand, you may not choose to

exercise your right if it is icy or foggy.

b. The contract says that your customer must pay in 30 days. If your

customer is having temporary financial hardships, allowing them an

extension may create a lifelong loyal customer. Accepting a partial

payment with possible future payments may be better than legal action,

losing a customer, etc.

c. The sign posted on the beach reads, “No swimming allowed.” What if

you are an expert swimmer and you see someone drowning?

d. City regulations allow your store to be open seven days a week. Your

operation is closely affiliated with a particular religious organization

(Christian book store, kosher or halal grocery store); you may wish to be

closed on religious days.

e. Labor laws mandate a half hour lunch break. Your firm is located quite

some distance from restaurants; you may wish to allow longer. Your

employees would rather forego the break and get off early. (Be careful: in

some cases this may not be legal. Check local labor laws.)

8. Mackenzie’s goal was to make horseback riding affordable to all children. When

she looks at what less privileged families can afford to pay, she realizes that at

those prices she cannot be profitable. She could consider a sliding scale fee

based on need, but she wants to be fair to all of her clients.

Consider the four steps in question one of the ethics planning model. How would

Mackenzie answer these?

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She’s thought about the obvious solution, a sliding scale payments system based

on need, but worried that while their children are in the riding ring, parents might

compare costs. The parents paying more might become angry and leave. Can

you add a couple more creative solutions?

Answer:

a. Who will be hurt and how badly? Should she NOT offer discounted lessons, the

underprivileged children will not get an opportunity to ride. Should she offer

them and the word gets out, she may lose many paying customers and

eventually her business. Which weighs the most will be determined on how

Mackenzie values running her own business against helping underprivileged

children.

b. Who will benefit and how much? Should she offer the discounted lessons, a

number of underprivileged children will get to learn how to ride a horse. The

wealthier children could probably have other options available to them. Here

the clear winners are the underprivileged children.

c. What do you owe others, if anything? Technically, she probably owes nothing

to anybody; however, Mackenzie may feel that she owes it to these

underprivileged children to give them this opportunity. She probably feels no

obligation to the wealthier children.

d. What do others owe you, if anything? Again, there may technically be nothing,

but she may be able to convince the wealthier parents that they are contributing

to a good cause – that they “owe” it to the underprivileged children through her.

Creative solutions are unlimited, but here are several: (1) Segregate the children

at different times or different days so that parents are less likely to realize the

discrepancy. (2) Convince the wealthier parents that this is an opportunity for

them to give back to the community. (3) Set the riding school up as being only

for underprivileged children, get a non-profit status and solicit contributions for

its upkeep.

9. Matt’s etching business is still pretty small. He generates only a small amount of

waste solvents and other hazardous materials. The quantities he has to dispose of

are well below the amounts that the EPA regulates and he could legally dump

them. Apply the four ethics tests and show how each of them might convince Matt

to take precautions beyond what the law permits.

Answer:

a. Utilitarianism: If Matt dumps, it helps him; if he doesn’t dump, it helps the

community at large.

b. Universalism: A commonly accepted standard is that you don’t pollute.

c. Golden Rule: Would Matt want to have other firms dumping any hazardous

materials – regardless how small – in places where he might be exposed to

them?

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d.

e. Billboard principle: Matt probably would not want to see a billboard that

says, “Matt dumps hazardous materials.”

Learning Objective 5

10. Alex wants to open a bike shop. He would like to achieve a reputation as a

worthy place to do business (i.e., achieve legitimacy). Make suggestions of two

things he could do in each area of legitimacy.

Answer:

The more typical options for a business just starting include:

a. People Based: carry name brand products; belong to trade groups; have

several employees who wear uniforms.

b. Product Based: have publicly state guarantees, return policies, etc.; be able to

fully demonstrate the bicycle and all its components; solicit and post

testimonials from earliest customers; get as much positive PR on the bikes he

carries as possible.

c. Organization Based: Get as much PR as possible on the bike shop; work at it

full time; be open seven days a week during normal business hours; answer

the phones himself; set up as a LLC; be located in typical and usual store

space; be listed in the Yellow Pages and other directories; have an Internet

domain rather than a generic one; have professionally done graphics, signs,

business cards, advertisements, etc.; being an authorized dealer for one or

more of the bikes.

11. Mutuality occurs when two (or small) businesses help each other out. This can be

by doing business with each other or by referring customers who might use both

services. Below are several pairs of businesses. Give an example of how the pair

could exhibit mutuality.

a. A hairdresser and a photographer.

b. A print shop and a caterer.

c. A bed & breakfast and a bakery.

d. A pizza restaurant and a Laundromat.

e. An accounting firm and a dentist.

Answer:

There could be several answers, but here are some suggestions:

a. A hairdresser and a photographer: the hairdresser could display photos in

her shop advertising the photographer and the photographer could take

photos of attractive haircuts for the hairdresser to use in advertising.

b. A print shop and a caterer: the print shop could trade brochures for the

caterer and the caterer could recommend invitations from the print shop.

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c. A bed & breakfast and a bakery: the bakery could give discounted or free

pastries to the B&B for breakfast in exchange for being able to sell some

of their goods in the B&B for visitors to take home.

d. A pizza restaurant and a Laundromat: The Laundromat could trade free

cleaning for the pizza restaurant uniforms for the pizza restaurant agreeing

to offer free delivery to customer doing laundry.

e. An accounting firm and a dentist: The accounting firm could do the books

for the dentist in exchange for discounted dental care for their personnel.

Learning Objective 6

12. It was Nicholas’s worst nightmare. The health inspector found a several

violations at his upscale restaurant and closed it down until they were resolved.

Nicholas rushed to the restaurant as soon as he got the call and was met by a

number of reporters. He explained that there was a problem and that he was

taking immediate steps to discover the source and resolve it. He found out that

one of his employees did not have the certification he claimed and therefore

violated a number of restaurant health rules. The following day, Nicholas met

with reporters, food critics and health department officials and responded to their

questions about how the problem had occurred and how he was making sure it

would not happen again. All employees who answered the phone were given

strict instructions on what to tell customers who called.

Using the steps in crisis management critique Nicholas’s performance.

Answer:

a. Admit you’re in trouble – Nicholas did this (met with reporters).

b. Get to the scene as soon as possible – Nicholas did this (rushed as soon as he

got the call).

c. Communicate facts you know – Nicholas did this (meeting with reporters

immediately and with a number of people the following day).

d. Have one person serve as the firm’s spokesperson – While Nicholas was the

official spokesperson, he did allow others to answer the phone and be his

spokesperson. This may be to allow him to handle other responsibilities. He

did carefully script what employees would say.

e. Separate crisis management from everyday management – difficult to tell in

this example.

f. Deal with the crisis quickly – Nicholas did this (he had a plan the following

day).

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Mini-Case: The Gift

As a new employee of CDI Electronics, you have just received an expensive watch from

a supplier. Your initial reaction is to return it as it in against company policy. It seems

that all other employees have received them as well except for the CEO, and a colleague

explains that this happens annually and the supplier does not get preferential treatment.

Evidently the CEO does not know what is going on and if you bring this to his attention

you might get others in trouble.

Mini-Case Questions

1. What is the important decision you’re faced with, and why is it an ethical

dilemma?

The decision is whether or not to return this expensive holiday gift to the

vendor who provided them to the entire small business, CDI. You’re a new

manager in a small firm and you’ve received an expensive holiday gift from a

vendor. The dilemma is that although receiving this gift clearly violates

policies you have encountered in other companies in which you’ve worked,

there is no clear policy on these types of gifts in CDI. This is very common in

small businesses. Although small gifts from vendors to buyers can in fact

signal goodwill, this gift is expensive enough to raise questions about possible

preferential treatment of the vendor. Co-workers enjoy these annual gifts very

much and assure you there is no preferential treatment given or expected. In

addition, the owner of the firm is probably unaware of employees getting such

gifts each year, and no one is sure how he might react if he found out.

Employees like these gifts so as a new manager, you don’t want to alienate

and anger your employees, but you can’t be sure that they are in fact not

giving the vendor special treatment. And, you don’t want to alienate or anger

the vendor either, since you’ve had a good business relationship with that firm

for some time.

Teaching tool: Have students read the case before class, and generate answers

to the Case Discussion Questions as homework to bring to class. After

introducing the case, and perhaps reading it aloud, break students into small

groups to discuss their individual answers, and come up with a group

“composite” list of answers. Suggested small group time: 20 minutes. Re-

convene the whole class and discuss each group’s responses to the questions.

Additionally, the instructor should probe for the differences students perceived

between their individual decisions and those of the group. A response gap

analysis helps reveal where students might not be spending enough time in their

thinking about ethical decisions.

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2. Is this a situation that matters in the short-term or the long-term? Why?

Both are relevant. In the short-term, employees and the vendor may resent you

if you return the watch but you will relieve your feelings of discomfort with

accepting the gift. If you keep the gift, you may struggle with feeling

unethical and model behavior you think is unacceptable to your employees.

Longer-term, how you behave in this probably first ethical dilemma in your

new job will set the tone for how employees will behave in the future. While it

may seem like an isolated event—receiving a holiday gift—the modeling

implications for you as a manager are long lasting. And, you have to consider

how Joe, the owner, might react if he found out you had kept the gift. You

don’t know how Joe feels about it, so the long-term risk is having Joe come

back to you and be angered by your decision.

3. What does a Four Questions analysis tell you?

Who will be hurt and how much?

If you keep the gift, you may be hurt if Joe finds out and does not approve of

this kind of gift-giving. He may be so upset you might lose your job, along

with others in the company for having accepted such gifts. If you return the

gift, your employees will be upset and potentially so will the vendor. If you

ask Joe about it, you’re taking a chance by not knowing his response. He may

think it’s nothing, or, he may think it’s a big enough deal where people,

including you, get fired.

