12. Moral Intelligence for the Entrepreneur
Starting from scratch. Imagine this: You have a great business idea, eager investors, and a prime location for your new company. With every resource at your disposal, you now have the chance to realize your fondest hopes and ambitions. You also have the power to create a high-performance culture from the ground up. No legacy employees, no unnecessary bureaucracy, no history to overcome. How would you begin? Would you use your newfound power to build a company based on universal principles, with socially noble goals and a morally competent workforce? Entrepreneurs rarely launch their ventures with an explicit moral focus. They make mistakes, and the most costly missteps are frequently moral, not strategic or operational. When entrepreneurs lack a consistent level of moral competence, their businesses usually falter or fail completely. Even exceptional business models can’t survive without morally competent leadership. Entrepreneurs who want to succeed must master not only their business challenges, but must also align their businesses with the principles of integrity, responsibility, compassion, and forgiveness.
Morally clueless in Minneapolis. In the 1970s, a group of entrepreneurs started a telemarketing business named Minneapolis Circulation, which primarily sold subscriptions to Minneapolis magazine. Its arrangement with the magazine was that Minneapolis Circulation would own the subscriptions and would pay the magazine $1 for every $5 subscription it sold. The company was creative about marketing subscriptions, but the partners’ greed and irresponsibility doomed it to failure. The partners failed to recognize that the magazine publishers would come to resent their meager share of the profits, and it was only a matter of time before the publishers found a way to dry up the telemarketing company’s pipeline and pave the way for a better deal with another telemarketer. When the entrepreneurs got the squeeze, they didn’t have the financial reserves to retool their strategy. They had naively thought of the company as their cash cow, and any money they made after expenses went straight into their personal bank accounts. Because their vision of the business was so limited, Minneapolis Circulation’s owners didn’t even think about their responsibility to their employees or to the sustainability of the business.
Poorer, but wiser, or so one owner thought, he launched another company, Twin Cities Telemarketing, with a new business partner. He had learned his lesson about trying to own subscriptions, so his new enterprise sold subscriptions for a fee. Its first client was Twin Cities Woman, a struggling newspaper look-alike. When Minneapolis magazine got a new publisher and a new name, Minneapolis St.Paul Magazine, Twin Cities Telemarketing acquired its subscription sales business, too. Then it went after business with Twin Cities magazine, a publication that Minneapolis St.Paul Magazine viewed as a competitor. Twin Cities Telemarketing knew that it could sell both magazines effectively. It recognized that a lot of customers, such as hotels and professional offices, subscribed to both. Its game plan was to help both clients succeed. But it carefully didn’t mention its relationship with either magazine to the other. That was a fatal flaw. When the Minneapolis St. Paul Magazine publisher found out that Twin Cities Telemarketing was working for its arch rival, he pulled the plug. The owners of Twin Cities Telemarketing never thought of themselves as dishonest, but they were. Integrity would have dictated that they do their best to convince both magazines that representing the two was a win-win scenario—before taking on the second magazine.
Both of these ventures demonstrate that business savvy relies as much on moral intelligence as it does on a good business plan. Both start-up companies were initially successful businesses that unraveled because of gaps in integrity and responsibility. Like most entrepreneurs, it took several false starts for this group to learn the importance of principles and values. Those early business failures also point out just how critical moral competence is to a small business. Failures of integrity or responsibility might not be terminal in a large business that has the resources to absorb a certain number of mistakes. But for most small organizations, the distance between solvency and bankruptcy is painfully short.
Driving without a steering wheel. KRW International, one of the first executive coaching firms in the country, was founded in 1990 to offer premium consulting services to Fortune 500 executives. KRW’s owners were strong on integrity and responsibility where their clients were concerned, but those principles were not always extended to their own organization. In the first few years, the owners’ attitude was, “Let’s have fun and make money.” When demand for their services started growing beyond what they could handle, the partners did not think proactively about the kind of organization and workforce they needed. Instead, they reacted to the needs of the moment. They hired contract consultants and discovered that they didn’t stick around long. They hired administrative staff at fairly low wages and worked them hard. They didn’t stay long either. It took some time for KRW’s partners to realize that if they didn’t act responsibly toward their employees, employees would have no reason to feel responsible to them.
