Small Business Management: Challenges And Advantages

Discuss about the Business Management. These businesses maintain assets, revenues and restricted number of employees often below certain threshold. The definition of small and medium sized business varies across industries.

Critical Evaluation of Business Decisions for Starting and Developing a New Venture

This discussion aims at providing an insight into small business management and discusses small and medium sized businesses (SMEs). These businesses maintain assets, revenues and restricted number of employees often below certain threshold. The definition of small and medium sized business varies across industries. In the United Kingdom, small enterprises are identified as having lower than 50 employees while medium enterprises represent the ones with about 250 employees (Storey 2016). SMEs are quite strong in the aspect of innovation and they encourage competition.  SMEs are economically and socially important and represent close to 99 percent of the estimated twenty-three million enterprises in European Union (office of national statistic 2017). They provide around 75 million jobs thereby representing close to two thirds of the total employment. SMEs contribute to about 80 percent of the employment in industrial sectors including construction, textile and furniture (office of national statistic 2017).

The challenge of the SME lies in attracting capital for funding their endeavors. Various business education programs advocated by the national governments increase the access of the SMEs towards the government loans and incentives. The focus now lies in the challenges faced in developing the business venture.

SMEs play an important role in the creation of employment opportunities. SMEs are the biggest employees in the UK representing 60% total private sector employment (Department for Business, Energy & Industrial Strategy, 2017). The government has recognized that new and old SMEs enterprises generate a more significant percentage of job creation in the country (Department for Business, Energy & Industrial Strategy, 2017).

According to Fielden, Davidson and Makin (2000), micro and small businesses act as the key source of employment in the UK. The creation of a new venture takes place because of the desire of control and autonomy rather than financial expansion. Small and micro businesses have a recognition of playing a vital role in the economy thereby helping in the generation of employment, promotion of innovation and the creation of the economic wealth. Small businesses have advantages over the larger corporations. These businesses also have a shorter line of communication that makes it easier in focusing attention towards clearer goal. Besides, smaller business responds flexibly and quickly to the newer opportunities.

Haven-Tang and Sedgley (2014) stated that new and potential small and micro business faces a number of key challenges during initialization and start-up due to poor financial support resulting in inhibited growth in the sector. Availability of the mentors would act as a source of significant value for various new and potential business owners. Skills based on the information technology act as a key factor in determining the success of the new business venture in the global market. Besides, the barriers put forward by the government agencies, large business organisations and financial institution acts as a lethal threat to the creation and growth of the new business.

According to Schjoedt et al. (2013), various factors influence the formation of the new business venture and the subsequent failure and success. This involves those personalities involved in process of initialisation, motivation for pursuing the venture, barriers faced during the process, available support and the financial and the economic difficulties encountered. The manner in which the factors influence the individual remains influenced by the other variables that include gender, age, family situation and previous experience.

Advantages and Disadvantages of Small Business over Larger Companies

Schaper et al. (2014) stated that the creation of a new business venture represents a procedure dealt with both failure and difficulty and hence many of the business succumb to failure during the initial 12 months of its trading. Previous research identified number of possible influences on the success of the newly started small business. This includes impact of the opening size on the growth, the entry process, innovation and the customers. For instance, it was found that the size of business plays a key role in defining the growth rate of the smaller business. Besides, the aspect of innovation plays a key role in defining small business enterprise. Workplace innovations represented non technological  innovations  that relates to organization, business structure, management of human resource, employee engagement, management of decision making and internal process, planning and development of the organizational methods and strategies, relationship with the suppliers and client and work environment. Workplace innovations helps in improving the motivations and the working conditions of both the male and the female employees thereby helping in increasing the innovation capability, increasing the productivity of labor, market resilience and business competitiveness. Besides, workplace innovation also helps the companies in anticipating and adapting faster and better to the changing economic environment.  It also helps the companies in anticipating and adapting better and faster towards the varying economic environment. Further, it also helps in improving the learning capabilities along with diffusion of the knowledge necessary for keeping the workers updated. In spite of these obvious benefits, SMEs are incapable of implementing such kind of innovation. It is to note that implementation of workplace innovations and facing of challenges requires the appropriate managerial skills. This is not the case  with SME as it does not sufficient knowledge resources.

According to Burns (2016), the new business owners might not be aware of establishing or running a new venture while conceiving the business idea. It therefore appears that majority of the people planning for a startup enterprise often possesses vague idea of organizing business formation and the subsequent management. Suggestions have been put forward regarding the existence of stronger positive links between the business planning and the business success of the small business. This discussion will now focus on the advantages and disadvantages of small business over larger companies.

Advantages:

Creation of Personal Edge: Knowing the customers face to face represents an important and natural marketing strategy for a small business (Blackburn, Hart and Wainwright 2013). Such personable quality can be extended to having an online presence for the small business. Social media helps in providing opportunities that infuses the message put across by the small business into marketing. The small business can use its newly created website in introducing itself to the customers.

Enhanced Flexibility: Small business are more lively compared to the larger business and can adapt easily to the changes taking place in the market (Burns and Dewhurst 2016). Moreover, since the small business remains closer to customers so it remains in better position for hearing the feedback and observing the change of preferences. Further, a small business can quite easily shift its gear compared to the larger one as it does not involve hefty investments in the obsolete infrastructure. Moreover, as the small business has lesser number of employees so they can be cross-trained easily. The adaptability of the small business comes handy when there is a need for rethinking the business model that also enables it in retaining the quality people and drawing on the knowledge of the customer base and the business.