Who benefits and how much?

If you keep the gift, everyone gains a nice watch and the vendor, perhaps,

gains increased goodwill (and potentially better treatment) within CDI. If you

return the gift, you benefit from relieving your own doubts about accepting a

gift that you perceive to be inappropriate. Longer-term, CDI might benefit

from being perceived as a more ethical company to do business with. If you

ask Joe about it, you may benefit from his appreciating your honesty and that

appreciation could take many forms.

What do you owe others?

Perhaps you owe the vendor a discussion about how uncomfortable you are

about these gifts and that it may be better in the future to “downsize” them.

You owe your employees a meeting in which to discuss this issue; again, it is

a “setting the tone” experience for you as a new manager. Getting input from

your employees promotes an open atmosphere and helps them understand

your decision-making, even if they don’t agree with you. You also owe Joe a

discussion about this issue, to get his opinion and help him understand the

potential dilemma CDI could continue to face with this vendor.

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What do others owe you?

Perhaps the vendor owes you an option of what type of gift to send each year.

Dilemmas over expensive gifts are not new; the vendor should realize the issue

these gifts could make.

Although student responses will vary, it appears that a four questions analysis

points to a plan of action that involves discussions with everyone involved:

employees, Joe and the vendor. Transparency of action (the billboard principle)

seems important here.

4. The case tells you some of the obvious solutions or courses of action.

What are some of the creative solutions you can come up with?

Accept the gifts this year but invite the vendor to brainstorm less expensive

but still valued options for the future. Invite the vendor to send one large,

“everyone can use it” gift such as a catered lunch one day. Invite employees

and vendors to a social gathering event in lieu of gifts as a new policy.

5. Using Figure 2.2, recommend your “best” ethical course of action, and see

if it passes any or all of the four ethical tests. What do the four tests tell

you about your possible decision?

A key consideration from Figure 2-2 is the mismatch between personal ethics

and decision options. It appears that simply keeping the gift without some

other sort of action is unacceptable to you as a new manager at CDI. And,

since CDI doesn’t have a policy on this issue and we don’t know how Joe

feels about it, we cannot evaluate the mismatches between options and

company/Joe’s ethics. The next part of Figure 2-2, using the integrative view,

offers the best ways to resolve this dilemma. By involving the vendor, the

employees and Joe you can create a collaborative solution that most everyone

buys into and promotes transparency of actions.

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Applying the four ethical tests, the best thing for everyone involved (test #1,

utilitarianism) in both the short and long term is perhaps keeping the gift this

year but certainly creating an alternative for coming years. Keeping Joe

informed is also the best thing for everyone, since he is integrally involved in

setting the ethical norms for CDI. If everyone did what you want to do (test

#2, universalism), then keeping the gift would be less defensible since most

larger companies have recognized this potential conflict of interest and have

policies in place limiting or eliminating vendor gift-giving. Using test #2,

you’d probably be able to argue for returning the watches and setting limits or

eliminating gifts in the future, to help ensure fairness. Using test #3, the

Golden Rule, reciprocity becomes critical. You have to ask yourself what the

probable quid pro quo is from the vendor giving you an expensive gift like

that. Would other vendors be happy about your accepting the gift from this

particular vendor? Would they be worried about special treatment? What if

you had to give the vendor a gift in return to cultivate that relationship if, for

example, there were only one vendor from which to buy a product vital to

your company? Using the Golden Rule, you’ll probably conclude that

returning this gift is the right thing to do. Test #4, the billboard principle, asks

you to consider how you would feel if your decision to keep the watches were

advertised on a billboard. Would you feel OK about everyone knowing?

Would you feel defensive and feel the need to explain how this vendor

receives and expects no special treatment in exchange for sending these

annual gifts? Using test #4, the decision to keep the watches becomes less

defensible.

6. Defend the course of action you’ve decided to take to a small group of

your classmates.

Answers will vary.

Whole group discussion questions:

1. How did your individual answers differ from your group’s answers?

Were your answers generally the ones the group decided to adopt? Why

or why not?

Something to consider students think about is, how hard were you willing to

push for your course of action to be taken by the group? Why is this? If it was

very important for you to have your decisions accepted by the group, you may

want to delve a little deeper into your comfort level with considering other

peoples’ answers when they may not agree with your own. Ask students if

they can enunciate the values that are coming into play with their decisions

and those of their group members.

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2. Did your group members help you think about aspects of the decision you

didn’t think of yourself? How might you change your ethical decision-

making process because of what your group said?

Answers will vary, but discussion should lead somewhere around differing

values systems and where those might have come from. Religious tradition?

Family norms? Prior work experiences? One of the Big Five traits is openness

to experience, which along with relatively high tolerance for ambiguity and

internal locus of control have been shown to positively correlate with

successful managers. Students should talk about how open they were to

accepting another group member’s course of action. If potential courses of

action are very different than a student’s values system would “allow” a good

discussion about conformity in hiring in a small business might work. Ask

students if an owner specifically should hire people with similar values

systems. Discussion closure would entail telling students about the

effectiveness—efficiency relationship in group decision-making. An

interesting discussion also might come from having students talk about having

a “work self” and a “non-work self” where differing norms and acceptable

behaviors come into play. How willing were students to accept solutions they

had not considered? How did group process, such as the tendency toward

conformity in a group, come into play? Depending on the class, any of these

discussion points could be fruitful.

Additional Activities

1. Fast Company magazine has a number of interesting articles on social capital

and firms who have achieved recognition in this area. See

www.fastcompany.com/social for more information.

2. Ethical dilemmas, potentially unethical solution and small business often

come together during times of disaster – flood, snowstorms, hurricanes, etc.

An article in the Los Angeles Time (September 8, 2005) entitled “Chasing the

Storms and the Bucks” illustrates this situation in the wake of Hurricane

Katrina. Articles are archived at www.latimes.com.

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End of Book Case

G & R Garden Center: Lawn Care Services Division

Overview:

One of the goals of this exercise is to ensure that students realize the impact that a

business and its policies and practices can have on employees, customers, the

environment and the community at large.

Another goal is to provide a forum for students to discuss and consider ethics and social

responsibility and the trade-off with and between the profit motive, the company mission

statement and personal values. Where exactly does a person or a business “draw the

line?” At what point should a person or a business sacrifice profit for what is “right?”

You are encouraged to engage students in this debate. Invariably, two sides will quickly

come to exist within the group. Each group should be prepared to argue their point and to

consider the other point of view.

Actual Results

The owner got out! While the division was very profitable, the owner chose to give up

the money for peace of mind and a good night’s sleep.

Other Options

Beyond the main focus of ethics and social responsibility -vs. - profits, the case is full of

clues that will lead the astute business management student to seek other ways to improve

operations and profits. This list includes but is not limited to:

Industrial and/or governmental market options

Promotional campaigns to establish product differentiation and higher pricing

Contractor sales

The establishment of an outside sales associate or two

Sub-contractor services (pesticide and fungicide applications?)

Seasonal/Off-season product ideas

There is no obvious “right answer” to this case. While some business situations and

decisions are “black and white”, others fall into that “gray” area. There is a clear

distinction however between ethical and legal decisions.

Students must develop their own unique business policy and philosophy. It is important

to make money. It is also important to feel good about the person in the mirror.

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Ethics Role Play Scenarios - Video

MHHE DVD/Video Assignments Small Business Ethics: (1) Dry Cleaning (2) Construction

Summary:

This video focuses on how franchising can be a viable option for many entrepreneurs.

Diana had always wanted to be her own boss. After carefully looking around, she decided

that purchasing a franchise would be the best option for her and her family at the time.

She considered the benefit of having a “ready-made” business to be a huge support. The

franchise only cost $300,000 upfront. To obtain the business loan she would need, she

decided to mortgage her house. For her money, Diana received everything she needed to

start her own business.

Rieva Lesonsky, editor of Entrepreneur Magazine, says that if you want it badly enough

and you work hard enough, a franchise can be a good option for many entrepreneurs.

About 85% of franchisees are in existence after the first five years. That is a huge success

rate compared to other types of entrepreneurships. When deciding which franchise to

purchase, name recognition matters. The top five franchises of 2005 all have names that

are easily recognized, making them safer investments. It is also easier to get funding for

a proven product like a well-known franchise. The top five franchises include: UPS store,

Jackson Hewitt, Quizno's, Curves, and Subway. All are well known names and have good

reputations. A franchise helps set-up the entrepreneur’s business. For instance, Quizno’s

instructs the entrepreneur on everything from where to put the new store, to what types of

ovens to buy, to which food supplier to use. The rate of success drastically increases with

a franchise.

Discussion Questions:

1. Why is franchising considered an imitation strategy for a small business?

2. Using SWOT analysis, describe the potential strengths and weaknesses of a

successful franchise.

3. Give examples of hotel or restaurant franchises that use strategies of

differentiation, cost and focus.

Discussion Question Answers:

1. Why is franchising considered an imitation strategy for a small business?

The imitation strategy is one in which the entrepreneur does basically what others are

already doing. A franchise uses the same methods, systems, and protocol for each new

business they set up. All franchisees imitate the franchise plan.

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2. Using SWOT analysis, describe the potential strengths and weaknesses of a

successful franchise.

A strength is a characteristic that gives the business an advantage. For a franchise these

include name recognition, a proven operation system, and a strong success rate. A

weakness is a characteristic that gives the business a disadvantage. For a franchise this

may be a “cookie cutter” look and feel, the inability to adapt easily, or the ability for

competitors to readily imitate.

3. Give examples of hotel or restaurant franchises that use strategies of

differentiation, cost and focus.

A differentiation strategy clarifies how one product or business is unlike another in a

mass market. This is usually not a franchise. Students may have a hard time finding an

answer, or may list a regional franchise. Some upscale franchises may use a

differentiation strategy with their competitors.

