244 PART 3 䊏 MOVING FROM AN IDEA TO AN ENTREPRENEURIAL FIRM

Jack Peterson and Sarah Jones Discussion Questions

Founders, iUser Accessories
1. Complete Jack and Sarah’s list for them, including the
List of Legal Issues to Discuss with Attorney
issues you think they will place on the list along with their
Issue Jack and Sarah’s Recommendation
recommendations. Which of the issues do you think will
stimulate the most discussion with the attorney, and
which issues do you think will stimulate the least?
2. Make a list of the things you think Jack and Sarah did
right in preparing for their meeting with the attorney.
3. Comment on the product feasibility analysis that Jack and
Sarah completed. Do you think the way Jack and Sarah
approached this task was appropriate and sufficient?
4. What advantages do Jack and Sarah have starting
iUser Accessories together, rather than one of them
starting it as a sole entrepreneur? What challenges do
you think Jack and Sarah will have keeping their
The Day Arrives partnership together?

The day for the meeting arrived, and Jack and Sarah
met at the attorney’s office at 2:15 P.M. They had
e-mailed the attorney their list of issues along with their
Application Questions
recommendations a week prior to the meeting. The 1. Suggest an alternative to iUser Accessories for the
attorney greeted them with a firm handshake and name of Jack and Sarah’s firm. Check to see if the
opened a file labeled “iUser Accessories, Jack Peterson “.com” version of the Internet domain name is avail-
and Sarah Jones.” Seeing their names like that, on an able. If it isn’t, select another name and continue
attorney’s file, made it seem like their company was selecting names until you can match a name with an
already real. The attorney looked at both of them and available domain name.
placed a copy of the list they had e-mailed in front of 2. Do you think it is too early for Jack and Sarah to start
her. The list already had a number of handwritten notes laying an ethical foundation for their firm? What steps
on it. The attorney smiled and said to Jack and Sarah, can they take now to lay a solid ethical foundation for
“Let’s get started.” their firm?

CASE 7.2
Smarty Pants and DonorsChoose: How For-Profit
and Nonprofit Start-Ups Build Credibility and Trust
SmartyPants Web: www.wearesmartypants.com
Twitter: SmartyPantsKids
Facebook: SmartyPants Vitamins
DonorsChoose Web: www.donorschoose.org
Twitter: DonorsChoose
Facebook: DonorsChoose.org

Bruce R. Barringer, Oklahoma State University

R. Duane Ireland, Texas A&M University

Introduction
itself in a manner that builds credibility and trust during
Credibility is a vital part of any start-up’s persona. first encounters. Both consumers and donors have
Whether a prospective customer in a for-profit context, multiple options for allocating their money. As a result,
or a prospective donor in a nonprofit context, it’s it’s essential that a start-up make a favorable first
important that the company or organization presents impression and give its patrons reasons to trust it.
 CHAPTER 7 䊏 PREPARING THE PROPER ETHICAL AND LEGAL FOUNDATION 245

How Companies and Organizations Build well-documented. All children benefit from appropriate
Credibility and Trust daily supplements of three micronutrients that support
brain health—Omega 3, DHA, and Vitamin D. Until now,
There are several ways companies and organizations these micronutrients could be bought separately, but
can build credibility and trust. We present eight were not available in a single tablet. SmartyPants
techniques that are essential in nearly all cases in the Gummy Multi-Vitamins include each of these
following list. micronutrients, plus 11 others.
The following are examples of how two That’s the product. Here’s how SmartyPants is
organizations—one for-profit and one nonprofit—are building credibility and trust via the eight techniques
building credibility and trust via these techniques. described previously.

