Small business : Definitions and
Why Small Business Today?
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
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
Common Types of Small Businesses as
Percent of All Small Businesses
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
Meeting customer needs
Providing unique services
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.
COMMON REASONS FOR
SMALL BUSINESS FAILURE
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
University and college faculty members
Local groups of business people
Small Business Administration (SBA)
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
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
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
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
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
Time spent managing Time spent doing
Managerial Tasks of Entrepreneurs
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