A cost strategy is when a business focuses on cost benefits for customers. Any fast food

restaurant classifies as this type, while examples in the hotel industry may include Budget

Inn, Hampton Inn, Red Roof Inn, etc.

A focus strategy allows an organization to focus on a specific segment or niche in the

market. A niche the students may think about is family. Any restaurant that has a “play

land” like McDonald’s or Burger King is focusing on this niche. Hotels like Howard

Johnson and Holiday Inn where kids can stay free is also focusing on this niche.

Environmental Responsibility at New Belgium Brewery (8:15-9:00- ethics)

Summary:

Founded by a social worker and an electrical engineer, it is no surprise that New Belgium

Brewery has always found ways to operate efficiently and in a socially responsible

manner. Embracing new technologies, seeking out alternative forms of energy, and

reducing its waste, New Belgium strives to make smart decisions that do well by the

environment each and every day. In the past, taking environmental issues to heart was

considered contradictory to good business. You either helped business and killed the

environment, or helped the environment, but killed business. New Belgium has shown

that companies can be environmentally conscious and operate efficiently and effectively

as a long-term profit-seeking business.

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Jeff, one of the founders and an electrical engineer, thinks outside the box about what

kinds of beers to make, how the company runs (including its unconventional upstart), and

how the beer is actually produced. This alternative thinking about the operations aspect of

the business is what allows Jeff and the rest of the firm to have an environmentally

friendly perspective. The company realizes that as a manufacturing firm, it operates as a

waste stream. This also contributes to the setup of operations and the management of

waste and focus on efficiency—which is good for the environment and for business.

At New Belgium, many new, innovative, and environmentally friendly techniques are

used in the beer-brewing process. The firm reduces the amount of resources that it uses,

limiting the initial flow coming into the firm. It also places an emphasis on being highly

energy-efficient. The firm also reuses resources, and, lastly, it recycles what it can.

Turning lights on and off automatically is a simple but very effective way to reduce

energy consumption on a daily basis at New Belgium. This required an up-front

investment in technology, but promises long-term cost-savings and is true to the

environmental ethic the company embraces. This is just one small example of how New

Belgium embraces technology to use energy efficiently or recapture it. Methane

recaptured from the brewery’s waste actually provides enough energy to fuel the brewery

for 5 hours each day.

The company’s workers are also its owners. Therefore, when a decision to reduce carbon

emissions was on the table, the entire firm was involved. A study revealed that the largest

emissions came from the company’s source of fuel—from a coal plant at the time. The

company voted unanimously to contract 100% of its energy from a wind farm nearby,

which accomplished the environmental goal of reducing emissions and also allowed the

wind plants to continue in operation. Not only did the firm vote to do this, they voted to

dip into their bonus pool in order to finance the deal. This is all part of the socially

responsible component of New Belgium’s mission. The firm even has a philanthropy

committee which demonstrates the firm’s proactive stance (rather than reactive) toward

social responsibility.

Discussion Questions:

1. How is New Belgium’s approach to social responsibility revolutionary? How

does it contradict what you may have previously thought about social

responsibility and effective business decision-making?

2. Who are New Belgium’s stakeholders? Give a few examples and explain the

relationship between the stakeholders and the company, based on what you

learned from the video.

3. What type of strategy does New Belgium use for managing its stakeholders? Use

the example of environmental responsibility and the larger community as the

stakeholder.

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Discussion Question Answers:

1. How is New Belgium’s approach to social responsibility revolutionary? How

does it contradict what you may have previously thought about social

responsibility and effective business decision-making?

New Belgium is a company that believes that it can be environmentally conscious

as well as being a profit-seeking business. This is contradictory to the previously

viewed notions about social responsibility. The concept of social responsibility

was considered to be bad for business, as a company either did financial well and

destroyed the environment or was environmental friendly and destroyed the

business. New Belgium’s approach to social responsibility has been a great

example for other companies.

2. Who are New Belgium’s stakeholders? Give a few examples and explain the

relationship between the stakeholders and the company, based on what you

learned from the video.

New Belgium’s stakeholders include their employees, the community, and

suppliers. New Belgium allows all of their employees that have been with the

company for over two years to have a vote on decisions affecting the company. In

addition, the company has made significant efforts to improve the community by

being environmentally conscious. New Belgium pays close attention to all of their

stakeholders as they try to be profitable and environmentally conscious at the

same time.

3. What type of strategy does New Belgium use for managing its stakeholders? Use

the example of environmental responsibility and the larger community as the

stakeholder.

New Belgium’s strategy for managing its stakeholders is relatively simple. The

company keeps its stakeholders constantly informed and involved in the decision

making process. For example, the company’s research discovered that the largest

percentage of their carbon-dioxide emissions was from the coal fuel power plant

that supplies their fuel. The company unanimously voted to get their energy from

a wind farm nearby, which reduced the carbon-dioxide emissions. Another benefit

from their decision was the fact that the wind plants were able to continue in

operation because of their usage. The community’s environment is being

sustained for future generations by actions such as this by the company.

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Additional Materials

Please see the textbook Website (www.mhhe.com/katzesb) for the latest instructional

materials and “JFF’s” (Just for Fun’s) that can be used with this chapter.

Available on Primis

It May Be Legal, But It's Just Wrong!

Odwalla, Inc., and the E. Coli Outbreak (A)

Heidi Roizen

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eClips Videos

eClips #1: Clip Title: Malia Mills Shares Thoughts on Business Ethics and Favors

Summary: Malia Mills explains the importance of ethical practices in business.

Interview/Lecture Intro: Malia Mills is head of her own company, Malia Mills. While

the company focuses on swimwear design, it bills itself as a beauty company and the

company's mission is "to produce collections of items which inspire women to look in the

mirror and see what is right instead of what is wrong."

In 1993, Mills won the Vidal Sassoon Excellence in New Design award for her innovative

designs. Prior to starting her own business, Malia Mills worked as an assistant designer

for Jessica McClintock, Inc.

Malia Mills is a graduate of Cornell University.

Transcript: There aren't any specific rules except that we definitely, as sort fields and

flowers as it sounds, we really believe in karma. You've got to do the right thing from an

emotionally standpoint. more than a business standpoint, every single day. We to be very

proud of the work that we do and we want people to recognize that it will be difficult and

there will be challenges and there will be disagreements and people won't necessarily like

the decisions that we make, but ultimately if we can sleep well at night, that is the best

decision of all. And it's hard, cause you've got bills to pay, and you do have people that

are screaming you owed me money 60 days ago, and I need it now. But you can't turn

around and sell right next door to Bloomingdale's another store and sell them the same

goods for 75 percent off because you need cash right away. That's just wrong. Tempting

you know, when you get desperate, they're lots of things that are very tempting out there.

But you have to really ask yourself, why are you doing this? Are you going to be happy

tomorrow? Business is an emotional thing. For me, it's a very emotional thing. I know

there are thousands ways, as I said, to get into business, and sometimes it's strictly as a

money making operation. Sometimes you don't care if you are making widgets or wool

socks, you just want to be making product that is making money. But for me, it was very,

every day is a very emotional day. The hard part also is, when you first start out you have

a lot favors from people. People do really want help you. It's important to recognize that

you have a choice everyday, just because someone offering help, doesn't mean it's the

best help, it doesn't mean it's the right answer. You have to really learn to, I had to really

learn to process that and say I am grateful for everything you've done but it's not what I

need right now. I need something else.

Class Question:

1. Why are ethics especially important for an entrepreneur?

Answer: The small business owner is the face of the business, and therefore must take

greater ownership of the ethical duties and responsibilities.

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Other Videos From Same Firm/Entrepreneur Used is ESB2

Malia Mills Discusses Early Days of Company and Balancing Two Jobs (Chapter

5)

Malia Mills Discusses Importance of Creating a Budget, Monitoring Inventory

and Cash Flow (Chapter 17)

Other Videos From Same Firm/Entrepreneur on eclips

Malia Mills Discusses Background of Swimwear Company

Malia Mills States Personal Goal Was Never To Be an Entrepreneur

Malia Mills Shares Thoughts on First Business Plan and Importance of Funding

Malia Mills States Mission of Company Is To Promote Self Esteem

Malia Mills Discusses Importance of Understanding Industry Specifics When Building

Startup

Malia Mills Discusses Starting Business as Sole Proprietor

Malia Mills States Importance of Creating a Flexible Foundation When Starting a

Business

Malia Mills Discusses Definition of Sweat Equity

Malia Mills States Spending on Overhead is Often Important

Malia Mills Discusses Finding Balance Between Work and Personal Life

Malia Mills Shares Thoughts on Funding and Partnering with Investors

Malia Mills States Apparel is an Emotional Business

Malia Mills Shares Importance of Managing Expectations of New Employees

Malia Mills Discusses Partnerships

Malia Mills Shares Realities of Running a Business and Lack of Time for Designing

Malia Mills Discusses Challenges From Growing a Business and Delegation

Malia Mills Shares Challenge of Being Small and Gaining Confidence From Retail

Establishments

Malia Mills Discusses Missing Orders

Malia Mills Discusses Sourcing Fabric and Production

Malia Mills Discusses Challenge of Company's Current Size With Regards to Fabric

Minimums

Malia Mills Shares Thoughts on the Wholesale Cycle

Malia Mills Discusses Challenges of Opening Retail Stores

Malia Mills States Importance of Having Cash Reserves

Malia Mills States Pros and Cons of Operating Retail Stores

Malia Mills Discusses Domestic and International Sourcing for Production

Malia Mills Discusses Decision to Add Lingerie Product Line

Malia Mills Shares Thoughts on Positioning Company as a Beauty Company

Malia Mills Discusses Intellectual Property, Trademarks and Non-Compete Issues

Malia Mills Shares Thoughts on Licensing Personal Name

Malia Mills Discusses Generating Income From Licensing Agreements

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Malia Mills Shares Thoughts on Copyrighting Product Designs

Malia Mills Shares Thoughts on Intellectual Property Battles in Apparel Industry

Malia Mills Discusses Fabric Development and Use

Malia Mills States Importance of Documenting Vendor Agreements

Malia Mills Shares Challenge of Managing Money as a Small Business Owner

Malia Mills Discusses Creating Separate Accounts to Manage Money More Effectively

Malia Mills Shares Experiences From Growing Business Too Quickly

Malia Mills Discusses Importance of Understanding Personnel Needs of the Business

Malia Mills Discusses Scaling Back and Focusing on Basics

Malia Mills Discusses Decision Not To Solicit Wholesale Accounts

Malia Mills Shares Experience From Undergraduate Education

Malia Mills Discusses Personal Experience in Europe and at First Design Job

Malia Mills Shares Thoughts on Using Internet

Malia Mills Discusses Integration of Internet and Personal Contact

Malia Mills Shares Decision to Use Personal Contact as Competitive Advantage

Malia Mills Discusses Defining the Target Customer

Malia Mills Shares Thoughts on Return Policies

eClips #2: Clip Title: Erika Fowler-Decatur Share Ethical Challenge of Selling Certified

Fair Trade Chocolate

Summary: Erika Fowler-Decatur explains her personal challenge to live up to personal

ethics when buying certain products.