1. It has a professional logo design, beautiful Web site,

SmartyPants
and corporate e-mail address.
Launched in 2010, SmartyPants sells children’s vitamins 2. It’s attracted considerable press. Its founders have
via the Internet. While there are many companies that been interviewed on MSNBC. It’s been featured by
sell children’s vitamins, SmartyPants is unique in that it’s Daily Candy, ModernMom, ecomom, ecofabulous,
the only company solely dedicated to children’s and in various other media outlets.
vitamins. It’s also an advocate for “brain health.” The 3. It’s pediatrician approved. According to Dr. Robert
scientific link between healthy brains, healthy bodies, Kramer, chairman of the Department of Pediatrics
cognitive development, and emotional well-being is (retired) Baylor University Medical Center,

Techniques for Engendering Credibility, Legitimacy, and Trust

Technique Explanation

1. Have an attractive logo, corporate e-mail Prospective customers and donors have a mental image of what real
address, and professional looking Web site. companies and organizations looks like. If your logo, Web site, or e-mail
address look amateurish or suspect, the game is up. Always have a
corporate .com or .org e-mail address. A Gmail or Yahoo! e-mail
address makes a company or organization look amateurish.
2. Receive media coverage. Display prominently on your Web site the media coverage you’ve
received. If you’re new, start by asking bloggers in your industry to
cover you. Media coverage is a tacit sign of legitimacy and support.
3. Obtain expert testimonials. Get expert testimonials and feature them on your Web site and in your
literature. An expert doesn’t have to be someone who is famous. If
you’re selling surgery-related software, ask a surgeon to test it and
comment. If you’re starting a nonprofit to provide a place for at-risk kids
to hang out after school, ask the local police chief or a school principal
to comment on your service.
4. Obtain customer testimonials. Ask customers, donors, or recipients of the good or service you provide
to test that good or service and then to comment about their experiences.
Include their pictures if possible. Positive quotes from real people are
often the most persuasive.
5. Give people a reason to care. Make sure to convey your start-up’s relevance, but don’t use buzz
words like you’re “revolutionary,” or “are the industry’s best.” These
terms are too slick. Instead, be genuine. Explain in everyday language
why your customers or donors should care.
6. Tell your story. Why do you care? There is nothing that builds credibility and trust faster
than a founder telling the sincere story of why he or she is launching a
company or starting a nonprofit. Include your picture and put a real
e-mail address next to it.
7. Have a presence on Twitter, Facebook, Like it or not, people will look for you on Twitter and Facebook. If you’re
or both. not there, it’s a red flag. Establish a presence on one or both sites and
provide frequent updates.
8. Tell people how you’ll use and/or protect If you’re a for-profit business, offer a money-back guarantee. If you’re a
their money. nonprofit, explain in specific terms how your donor’s money will be spent.

