However, it is a fact that many small businesses become successful large firms, developing particular approaches and strategies to overcome problems. This essay intends to identify the main problems faced by small business as they attempt to achieve sustained growth. It looks first at the differences between small and large companies and which aspects have been used to define small firms as an unique type of business.
It then goes on to problems originated from the owner-managers of small companies, which are mainly related to its personal values, attitudes and behaviors. Subsequently, size-related characteristics are explored as part of barriers faced by them. Lastly, the advantages of this type of business are presented together with general successful strategies that can be used by them to overcome limitations and be able to attempt sustained growth. It is known that the main difference between small businesses and other types of business is related to their size.
The European Union has defined through a commission recommendation document (2003) that numbers of employees and either turnover or balance sheet total determine different enterprises; which mall firms must have up to 49 employees and annual turnover or balance sheet total, cannot exceed EURO 10 million. In addition, firms which have 250 employees and over are categorized as large business, according to Department of Business, Enterprise and Regulatory Reform, cited in Bridge et al. (2009). However, the size is not the only factor to definition of a business type.
Bridge et al. (2009) argue that to having the same size do not means that all the small businesses are identical and indicates others aspects such as stage of development, business sector and attitudes and aptitudes of their owners that also should be considered to differ them. Therefore, small business seems to have particular organizational, managerial and developmental characteristics which differs them from big companies, and complementing it, Wryer and Mason (1999) asserts that it is important not to view small business as a microcosm of large firms.
The organizational structure of small and big companies may be similar if considered their needs of innovation to lead with changing environment, where a flexible and decentralized structure is necessary (Burns, 2007). For large business that are used to face unstable environment and undertakes complex tasks, are best served by an organic organization structure – one that changes and adapts to suit circumstances”. The large companies organic structure is highly flexible and have limited hierarchy, breaking themselves down in smaller units, similar with “a series of spider-web organizations within one large spider’s web”.
However, large companies who are inserted in stable environment and working with simple tasks may follow hierarchical structures since these models tend to be more bureaucratic and rigid (Burns, 2007), where is not possible to develop innovation, according to Tied et al. (2001) cited in Armstrong et al. 2004). The typical small business organizational structure is called spider web, which is informal and has one-to-one format, putting the owner in the centre of all relationships and processes who directly supervise each task of the company (Burns, 2007). Armstrong et al. 2004) asserts that it is imperative that a more organic structure being adopted, where communication can flow freely throughout the firm and which can support innovation. However, when the company starts to grow, the spider web structure can lead to problems due to the position of owner and his/her personal characteristics as well. For example, even when a manager who staffs must report to is nominated, the owner tends to interfere because his/her strong need for control, creating informal reporting lines of communication that leads to frustration and resentment among employees (Burns, 2007).
Since the main differential of the small business entrepreneurship structure seems to be related to the position of owner-manager as ‘the heart’ of internal and external relationships (Wryer, 1990 cited in Wryer et al. , 2010), it is crucial to analyses their innate characteristics such as values, attitudes, behaviors and abilities as one of the major influential aspects of small business. “it is likely to be true that the smaller the firm, particularly the owner-managed firm, the more important the personality and influence of the managers, be they entrepreneurial or not. (Burns 2007, p. 14) To analyses the entrepreneurial process in a small business is necessary to take the entrepreneur as the focus since that person(s) may be directly responsible for the closure of the business (Bridge et al. , 2009). Burns (2007) described characteristics in two types of leaders which are mergansers and entrepreneurs that are linked with different types of equines, lifestyle firm and growth firm.
Owner-managers have immediate needs and family income as the main objectives and entrepreneurs have profit and growth as their main goal (Garland et al. , 1984 cited in Sadler-Smith et al. , 2003). One common aspect of owner-managers is that most of them fail in their attempting of grow (Burns, 2007) and due to the first stages of business where they are inserted, their treats might be characterized as an instinct for survival, while entrepreneurs treats might be characterized as an instinct for growth further than survival (Burns, 2007).