Interview/Lecture Intro: Erika Fowler is the founder of Ithaca Fine Chocolates based in

Ithaca, New York. One of the most popular items produced by the company is the Art

Bar. Art Bars are organic, Fair Trade chocolate bars that feature an art reproduction by a

regional adult artist or an international child artist on a collectible card inside the

wrapper. Ten percent of profits from sales are donated to the Kaleidoscope outreach

program of the Community School of Music & Arts in Ithaca, NY, and to the

International Child Art Foundation in Washington, DC. Ithaca Fine Chocolates aims to

promote artists and support art education by bringing together the luxuries of fine art and

exquisite chocolate for inspired enjoyment.

A former museum director and art history instructor, Fowler intended to start an art

gallery in Ithaca. That plan evolved into Art Bars while she was contemplating how to

provide artists with broader exposure.

Fowler received an undergraduate degree from Hamilton College and her Masters degree

from the State University of New York at Binghamton.

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Transcript: They actually said to him you know you can't do this but in the meantime

the damage is sort of done because people now have already branded this whole line of

chocolate as fair trade. And for example, we have a really knowledgeable retailer in

Cambridge called Cambridge Naturals. And people go to that store, I've seen them in

action, because we did a demonstration there and gave out some chocolate and talked to

people about Art Bars. People walk in there and they can ask the staff members what can

you tell me about this herb and they are very knowledgeable about it and these people

come in and they trust what the retailers there have to say, the staffers have to say. And

they were under the impression that this chocolate bar was all fair trade. And they're

telling the people that come to them you can feel good about buying this because it's all

fair trade. And it's not. It got to the point where my husband sort of surreptitiously, I

guess, emailed under our personal email this company and said so what's the deal, are

you fair trade or not? And the email back was here's our link at Trans Fair USA. And

Trans Fair USA is the certifying agency for fair trade so Michael, my husband hits the

link and it leads him to Trans Fair where this company is listed as a fair trade licensee. So

it's very deceptive and the fact that the implication is yup, we're fair trade. But what he's

done is done sort of the right thing and let it fall through on everything else so I found

that really frustrating and that I'm thinking you're getting all the credit for being fair

trade. People are starting to buy your bars because they're fair trade but really they should

be buying Art Bars because they're all fair trade. And you know, I hadn't even thought of

it until this one student came in and said here's a hard question, do you really need all

these bars to be fair trade? Maybe you could find some margin there. That's what these

other companies ... there's also a company out of the UK that is doing the same thing.

They actually had several fair trade bars and they pulled out on all of them except one. So

now people are still buying the same bars assuming they're still fair trade but they're not.

That's really frustrating. So the fact that the fair trade label is obviously off the packaging

doesn't have the kind of impact that the fair trade people think- M: brand identity. R:

Because of the brand identity. It just and people ... you know you're so busy and you want

a chocolate bar, you go to the grocery store and you go grab it. You're not researching,

looking every time to see is that logo still there? You wouldn't think to do that. It

wouldn't cross your mind. And so what's happening and these people are riding on this

wave of fair trade and people are only too glad to buy these bars and the ride the wave

with them because people want to feel good about enjoying a chocolate bar and not

feeling guilty about it because they know that they're not sending some poor child into

forced labor or something. So that's been really frustrating. But at the same time it's not

so much an option because I just don't ... we couldn't go forward with Art Bars and cut

some of the fair trade lines because that just isn't what it's about. So yeah, I guess that

really tests us in terms of keeping your values out there when you can see that other

people are very successfully not doing that and going forward with their own missions.

But you gotta hope in the end that was goes around comes around or something. I don't

know. We just have to go with it. And we still... we have to find a solution to cut these

costs but it's not gonna be to cut out, you know, organic or fair trade or any of the other

things that we think the bar is all about.

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Class Question:

1. How does Ms. Fowler incorporate the Four Questions into her decision to sell fair-

trade chocolate?

Answer: She recognizes that children will be hurt by labor standards, and that she can

benefit by selling fair traded goods, both economically and morally. She believes that she

owes others honesty and integrity when selling her chocolate, and that competitors owe

her the same.

2. How is Ms. Fowler true to her personal ethics?

Answer: She has distinct ideas as to what is right and wrong, and expands these ethical

ideas to her business practices.

Other Videos From Same Firm/Entrepreneur Used in ESB2:

None

Other Videos From Same Firm/Entrepreneur on eClips:

Erika Fowler-Decatur Shares Educational and Professional Background

Erika Fowler-Decatur Discusses Experience in Not For Profit Sector and Decision to

Settle in Ithaca

Erika Fowler-Decatur Explains How Business Idea Started As An Art Gallery and

Became Art Bars

Erika Fowler-Decatur Explains The Idea of Tying Fine Art to Fine Chocolate

Erika Fowler-Decatur Discusses Decision to Outsource Chocolate Production

Erika Fowler-Decatur Discusses Negotiating Vendor Relationships with Swiss

Chocolatiers

Erika Fowler-Decatur Discusses Similar Social Vision Between Art Bars and

Chocolatier Vendor

Erika Fowler-Decatur Shares Mission of Ithaca Fine Chocolates

Erika Fowler-Decatur Shares Process Behind Recruiting Initial Artists for Art Bars

Erika Fowler-Decatur States Company Was First in US to Sell Fair Trade Chocolate

Erika Fowler-Decatur Discusses Mission Of Fair Trade and Art Education Through Art

Bar Product

Erika Fowler-Decatur Shares Story of Overnight Growth From Local to National

Distribution Due to Fair Trade

Erika Fowler-Decatur States Change in Launch Timing From August to November

Was Beneficial

Erika Fowler-Decatur Shares Example of How Word of Mouth Helped Grow the

Business

Erika Fowler-Decatur Discusses Establishing a Gallery and Coordinating the Product

Launch

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Erika Fowler-Decatur Shares Challenges of Finding Appropriate Gallery Locations

Erika Fowler-Decatur Shares Importance of Sharing Social Mission With Customers

First Hand

Erika Fowler-Decatur Shares Personal Thrill When Public Understands Company's

Work and Mission

Erika Fowler-Decatur Shares Surprise At Growing Number of Business Students

Interested in Social Responsibility

Erika Fowler-Decatur Discusses Pitching Idea to Artists And Challenge of Translating

Art to Small Size

Erika Fowler-Decatur Discusses Challenge of Matching Art Bar Packaging With

Overall Social Mission

Erika Fowler-Decatur Shares Support Found From Local Retailers

Erika Fowler-Decatur Shares Example of Vendor Advocating Art Bars Based on Belief

in Social Mission of Company

Erika Fowler-Decatur Shares Example of Children Demanding Fair Trade Chocolate

Erika Fowler-Decatur Discusses Importance of Explaining Social Importance of

Product

Erika Fowler-Decatur Discusses Struggle With Profit Margins and Competition

Erika Fowler-Decatur States Social and Moral Values Have Costs

Erika Fowler-Decatur States Importance of Social Responsibility From a Longer-Term

Perspective

Erika Fowler-Decatur Shares Thoughts on Success

Erika Fowler-Decatur Shares Example of How Art Bars Helped Local Artist Sell Work

Erika Fowler-Decatur Discusses Use of Children's Art in Art Bar Packaging

Erika Fowler-Decatur Discusses Handling Negative Feedback

Erika Fowler-Decatur Shares Thoughts on Handling Doubt and Criticism

Erika Fowler-Decatur Discusses Dealing with Competition and Disappointment

Erika Fowler-Decatur States Company Values Are Competitive Benefit

Erika Fowler-Decatur States Personal Sense of Responsibility To Vendors, Retailers

and Consumers

Erika Fowler-Decatur States New Entrepreneurs Should To Stick Their Values

Erika Fowler-Decatur Shares Thoughts on Role of Business in Society

Erika Fowler-Decatur States Importance of Being Stubborn And Surrounding Yourself

With Smart People

Erika Fowler-Decatur Shares Thoughts on Being a Female Entrepreneur

Erika Fowler-Decatur Discusses Cash Flow

Erika Fowler-Decatur Discusses Developing Fair Trade Market Knowledge

Erika Fowler-Decatur Shares Personal Professional Experience in Not For Profit

Sector

Erika Fowler-Decatur Shares Thoughts on Socially Responsible Business

Erika Fowler-Decatur Shares Aspirations For Business

Erika Fowler-Decatur Shares Thoughts on Social Responsibilities as an Entrepreneur

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Erika Fowler-Decatur States Students Today Have More Options To Take Courses on

Social Responsibility

Erika Fowler-Decatur Outlines Locations in Which Art Bars Are Sold

Erika Fowler-Decatur Discusses First Year Revenues and Profits

Erika Fowler-Decatur Discusses Sales Tracking

Erika Fowler-Decatur States Most of Business Is Wholesale With Retail Sales Coming

From Web Site

Erika Fowler-Decatur Discusses Mention of Art Bars in Time Magazine

Erika Fowler-Decatur States Disappointment That Time Magazine Didn't Mention Art

Bar Company Information

Erika Fowler-Decatur Shares Thoughts on Sales Reps

eClips #3: Clip Title: Bill Shore States Importance of Being Willing To Walk Away

From Wrong Relationship

Summary: Bill Shore explains why it is sometimes necessary to decline membership in a

relationship that is not beneficial.