(continued)
246 PART 3 䊏 MOVING FROM AN IDEA TO AN ENTREPRENEURIAL FIRM

“SmartyPants helps parents ensure their children e-mail message will then be sent to the school principal
are getting all the nutrients they need.” indicating that the gift had been made. In addition, if any
4. Prime real estate on its Web site is devoted to teachers in the same school have raised money through
“What Parents Are Saying about SmartyPants Multi- DonorsChoose, those teachers will be notified of the
Vitamins.” Pictures of parents and kids are included. gift. DonorsChoose never sends cash to a teacher to
Samantha S. from New York, New York, for buy the items included in the request. It makes the
example, says “My girl is a very picky eater and I purchases and delivers the items.
love that she loves SmartyPants.” What happens next is heartwarming and special.
5. The company prominently displays material about Anyone who donates $1 or more receives a written
the connection between brain health and mental, thank-you note from the teacher. Donors who contribute
physical, and emotional well-being. Vitamins are $100 more to a project, or complete the funding for a
part of the route to achieving brain health. project, receive a “thank-you package” from all the
6. An “Our Story” tab is included on the toolbar at the students that are affected, along with photographs of
top of SmartyPants’s Web site. It was started by the projects and a letter from the teacher. DonorsChoose
parents and entrepreneurs who have the same is funded by the administrative overhead it collects
dreams and aspirations that all parents have for from donors and through private funding sources.
their children. The photo shows a second grade class at Hancock
7. The company is active on both Twitter and Elementary School in San Diego, California. The
Facebook. As of April 2011, it had 2,274 Twitter students are sitting on a new carpet they received
followers and 10,826 Facebook friends. from DonorsChoose.
8. The firm provides a 100 percent money-back That’s what DonorsChoose is about. Like any
guarantee. In addition, it’s partnered with Vitamin charity, it relies on the trust and support of its donors.
Angels, a nonprofit organization, which distributes Here’s how DonorsChoose covers the eight techniques
micronutrients, especially Vitamin A, to infants shown previously for building credibility and support.
and children in developing nations. Every time
someone buys a SmartyPants bottle of vitamins, 1. It has a professional logo design, beautiful Web site,
the company makes a one-to-one nutrient grant and .org e-mail address.
through Vitamin Angels. It says it cares about 2. Despite having been active for more than 10 years,
kids. This proves it. the company still draws attention to the press it’s
received. It’s been featured by The Wall Street
SmartyPants prominently features this information Journal, NPR, CNN, Time, USA Today, The Oprah
on its Web site. It’s tastefully done, provides useful Winfrey Show, and others.
information, conveys the company’s values, and 3. DonorsChoose has been endorsed by two
provides multiple opportunities (i.e., newsletter, blog, organizations that rate nonprofits: BBB Accredited
Twitter, Facebook) for prospective customers to get to Charity and Charity Navigator. It consistently meets
know the company before trying it out. While these the BBB Wise Giving Alliance’s standards for charity
techniques serve multiple purposes, they’re essential in accountability, and has received a four-star rating
helping SmartyPants build credibility and trust with its (the highest possible) from Charity Navigator,
target market. America’s premier independent charity evaluator.
4. DonorsChoose prominently displays donor
feedback in real time on its Web site. You can log
DonorsChoose
onto the Web site and depending on the time of day
DonorsChoose is a nonprofit organization that provides see feedback as current as within 10 minutes of the
a way for people to donate directly to specific projects time it was written.
at public schools. Charles Best, a middle school science 5. The entire premise of the company provides people
teacher at a public school in the Bronx, launched this a reason to care. Multiple pictures of children and
firm in 2000. Since then, it’s grown to serve public the projects that are being funded are posted on its
schools across the United States. Web site.
DonorsChoose collects proposals from teachers 6. The “About Us” tab provides extensive information
and posts them on its Web site. A typical project is a about why the organization was started and who’s
request that was posted in March 2011 by a teacher at behind it.
Christine O’Donovan Middle Academy in Los Angeles–– 7. DonorsChoose is active on both Twitter and
a public school. The teacher requested $549.48 for two Facebook. As of April 2011, it had 35,096 Twitter
high-quality exercise mats to help students learn basic followers and 81,080 Facebook friends.
exercises. The rationale is that physically active children 8. DonorsChoose prominently displays the impact
are more likely to thrive academically and socially. A 17 it makes. In the final week of March 2011, which
percent overhead to cover DonorsChoose’s costs, was a typical week, it collected money from
which donors can opt out of, was added bringing the 31,615 donors, 1,525 projects were completed,
request to $646.45. As of the date this case was written, and 90,577 students were affected. Its financial
16 people had donated a total of $553.45 with only records are audited by a public accounting firm,
$93.05 to go. If the project is funded, DonorsChoose will and its records are available to the public upon
buy the mats and deliver them to the teacher. A fax or request.
 CHAPTER 7 䊏 PREPARING THE PROPER ETHICAL AND LEGAL FOUNDATION 247

Discussion Questions Application Questions

1. On a scale of 1 to 10 (10 is high), rate both 1. What techniques can a firm or organization use to
SmartyPants and DonorsChoose in their efforts to build credibility and trust that aren’t mentioned in this
build credibility and trust. Highlight one thing that feature? Provide examples of firms that are using the
particularly impresses you about both organizations. techniques that you suggest.
2. Is it appropriate for a company to comment on its 2. The “You Be the VC 7.2” feature focuses on Prefense,
ethical standards on its Web site or in its marketing a company that’s making a hand sanitizer that a
literature? If so, how should a firm or organization person has to apply only once a day. Spend some time
approach this task? studying the company. Based on the information you
3. How can building credibility and trust help a firm or find, comment on the job that Prefense is doing to
organization avoid legal disputes? build credibility and trust with its target market.
4. What are things that start-ups, whether they are
for-profit or nonprofit, do that have the opposite Sources: SmartyPants Web site, www.wearesmartypants.com
effect of the techniques described in this feature: (accessed April 4, 2011); DonorsChoose Web site,
they engender a lack of credibility and mistrust? www.donorchoose.org (accessed April 4, 2011).

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