244 PART 3 䊏 MOVING FROM AN IDEA TO AN ENTREPRENEURIAL FIRM
Jack Peterson and Sarah Jones
Founders, iUser Accessories
List of Legal Issues to Discuss with Attorney
Issue Jack and Sarah’s Recommendation
The Day Arrives
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
recommendations a week prior to the meeting. The
attorney greeted them with a firm handshake and
opened a file labeled “iUser Accessories, Jack Peterson
and Sarah Jones.” Seeing their names like that, on an
attorney’s file, made it seem like their company was
already real. The attorney looked at both of them and
placed a copy of the list they had e-mailed in front of
her. The list already had a number of handwritten notes
on it. The attorney smiled and said to Jack and Sarah,
“Let’s get started.”
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
Credibility is a vital part of any start-up’s persona.
Whether a prospective customer in a for-profit context,
or a prospective donor in a nonprofit context, it’s
important that the company or organization presents
Discussion Questions
1. Complete Jack and Sarah’s list for them, including the
issues you think they will place on the list along with their
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
partnership together?
Application Questions
1. Suggest an alternative to iUser Accessories for the
name of Jack and Sarah’s firm. Check to see if the
“.com” version of the Internet domain name is avail-
able. If it isn’t, select another name and continue
selecting names until you can match a name with an
available domain name.
2. Do you think it is too early for Jack and Sarah to start
laying an ethical foundation for their firm? What steps
can they take now to lay a solid ethical foundation for
their firm?
itself in a manner that builds credibility and trust during
first encounters. Both consumers and donors have
multiple options for allocating their money. As a result,
it’s essential that a start-up make a favorable first
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
Credibility and Trust
There are several ways companies and organizations
can build credibility and trust. We present eight
techniques that are essential in nearly all cases in the
following list.
The following are examples of how two
organizations—one for-profit and one nonprofit—are
building credibility and trust via these techniques.
well-documented. All children benefit from appropriate
daily supplements of three micronutrients that support
brain health—Omega 3, DHA, and Vitamin D. Until now,
these micronutrients could be bought separately, but
were not available in a single tablet. SmartyPants
Gummy Multi-Vitamins include each of these
micronutrients, plus 11 others.
That’s the product. Here’s how SmartyPants is
building credibility and trust via the eight techniques
described previously.