Interview/Lecture Intro: Bill Shore is the founder and executive director of Share Our

Strength, a national nonprofit that inspires and organizes individuals and businesses to

share their strengths in innovative ways to help end hunger. Shore is also the chairman of

Community Wealth Ventures, Inc., a for-profit subsidiary of Share Our Strength that

provides consulting services.

Shore founded Share Our Strength in 1984 in response to the Ethiopian famine and

subsequently renewed concern about hunger in the United States. Since its founding,

Share Our Strength has raised over $180 million to support more than 1,000 anti-hunger,

anti-poverty groups worldwide.

Prior to founding Share Our Strength, Shore served on the senatorial and presidential

campaign staffs of U.S. Senator Gary Hart (D-Colo.) He also served as chief of staff for

U.S. Senator Robert Kerrey (D-Neb.)

Shore is also an author. His three books include Revolution of the Heart (1995), The

Cathedral Within (1999) and The Light of Conscience (2004).

Shore earned his B.A. at the University of Pennsylvania and his law degree from George

Washington University in Washington, D.C.

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Transcript: I think the most important thing is to be willing to walk away from a

relationship if its not the right one, which we've done on a number of occasions before its

even started...its just like this is not right for us. And my theory is that life is short and it's

a really big world and if you're going to do something that you don't sleep well at night

over because you've done it, you ought to not do it and move on. So, you know, I think its

something to pay attention to. I think as there's more of this and the marketplace gets

more cluttered, I think the market will decide what's real and what's not real. And our

focus is on if it really genuinely contributes to our impact, then we want to try and make

it work. I: So where do the values come...surface in your business? R: Um...well they

surface in...I'd say they service in a number of places. I mean we still have issues

with...there's one company that we work with that...you know, it's a very large global

company that has tried to, you know, do the right things in a lot of areas that are, kind of,

adjacent to the space where Share Of Strength works within any community but they still

have issues...they have environmental issues, they have fair labor practice issues...they

have issues like that and they...we wrestle with it...I mean, you know, we've seen them

improving and we think we've been partly responsible for that improvement. And I think

you always have to ask yourself in a way that is not just, kind of, a rationalization but it

an authentic question. You know, are you more effective working inside the tent or more

effective standing outside and throwing rocks at it. And sometimes its one and sometimes

it's the other.

Class Question:

1. How does breaking off a bad relationship affect one’s social network?

Answer: Although a social network may be shortened by ending a relationship, it can be

strengthened by making the network more true to ideals.

2. What should an entrepreneur go about handing the crisis of a wrong relationship?

Answer: He or she should admit that there is a problem, communicate why the

relationship should be terminated, and use a spokesperson to finish the deed.

Other Videos From Same Firm/Entrepreneur Used in ESB2:

Bill Shore Shares Thoughts on Strategic Planning (Chapter 6)

Bill Shore States Importance of Having A Value Proposition (Chapter 10)

Other Videos From Same Firm/Entrepreneur On eClips:

Bill Shore Discusses Idea Behind Creation of Share Our Strength

Bill Shore States Share Our Strength Focused on Intersection Between Private and

Public Interest

Bill Shore States Share Our Strength Fdoes Not Rely On Foundation Support

Bill Shore States Vision For Organization Was Large From The Start

Bill Shore States Partnership With American Express Came From Working With Their

Customers First

Bill Shore Shares Thoughts on Entrepreneurship

Bill Shore Discusses Challenges of New Office Space

Bill Shore Discusses Desire to Build Brand Definition

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Bill Shore Discusses Examples of Share Our Strength Logos

Bill Shore Shares Thoughts on Leadership

Bill Shore Discusses Tension Between Partnerships with Corporations and Not For

Profit Mission

Bill Shore Discusses Determining Alignment with Corporations

Bill Shore Discusses Failure and Testing New Concepts

Bill Shore States Importance of Taking a Long Term View In Your Career

Bill Shore Discusses Overlap in Leadership and Design

Bill Shore Discusses Ripple Effect Of Not-For-Profit Mission

Bill Shore Discusses Role of Business in Society

eClips #4: Clip Title: Tom Szaky Discusses Turning Away From Funding Because It

Didn’t Fit With Core Idea of Business

Summary: Tom Szaky explains his reasoning for staying loyal to his principles and team

members, even when it demanded sacrifice.

Interview/Lecture Intro: Tom Szaky is co-founder and Chief Executive Officer of

TerraCycle, Inc., producer of the world’s first product made from and packaged in waste.

At 14, Szaky started his first business, a web design company called Flyte Design, which

employed three associates and earned its young proprietor a five-figure income. Szaky

then engaged in the start-up of three small dot.com companies: Werehome.com (an

online home improvement site), piority.com (an online fundraising school), and

studentmarks.com (an online grade tracking software).

In 2002, Szaky took a leave of absence from Princeton University to dedicate himself

full-time to starting TerraCycle, Inc., beginning as a 2 man outfit in the crowded

basement of an old office building in Princeton. Today TerraCycle occupies a 20,000 sq.

ft. factory in an urban enterprise zone in Trenton, NJ, where it employs over 20 workers

and makes and ships its unique consumer products to WalMart Canada, Whole Foods,

Home Depot, and other major retail stores.

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Transcript: So we had won $1 million from a major business plan competition. An offer

of funding to be clear, for $1 million. And we did have $500 bucks in our bank account at

the time. But what they wanted - cost like venture capital. I mean this was not unusual.

They wanted me to change my entire management team who had struggled real hard to

get us to where we were. And more importantly than that, they wanted me to move away

from the core of the idea, which was making a product out of waste. The just liked the

idea of an organic fertilizer. But they didn't like the idea of garbage. And that was the

core. I could have potentially settled for an you know, a management change because

that's - I mean it's not okay but it's okay. But the core of the idea, that's the essence. And I

felt - and the reason that we refused it was because without the core we felt like it

wouldn't work. And so we turned down $1 million with $500 in our bank account and

came back to Princeton and kept doing the company.

Class Question:

1. How did Tom Szaky incorporate utilitarianism into his decision to decline the funding?

Answer: Utilitarianism is a model that supports the greatest good for the most people.

Tom decided that while accepting the money would be beneficial to some, it would be

most beneficial to his team as a whole to remain true to their core idea.

2. What were Tom’s obligations to his team?

Answer: Because the management team had worked so hard to get where they wanted to

be, Tom felt obligated to remain loyal to them. He rightly felt that he owed the team his

loyalty.

Other Videos From Same Firm/Entrepreneur Used in ESB2:

Tom Szaky States Surprise That Dream Became Reality (Chapter 1)

Tom Szaky Discusses Paradigm Shift Of Money Turning Into Time (Chapter 6)

Tom Szaky States TerraCycle Has Never Actively Pursued Press (Chapter 10)

Tom Szaky Shares Thoughts on Cash Flow (Chapter 14)

Tom Szaky Defines Concept of Smart Risk (Chapter 16)

Other Videos From Same Firm/Entrepreneur on eClips:

Tom Szaky States Entrepreneurship Is Ingrained And Shares Background of

TerraCycle

Tom Szaky Discusses Influence of Parents, Risk and Thoughts on Work

Tom Szaky Shares Thoughts on Being a Young Entrepreneur

Tom Szaky Discusses Deciding Between Startup and College

Tom Szaky States Importance of Being Able to Dream Big

Tom Szaky States Initial Business Plan For TerraCycle Came From Business Plan

Contest

Tom Szaky Discusses Using Criticism To Strengthen Business Plan

Tom Szaky Shares Thoughts on Pitching and Putting on a Show

Tom Szaky States Investors Believe In Him Becauce He Fundamentally Believes in

Company

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Tom Szaky Discusses Importance of Execution

Tom Szaky Discusses TerraCycle's Sustainable Competitive Advantage

Tom Szaky States Doubters Fuel The Ego

Tom Szaky Discusses Parents Reaction To Fact That He Was Dropping Out of College

To Start Company

Tom Szaky Discusses Turning Away From Funding Because It Didn't Fit With Core

Idea of Business

Tom Szaky Discusses TerraCycle's Future Plans

Tom Szaky Shares Thoughts on Dealing With Wal-mart and Other Big Box Stores

Tom Szaky Discusses Evolution of Business Strategy

Tom Szaky States Corporate Growth Changes His Role and Corporate Culture

Tom Szaky States Ego Helps With Selling and Vision But Hurts With Team Building

and Managing

Tom Szaky Shares Thoughts on Passion and Drive

Tom Szaky States Importance of Having an Individual Leader At the Top of an

Organization

Tom Szaky Discusses Employee Incentive Plan Within TerraCycle

Tom Szaky States Most of Investment Goes Towards Branding

Tom Szaky Discusses Sourcing Bottles For Packaging Plant Food

Tom Szaky States Difficulty In Being An Entrepreneur And Finding Work/Life

Balance

Tom Szaky States Odds Of Failure As An Entrepreneur Are High

Tom Szaky States Importance of Being Comfortable With Positive and Negative

Impacts of a Business Deal

Tom Szaky States Importance of Picking Investors With Same Care As Picking New

Employees

Tom Szaky States Importance of Experiential Learning

Tom Szaky States Age Difference Can Be Source of Conflict But Leads To Open

Environment

Tom Szaky Shares Thoughts on Providing Feedback

Tom Szaky States Globalization For TerraCycle Is A Long-term Goal

Tom Szaky Shares Thoughts on Mentoring

Tom Szaky States Being A Young Entrepreneur Enables You To Function Without

Walls

Tom Szaky States First Professional Experience Was In Entrepreneurial Environment

Tom Szaky States Sustainability and Profit Go Hand In Hard

Tom Szaky Defines The Concept of Triple Bottom Line

Tom Szaky Discusses Competitive Response

Tom Szaky States Business Worries Evolve With The Business

Tom Szaky States Communicating Negatives Is As Important As Communicating

Positives

Tom Szaky Defines Waste As A Commodity

Tom Szaky Discusses Having Urban Artists Paint Company's Interior Space

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eClips #5: Clip Title: Seth Goldman States That Staying True To Your Beliefs Is Most

Important Aspect of the Business

Summary: Seth Goldman explains the importance of staying true to beliegs.

