2.3. Growth of small
businesses
It is commonly assumed that all businesses wish to grow. But
is it true? Do small businesses want to become big businesses? It may well be
that the owners of a small firm have no aspirations to expand the operations of
their enterprise. Small businesses are frequently perceived to grow in stages.
The number of stages may vary depending on the nature of the business and on
how each stage is defined, but typically we can identify five.
Table 2.2: Management role
and style in the five stages of small business growth
|
Stage
|
Top management role
|
Management style
|
Organization structure
|
|
1. inception
|
Direct supervision
|
Entrepreneurial individualistic
|
Unstructured
|
|
2. survival
|
Supervised supervision
|
Entrepreneurial administrative
|
Simple
|
|
3. growth
|
Delegation
co-ordination
|
Entrepreneurial
co- ordinate
|
Functional centralized
|
|
4. expansion
|
Decentralization
|
Professional administrative
|
Functional decentralized
|
|
5. maturity
|
Decentralization
|
Watchdog
|
Decentralized functional/products
|
Source: John Sloman (1998:295)
In the initial stage, inception, the entrepreneur plays the
key role in managing the enterprise with title if any formalized management
structure. In the next, two stages we see the firm establish itself (survival
stage) and then begin to grow. The entrepreneur devolves management
responsibility to non-owner managers. Such non-owner managers are able to add
certain skills to the business which might enhance its chances of growth and
success. The fourth and the fifth phases, expansion and maturity, see the firm
become more bureaucratic and rationalized; power within the organization
becomes more dispersed.
This growth pictures of small business descriptive rather than
explanatory. To explain why a small firm grows we need to examine a number of
factors. It is useful to group those under three headings: the
entrepreneur, the firm and strategy.
1. Entrepreneur: factors in the section
relate predominantly attributes and experience of the individual entrepreneur.
They include:
- Entrepreneurial motivation and desire to
succeed: motivation, drive and determination are clearly important
attributes for a successful entrepreneur.
- Prior management experience and business knowledge:
previous experience by the owner in the same or a related industry is
likely to offer a small firm a far greater chance of survival and growth.
2. Firm: the following are the key
characteristics of a small business that determine its rate of growth. They
include:
- The age of the business: new businesses
grow faster than mature businesses.
- The sector of the economy in which
the business is operating: a firm is more likely to experience growth
if it is operating in a growing market.
3. Strategy: various strategies adopted by
the small firm will affect its rate of growth.
- Work force and management training:
training is a form of investment. It adds to the firm's stock of human
capital and thereby increases the quantity and possibly also the quantity of
the output per head.
- The use of external finance: taking on
additional partners, or, more significantly, taking on shareholders, will
increase the finance available to firms and therefore allow a more rapid
expansion.
- Export markets: even though small firms
tend to export relatively little, export markets can frequently offer
additional opportunities for growth.
What the above factors suggest is that, if a small business is
to be successful and subsequently grow, then it must consider its business
strategy, the organization of the business and the utilization of the
individual s' abilities and experience.
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