Is it right to categorizing the problems and growth patterns of small businesses in a systematic way? Or they are too volatile to do so? It is a fruitless exercise?
Small businesses vary widely in size and capacity for growth. They are characterized by independence of action, differing organizational structures, and varied management styles.
Yet on closer scrutiny, it becomes apparent that they experience common problems arising at similar stages in their development. We have to increase our understanding of the nature, characteristics, and problems of a variety of businesses. This shall help us understand the common characteristics of growth and their problems.
One should be able to evaluate the impact of present and proposed governmental regulations and policies on one’s business. The finance department should be able to diagnose problems and match solutions to smaller enterprises.
Solution | Develop a Small Business Framework
Various researchers over the years have developed models for examining businesses. Each uses business size as one dimension and company maturity or the stage of growth as a second dimension.
A company must grow and pass through all stages of development or die in the attempt. Many frameworks fails capture the important early stages in a company’s origin and growth. They characterize company size largely in terms of annual sales and ignore other factors such as value added, number of locations, complexity of product line, and rate of change in products or production technology.
To develop a framework relevant to small and growing businesses, one should use a combination of experience, a search of the literature, and empirical research. Each stage is will be a culmination of index of size, diversity, and complexity and described by five management factors: managerial style, organizational structure, extent of formal systems, major strategic goals, and the owner’s involvement in the business.
Stage I: Existence
In this stage the main problems of the business are obtaining customers and delivering the product or service contracted for. Can the company get enough customers and provide excellent services to sustain? Is expansion possible? etc.
Stage II: Survival
In reaching this stage, the business has demonstrated that it is a workable business entity. It has enough customers and satisfies them sufficiently with its products or services to keep them. The key problem thus shifts from mere existence to the relationship between revenues and expenses. Can the business, atleast , generate enough cash flow to stay in business? etc.
Stage III: Success
The decision facing owners at this stage is whether to exploit the company’s accomplishments and expand or keep the company stable and profitable, providing a base for alternative owner activities. Thus, a key issue is whether to use the company as a platform for growth or as a means of support for the owners as they completely or partially disengage from the company
Among the important tasks are to make sure the basic business stays profitable so that it will not outrun its source of cash and to develop managers to meet the needs of the growing business. This second task requires hiring managers with an eye to the company’s future rather than its current condition.
Stage IV: Take-off
In this stage the key problems are how to grow rapidly and how to finance that growth.
Is delegation taken care of? Will there be enough to satisfy the great demands growth brings and less unnecessary cash burn?
Stage V: Resource Maturity
The greatest concerns of a company entering this stage are, first, to consolidate and control the financial gains brought on by rapid growth and, second, to retain the advantages of small size, including flexibility of response and the entrepreneurial spirit. The corporation must expand the management force fast enough to eliminate the inefficiencies that growth can produce and professionalize the company by use of such tools as budgets, strategic planning, management by objectives, and standard cost systems—and do this without stifling its entrepreneurial qualities.
Key Management Factors
Several factors, which change in importance as the business grows and develops, are prominent in determining ultimate success or failure.
1. Financial resources
2. Personnel resources
3. Systems resources
4. Business resources
Management Factors and the Stages
In the early stages, the owner’s ability to do the job gives life to the business. Small businesses are built on the owner’s talents: the ability to sell, produce, invent, or whatever. This factor is thus of the highest importance. The owner’s ability to delegate, however, is on the bottom of the scale, since there are few if any employees to delegate to.
As the company grows, other people enter sales, production, or engineering and they first support, and then even supplant, the owner’s skills—thus reducing the importance of this factor. The changing role of the factors clearly illustrates the need for owner flexibility. An overwhelming preoccupation with cash is quite important at some stages and less important at others. Delaying tax payments at almost all costs is paramount in Stages I and II but may seriously distort accounting data and use up management time during periods of success and growth. “Doing” versus “delegating” also requires a flexible management. Holding onto old strategies and old ways ill serves a company that is entering the growth stages and can even be fatal.
helps the management to delegate the responsibilities "responsibly" and helps them to monitor them from anywhere at anytime!