Bridge et al. 2009) states that leader’s qualities “may emerge from traits, life’s experiences or the structure of organizations and society”. Gibbs (1983) asserts that the majority of the owner-manager characteristics comes from his/her potential influence in the business, which are particularly: his/her tendency to concentrate in special tasks, the effect of its leadership style on the style of organization, his/her influence in the community and environment as a whole.
In addition, the learning process in these small organizations might also derive out of the personal constructs of the people (Wryer, Manson and Thermocouples, 2000). It was described 8 main traits or qualities of entrepreneurial people, which are: achievement motivation, risk-taking propensity, creativity, need of autonomy, locus of control, determination, initiative, self-confidence and trust (Bridge et al. 2009).
For example, creativity is related with the concern of developing new products, processes or markets and the ability of producing solutions that “fly in the face of established knowledge”; need of autonomy is described as independence from other people and capacity of seeing more merit in independent thought and action; locus of control, on the other hand, refers to he feeling of having control of events beyond the individual and can make things happen (Bridge et al. 2009). However, according to Wryer et al. (2010) the owner-manager related characteristics can be responsible for problems faced by small business. The article mentioned independence and autonomy as values that might lead to unwillingness to anchor in outside expertise, and sense of control as a virtue that may lead to unwillingness to delegate tasks or share information. The owner manager’s personal construct is the main determiner in how change issues of small firms are perceived and which actions will be taken to overcome t (Wryer and Manson, 1998).
According to Wryer, Manson and Thermocouples (2000), the personal constructs of owner-managers might be inadequate frames of references in change situations, when to predict how the new situation will affect the business is necessary. In this case, the owner-managers need to develop a complex learning process to deal with the open-ended environment and it involves an extension of its constructions. In addition, Wryer and Manson (1998) assert that motivations, values, attitudes and abilities of owner-managers, such as independence and autonomy, may “restrict the recruitment of external expertise” needed in the change context.
Others personal characteristics that influence the business in its attempting to growth are presented by the Greener Growth model, developed in 1972 and that is still largely used to link the crises and each growth phase of the business, which are 5. However, only phases 1 to 4 are related to small business. Cunningham and Listeners (1991 ) asserts that “Different entrepreneurial situations of start-up, growth, and maturity of a venture may require different behaviors or skills”, suggesting that the owner- manager must follow the needs of the environment and change behaviors or improve kills to attempt sustained growth.
The first phase of the model is associated with the ‘creativity’ skill. Burns (2007) indicates that it can lead to negative behaviors since a creative person is always seeking for new opportunities and establishing new ways to do the same thing, which might represent a turbulence in the business focus, creating chances to develop a leadership crisis.
Direction is the main characteristic present in phase two, where Burns (2007) affirms that the owner already defined the direction of the business, so the crisis is focused in his or her autonomy behavior, which means in this context hat there is a difficulty to delegate responsibilities to the management team. This autonomy crisis is due to the internal locus of control characteristic of the owner. According to Wryer and Mason (1 998), the autonomy and independence characteristics can lead to reluctance to recruit external expertise, that is essential for the external change issues understanding.
In addition, these distinctiveness represent an ‘autocratic management style’, which means that small business are potentially ingrained with ‘disemboweling’ structures (Wryer and Mason, 1998), in other words, there is a difficulty to share information and rower with the team. In the third phase the owner already is delegating work to other people in the company, although, there is the danger that it becomes abdication of responsibility. This context is related to sense of control as well, where the entrepreneur may lose the control of the business when delegates and not pay attention to details of this process (Burns, 2007).