Luckily, KRW hired an administrative head, Kelly Garramone, who became its moral champion. More than once, Kelly confronted the owners, “There is too much work, too few people to do it, and deadlines are impossible.” She successfully challenged the company to create work processes that both consultants and administrators could live with. Business grew consistently until 1994 when a major client company abruptly canceled its contract. KRW’s owners were so shaken that they immediately decided they had to lay off most of their employees to preserve the owners’ financial resources. That decision was ill-considered, both on business and moral grounds....
It was a beautiful fall day when KRW employees were gathered for the company’s annual Octoberfest celebration. When the owners walked into the room, employees expected the festivities to commence. Instead, the owners announced a major downsizing. Soon, people were crying and running out of the room to call their spouses and friends. KRW’s owners were open and honest, but their approach was a lot like surgery without anesthesia. It turned out to be unnecessary surgery. Everyone was given a good severance package. But soon most employees were rehired as independent contractors because KRW still had work in the pipeline. Before long, its major client reinstituted the contract, and KRW rehired all but a few of its former employees. One employee never missed a paycheck, but she got a windfall—three months off. KRW’s owners ended up losing more money by thinking of themselves first than they would have if they had stepped back to take everyone’s needs into account.
The mistakes KRW made during its 1994 downturn were the result of destructive emotions and a moral virus. KRW’s owners had started their business with the goals to “make money and have fun.” As soon as something happened that threatened both goals, fear took over, and they lost their ability to be reflective and self-aware. Further, because their goals were not aligned with a deeper purpose, there was no overriding sense of responsibility that could overcome their impulse to take care of themselves first.
KRW weathered that crisis and soon regained considerable momentum, so much so that during a 1998 company meeting, Kelly Garramone and her administrative staff once again announced that they were so overworked and stressed that if the company didn’t make major changes, many would quit. KRW owners and consultants finally got the message. It was a turning point. The strong feelings of the administrative staff prompted the group as a whole to question why it was in business. It became clear that financial rewards were only part of the motivation for working at KRW. Some employees said that their ideal purpose was “to make the world a better place.” Many employees resonated strongly with that purpose. Others worried that KRW would lose business if hard-nosed senior executives got wind of such a pie-in-the sky mission statement. Eventually, their collective desire to do something ambitious and wonderful won the day. In subsequent months, Kelly led the effort to define the organizational values that sprung from their newly articulated purpose. “If we are going to be an organization of moral integrity,” insisted Kelly, “then we need to behave consistently with our purpose.” Eight years after starting the company, “doing the right thing” became an explicit part of the KRW culture. Little did KRW’s owners realize that within a few short years, KRW’s collective commitment to a shared purpose would mean the difference between extinction and survival.
KRW took a steep trajectory as it gathered media recognition for its approach to CEO coaching and senior executive development. In 2000, it increased its revenues by 27%, expanded its consulting staff by one-third, doubled its office space, and was actively recruiting for additional staff to support anticipated further growth. By June of 2001, business bookings were so strong that one overwhelmed owner instructed the consultant group to stop marketing until further notice. Only three months later, in the wake of September 11, KRW’s revenues crashed. This time, the moral lessons of the past came to the fore. The owners, despite enormous pressure, vowed to keep the company going. They cut their own salaries, mortgaged their houses, and did everything they could to keep the staff together for as long as possible. Each week, they updated their employees on the financial status of the company. For months, the news was grim. Everyone could see the handwriting on the wall, but when two rounds of selective layoffs finally came, laid-off employees were grateful for the lead time they had been given to prepare for their job transition. Employees who remained had almost as tough a time as those who left. Consultant salaries were cut, and administrative employees were given reduced hours. Owners suspended their salaries. With half of the staff gone, the offices looked—and felt—like a ghost town. But no one left who had the choice to stay. Maybe they stayed because the job market was dismal. But if you ask KRW employees why they stayed, they will tell you, “I believe in what KRW is trying to do.” If you ask former KRW employees if they would go back if asked, the answer is almost always, “Yes.” KRW returned to profitability within a year. Quite a few consulting firms did not survive the economic downturn of 2000–2002. KRW might have started by driving without a steering wheel, but it learned the value of guiding principles along the way, and those values steered it safely through its darkest hours.
