SMALL BUSINESS GROWTH
SMALL BUSINESS GROWTH
Introduction
The realization of growth by small businesses is a process that might take a considerable period since it demands a careful assembly of resources. The process does not only involve competent decision-making by the management team, but it also involves the formalization of business practices in a manner that adapts to the entrepreneurial nature of the business. One of the main considerations of a small business is to ensure its existence, which means that the business has to adopt practices that enable it to stay alive in the industry. Secondly, a small business should adopt a strategy that ensures its survival. This means that the entire team within the organization should involve themselves with the development of a customer base as well as a product portfolio for the organization. On the other hand, the management team should exercise plans that promote effective cash flow forecasting. The implementation of all these strategies is likely to ensure enough confidence that will lead to the consciousness of success.
Small business growth can be possibly achieved through the implementation of strategic planning practices. This involves the maintenance of a market niche achievable through proper finance and management. With these considerations, there is a high likelihood that the firm will become large. On the other hand, maintaining a niche in the market also involves developing formal systems in the operations of the business as well as involving a professional management team. However, a number of challenges emerge with the need to develop formal systems as well as the broadening of the management team. With these considerations, the main challenge would be to ensure the continuity of the entrepreneurial spirit at the maturity level of the business. For this reason, it would be vital for the organization to implement strategic measures that will counter the challenges that are likely to prevent growth from the inception of the business to the maturity level. It would be necessary to consider that the main challenge small businesses go through during the growth process include competition among other players in the industry. Therefore, this paper looks into these challenges, thereby discussing ways through which the small businesses could counter these challenges.
Stages of business growth
The sizes of small businesses, as well as their capacity to grow vary, which means that different small businesses have to adopt varied management styles and different organizational structures. On the other hand, the businesses exhibit some form of independence of action in the manner in which they run their businesses. However, it is apparent that the businesses undergo common problems in their developmental stages. This commonality informs the understanding of the characteristics, problems and the nature of the small businesses. The understanding can aid in the anticipation of some of the requirements that they need to meet, consequently leading to the provision of a framework that evaluates the business policies.
The first stage that needs consideration in the process of growing a small business is obtaining customers for the product or service, and the delivery of the product or service. With this consideration, the business proprietor or owner should be able to determine the number of customers the business can be able to service, he or she should also be able to determine if the business has the capacity to expand from a pilot production to the acquisition of a larger customer base. Consequently, the business owner should be able to determine if the business has a considerable amount of money that can meet the cash demands in this phase. At this stage, the formal planning systems are either minimal or non-existent altogether. For this reason, the main objective of the business is to stay alive in the market.
Included in some of the challenges that affect the small businesses at this stage is the fact that it might be difficult for the organization to gain customer acceptance sufficiently, or there might be some difficulty in ensuring the viability of the product capability. Some business people might decide to quit at this stage due to the demands of the business, which might drain their finances or energy. On the other hand, some of the business people could decide to sell the business for its asset value. In order to avoid such a situation, it would be beneficial for the business owner to conduct a research study mainly on the viability of the product or service the business seeks to offer. Conversely, the study should be able to give some information on customer attitudes towards the product or service, thereby enabling the individuals responsible to make informed decisions when setting up the business.
The second stage involves ensuring business survival. At this stage, there is a demonstration that the business entity is workable, which means that it has sufficient customers who are satisfied with the products and services from the business. At this stage, the problem shifts to the development of a relationship between the revenue of the business and its expenses. At this point, the business focuses on the generation of enough money to cover the replacement or repair of capital assets and to break even. However, this is a short-run consideration. The other factor is the determination of whether the business has the ability to generate cash flow that will ensure its continuity or for financing its growth. At this point in the business, the owner still has the upper hand in making decisions, with the sales manager, who might be one of the few people in the management team, restricted from making independent decisions. The development of formal systems at this point is likely to be at a minimum, with the formal planning likely to involve only cash forecasting.
