Small business : Definitions and

Characteristics

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Why Small Business Today?

Economic changes

Globalization

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

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SMALL BUSINESS

OWNERSHIP

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

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Common Types of Small Businesses as

Percent of All Small Businesses

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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

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SMALL BUSINESS

ADVANTAGES

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

customers.

– 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.

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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

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SMALL BUSINESS

ASSISTANCE

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

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Definition of Small Business

● Independently owned and operated

● Not dominant in its field of operation

● Number of employees, depending on the

industry

● Annual sales consideration, depending on

the industry

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Eight reasons why many small businesses fail.

Competitive Advantages of a Small

Business

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

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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

procedures.

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Managing Versus Doing

STAGE 1 STAGE 2 STAGE 3 STAGE 4 One-Person

Operation Player-Coach Intermediate

Supervision Formal

Organization

Time spent managing Time spent doing

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Managerial Tasks of Entrepreneurs

Creating an

Organizational

Structure

Controlling

Operations

Planning Activities

Leading and

Delegating

Entrepreneurial

Management

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THANK YOU…

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