Moral Values in Small Organizations
The moral values highlighted throughout this book are crucial to organizations of all sizes and stripes, big and small, for-profit and nonprofit. Integrity, responsibility, compassion, and forgiveness are undeniable values, no matter what the venue. Although the four core principles are the same, the moral challenges that dominate an organization are often size-dependent.
Poll a cross-section of employees who work for small organizations, and you begin to see differences in the character of small versus large organizations. Small company employees typically place a premium on decision-making freedom. Some value risk and adventure, whereas others value the small-town intimacy or the potential to have a larger impact. Another difference lies in the visibility of leadership in small organizations. The entrepreneurs or small company CEOs live in a fishbowl—everyone can see everything they do. The beliefs and goals that drive leader behavior are just as clear. So, moral competence is particularly crucial to the small company leader because moral gaps cannot be hidden—and bad choices lead to more than a slap on the wrist. They could spell the end of the business.
Challenges of integrity. For small organizations, internal integrity comes more easily than external integrity. Small companies by virtue of their size promote more direct and honest communication. Your boss might be sitting at the desk in the next cubicle, rather than sequestered in a remote executive suite. Fortunately, good information flow is easier to come by in a small company because without it, a small enterprise could go belly up in a matter of weeks. Actifi’s Spenser Segal says this about the business value of honesty: “When we started, financial viability was not a given, and we felt everyone had to feel responsible for our success. To do that, they had to be able to manage the risk they were personally taking on. So we instituted a policy of sharing detailed financial information on a weekly basis. Now everyone knows how much cash is in our account, what is coming in, and what our pipeline looks like. Instead of managers and employees speculating and worrying, everyone knows what’s going on and works together to help us find solutions.”
Some hierarchical organizations, on the other hand, produce cultures of intimidation that discourage effective communication. Employees of large corporations often feel pressured to keep distant superiors happy, even if it means concealing a painful truth about poor performance. Ironically, when difficult truths are finally uncovered, the consequences might not be so dire because large profitable companies usually have the cash reserves to weather fallout from internal dishonesty.
Although internal honesty might come more readily to small companies, integrity can be challenged when small companies must put on a good face to the outside world. Capitalization is a perennial issue for many small companies. They need to borrow; they need to sell equity shares, or both. As one start-up founder points out, “It is very tempting to hide the truth from potential investors about the health of the company. But resisting temptation is essential. We have to be open and as transparent as possible about what the issues are. If you’re getting people to really commit—whether they are employees or investors, then you have to be honest about what is working and what isn’t.”
Challenges of responsibility. Unlike large companies, which usually are focused on increasing profits, many new or small companies are trying to reach the point of making a profit. Small companies don’t have the luxury of irresponsibility. Taking too long to admit a mistake can make the difference between black ink and red ink. But admitting failure can be hard, in part because individuals who work for small companies often feel more intense ownership for the decisions they make and want to keep plugging away to make it work. Unfortunately, that can spell doom for an emerging business. New companies are successful, not because they don’t make mistakes, but because they know how to make a lot of mistakes quickly. The sooner the organization acknowledges a mistake, the sooner it can change course.
ActiFi’s Spenser Segal reflects on the cost of denying mistakes: “In a small business that doesn’t have a long history of results, it is critical that you stay firmly grounded in reality without giving up hope for the long term. We initially developed some sales assumptions for our first product. Our projections exceeded our results by a factor of five. It was four months before we were ready to reexamine our assumptions. The truth was staring us in the face, but no one said anything—maybe because I was a big part of making the mistake. Fortunately, we were able to recover, but we lost three months of valuable time by not admitting that our assumptions were flawed and our targets were unrealistic.”
Spenser then adds a note about the benefits of admitting mistakes: “Because we had a very experienced management team, we were overconfident about our business model and our projections. After we admitted our miscalculation, we got better at admitting that we don’t know what we don’t know and therefore could look at things more like experiments. That took a lot of pressure off of everyone thinking that everything had to succeed.”