More Innovative: Compared to large business, smaller business takes more chances in creating an innovative product (Love and Roper 2015). This is because they cannot only easily test newer products in the smaller markets with minimum investment, but also obstacles and the observing variables before trying on an idea in the larger scale.

Disadvantages:

Lesser Recognition of Brand: The newer venture small business suffers from lesser visibility and this act as serious challenge in attracting newer traffic thereby leading to an expansion of the operations (Sahut and Peris-Ortiz 2014). The reputation of small businesses need to be developed from the scratch and thereby go through various challenges for reaching closer to that of larger business that already has an established reputation.

Experiences Higher Amount of Cost: The small businesses possess lower cost of bargaining compared to the larger counterpart that sometimes hampers the ability in lowering the unit cost of the product (Goffee and Scase 2015). The larger firms do however not face this kind of problem. Besides, the larger firms can hugely negotiate on the volumes of the purchases. Also,as compared to the smaller businesses, larger firms are also able to enjoy the economies of scale thereby allowing production in bulk so that there is reduced cost of production of the overheads. The small businesses have a lower production capacity as well as buying power that results in greater unit cost.

Smaller Budgets: Small startup businesses face various hurdles related to budget. That is why they are unable to afford the research and development carried by the larger businesses (Orobia et al. 2013). They are also not able to afford advanced technology and marketing facilities. Compared to the large business, small businesses are unable to recruit larger number of workers with the required skills. This inhibits their ability of growing and offering the same quality of services and products in comparison to the large businesses.

Lack of Bargaining Power: When the smaller business is unable to reduce cost of its service and products then they ask for higher prices (Glover and Kusterer 2016). Therefore, small businesses are unable to compete in the profitable manner with the larger business in terms of the price. They therefore differentiate themselves in a different manner such as quality or consumer support of the service or the product for undertaking competition with the products of the larger business. This creates an additional stress on the budget.

Concerning the aspect of innovation of SME, it is seen that the European Workplace Innovation network helped in creating newer, context based and long term mechanisms that supported uptake of the workplace innovation by the SMEs across the European continent. It also provided immense support to the SMEs in looking for the newer sources of the growth through competitive edge provided by the related opportunities through workplace innovation. This helped in stimulating newer forms of working as well as work organization. It also ensured stronger participation of the employees in the innovation process and improvement in managerial techniques. Further, it even contributed in drawing lessons for the innovation support agencies. These positive aspects put forward by the innovation network motivated the SMEs in taking up workplace innovation along with the creation of newer context based innovation forms. The European Workplace Innovation network has ensured putting up improved framework for up taking the newer technologies. SMEs also experienced better workforce and more resilience.

Conclusion:

On a concluding note, it can be said that although the small businesses face certain challenges, they are the ultimate source of growth in the UK economy. Small businesses mostly thrive by supporting the local communities and hence differentiate them through product specialization for attracting customers. While there exist various merits related to the small businesses, there are demerits when compared to the larger competitors. Small businesses should therefore create a plan for each of its business component that includes marketing, finance, brand consistency, customer retention and employee performance and satisfaction. This will help in overcoming the hurdles faced by the small businesses and thereby act as baby steps in not only determining its success but also its ultimate destination.

References:

Blackburn, R.A., Hart, M. and Wainwright, T., 2013. Small business performance: business, strategy and owner-manager characteristics. Journal of small business and enterprise development, 20(1), pp.8-27.

Burns, P. and Dewhurst, J. eds., 2016. Small business and entrepreneurship. Macmillan International Higher Education.

Burns, P., 2016. Entrepreneurship and small business. Palgrave Macmillan Limited.

Fielden, S., Davidson, M. and Makin, P. 2000. Barriers encountered during micro and small business start-up in North-West England. Journal of Small Business and Enterprise Development, 7(4).

Glover, D. and Kusterer, K., 2016. Small farmers, big business: contract farming and rural development. Springer.

Goffee, R. and Scase, R., 2015. The Real World of the Small Business Owner (Routledge Revivals). Routledge.

Haven-Tang, C. and Sedgley, D., 2014. Partnership working in enhancing the destination brand of rural areas: A case study of Made in Monmouthshire, Wales, UK. Journal of Destination Marketing & Management, 3(1), pp.59-67.

Hogarth-Scott, S., Watson, K. and Wilson, N. (1996). Do small businesses have to practise marketing to survive and grow?. Do small businesses have to practise marketing to survive and grow?, 14(1), pp.6–18.

Love, J.H. and Roper, S., 2015. SME innovation, exporting and growth: A review of existing evidence. International small business journal, 33(1), pp.28-48.

Orobia, L.A., Byabashaija, W., Munene, J.C., Sejjaaka, S.K. and Musinguzi, D., 2013. How do small business owners manage working capital in an emerging economy? A qualitative inquiry. Qualitative Research in Accounting & Management, 10(2), pp.127-143.

Sahut, J.M. and Peris-Ortiz, M., 2014. Small business, innovation, and entrepreneurship. Small Business Economics, 42(4), pp.663-668.

Schaper, M.T., Volery, T., Weber, P.C. and Gibson, B., 2014. Entrepreneurship and small business.

Schjoedt, L., Monsen, E., Pearson, A., Barnett, T. and Chrisman, J.J., 2013. New venture and family business teams: Understanding team formation, composition, behaviors, and performance. Entrepreneurship Theory and Practice, 37(1), pp.1-15.

Storey, D.J., 2016. Understanding the small business sector. Routledge.