Interview/Lecture Intro: Seth Goldman is President and CEO (TeaEO) of Honest Tea,

the company he founded together with Professor Barry Nalebuff of the Yale School of

Management. An entrepreneur at heart, Seth started with lemonade stands and newspaper

routes, created an urban service corps and almost pursued a prize-winning biotechnology

idea before he started Honest Tea in his kitchen in 1998.

Before launching Honest Tea, Seth was Vice President of Calvert Social Investment

Fund, managing the marketing and sales efforts for the nation's largest family of socially

responsible mutual funds. His previous work includes managing a corporate child labor

initiative for the Calvert Foundation, directing an AmeriCorps demonstration project in

Baltimore and serving as Senator Lloyd Bentsen's Deputy Press Secretary for two and a

half years. Before that he worked for a year in China (1987-1988) and a year and a half in

the former Soviet Union (1989-1990).

Seth Goldman received his undergraduate degree from Harvard College and a Master's

degree from the Yale School of Management.

Transcript: Somebody was telling me the other day that Honest Tea is lucky just, you

know seems to be lucky because we are growing so quickly, we must have been in the

right place at the right time and you know, for me doing what you believe is being in the

right place at the right time, whatever happens, so I really cannot imagine telling people

to act in a way that I would not want ... do not think they should be acting or selling a

product that I do not think my kids or my family should be drinking and you know,

obviously people do market and sell products that way but, so for me there really has not

been a... you know I lose sleep at night over the challenges that a lot of entrepreneurs

have, do you have enough cash to grow, are you going to be able to succeed in a new

market or get distribution in a new market. I do not worry about, you know, are we going

to endanger anybody's lives from drinking this product or are we harming the ecosystem,

are we exploiting workers, those kind of things do not keep me up.

Class Question:

1. Explain how Seth Goldman incorporates personal accountability into his business.

Answer: As the CEO of Honest Tea, Seth takes responsibility for the product that he puts

out. Producing a good, safe product is not high on his list of concerns, because he has

taken accountability.

2. How does Seth Goldman’s business philosophy incorporate consistency?

Answer: Goldman believes that people should do what is right while running a business,

and insists that does not change as a business grows.

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Other Videos From Same Firm/Entrepreneur Used in ESB2:

None

Other Videos From Same Firm/Entrepreneur Used on eClips:

Seth Goldman Discusses Role of Business From The Perspective of Social

Responsibility

Seth Goldman Discusses The Cost of Values

Seth Goldman Shares Decision To Pursue Fair Trade But Not To The Extent That It

Destroyed The Company

Seth Goldman Shares Example of Placing Product at the Museum of the American

Indian

Seth Goldman Outlines Relationship With Native American Organizations

Seth Goldman Discusses Partnership Arrangement With the Crow Indians

Seth Goldman Discusses Values At Honest Tea and Importance of Authenticity

Seth Goldman Discusses Importance of Design For Product Packaging

Seth Goldman States Honest Tea Employees Have Ownership in Company

Seth Goldman Discusses Importance of Courtesy In Working Environment

Seth Goldman Discusses Challenge of Offering Product Without Conventional Levels

of Sweetness That American Public Is Used To

Seth Goldman Discusses Differences In Glass Versus Plastic As Packaging Material

Seth Goldman Discusses Honest Tea's Tea Bag Line

Seth Goldman Shares Thoughts on Package Labeling

Seth Goldman Discusses Creative Packaging Agreeement For Peach Tea Product

Seth Goldman Discusses Using Consumers To Assist In Product Label Design

Seth Goldman States That Staying True To Your Beliefs Is Most Important Aspect of

the Business

Seth Goldman States Corporate Values Drive All Decisions

Seth Goldman States Desire For Financial Success Is Not At Odds With Company

Values

Seth Goldman States Importance of Acting On Your Values

Seth Goldman States Honest Tea Has Ambition And Desire To Succeed As Business

and Business Model

Seth Goldman Outlines Metrics With Which He Is Concerned

Seth Goldman Discusses Product Recall

Seth Goldman Shares Customer Appreciation Stories

Seth Goldman Shares Thoughts on Developing Customer Loyalty

Seth Goldman Discusses Design of Logo and Product Label

Seth Goldman Discusses Relationship With City Year

Seth Goldman States Importance of Never Giving Up Despite Setbacks

Seth Goldman States Importance of Listening

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eClips #6: Clip Title: Kurt Zitzner Discusses Dealing With Unethical Vendors As A

Small Company

Summary: Kurt Zitner explains the challenges of having to deal with unethical vendors.

Interview/Lecture Intro: Kurt Zitzner is the owner of Mugzees Restaurant in Kent,

Ohio.

He has been working in restaurants since the age of 14. His restaurant experience

includes Chuck's Diner, Cafe 56, Fire Food and Drink, and his own catering company,

City Cuisine.

He graduated from Cornell University's School of Hotel Administration with a Bachelor

of Science in May of 2005. While at Cornell, he was elected by his peers to be the

Managing Director of Hotel Ezra Cornell, a student run hotel conference for industry

leaders.

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Transcript: Our suppliers, basically this happens in most businesses, but they basically

send you food that either you didn't order or it is different product than you ordered or its

perhaps the same product but if you order 40 pounds they take 4 pounds out of it which is

completely illegal and put that 4 pounds towards some other product that they are going

to sell to somebody else and then after ten cases you now have a 40 pound case that you

could resell to somebody else. So luckily, having been to the Hotel School, that was one

of the things that they told us to watch for and along with a whole bunch of other things,

checking your invoices like to a T and talking to the drivers and remembering not to be

friends with your driver and not to be friends with your sales person when they offer to

take you to Indians games or Cavs games or any of the sporting events, the answer should

be no, because that is not their purpose. Their job is not to become your friend, their job

is to be your supplier and so when I have offers like that, I find it funny now realizing

exactly what is going on, their whole vision is to get you to trust them, so that once you

trust them you are not going to look around for other lower prices, you are not going to

look around for anything, you are just going to call them, and they are going to deliver

your food. So within our third delivery, our foods started showing up either wrong

products, it started showing up four pounds missing out of a 40 pound case, then six

pounds missing, then ten pounds missing and every time we call our sales rep or

whatever, he would come on and, ah man I don't know how that could have happened,

and I said, well I can show you how it happened. There is a slice in that container that is a

sealed container and it is open and there's four pounds missing. So I think somebody

probably took a knife and opened the container, I don't think it takes a genius to figure

out that's what happened. Right but I don't know how that, you know nobody in our

warehouse would have done that. Right. So perhaps your driver did it. I don't know who

did it but the point is, it is, you know four pounds short. So it is developing these types of

relationships where now when they deliver food to us and frankly that company doesn't

deliver food to us anymore but when they were delivering to us, they know this food is

going to Mugzee's and therefore they are going to weigh everything regardless of whether

it is a ten pound bag of potatoes or a 40 pound case of chicken wings, whether it is like a

$5 item or a $50 item, we are weighing it and we are going to weigh it with the driver

standing there, so when it is not the right weight we can send it back. We stopped

working on credit system, that is what everyone does. Well we will credit you for next

week, and then next week oh I forgot, I will credit you the following week, I'll credit you

the next week. So we just stopped credit system and now we send everything back. So

they deliver 40 pound case and you know there are times we would even get 15, 16 things

delivered, 16 items and we would send back 11 out of 16 items and for them it is awful

because their driver has to drive all the way out, turn around drive all the way back and

sometimes they have to turn around and come back from Cleveland to Kent which is 45

minutes to redeliver the food and so over time they realized this is not going to work.

This guy is either way too much of a jerk which is probably what they say or he is way

too intelligent to realize that this is, you know we are cheating them out of their stuff and

the driver told us straight up. You know you are the only person that ever weighs any of

his food, nobody weighs their stuff. I said are you serious. What's wrong with these

operators. How can they not be weighing these things? Nobody seems to care, we just

deliver stuff, they don't even look at the invoice. I said are you serious. He said yeah

because sometimes you know the dishwasher would be free and the owner will not be

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free and I'll say can you grab this and just, you know sign for it and put everything away

and that is about the worst thing you could do, it just does not make any sense. Not that

the dishwasher cannot do it, they just need to be trained, this is what you need to look for

when you are doing it and it is not difficult work. It is just, somebody has to do it,

somebody has to literally weigh the boxes so that companies remain in business. We are

not here to get taken advantage of especially a small operator like us. We cannot afford,

you know to miss four boxes. They do that to McDonald's and they won't notice. It is fine

with me but, you know when you are operating out of a shoe string budget you cannot

afford that.