Contrast ActiFi’s rocky start with giant American Express, which had the financial resources to stay with a troubled business venture that its executives mistakenly thought would work—eventually. American Express finally closed the business at a loss, but the company as a whole was never at risk of going out of business because it delayed coming to terms with a bad business decision. Executives of large companies might produce higher profits if they heeded the lessons of responsibility that come from small organizations.
Challenges of compassion. Compassion comes more easily in a small organization. Within the walls of a small enterprise, you know people better, and you are likely to know all your co-workers. In a small organization, no one is anonymous. Small companies more closely resemble the interdependent tribal groups that were so important to survival of our human species. Membership in smaller working groups seems to activate our hard-wired tendency for altruism. We take interest in our co-workers. We feel bonded to them. We see their success and ours as interconnected. When they need help, we want to help them. That does not mean that smaller organizations are immune from rivalry or deception or dislike. No human community is perfect. We may see the dark side of connectedness when we work in a small organization, but we rarely see indifference. If the small company headquarters is big enough to have an elevator, it will not be a silent ride.
But compassion is a double-edged sword. Too little compassion—as in the hard-edged and ultimately unnecessary lay-off in KRW’s early days—and business may suffer. Too much compassion, as in KRW’s post-9/11 protracted subsidy of employees, and business may also suffer. Business judgment without compassion can be as equally damaging as compassion without business judgment. Just as in the last chapter when we emphasized the fabric of values, skillfully interweaving business and moral values is even more critical for the small organization that commonly lacks the financial cushion to absorb mistakes and downturns.
Challenges of forgiveness. Because small organizations rely on their capability to cycle rapidly through mistakes, it is equally important for small organizations to forgive mistakes. Spenser Segal believes that forgiveness is critical to the success of a new business, adding, “Every startup makes tons of mistakes. We have built our business model assuming mistakes and bad assumptions. By being aligned around our mission and core values, we are able to look at various strategies as tests and hypotheses that we are seeking to prove or disprove. By ensuring that an environment fosters trying new things and doesn’t cause bad feelings when tests or hypotheses fail, we are able to learn much more quickly—and that results in much better business models going forward. We need to learn to avoid four-month mistakes. It’s better to make lots of small mistakes than any big ones.” Amazon.com credits its growth from small online bookseller to e-commerce giant to its encouragement of innovation. David Risher, former SVP of Marketing with Amazon.com, describes what the company did to foster innovation:
Three times a year, we presented the “Just Do It” award. We wanted to explicitly reward people who have pride in doing something innovative. It had to have been well-thought through—not just something silly—truly innovative and focused on customer need. But it didn’t have to work! And [one-third] of the time they didn’t. The reward? A used Nike sneaker—the bigger the better.
When it comes to letting go of mistakes and failures, small organizations have an edge. It can be hard to forgive a stranger. Forgiveness works best when you and I know each other and therefore are willing to give each other the benefit of the doubt when we make mistakes. Therefore, letting go of mistakes and moving beyond them happens more easily in a smaller organization—luckily so. In a small organization, you work in close quarters with all the people who might do something to hurt you. When you are angry at someone who has done you harm, or when you have done something to hurt another, there is nowhere to hide. Without the capacity for forgiveness, you would be surrounded by the tension of the unresolved hurt. Not only would a tense work environment prevent you from giving your best efforts, it would keep you from taking advantage of the resources your colleague would normally offer. In a small organization, it is difficult to work around a contentious relationship. For example, when you are in conflict with your colleague who is the company accountant, there is usually no department full of other accountants you can go to for help. In small companies, we are stuck with one another. That is ultimately a good thing. Knowing and accepting the foibles and failings of our co-workers sets the stage for “getting over it” and moving forward.
The moral impact of small organizations. Small businesses (companies of 500 employees or less) represent more than 99% of U.S. employers, employ about half of the private sector workforce, and generate a majority of the innovations that come from United States companies.1 Although as of 2010, small business growth has slowed, perhaps because of pessimism caused by the depth of the recent financial crisis; during prior economic recessions, such as the one between 2001–2003, job growth surpassed job losses among small companies. During the first quarter of 2002, 36% of jobless managers and executives started their own businesses, with a majority of laid-off managers moving to small companies.