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

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

Techniques for Engendering Credibility, Legitimacy, and Trust

Technique Explanation

1. Have an attractive logo, corporate e-mail
address, and professional looking Web site.
2. Receive media coverage.
3. Obtain expert testimonials.
4. Obtain customer testimonials.
5. Give people a reason to care.
6. Tell your story.
7. Have a presence on Twitter, Facebook,
or both.
8. Tell people how you’ll use and/or protect
their money.
Prospective customers and donors have a mental image of what real
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.
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.
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.
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.
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.
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.
Like it or not, people will look for you on Twitter and Facebook. If you’re
not there, it’s a red flag. Establish a presence on one or both sites and
provide frequent updates.
If you’re a for-profit business, offer a money-back guarantee. If you’re a
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
are getting all the nutrients they need.”
4. Prime real estate on its Web site is devoted to
“What Parents Are Saying about SmartyPants Multi-
Vitamins.” Pictures of parents and kids are included.
Samantha S. from New York, New York, for
example, says “My girl is a very picky eater and I
love that she loves SmartyPants.”
5. The company prominently displays material about
the connection between brain health and mental,
physical, and emotional well-being. Vitamins are
part of the route to achieving brain health.
6. An “Our Story” tab is included on the toolbar at the
top of SmartyPants’s Web site. It was started by
parents and entrepreneurs who have the same
dreams and aspirations that all parents have for
their children.
7. The company is active on both Twitter and
Facebook. As of April 2011, it had 2,274 Twitter
followers and 10,826 Facebook friends.
8. The firm provides a 100 percent money-back
guarantee. In addition, it’s partnered with Vitamin
Angels, a nonprofit organization, which distributes
micronutrients, especially Vitamin A, to infants
and children in developing nations. Every time
someone buys a SmartyPants bottle of vitamins,
the company makes a one-to-one nutrient grant
through Vitamin Angels. It says it cares about
kids. This proves it.
SmartyPants prominently features this information
on its Web site. It’s tastefully done, provides useful
information, conveys the company’s values, and
provides multiple opportunities (i.e., newsletter, blog,
Twitter, Facebook) for prospective customers to get to
know the company before trying it out. While these
techniques serve multiple purposes, they’re essential in
helping SmartyPants build credibility and trust with its
target market.
DonorsChoose
DonorsChoose is a nonprofit organization that provides
a way for people to donate directly to specific projects
at public schools. Charles Best, a middle school science
teacher at a public school in the Bronx, launched this
firm in 2000. Since then, it’s grown to serve public
schools across the United States.
DonorsChoose collects proposals from teachers
and posts them on its Web site. A typical project is a
request that was posted in March 2011 by a teacher at
Christine O’Donovan Middle Academy in Los Angeles––
a public school. The teacher requested $549.48 for two
high-quality exercise mats to help students learn basic
exercises. The rationale is that physically active children
are more likely to thrive academically and socially. A 17
percent overhead to cover DonorsChoose’s costs,
which donors can opt out of, was added bringing the
request to $646.45. As of the date this case was written,
16 people had donated a total of $553.45 with only
$93.05 to go. If the project is funded, DonorsChoose will
buy the mats and deliver them to the teacher. A fax or
e-mail message will then be sent to the school principal
indicating that the gift had been made. In addition, if any
teachers in the same school have raised money through
DonorsChoose, those teachers will be notified of the
gift. DonorsChoose never sends cash to a teacher to
buy the items included in the request. It makes the
purchases and delivers the items.
What happens next is heartwarming and special.
Anyone who donates $1 or more receives a written
thank-you note from the teacher. Donors who contribute
$100 more to a project, or complete the funding for a
project, receive a “thank-you package” from all the
students that are affected, along with photographs of
the projects and a letter from the teacher. DonorsChoose
is funded by the administrative overhead it collects
from donors and through private funding sources.
The photo shows a second grade class at Hancock
Elementary School in San Diego, California. The
students are sitting on a new carpet they received
from DonorsChoose.
That’s what DonorsChoose is about. Like any
charity, it relies on the trust and support of its donors.
Here’s how DonorsChoose covers the eight techniques
shown previously for building credibility and support.
1. It has a professional logo design, beautiful Web site,
and .org e-mail address.
2. Despite having been active for more than 10 years,
the company still draws attention to the press it’s
received. It’s been featured by The Wall Street
Journal, NPR, CNN, Time, USA Today, The Oprah
Winfrey Show, and others.
3. DonorsChoose has been endorsed by two
organizations that rate nonprofits: BBB Accredited
Charity and Charity Navigator. It consistently meets
the BBB Wise Giving Alliance’s standards for charity
accountability, and has received a four-star rating
