My friend Joe was telling me recently about a contract his company didn't get for a big project from a corporation that operates theme parks. Instead, the corporation accepted a bid from one of his competitors. When Joe asked why, the park people said his company was too small. They felt more comfortable having a big company as the lead contractor. "That hurt," Joe said. "Our company is more than twice the size of the other guy's company, but we come across as small, and he comes across as big."

Perceptions play a huge role in business, and you have to pay attention to them, or you won't get very far. If people don't like what they see when they look at you and your business, you'll have a hard time raising money, finding customers, retaining employees, working with suppliers, and doing everything else that you need to do to make your company successful.

But that doesn't mean you can do anything to create the right perception. There's a difference between managing perceptions and practicing outright deception. The line between the two may be a fine one, but it's a line all the same.

So how do you stay on the right side of the line? I believe that there are two rules you have to follow. First, don't lie. Second, don't do any harm. As long as you stick to those rules, I think that you can do whatever is necessary to encourage people to perceive you as you wish to be perceived.

Take, for example, a new service company that's looking for its first customers. That's always a challenge. Before people will pay you for a service, they want to be sure you can deliver. In particular, they want to know you've done it before.

So you need references. But how do you get them if you don't have any customers yet? One way is to give your service away. You tell interested prospects: "We'll let you use it for three months at no cost. If you like it, we'll come back and talk to you about signing a contract." Then you keep in touch and find out which customers are most satisfied. After a few weeks, you ask them if you can include them on a list of references. Granted, there's a risk they'll mention to reference checkers that they haven't yet begun paying for the service. Then again, the callers may not ask, or the references may not tell, and you'll have what you need to get started.

I see nothing wrong with that. The prospective customers are talking to real customers who are using your service. If a reference checker assumes they're paying customers, well, no one has lied and no one has been hurt. I certainly prefer that approach to the common alternative: getting four or five friends to pose as customers and make up stories for prospects when they call.

Of course, in some businesses, it's almost impossible to give your product or service away. Then you have to be a little more creative.

I had that problem when I started my records-storage business. You really can't give away storage for just a few months. Most prospective customers have long-term contracts with other suppliers and have to pay substantial fees to remove their boxes. They aren't going to do that simply to try your service for a short period of time.

So we could get references only by signing up real, paying customers. Even if we offered extremely low storage fees, we were going to have a lot of trouble persuading any prospect to become one of our first accounts. For openers, we were operating out of a run-down wreck of a warehouse, which was all we could afford at the time. It was perfectly safe, and it didn't leak, but the walls were unpainted, some windows didn't work properly, and the place looked like a mess.

"How are we ever going to get anybody to store their records here?" my partner Louis asked the first time he saw it.

"Don't worry," I said. "We'll fix the windows and clean things up."

"What about the walls?" he asked.

"Nobody will be able to see the walls once the racks fill up," I said. "Until then it's a matter of perception."

I wanted people to perceive that we were in the process of upgrading the facility, as indeed we were. So whenever we brought in prospective customers, I made sure that a couple of employees were painting a section of a wall. It was always the same section of the same wall, but the painting had the desired effect. Prospects perceived that the warehouse was a work in progress and didn't pay much attention to the appearance of the walls.

A far bigger problem was the perception that the warehouse was empty. We had a few small accounts, but most of the shelves were bare, and that made a big impression on people. "Gee, are we going to be one of your first customers?" they would ask when we showed them around. They were so worried about becoming guinea pigs that they didn't hear anything else we had to say.

We clearly had to do something. I had an idea. We went out and bought 2,000 empty boxes, put bar codes on them, and used them to fill the shelves. We then put mirrors on the back wall. From a distance, it looked as though the warehouse went on forever and was absolutely packed with boxes. When we took visitors on a tour of the facility, we put up a rope to make sure nobody got close enough to the mirrors to see how we'd created the effect. Prospective customers who came in began asking whether we had enough room for their boxes. We assured them that we did.

A lot of people would say that I was deliberately misleading our visitors, and I can't disagree. But I don't believe I did anything wrong. Whether we had one box or many boxes had no impact on the quality of the service we were providing or the terms of the deal we were offering. All we were doing was changing the perception of our size.

There's nothing wrong with that. When you start a business -- any business -- you have a limited amount of capital and therefore a limited amount of time to make the company viable. You have to use your wits to overcome the obstacles you face before the money runs out. If you don't, the company will fail, and you'll lose the opportunity to create jobs, satisfy customers, generate wealth, and do all the other good things that businesses do. If that means making your company look bigger than it actually is, so what? As long as you haven't actually lied to people or done something to hurt them, I don't see any ethical problem in making sure they perceive you in a favorable light.

As a company grows, moreover, the challenge doesn't go away. It just changes. When prospective customers tour our facilities today, we don't need any mirrors to make the business look big: we have giant warehouses filled with more than 2 million boxes. Instead, we work hard to let people know that in spite of our size we're still a family-run operation with a personal touch. My wife, Elaine, even sends handwritten notes to all our new customers, welcoming them and inviting them to contact us directly if they have any problems.

You might say that we've become the company we pretended to be when we started out. That usually happens when you do a good job of managing perceptions. The perceptions become the reality. The small company that tries to seem big becomes the big company that tries to seem small. It's a lesson I'm sure my friend Joe will remember the next time he bids on a major contract.

Norm Brodsky welcomes your comments on this controversial topic. He is a veteran entrepreneur whose six businesses include a three-time Inc 500 company. This column was coauthored by Bo Burlingham. Previous Street Smarts columns are available on-line at

Please E-mail your comments to