Some workers, disenchanted with the legacy of mega-company scandals, or simply weary of large corporate bureaucracies, look to smaller organizations to provide a greater sense of meaning and purpose. KRW’s former Chief Financial Officer Don Waletzko is a case in point. Don left an executive finance position when he couldn’t approve his former employer’s plan to go on an acquisition binge that would produce substantial layoffs. Don’s moral compass wouldn’t allow him to be the financial architect of a strategy that he feared would cause great personal disruption to his fellow employees. His former company’s loss was KRW’s gain. Don arrived with a financial pedigree that a small company such as KRW could ordinarily never have afforded. Fortunately, salary was not Don’s top priority. He wanted to work for a company whose values reflected his own, and he found that in KRW’s commitment to leadership development as a way to improve human lives. When the aftermath of 9/11 threatened KRW’s survival, Don’s steadfastness and financial savvy saved the day. He was a key player in the reorganization and recapitalization that stabilized KRW on its way back from the brink.
Don is one of many managers who believe they can have more positive impact on people and organizations by working in a small business. The large organization, such as a lumbering ocean liner, can be hard to turn in the direction of increased moral competence. In contrast, small organizations, such as a 25-foot sailboat, can turn quickly and efficiently when the compass and prevailing winds dictate. Small companies are fertile ground for shaping a morally intelligent culture—one that provides value simultaneously to its customers, employees, owners, and the community it inhabits. For those of us who are concerned about the welfare of all the world’s peoples—small ventures offer great hope for the future. The path of economic development isn’t from the sweatshop to the boardroom. It is from poverty to small locally based sustainable businesses. Everyone who invests in a new venture or small company has a golden opportunity to infuse the business world with more principled, more humane, and ultimately, more financially stable businesses.
Five maxims of moral entrepreneurship. Start-ups are excellent laboratories for moral leadership. Because resources are tight, mistakes have more immediate consequences. If you falter, there is no elaborate infrastructure to cushion you from disaster. American Express can write off millions in bad junk bond debt without going out of business. The owner of a new company does not have that luxury.
Entrepreneurs by definition choose paths to success that are both risky and rewarding, both exhausting and exhilarating. Your success as an entrepreneur, like that of any leader, depends on following the same four principles of integrity, responsibility, compassion, and forgiveness that underlie any sustainable enterprise. Following are five additional pieces of advice:
1. Build a business that helps others. If your product or service doesn’t make the world a better place, why bother?
Frankly, the world just doesn’t need any more pet rocks, reality TV programs, or 2,500-calorie cinnamon buns. Starting a business is hard work. Doesn’t it make sense to unleash your passion on something that will improve the safety, security, or comfort of fellow humanity? Knowing that you are building a socially worthwhile business can sustain you and your workforce through the rockiest times. Consider this model of a profitable business that exists to help others. Mark Oja runs ACTIVEAID, Inc., the medical devices manufacturing company founded by his father 45 years ago. ACTIVEAID is a small company by most standards But to long-time customers such as the Mayo clinic, and to the 37 employees in the small town of Redwood Falls, Minnesota (population 5,459), it is a big business. Employees know what their work means to customers—disabled people who rely on its products for mobility, comfort, and dignity. Quality is paramount. Everyone takes pride in that what they do helps people in their daily lives. This level of employee engagement is a big part of the reason why the company has continued to grow significantly despite a historical recession.
Modern Survey is another small enterprise with service at its core. Early on, its founders discovered that its real product was not the business information software solutions it provided, but the service it offered its customers. According to co-founder, Don MacPherson, “Service to others is very important. That’s what we do as a company. It’s helped our business effectiveness because if we put our clients’ goals first, we achieve our goals. We have loyal clients, and we do virtually no advertising.
Even if your business fails—most entrepreneurs do fail several times before finally developing a successful venture—you will have the satisfaction of knowing your intentions were good. When you ultimately succeed—by staying true to universal principles and following the maxims of moral entrepreneurship—you will reap the combined rewards of service and profit.