(the highest possible) from Charity Navigator,
America’s premier independent charity evaluator.
4. DonorsChoose prominently displays donor
feedback in real time on its Web site. You can log
onto the Web site and depending on the time of day
see feedback as current as within 10 minutes of the
time it was written.
5. The entire premise of the company provides people
a reason to care. Multiple pictures of children and
the projects that are being funded are posted on its
Web site.
6. The “About Us” tab provides extensive information
about why the organization was started and who’s
behind it.
7. DonorsChoose is active on both Twitter and
Facebook. As of April 2011, it had 35,096 Twitter
followers and 81,080 Facebook friends.
8. DonorsChoose prominently displays the impact
it makes. In the final week of March 2011, which
was a typical week, it collected money from
31,615 donors, 1,525 projects were completed,
and 90,577 students were affected. Its financial
records are audited by a public accounting firm,
and its records are available to the public upon
request.
 CHAPTER 7 䊏 PREPARING THE PROPER ETHICAL AND LEGAL FOUNDATION
Discussion Questions
1. On a scale of 1 to 10 (10 is high), rate both
SmartyPants and DonorsChoose in their efforts to
build credibility and trust. Highlight one thing that
particularly impresses you about both organizations.
2. Is it appropriate for a company to comment on its
ethical standards on its Web site or in its marketing
literature? If so, how should a firm or organization
approach this task?
3. How can building credibility and trust help a firm or
organization avoid legal disputes?
4. What are things that start-ups, whether they are
for-profit or nonprofit, do that have the opposite
effect of the techniques described in this feature:
they engender a lack of credibility and mistrust?
ENDNOTES
1. Personal Conversation with Shoaib Shaikh,
May 10, 2011.
2. R. T. Peterson, “Small Retailers and Service
Company Accuracy in Evaluating the Legality of
Specified Practices,”Journal of Small Business
Management 39, no. 4 (2001): 312–19.
3. 2009 National Business Ethics Survey,Ethics in
the Recession (Washington, DC: Ethics Resource
Center, 2009).
4. National Business Ethics Survey, 2009.
5. National Business Ethics Survey, 2009.
6. A. E. Singer, “Organizing Ethics and
Entrepreneurship,” Human Systems Management
29, no. 2 (2010): 69–78.
7. Character Training International homepage,
www.character-ethics.org (accessed May 13, 2011).
8. A. Fayolle, O. Basso, and V. Bouchard, “Three
Levels of Culture and Firms’ Entrepreneurial
Orientation: A Research Agenda,”
Entrepreneurship & Regional Development: An
International Journal 22, nos. 7 and 8 (2010):
707–30; T. Friedman, Hot, Flat, and Crowded
(New York: Farrar, Straus and Giroux, 2008).
9. N. Oliverez-Giles, “Amazon Apologizes for Server
Outage, Offers Credit,” Mercury News,
www.mercurynews.com/business/ci_17957957?s
ource=rss&nclick_check=1 (accessed May 13,
2011, originally posted on April 29, 2011).
10. A. Fernandez-Ribens, “International Patent
Strategies of Small and Large Firms: An Empirical
Study of Nanotechnology,” Review of Policy
Research 27, no. 4 (2010): 457–73.
11. C. E. Bagley, Legal Aspects of Entrepreneurship:
A Conceptual Framework (Cambridge, MA:
Harvard Business School Publishing, 2002).
12. E. Gimmon and J. Levie, “Founder’s Human
Capital, External Investment and the Survival of
New High-Technology Ventures,” Research Policy
39, no. 9 (2010): 1214–26.
247
Application Questions
1. What techniques can a firm or organization use to
build credibility and trust that aren’t mentioned in this
feature? Provide examples of firms that are using the
techniques that you suggest.
2. The “You Be the VC 7.2” feature focuses on Prefense,
a company that’s making a hand sanitizer that a
person has to apply only once a day. Spend some time
studying the company. Based on the information you
find, comment on the job that Prefense is doing to
build credibility and trust with its target market.
Sources: SmartyPants Web site, www.wearesmartypants.com
(accessed April 4, 2011); DonorsChoose Web site,
www.donorchoose.org (accessed April 4, 2011).
13. T. M. Marcum and E. S. Blair, “Entrepreneurial
Decisions and Legal Issues in Early Venture
Stages: Advice That Shouldn’t Be Ignored,”
Business Horizons 54, no. 2 (2011): 143–52.
14. J. Poole, “What to Do If You’re Not Getting Paid,”
Constructionimics, www.constructionmics.com,
July 5, 2010.
15. Y. Sheffi, “What Does Not Kill Me, Makes Me
Stronger,” Journal of Supply Chain Management
46, no. 1 (2010): 8; C. Sutton, “Cash Is King,
Hard Lessons Some Small-Business Owners and
Managers Forgot!” www.smallbusinessanswers.
com (accessed July 28, 2008) .
16. C. Frank, “Get Everything in Writing,” The
Kauffman Foundation, www.entrepreneurship.
org/Resources/Detail/Default.aspx?id=11328
(accessed December 12, 2008, originally posted
on July 1, 2000).
17. M. Clark, The Bear Necessities of Business
(New York: Wiley, 2006), 112.
18. C. E. Bagley, Legal Aspects of Entrepreneurship:
A Conceptual Framework (Cambridge, MA:
Harvard Business School Publishing, 2002), 17.
19. A. Gerlin, “A Matter of Degree: How a
Jury Decided That a Coffee Spill Is Worth
$2.7 Million,”Wall Street Journal, September 1,
1994.
20. Marcum and Blair, “Entrepreneurial Decisions
and Legal Issues in Early Venture Stages.”
21. K. G. Stewart and L. Zheng, “Treating Cross-
Dependence in Event Studies: The Canadian
Income Trust Leak,” Applied Financial Economics
21, no. 6 (2011): 369–77; H. R. Cheeseman,
The Legal Environment of Business and Online
Commerce, 6th ed. (Upper Saddle River, NJ:
Pearson Education, 2009).
22. J. C. Leach and R. W. Mellcher, Entrepreneurial
Finance, 4th ed. (Cincinnati: Cengage Learning,
2012).