Johnson (1994) asserts that the barriers to empowerment are not only related to the delegate resistance of supervisors, but also, the employees feeling that is easier and safer to follow instructions. Wryer and Mason (1999) also commented the feelings involved in the recess Integral to this are the issues of confidence and trust with regard to an employee’s ability to undertake effectively a particular task and the likelihood that employees will be given boundaries of autonomy within which to operate and innovate. (Wryer and Mason, 1999 p. 91) The growth in the fourth stage comes from effective coordination of the team and because of the procedures and policies organization that the business growth requires, there is the danger that the company becomes bureaucratic, losing aspects of the entrepreneurial essence and route (Burns, 2007). To overcome the phase four’s crisis, collaboration is required in terms of creating a culture that allow people to work together through a sense of mission or purpose, resulting in an evolution to phase five where collaboration itself is the main and last skill of small companies in the growth process (Burns, 2007).
However, the leader’s personal distinctiveness is not the only aspect that can lead to problems faced by small business. According to Smallness and Wryer (2006) cited in Wryer et al. (2010), there are 2 different types of small business characteristics: the owner-manager related, that were presented above, and sized-related that will be presented below. According to Bridge et al. (2009), the ‘absence of functional managers’ is a common size-related characteristic in a small business since the owner is the only responsible for its management.
The problem in this case is that she/he has not the specific skill for each area, such as finance, marketing and production that can represent a seriously lacking (Bridge et al. , 2009). Even when owner- managers seeks for employees, they can face problems related to the quality and costs of them. According to Bowwow’s (1989), the wage costs per employee are gig and represent a difficulty to growth. In addition, the non-wage cost related to the employees is used viewed as a tax, which do not bring direct benefits to the company.
Curran (1988) cited in Wryer and Manson (1998) concludes that, in comparison with large organizations, small business attract less able and less committed workers. In addition, small firms have lower levels of training for their employees and the training is less productive and more informal than in large companies, making use of external sources of information that do not have a specific content for the company (Bowwow’s, 1989). Lastly, Bowwow’s (1989) asserts that the government legislation for the labor market may limit the growth of small business as well.
Another characteristic of small businesses is to have ‘informal systems and procedures’ due to the size of the company, where the management of the small team is conducted directly by the owner, who believes that it is going quickly enough’ without formal systems (Bridge et al. , 2009). Gibbs (1983) also mentions ‘relative lack of formal management, information systems and use of techniques’ as a characteristic of small business, where there is no personnel to run systems ND people work with limited product, process and technology.
However, the lack of technology, according to Retell and Begley (1989), is not a barrier to innovation and growth once the main problem might be the internal capability to access and make use of available sources of information and technologies. Bridge et al. (2009) asserts that the owner-manager may does not a broad experience to conduct the business, and its lack of objective and informed view leads to the ‘another-job learning’ distinctiveness, that means that they use to have learned only through their job experiences.
As a result, the business systems employed are “likely to be of their own devising” (Bridge et al. , 2009). Moreover, for Wryer et al. (201 0), the complexity of small business strategic learning task, especially in changing situations, leads to a necessity of adopting an appropriate strategic management approach to learning and development. One of the most important resources for small companies seems to be finance.
Hall (1989) asserts that in comparison with large business, small firms are used to paying higher rate of interest and offering a higher level of security due to he risk that they represent and the conservatism of bank managers as well, characterizing an ‘equity’. Due to these difficulties, small businesses may not attract reasonable cost finance that they need (Hall, 1989). The complexity of finance in small businesses also depends on their stage of growth, since they need different types of financial resources in each phase (Barber et al. 1989). The money of ‘investment and resources’ usually comes from the owner-manager and because of this, he/she tend to spend it only in bare essentials that brings short-term obvious return and think that other types of investments, such s formal training, means distraction for the ‘real work’ (Bridge et al. , 2009). Moreover, the investment and return of hiring new staff might not be justified by small firms in comparison with large companies when extra capacity is needed to cope with an increase of a specific demand.
This environment represents a characteristic of thresholds and ‘discontinuities’ for small businesses (Bridge et al. , 2009). Barrier (1989) also indicated marketing of small firms as a barrier to growth. According to Carson et al. (1995), marketing seems not to be a priority for small ND medium enterprises, who tend to think that it not have a considerable or immediate impact on the performance of the business. These business have a unique style of marketing, which is not formal approaches, but can be effective and appropriate. (Carson et al. , 1995).