2. Choose your partners wisely.
If you work in a large organization, your professional relationships tend to form through networks of work associates, industry colleagues, mentors, bosses, and acquaintances. If you work in a small organization, your professional relationships often overlap with personal networks of family and friends. Small business entrepreneurs are more likely to enter into partnership arrangements with family members, friends, and friends of friends. Choosing friends as business partners carries a host of dangers. No matter how objective you think you are, it is hard to evaluate a friend or relative’s moral strengths and weaknesses. The success of your partnerships depends on shared principles and values. Looking at close personal associates through the rose-colored glasses of your affection, you may not notice moral gaps that could spell doom for your mutual venture. Rowland Moriarty, noted chairman of the Board of CRA International, Inc., said this about a previous business partner. “I made a 25-year commitment to a friendship [and] then watched him take actions that led to the collapse of our company.”
Choosing a friend as a business partner can make it difficult to address the business problems created by one or the other. What do you do when a partner-friend betrays your trust by putting the business at risk? Though it’s hard to contemplate, your best response would be to remind yourself of your friend’s ideal self. By considering how your friend wants to behave ideally, you can give your friend the benefit of the doubt and avoid being overcome by destructive anger. When you believe that your partner and friend shares your values, you can discuss and jointly recommit to your vision and goals for your business. You forgive, and then you move on. You try again. You trust again. Keep in mind, however, that shared values lose meaning when ongoing behavior is inconsistent with those values. Forgiveness is not synonymous with stupidity. You can’t look the other way when a partner continues to violate your mutual commitment. It’s bad for your bottom line, and it sends the wrong message to employees who see that you are afraid to confront deceptive behavior. Remember that your emotional blinders are even stronger when your partner is a family member. Consider the experience of Janet Smith. Twenty years ago, her husband started a home renovation company. Business was booming, but cash flow was tight. Janet, a bright special needs teacher and mother of two, did not know that her husband was keeping his employees’ social security and tax withholdings, until the IRS summons arrived. Janet and her husband declared bankruptcy, but that did not protect her from the legal liability to the IRS. They avoided imprisonment but ended up with massive penalties that took many years to repay. Meanwhile, her husband started a second small construction company, after assuring his wife that he had learned his lesson and would faithfully make employee tax payments. A year and a half later, Janet discovered that her husband had once again failed to make the proper employer payments to the IRS. Angry but still desperate to believe in her husband, Janet agreed to become his partner in a new business that designed, produced, and sold diagnostic equipment for chiropractic offices. The company had some success, was on the way to profitability, and had attracted the interest of a potential buyer. But the succession of business pressures had taken its toll on their marriage, and Janet and her husband finally divorced. Only after he signed over the business to her, did she discover that the potential investor was a phantom, and her husband had saddled her a third time with a set of enormous tax liabilities. Janet was an intelligent woman with good analytic skills. But her overwhelming desire to trust her husband blinded her to his persistent ethical lapses. Ten years after her divorce, she is a successful financial advisor to small businesses, having built a second career out of the painful lessons of her business partnership with her former husband.
Because start-ups are so fragile, it’s especially important to choose partners who share your values. “I can’t say enough about this,” says Spenser Segal. “Understanding that the first few years would be filled with adversity, it was critical that we hired a leadership team that shared common values and believed that working on something they believed in was the best possible use of their time. By coming together with a team who shared that commitment, they were assured of personally being successful even if the business failed.”
3. Hold on tight to your core values.
Small business entrepreneurs need to be vigilant about maintaining their alignment with core values. Most entrepreneurs we know are highly morally intelligent. They are notably articulate about the principles and beliefs that guide them. ACTIVEAID’s Mark Oja, for instance, endorses the importance of remaining true to one’s principles. His moral compass is deceptively simple. “Honesty and family are the values that mean the most to me,” says Mark, adding “If you don’t mean it, don’t say it. If you know or think or feel that something is improper, immoral, or illegal, don’t do it.” But even though Mark is strongly committed to those values, business pressures can begin to lure a company away from its moral foundation. “It can be tough competing with companies who go offshore for their products. When we had an opportunity to sell a low-priced cane that came from outside the U.S., we took it. Then our distributors complained about how bad the canes were. Our distributors and customers count on us for high-quality products, and we had violated their trust. When we realized what we had done, we canceled the deal. It took some time to repair the relationships that had been completely trusting before.”
4. Surround yourself with employees who share your values.
When it comes to human talent, do not confuse the “best” with the “brightest.” Values fit is a stronger contributor to performance than technical skill. We all have known “values misfits” who were expert in their fields but couldn’t advance because they did not operate effectively within a particular organizational culture.
