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Small business : Definitions and Characteristics · PDF file Eight reasons why many small...

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  • Small business : Definitions and


  • 2

    Why Small Business Today?

    Economic changes


    Advancing technology

    Increased competition

    New market niches

    a process by which national and regional

    economies, societies, and cultures have become

    integrated through the global network of trade,

    communication, immigration and transportation

  • Cows, after you’ve seen them for a while, are boring. They may be perfect cows, attractive cows, cows with great personalities, cows lit by beautiful light, but they’re still boring.

    A Purple Cow, though. Now that would be interesting. – Seth Godin, 2002

  • SLIDE 4



    Description of a small business

    – Owner is usually the manager

    – Operates in one or very few locations

    – Typically serves a small market

    – Not dominant in its field

    Small business employment

    Ownership diversity

  • SLIDE 5

    Common Types of Small Businesses as

    Percent of All Small Businesses

  • SLIDE 6

    Checkpoint 

    Beyond the formal definition of a small business, what four points can be used to describe a small business?

    – Owner is usually the manager

    – Business operates in one or very few locations

    – Business typically serves a small market

    – Business is not dominant in its field

  • SLIDE 7



    Meeting customer needs

    Providing unique services

  • SLIDE 8

    Checkpoint 

    How can small businesses compete successfully

    with larger businesses?

    – Smaller businesses are able to provide more

    personalized products and services to their


    – They are able to provide products and services

    where smaller orders and projects are required and

    tend to fill unique customer needs, which larger

    companies do not provide.

  • SLIDE 9



    Not keeping adequate records

    Not having enough start-up money

    Lack of management experience

    Lack of experience with the type of business

    Not controlling operating expenses

     Poor location for the business

     Failure to manage credit offered to customers

  • SLIDE 10



    University and college faculty members

    Local groups of business people

    Small Business Administration (SBA)

  • SLIDE 11

    Checkpoint 

    List common reasons for small business failure.

    – Not keeping adequate records

    – Insufficient start-up money

    – Lack of management experience

    – Lack of experience with the type of business

    – Not controlling operating expenses

    – Poor location

    – Failure to manage credit

  • 12

    Definition of Small Business

    ● Independently owned and operated

    ● Not dominant in its field of operation

    ● Number of employees, depending on the


    ● Annual sales consideration, depending on

    the industry

  • 13

    Eight reasons why many small businesses fail.

  • Competitive Advantages of a Small


    Can maintain a closer relationship with its

    customers, employees, and its suppliers

    Has a smaller base, and hence can provide

    more individual attention to its customers

    Because of lower overhead, smaller firms can

    perform more efficiently.

     Small firms have greater flexibility because

    their size lets them adopt new processes,

    services, materials, and products. 14

  • Competitive Advantages of a

    Small Business (contd.)  Small companies encourage competition in

    design and efficiency and help prevent larger

    firms from forming monopolies.

    The owner of a small business retains an

    element of control and autonomy that is

    dispersed in a larger company.

     Small businesses tend to produce well-rounded

    people because they provide a greater variety of

    learning experiences and more potential for

    diversified interaction. 15

  • Competitive Advantages

    of a Small Business (contd.)  The opportunities for freedom in decision making and

    the variety of activities leads to more creative and aggressive leadership.

     Small businesses tend to attract good management personnel and so reduce the overall chance of failure.

     Management people are attracted to smaller firms because:

    – Advancement within smaller firms can be accelerated.

    – Personnel tend to have greater responsibilities and duties.

    – Work experience tends to be more diversified. 16

  • Disadvantages of a Small

    Business  Some disadvantages of small business:

    – The inability to hire qualified employees

    – Lack of funds for expansion

    – Tax burdens

    – Limited or nonexistent credit with suppliers

    – High costs for advertising

    – Coping with competition

     Many of these disadvantages can be linked directly to improper planning and misuse of funds

     Success or failure revolves around

    – Inadequate managerial ability

    – Inadequate financing

    – Poor competitive position


  • Organizational Stages of Small Business Growth

  • Stages in Firm Growth and

    Management Growth Stage Entrepreneur’s Workload

    Stage 1. One-Person Operation Doing all of the work. Making

    contact with customers.

    Stage 2. Player-Coach Continuing to do some of the

    basic work, although learning to

    hire and supervise.

    Stage 3. Intermediate Supervision Rising above hands-on

    management; working through

    intermediate managers.

    Stage 4. Formal Organization Using plans and budgets;

    following policies and



  • Managing Versus Doing

    STAGE 1 STAGE 2 STAGE 3 STAGE 4 One-Person

    Operation Player-Coach Intermediate

    Supervision Formal


    Time spent managing Time spent doing


  • Managerial Tasks of Entrepreneurs

    Creating an





    Planning Activities

    Leading and







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