Establishing an ethical and socially responsible business and structuring an entrepreneurial venture

1. CHAPTER 8 Establishing an ethical and socially responsible business and structuring an entrepreneurial venture

2. Learning Objectives • Explain the role of ethics in entrepreneurship. • Discuss how entrepreneurs can demonstrate social responsibility. • Describe how an entrepreneur’s vision and values contribute to the culture of the new venture. • Discuss the relationship of core values to success.

3. Learning Objectives • Describe how businesses are organized. • Discuss the role of strategic alliances in a new organization. • Explain how to identify the appropriate business site. • Discuss the most critical issues related to organizing people.

4. Ethics • The moral code by which we live and conduct business. • Derives from the cultural, social, political, and ethnic norms with which we were raised as children.

5. Ethics (cont’d) • Ethical decision making, 4 categories: • Individual values • Organizational values • Customer satisfaction • External accountability

6. Ethics(cont’d) • Categories of perspectives about ethical dilemma: • Ideals • Looking at the dilemma from an Aristotelian perspective about one’s virtues, integrity, and values • Obligations • One’s duty, rights, or what is lawful or just • Utility • Analyzes costs and benefits of potential alternative consequences of action or inaction

7. Ethics(cont’d) • Approaches to avoiding ethical issues: • Dogmatism: “I simply will never lie or cheat or steal.” • Egoism: “Everyone needs to lookout for himself.” • Relativism or Situational: “When in Rome, do what the Romans do.” • Subjectivism: “Ethics is a point of view.”

8. Ethics (cont’d) • Four most common types of ethical dilemmas: • Conflicts of interest: Occurs when a person’s private or personal interests clash with professional obligations. • Survival tactics: What an entrepreneur does today out of desperation will follow him for the rest of his business career. • Stakeholder pressure: All stakeholders want what is owed them when it is owed them. • Pushing the legal limit: Entrepreneurs who regularly play too close to the edge of legality eventually get caught and the price is often their businesses and their reputations.

9. Learning from Real-Life Dilemmas • There is no better way to understand the role of ethics in any business than to encounter real-world dilemmas and determine how they might be resolved. • Small businesses are as guilty as multinational corporations when it comes to ethical missteps.

10. The Importance of Developing a Code of Ethics • Code of ethics: Set of ethical standards by which a company functions. • When a code of ethics is spelled out and written down, people in the organization take it more seriously.

11. The Process of Developing a Code of Ethics • Guidelines from The Josephson Institute of Ethics: • Trustworthiness • Respect • Responsibility • Fairness • Caring • Citizenship

12. Characteristics of an Effective Code • Clear and easy to understand • Make all employees aware • Share with customers • Clear channel for reporting unethical behavior • Means for rewarding ethical behavior

13. Social Responsibility • Social responsibility is operating a business in a way that exceeds the ethical, legal, commercial and public expectations that society has of the business. • Socially responsible businesses start with a social mission, which must be achievable. • Majority of social ventures are nonprofits that must seek their funding from philanthropists or grants.

14. Effective Ways to Become Socially Responsible • First, company must set a goal. • Second, company must get employees and customers (if appropriate) involved. • Ways to establish positive relationships in the community: • Donate products, services, or revenues • Donate expertise • Contribute to the community

15. Vision and Values • Core values: • The fundamental beliefs that a company holds about what is important in business and in life in general. • Based on the founder’s personal values and beliefs. • They tell the world who the company is and what it stands for.

16. Vision and Values(cont’d) • Purpose • The company’s fundamental reason to be in business • Mission • The company’s mission brings everyone together to achieve a common objective. • The mission statement communicates the mission.

17. Strategies and Tactics • Strategies: • Plans for achieving company goals and accomplishing the mission • Tactics: • The means to execute the strategies

18. The Components of Vision Figure 11.2

19. Core Values and Success • Constants of success: • Purpose • Failure • Sense of satisfaction with work • No free lunch

20. Design: Understanding the Way the Business Works • Organizational structure • Finding the best fit, given the existing: • Contextual factors (environment, technology, market) • Design factors (strategy and models) • Structural factors (complexity, formalization)

21. Building Blocks of an Entrepreneurial Organization Figure 12.1

22. Design: Understanding the Way the Business Works (cont’d) • Distributed forms of organizations • Companies generally distributed on four levels: • Geographically (locally or across continents) • Organizationally by department or project group • Temporally by time zone • By stakeholder groups

23. Identifying Business Processes • Design the process map/flowchart that traces how information flows through the business. • Mapping leads to better decisions • Number of people to hire • Amount of equipment to purchase • Type of facility for working • Type of organizational structure to employ

24. The Virtual Enterprise • A virtual enterprise is a “business without walls.” • A temporary network of independent companies, suppliers, customers, even erstwhile rivals—linked by information technology to share skills, cost, and access to one another’s markets

25. The Virtual Enterprise (cont’d) • Its goal is to deliver highest-quality product at the lowest possible cost in a timely manner. • Outsources in a virtual world • Forms a network of strategic alliances • Keeps distributed employees and strategic partners linked

26. Location Strategy: Finding the Appropriate Business Site • Site decisions begin at macro level • Choosing the region, state, and community • Economic base • Financial incentives • Population demographics

27. Location Strategy: Finding the Appropriate Business Site (cont’d) • Choosing a retail site • The trade area • Competition and character • Accessibility • Choosing the service/wholesale site • Some of same considerations as retail site (accessibility, attractiveness, trade area of sufficient size, etc.) • No need for upscale version

28. Location Strategy: Finding the Appropriate Business Site (cont’d) • Choosing the manufacturing site • Access to suppliers • Cost of labor • Access to transportation • Cost of utilities • The Lease–Build–Buy decision • Ask the right questions at each stage • Startup • Rapid growth • Stable growth

29. Location Strategy: Finding the Appropriate Business Site (cont’d) • Alternatives to conventional facilities: • Incubators • Shared space • Mobile locations • Temporary tenant agreements

30. People Strategy: Organizing Startup Human Resources • Startup operations • Organization chart tends to be flat • Much work accomplished through informal organization or network of relationships • New ventures adopt team-based approach rather than formal “departments” • Often employ independent contractors

31. Simple Organizational Chart for a Growing Business Figure 12.3

32. People Strategy: Organizing Startup Human Resources (cont’d) • Common leadership traps: • Isolating themselves from the rest of the startup team • Always having the one “right” answer • Keeping people on board who are not up to the needs of the company • Taking on too much too soon • Setting unrealistic expectations • Not building support

33. Creating the Company Culture • The personality of the company, that intangible set of values that determines how and why the people in the organization respond to their business environment the way they do • Culture of startup derives from vision and values of founding team

34. Aligning Culture and Strategy Figure 12.4

35. Hiring the Right People • Important for an entrepreneur to understand how to hire • Functions to fill • The employee search • Interviews • Human resource leasing • Professional employer organization (PEO)

36. Managing Employee Risk • Risk management is a set of policies and their associated decision-making processes that reduce or eliminate risks associated with having employees. • Financial risks • Obey all rules and regulations

37. Planning for Ownership and Compensation • The major issues: • How much of the company to sell to potential stockholders? • How much to pay key managers? • Compensating with stock • An investor does not need to be an equal partner. • Hire talent rather than give away ownership. • Use cash for bonuses rather than stock.

38. Founder’s Stock • Known as “144 stock” • Payoff comes with liquidity event such as IPO or acquisition by another company • Stock is issued to the first shareholders of the corporation • Restricted by SEC rules

39. Alternatives to Equity Incentives • Deferred compensation plans • Bonus plans • Capital appreciation rights • Profit-sharing plans