However, the unique style of Seems can represent constraints on marketing as well. Carson, D. (1985) cited in Carson, D. Et al. (1995) identified three main restrictions which are: limited resources (finance, marketing knowledge and time) that lead to restrict marketing activity in comparison with large companies; peccaries expertise, since the managers and owners are more generalists than experts in marketing; limited impact of advertising and publicity due to the size of the company, that have less customers and employees than larger companies (Carson et al. 1995). All the characteristics described above, that contemplated organizational, managerial and developmental aspects of small businesses demonstrates that they have potential unique problems. Carson et al. (1995) asserts that is important to distinguish small and large business once the smaller scale of the small firms operation dead to a reduction of their power. However, many small companies become ‘big business’ through a successful trajectory due to their exploration of unique advantages and development of different strategies. According to Carson et al. 1995), centralized decision-making, flexibility and closeness to the customer represent a competitive advantage for small business. In addition, creativity and creative thinking of owner manager, especially in smallness operations, also is a source of competitive advantage (Wryer et al. , 2010). These characteristics are facilitated by the spiders web organizational moon structure of small firms, where, according to Armstrong et al. (2004), the communication flows freely and the innovation is favored once the management resides with one person.
Moreover, the central position of the owner-manager facilitates the overall view of management instead of favor a conflict between the different areas of the work and also means that everyone can hear the articulation of goals and objectives clearly (Bridge et al. , 2009). The working arrangements in small business organizational structures tends to be more interesting and rewarding than large companies, but a good deal of trust is deed for the managers once they work with self and peer control (Carson et al. , 1995).
Also, a balance between to give their staffs the freedom to achieve innovation and focus on the present day goals through the current activities are one of the keys to effective management (Carson et al. , 1995). For Johnson (1994) empowerment may be the key for change, which can provide employees “who are less risk aversive, more flexible, and more innovative and creative”. Wryer et al. , (2010) states that is crucial for the owner-manager to lose its personal constructions and unfold and converge new ideas to create new personal instructions.
In addition, Burns (2007) asserts that to achieve sustained growth, the entrepreneurs need to change and adapt, including the application of the disciplines of marketing, accounting and people management. In addition, each phase of the Greener model requires changes in the owner-manager behavior through a problem that needs to be overcome (Burns, 2007). The complexity of small business strategic learning task, especially in unknowable and unpredictable open ended change situations, leads to a necessity of adopting an appropriate strategic management approach to earning and development (Wryer et al. 201 0) where rational long-term planning procedures are inappropriate for strategic control elements of discovery, choice and action (Stacey, 1990, cited in Wryer and Manson, 1998). However, the testing process of experiment, such as ‘trial and error is a key of small business to seek for innovative development opportunities and to construct strategy development. Also, to have a learning interface with the external environment through key informants such as suppliers, customers, agents and distributors, allow the business to have access to ‘snippets of learning’, heartrending the ‘discovery role’ (Wryer et al. 2010). On the other hand, in situations of closed and contained change, Wryer and Manson (1998) suggested the application of HARM tools and concepts, such as human resource planning approaches, to ensure the adequate resounding of en short-terms projects. In conclusion, small firms are an unique type of business with exclusive distinctiveness that differs them from large firms. The problems faced by small business during their growth journey have originate in their owner-managers or/and size and represent barriers to their attempting to growth.
Personal ales, attitudes and behaviors of owner-managers such as creativity, locus of control and need of autonomy might mean risks for the business. In addition, the marginal labor market, the lack of capital, the constraints on marketing, the lack of formal systems and procedures, the difficulty of learning and dealing with change environment also represent barriers for the business success. However, it is a fact that many small businesses become successful large firms, even within a complex context which they are inserted.