Mark Oja recounts this experience: “One time, we knowingly hired someone we didn’t trust. We needed a certain skill that was in short supply in our area. Our only skilled candidate in this small town was a man with a minor rap sheet and a reputation for bad relationships. But we felt desperate, so we thought we could handle him. We were wrong. He was impossible to work with, and we had to let him go.”
KRW International is obsessed with hiring employees who resonate with its purpose and values. Before job candidates are invited for an interview, their technical credentials are carefully scrutinized. Then the real vetting begins. Candidates run through a gauntlet of individual and group interviews in which the spotlight is almost exclusively on “fit” and values. The KRW community as a whole must agree that the candidate shares key values and will effectively represent them to customers and stakeholders. An owner once violated the recruitment protocol by hiring a consultant who had not run the full interview gauntlet. His colleagues were angry, and the unwitting new consultant wondered why some of his new associates were less than friendly.
Although resonance with organizational values is key for successful hiring, be sure to preserve diversity. Organization cultures have strengths and weaknesses, and if you hire only clones of your current workforce, you lose the opportunity to energize your company with new employees who bring novel approaches to your products and services.
5. Put your people—and your organization—first.
The United States Army has a saying, “The leader eats last.” The New York Times offered an illustration of this maxim a few years ago when it published a photograph of an Army general serving Thanksgiving dinner to his combat troops in Afghanistan. Army leaders know what every entrepreneur needs to know. Followers must absolutely trust their leaders to do what is best for the unit.
Putting people first also means investing in the development of employees. Small businesses are notorious for neglecting to invest in employee development. Their financial struggles usually leave little cash reserve, and it’s easy to drop the ball when it comes to “overhead” expenses such as training. Studies indicate that large company employees are more than twice as likely as small company employees to be offered employer-subsidized educational programs.2 Given the lower average wages offered by small companies,3 it is even less likely that employees of small companies will have the financial resources to maintain and update their job skills. Bucking this trend is ACTIVEAID’s Mark Oja, who used the productivity increases generated by a new production system, not as an excuse to downsize, but as an opportunity for employee development. Several years ago, ACTIVEAID transformed its manufacturing process from batch production to packet production—essentially, it changed to a just-in-time production method. Mark knew that packet production would be more responsive to their customer, but it also meant there would be times when employees were not occupied making inventory during the transition. When employees were first told not to make products, they were worried, fearing that down time would mean layoffs. But Mark had no intention of laying people off or reducing work hours. Today, when orders come in, production gets busy. When no inventory is needed, employees use the time for training. Mark is firmly convinced that the investment in training creates not only more skilled employees but also a more motivated workforce that can enhance their business performance in the months and years to come.
Last Words About Business Start-Ups
Despite many differences in the culture and operations of small and large enterprises, the basic requirements of moral leadership are the same. Moral skills are intrinsic both to successful entrepreneurship and successful management of established companies. If you are an entrepreneur, it may seem more difficult to stay true to principles when the stakes are high and the cash flow is low. But your new venture simply cannot survive unless it is anchored in core principles. Moral competence is essential for the small business leader. The small organization rarely has the excess resources to weather a major moral lapse, nor does it typically offer the golden handcuffs that could keep employees tied to a morally bankrupt enterprise.
So in the end, the small organization and the large have this in common: Doing what is right morally and doing what is right for the business are inseparable. No matter the size of the territory, the morally competent leader weaves business and moral values together—and that makes all the difference. Just as it’s true that buildings built to last need a strong foundation, it is also true that businesses built to last need a strong foundation. Moral principles and moral competencies are that foundation.
Endnotes
1. U.S. Small Business Administration Office of Advocacy, September 2009.
2. U.S. Bureau of Labor Statistics, Employee Benefits Survey, 2008. http://www.bls.gov/ncs/ebs/benefits/2008/ownership/civilian/table26a.htm.
3. U.S. Bureau of Labor Statistics, “National Compensation Survey: Employee Benefits in Private Industry in the United States, March 2006.” http://www.bls.gov/ncs/ebs/sp/ebsm0004.pdf.