Reputation building: small business strategies for successful venture development *.

A positive corporate reputation can be crucial to successful venture development. Making use of the Strategic Reference Point theory, four reputation strategies were conceptualized: 1) dynamic exploitation of existing assets; 2) development of core competencies; 3) image management; and 4) strategic alliances. In a comprehensive investigation of three software enterprises in Israel, companies were found to differ in policies that possibly could lead to a good reputation. One company emphasized the long-term establishment of core competencies and remained a fairly unknown enterprise. A second company accentuated the short-term exploitation of assets and bad a middling success in reputation building. A third enterprise invested in a broad spectrum of reputation building strategies and quickly developed a reputation for excellence in the field. In conclusion, corporate success often depends on the extent to which managers develop an integrated package of policies for systematically building the intangible asset of corporate reputation.

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A newly founded small business suffers from the "liability of newness" (Stinchcombe 1965). Being unable to provide clear evidence of its ability to compete against more established firms, an information gap or "information asymmetry," prevents stakeholders from judging the full capabilities of a firm (Dixon 1991; Weigelt and Camerer 1988). Consequently, these businesses lack recognized institutional legitimacy and have problems in attracting investment money, customers, and competent personnel (Zimmerman 1997).

In the absence of a history of success, small business managers can endeavor to strengthen their market status by establishing a positive corporate reputation in the shortest time possible. This reputation defines a company's identity--as seen by important stakeholders--in the market competitiveness of its products and/or services, the effective management of its resources, and its potential for future success. As an intangible resource, such a corporate reputation could prove pivotal in obtaining legitimization within the marketplace (Fichman and Levinthal 1991). A good reputation is perceived by others as an indicator of a firm's overall effectiveness: attracting investors, decreasing costs as suppliers offer better terms, encouraging customers to purchase the company's products or services, and assisting in the recruitment of skilled manpower (Dollinger et al. 1997; Fombrun 1996).