03/01/2012 02:27 pm ET Updated Jun 07, 2012

The Life-threatening Costs Of Becoming A Big Business

The success of a company relies on a confluence of many things, one of which is an intuitive, user-friendly product that makes your life easier. However, business ethics and how your company conducts itself can quickly kill, or at least severely damage, the profit margin and reputation you have been working so diligently to establish.

Poor business ethics and corporate corruption will affect a business regardless of its size, but weak principles will prevent small businesses from ever getting off the ground. According to the Small Business Administration, approximately 99% of all independent enterprises in the United States employ fewer than 500 people, and these small businesses account for 52% of all American workers.

If you are one of these small businesses, you likely understand the importance of responding quickly to changing economic conditions, efficiency, and profit and loss margins. You are also probably keenly aware of the success rate for new companies and the Damocles' sword hanging over your entrepreneurial neck. According to the U.S. Department of Commerce, seven out of ten new employer firms survive at least two years, half at least five years, a third at least ten years, but only one quarter of all new business survive in business fifteen years or more.

In order to beat the odds, small business owners need to work hard, be aware of the market, and cut corners wherever possible, but most importantly, they need to beware of questionable business practices - even if they are legal. The American public is not always forgiving of poor and exploitative choices. A prime example of dubious practices is the poor conditions established by Foxconn, Apple's main Chinese manufacturer, in the Chengdu product plant. To be fair, Apple is not the only company to ship production overseas, raising questions about its working conditions, but it is one of the largest and most prevalent controversies currently in the news.

In May 2011, a Hong Kong advocacy group published a report on unsafe working conditions in the Apple plant, and two weeks later, an explosion there killed four and injured over a dozen more. A few months after that tragedy, a similar explosion occurred at an Apple supplier in Ri-Teng. Not only did Apple have direct costs associated with these explosions and reports (compensation to employees' families, repairs, loss of product), but the company likely suffered incalculable indirect costs by way of loss of countless customers based on the negative reports.

There are opportunity costs associated with every purchase a company makes and repercussions to every choice. One seemingly cost-saving decision may end up driving you into bankruptcy. As a small business owner, it is up to you to maintain high standards and impeccable ethics, while still walking that fine line between cost and quality.

Business decisions and ethical decisions should not be mutually exclusive. Leaving morality out of the equation leads to "ethical fading," a phenomenon first described by Ann Tenbrunsel and her colleague David Messick, an occurrence which takes ethics out of consideration and could increase unconscious unethical behavior. If a business owner is able to recognize this danger, he can preserve the company ethics, allowing him to maintain his pride in his principles and in his business. Customers can sense this positive behavior, and word of mouth will increase his market share. In essence, while it does not guarantee success, the cost-benefit analysis of maintaining positive values and ethics will be in the small business owner's favor and is advisable to all entrepreneurs.

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Talya A. Drissman contributed research to this article.