Class Question:

1. What does Kurt Zitzner explain is the role of trust in his relationship with his vendor?

Answer: He believes that trust is very important between the distributor and his

company, but that it should be done by establishing good business practice, and not by

trying to establish some sort of friendship between the two parties.

2. How do some of the behaviors of the bad vendor violate first principles?

Answer: By sending faulty products, or delivering less goods than promised, they are

both lying and cheating their client company. They are also not properly demonstrating

the golden rule. These are bad business practices, and ones that will lead to breaking off

of their business partnerships.

Other Videos From Same Firm/Entrepreneur Used in ESB2:

None

Other Videos From Same Firm/Entrepreneur on eclips:

Kurt Zitzner Discusses Use of Undergraduate Courses To Hone Business Plan For

Restaurant He Opened After Graduation

Kurt Zitzner Discusses Differences In Restaurant Business Versus Other Businesses

Kurt Zitzner States Target Market Changed Once Restaurant Opened

Kurt Zitzner States Importance of Creating a Business Plan Even If It Isn't Followed

To the Letter

Kurt Zitzner Outlines Market Research Performed on Target Geographic Area

Kurt Zitzner States For A Franchise To Work There Has To Be A Known Brand

Kurt Zitzner States Logo Was Created To Build Sense of Familiarity With Customers

Kurt Zitzner Discusses Decision on Company Name and Logo

Kurt Zitzner States Website Strategy Was To Create A Professional Appearance

Kurt Zitzner Discusses Mugzee's Value Proposition

Kurt Zitzner Discusses Advertising Strategy For Mugzee's

Kurt Zitzner States Tracking Expenses Is Key In The Restaurant Industry

Kurt Zitzner Discusses Personnel Structure To Mugzee's

Kurt Zitzner Discusses Challenge of Managing Employee Relationships In A Small

Business

Kurt Zitzner Discusses Challenges of the Hiring Process

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Kurt Zitzner States Importance of Following The Textbook In Interviewing And Hiring

Kurt Zitzner States Business Can Operate At A Loss As Long As Cash Flow Is

Positive

Kurt Zitzner States Importance of Raising More Money That You Think You Will

Need

Kurt Zitzner Discusses Motivation To Get Out Of Bed In Morning And Continue To

Build The Business

Kurt Zitzner States Biggest Worry Is Hoping For Continued Customer Demand

Kurt Zitzner Discusses New Realizations Regarding Target Markets and How To

Reach Them

Kurt Zitzner States Entrepreneurs Are Risk Takers Who Don't See Failure As A Bad

Thing

Kurt Zitzner Discusses Influence Of Father On His Career Decisions

Kurt Zitzner States Biggest Surprise Comes From Difficulty in Customer Adaptation

Kurt Zitzner States Most Important Personality Trait Is Persistence

Kurt Zitzner States Importance Of Doing What Makes You Happy

eClips #7: Clip Title: Patricia Warner Shares Thoughts on Her Ethical Acid Test

Summary: Patricia Warner explains her personal test on business ethics.

Interview/Lecture Intro: Patricia Warner is the founder of Global-eze Inc. Prior to

founding Global-eze, Warner held progressive management positions with Corning.

Patricia Warner holds an undergraduate degree from University of Connecticut and a

MBA from Cornell University.

Transcript: This newspaper was how to develop an ethical framework that you can live

by. Now, ethics change from country to country, culture to culture, company to company,

religion to religion. So, ethics is a tough topic to get your arms around. So, we kind of

looked in the workplace often for an ethical acid test as I call it. What is something that

you could think of that would help you make a choice if it wasn't clear and one that is

often used is make sure you and your network of friends and family would be proud to

see your activities published in a national newspaper. So, if you're trying to decide

whether something's right or not and you say if it's in a full headline in the New York

Times would I be okay with it, would the law be okay with it, would my family, my

grandmother be okay with it. And if they are not going to be okay with it, maybe that's

not the thing I should do, that it's not ethical. So, I call this the ethical acid test and many

times when you're sitting in your work saying should I do this or not and this comes up.

Class Question:

1. How does Ms. Warner’s ethical acid test incorporate personal ethics?

Answer: Personal ethics are what one personally believes is right and wrong, which is

incorporated from family, friends, and one’s environment. Patricia advocates the

pondering of whether or not one’s family would approve of a business decision.

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2. How does Patricia’s test incorporate universalism?

Answer: She makes it clear that the values that one has with family are the same as the

ones that are dealt with in business. Even though they are different aspects of life, they

both require the same ethics and values.

Other Videos From Same Firm/Entrepreneur Used in ESB2:

None

Other Videos From Same Firm/Entrepreneur on eclips:

Patricia Warner Discusses Academic and Professional Background

Patricia Warner States Life Is Like A Wild Tiger

Patricia Warner States Importance of Knowing Yourself

Patricia Warner Discusses Anglo-Western Workplace Values

Patricia Warner States Life Has Ups and Downs and States Importance of Remaining

Centered

Patricia Warner States Importance of Understanding Your Life Priorities

Patricia Warner Shares Story Of Being Told Most Important Life Decision Is Who

You Marry

Patricia Warner Explains Concept of Freedom Fund

Patricia Warner Discusses Starting Her Own Business

Patricia Warner Discusses Importance of Saving

Patricia Warner States Importance of Starting To Save For Retirement Early

Patricia Warner States Freedom Fund Should Never Be Used As A Bailout Fund

Patricia Warner States Importance of Understanding Your Boundaries

Patricia Warner States Importance of Avoiding Risky Behavior In The Workplace

Patricia Warner States Importance of Asking For What You Deserve When

Negotiating

Patricia Warner States Incredible Impact of Living Somewhere As A Minority

Patricia Warner States Importance of Developing Cultural Awareness

Patricia Warner Shares Thoughts on Male and Female Networks

eClips #8: Clip Title: Robert Frank Poses Question Of Whether You Are Perceived As

An Ethical Person

Summary: Robert Frank asks whether others perceive you as being ethical.

Interview/Lecture Intro: Robert Frank is a Professor of Economics at Cornell

University's Johnson School. In addition, Frank is a monthly contributor to the

"Economic Scene" column in The New York Times.

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Until 2001, he was the Goldwin Smith Professor of Economics, Ethics, and Public Policy

in Cornell's College of Arts and Sciences. He has also served as a Peace Corps volunteer

in rural Nepal, chief economist for the Civil Aeronautics Board, fellow at the Center for

Advanced Study in the Behavioral Sciences, and was Professor of American Civilization

at l'Ecole des Hautes Etudes en Sciences Sociales in Paris.

Frank's books include Choosing the Right Pond, Passions within Reason,

Microeconomics and Behavior, Luxury Fever, and What Price the Moral High Ground?

The Winner-Take-All Society, co-authored with Philip Cook, was named a Notable Book

of the Year by The New York Times, and was included in Business Week's list of the ten

best books for 1995.

Frank holds a BS in mathematics from the Georgia Institute of Technology, an MA in

statistics from UC Berkeley and a PhD in economics, also from UC Berkeley.

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Transcript: Imagine you're the chairman of a Fortune 500 company and you have a big

new division you're about to start up and you know that the person in charge of this

division will have lots of opportunities to embezzle cash from the company. There's just

no practical way you could monitor it to prevent that and maybe it wouldn't be worth

your while opening up this division if unless you thought you could get somebody to

manage it honestly. Well here's someone you can send on that assignment, the very same

person you think would return your $10,000 in cash if you found it in an envelope is

somebody you ought to logically be willing to send on assignment to manage a division

where there would be opportunities to cheat the company. That's a pretty valuable skill to

have in the labor market, to be chosen for an assignment like that. Think about you when

your first big promotion opportunity comes up when you're out working in the world.

Will your boss know enough about you to be able to say, is this the kind of person who

would return my envelope if she found it with $10,000 in it. Maybe your boss won't

know you as well as you knew the person you predicted would return your envelope but

your boss is going to have an opinion about that. People form very quick opinions about

others and we refine them over time as we get to know them but you can bet your bottom

dollar that promotion decisions made about you will be made on the basis of people's

assessments about the answer to questions like that about you. Well, how would they

know whether you are gonna return the envelope, if they think about a question like that.

It's a very interesting question how people make judgments like that. Think about how

you made the judgment about the person you predicted would return your envelope.

There's a whole suite of clues on which we rely. People have moral emotions that guide

them typically in these decisions and moral emotions just bleed out into the open. If you

care about the other person, the other person can sense that and that's typically one of the

moral emotions that makes you likely to return somebody's envelope. It's that you've put

yourself in the other person's place and imagined what would it be like if somebody

found my envelope and kept it and the bad thought that you get from contemplating that

question is an extra nudge... it will be nice to keep the $10,000, no doubt about it but it's

not the right thing to do and you're concerned about the well-being of the other person is

often for most people enough of a nudge to do the right thing. So that's the encouraging

news that in fact the business world is a lot more forgiving than the track world. There

can be golden opportunities to cheat in the business world, people can pass them up and

it's true, they won't get paid back right away from having passed up a golden opportunity

to cheat but as long as people can make judgments about them that are accurate, that

they're the kind of people who would pass up opportunities to cheat, they can turn out to

be quite successful in the business world and there is indeed pretty good evidence that the

people who rise most rapidly in the business world are not the crooks that we read about

in the news, not the people who fudge the numbers but the people who actually do bring

integrity to the decisions that they make.

Class Question:

1. How does being viewed as an ethical person help one’s business network?

Answer: Having a good reputation draws more people to want to do business with you,

and can therefore lead to a strong network of eager partners.

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2. How does being viewed as an ethical person affect legitimacy?

Answer: When one does business in an ethical manner, he or she gains a reputation of

legitimacy. Good recommendations and references lead to an increased legitimacy, which

is a valuable tool for an entrepreneur.

Other Videos From Same Firm/Entrepreneur Used in ESB2:

None

Other Videos From Same Firm/Entrepreneur on eclips:

Robert Frank Discusses The Darwinian Argument For Cheating

Robert Frank Shares Thought Experiment On Honesty and Integrity

Robert Frank States Good Opportunities Are Available For People Who Are Not

WillingTo Cheat

Robert Frank States Most People Are Not Oblivious To The Ethical Influences of

Others

Robert Frank Discusses Cheating Experiments

Robert Frank Expresses Need To Be Wary That You Can Turn A System Around

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STVP Videos Why are ethics important?

Overview: An explanation of the importance of business ethics.

Objective: To communicate the importance of high standards in business ethics.

Speaker:

Frank H. Levinson founded Finisar in April 1987 and has served as a member of our

Board of Directors since February 1988 and as our Chairman of the Board and Chief

Technical Officer since August 1999. Mr. Levinson also served as our Chief Executive

Officer from February 1988 to August 1999. From September 1980 to December 1983,

Mr. Levinson was a Member of Technical Staff at AT&T Bell Laboratories. From

January 1984 to July 1984, he was a Member of Technical Staff at Bellcore, a provider of

services and products to the communications industry. From April 1985 to December

1985, Mr. Levinson was the principal optical scientist at Raychem Corporation, and from

January 1986 to February 1988, he was Optical Department Manager at Raynet, Inc., a

fiber optic systems company. Mr. Levinson holds a B.S. in Mathematics/Physics from

Butler University and an M.S. and Ph.D. in Astronomy from the University of Virginia.

Class Questions:

1. What are some ways that ethics fit in with small business?

Answer: Small businesses have a strong impact in the local communities. An ethical

small business will gain respect in the community. Another important factor is trust.

Small businesses that rely on local support for their survival need to maintain the trust

of their market. The way to do this is to remain ethical.

2. How can a business follow ethics planning in its hiring process?

Answers: Ethics planning is a process used to better consider issue issues of right and

wrong. The steps are asking oneself questions to separate the important issues from

the less important ones. Then one must determine the possible actions that would

resolve problems. Finally, ethics planning lets one seek the potential solution to see if

it’s good with what might happen once the decision is put into place. Asking these

questions at an interview, along with giving a test scenario, can be helpful in finding

employees who meet ethical standards.

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Establishing Credibility

Overview: An explanation on steps a business should follow to establish credibility.

Objective: To communicate the importance of establishing a credible small business.

Speaker:

Peter A. Seligmann is one of today's most dynamic leaders in the global conservation

movement, where he has brought innovation and action to the forefront of biodiversity

protection for more than 25 years. In 1987, he co-founded Conservation International,

and as Chairman and CEO he has positioned CI at the cutting edge of conservation,

creating lasting solutions to biodiversity and sustainable development challenges.

Seligmann holds a masters degree from Yale University's School of Forestry and

Environmental Science and an honorary Doctorate in Science from Michigan State

University. In 2001, he was awarded the Order of the Golden Ark from the Netherlands.

Seligmann serves on the board of the Wild Salmon Center in Portland, Oregon, and the

Mayor's Environmental Council in Washington, D.C. He also serves on several corporate

boards, as well as on the advisory councils of the Jackson Hole Land Trust, Ecotrust and

other not-for-profit organizations, including the Japanese Keidanren's Nature

Conservation Fund. In 2000, President Clinton named him a member of the Enterprise for

the Americas Board.

Seligmann's work has been featured by ABC's "Nightline," CNN and Fortune Magazine.

A strong advocate of building partnerships, Seligmann has forged groundbreaking joint

projects between the environmental community and other sectors, including government

and industry. In 1998, CI established the Center for Applied Biodiversity Science, and in

2001, the Center for Environmental Leadership in Business. In 2000, CI launched the

Critical Ecosystem Partnership Fund in collaboration with the World Bank and the

MacArthur Foundation.

Under Seligmann's leadership, CI has pioneered conservation tools that are economically

sound, scientifically based and culturally sensitive. He has guided CI to become a major

international conservation leader, with field offices in more than 30 countries, and major

influences in science and business.

An avid outdoorsman with a passion for fishing and diving, Seligmann lives in

Washington, D.C. as well as at his farm in the Shenandoah Valley.

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Class Questions:

1. How does Peter’s advice fit in with the Golden Rule?

Answer: Peter notes that the best way to establish credibility is to deliver on

promises. Since everyone wants their promises delivered, this shows that a business is

treating others the way they wish to be treated.

2. Why is consistency important in delivering promises?

Answer: Consistency is maintaining the same behavior, attitude or value of long

periods of time. Delivering on a promise once is not good enough. A business must

consistently meet its standards for contracts and promises to gain an ethical

reputation.

How do you hire ethical people?

Overview: Advice on how to find ethical people for a business?

Objective: To offer guidance on hiring ethical people.

Speaker:

Frank H. Levinson founded Finisar in April 1987 and has served as a member of our

Board of Directors since February 1988 and as our Chairman of the Board and Chief

Technical Officer since August 1999. Mr. Levinson also served as our Chief Executive

Officer from February 1988 to August 1999. From September 1980 to December 1983,

Mr. Levinson was a Member of Technical Staff at AT&T Bell Laboratories. From

January 1984 to July 1984, he was a Member of Technical Staff at Bellcore, a provider of

services and products to the communications industry. From April 1985 to December

1985, Mr. Levinson was the principal optical scientist at Raychem Corporation, and from

January 1986 to February 1988, he was Optical Department Manager at Raynet, Inc., a

fiber optic systems company. Mr. Levinson holds a B.S. in Mathematics/Physics from

Butler University and an M.S. and Ph.D. in Astronomy from the University of Virginia.

Class Questions:

1. How do ethics and morals relate to the first principals?

Answer: As a person in Frank’s audience suggested, ethics and morals are very

closely related. The first principals are basic ideas of what is right or wrong, including

that it is wrong to lie, cheat and steal. These are the basic moral principles of both life

and business.

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2. Why should businesses follow the Golden Rule with customers?

Answer: In order for businesses to survive, they must rely on faithful relations with

their customers. By treating customers the way they would want to be treated, they

gain a positive reputation, which will lead to a better social network, and hopefully,

more business.

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Importance of Networking

Overview: The importance of maintaining good relationships with those in a social

network.

Objective: To stress the importance of social networking.

Speaker:

Tina Seelig is the Executive Director for the Stanford Technology Ventures Program

where she is responsible for the management, operations, and dissemination efforts of

STVP. In addition, Tina is the Director of the Stanford Entrepreneurship Network and the

co-Director of the Mayfield Fellows Program. Tina also teaches a course in the

Department of Management Science & Engineering on Creativity and Innovation.

Prior to joining STVP, Tina worked as an entrepreneur, management consultant, author,

and scientist. Tina received her Ph.D. from Stanford University Medical School in 1985

where she studied Neuroscience.

Tina has worked as management consultant for Booz, Allen, and Hamilton, has written

several popular science books and has designed a series of educational games. Her books

include The Epicurean Laboratory, Incredible Edible Science, and a series called Games

for Your Brain.

After Tina's first book was published in 1991, she became interested in how books are

marketed. This led her to start a company designed to help match books with buyers. The

product was a multimedia system for bookstore customers, called BookBrowser.

BookBrowser was a kiosk-based system that allowed customers to identify books of

interest. With the help of a team of engineers and graphic designers, Tina built the

business and sold the company in 1993.

After selling her business, Tina worked as a Multimedia Producer for Compaq Computer

Corporation. In this position Tina led a team of engineers, artists, scriptwriters, and

education specialists through the design and implementation of a series of multimedia

titles.

Tina's current position as Executive Director of the Stanford Technology Ventures

Program takes advantage of her technical background, in addition to her experiences as a

manager, entrepreneur, and educator.

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Class Questions:

1. How can a businesses’ reputation be improved with a good social network?

Answer: A social network is a set of relationships and contacts with individuals and

institutions. It is better to have a good reputation among a multitude of associates,

rather than just one.

2. The book notes that social networking is good for a company’s reputation. How

does this relate to Tina’s philosophy?

Answer: Tina noted that the world is small, and that one is likely to meet with the

same 50 or so people multiple times in their lifetime. It is best not to “burn bridges”,

or set a bad reputation. A reputation sticks, whether it is good or bad, so it is

important to maintain a good one.

SBTV Videos

Proper Introductions in Business

Overview: An discussion on how to properly introduce associates in business.

Objective: To show the proper way to introduce business members.

Speaker:

Syndi Seid is a business etiquette coach.

Class Questions:

1. The book explains the concept of modeling. How can someone use Syndi’s advice

to employ a modeling technique?

Answer: If a small business owner uses the type of business etiquette to address

associates, they can address to their employees what there is expected of them in

terms of proper business etiquette.

2. How can following these etiquette rules help a business expand its social network,

as explained by the book?

Answer: If a small business owner employs good etiquette, building respect among

those whom he or she wishes to do business with, more people will be willing to

network with the owner. This will expand the entrepreneur’s set of relationships and

contacts with individuals and institutions.

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Full file at https://fratstock.euChapter 02 - Small Business Ethics: A Key to Long-Term Success

2-70

Preparing for Business Emergencies

Overview: A series of steps to prepare for business emergencies.

Objective: To show how businesses can prepare themselves for business emergencies.

Speakers:

Jorge Riopedre is a reporter for SBTV.

Heather Blanchard is the Deputy Director for the Ready Campaign at the Department of

Homeland Security.

Class Question:

1. How can the idea of mutuality, as explained in the textbook, assist with a business

emergency plan?

Answer: Mutuality is the action of each person helping one another. The idea of

mutuality is good to be implemented in a business emergency plan. It is important

that members of a business help one another, and this can be especially true in an

emergency situation. If everyone carries their weight, the emergency is less likely to

be severe.

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