The third stage in the process of growing the small business involves making a decision on whether to exploit the accomplishments of the company in order to expand or to maintain the stability and profitability of the company. At this stage, the business gives the owner the opportunity to find alternative activities to do. During this stage, it is possible to indicate that the company’s product-market penetration as well as its size is likely to ensure its economic success. There is a possibility that a company can operate at this point for an indefinite period unless its market niche faces alteration due to some of the environmental impacts. The formal systems of the organization are slightly more developed, with a number of functional managers taking over certain duties that the owner was previously performing. Therefore, the business involves the services of professionals in almost all the production processes within the organization, who are also responsible for the maintenance of a status quo. If in case the owner of the company makes a decision not to expand the business the managers of the organization will experience a limited probability of upward mobility since the corporate goals will be restrictive.
In the third stage, the owner of the business might also decide to expand the business to a much larger entity, which is a fete that requires managers that would be able to meet the requirements of the company’s future. On the other hand, the management team has the responsibility of ensuring that the business remains profitable for it not to outrun its cash source. However, the owner of the business would still be involved in strategic planning, with the managers assuming an operational role. Contrary to the disengagement with the company’s activities that the owner might assume in case he or she decides not to expand the business, the expansion will require the owner’s intense contribution in almost all the phases of the company’s affairs.
The fourth stage in the growth of a small business is the take-off stage, which involves finding ways for rapidly expanding the business, as well as sourcing for funds that would enhance the growth. At this point, the owner will have to delegate some of his responsibilities to the management team, which is a factor that might improve the managerial effectiveness. Most of the businesses that reach this stage of their growth are likely to fail probably because of a few hasty decisions or due to the unavailability of cash for supporting the growth. However, careful consultation or the careful application of the strategic plans will likely lead to the successful expansion of the business. At this stage, there is a possibility that the company can transverse to its growth without the help from the original managers. This means that the owner of the company might also be involuntarily or voluntarily get a replacement to fill up his position within the operations of the company.
The final stage in the growth process is the resource maturity stage, with the greatest concern at this stage being the control of the financial gains that result from the rapid growth. The other concern involves the retention of some f the advantages of the company’s small size that includes its response flexibility and the development of its entrepreneurial spirit. During the expansion process at this stage, the company should be able eliminate the inefficiencies brought about by growth, as well as professionalize the operations of the company through the application of budgetary tools, standard cost systems and strategic planning tools among other professional tools. The management should be able to accomplish this task without stifling the entrepreneurial qualities of the business. At this stage, the management of the company engages in detailed strategic planning and operations. The other characteristic of this stage is the fact that the company acquires more members of staff who should have adequate experience to meet the needs of the company adequately. At this point it is also vital to take note of the fact that decision-making is decentralized, meaning that the owner and the business are separated both in the operational as well as financial realm.
Management considerations of small businesses
As small businesses go through all the growth stages, the factors that determine the management strategies to adopt changes. The early stages in the development of the business, it is the responsibility of the owner to give life to the business since he would not be in a position to delegate duties. As the company experiences growth, other people come in to execute some of the increasing duties of the company, but they do this at a capacity that only supports the business owner. One of the challenges that the owner should be able to overcome during the growth process is the identification of managerial needs, which will be able to inform him on the right direction to take during the expansion process. During the progression in the growth of the company, the owner should be exhibit some form of flexibility, which means that he should not stick to the traditional ways of conducting business.
One of the most important factors that the owner of a business should consider would be to evaluate his or her managerial ability. With this consideration, the owner is likely to gain knowledge that will enable him or her to meet the challenges. For instance, in the case of the Dongeal China, it is vital to take note of the fact that Danny’s inexperience in some of the market aspects partly led to poor decision-making at the peak of the growth process leading to a possible failure of the entrepreneurial thrive. It also shows that the management team in the company was not in a position to exploit knowledge on the exploration of some of the market opportunities, leading to the eventual sale of the company since it was unsustainable.
Challenges of Small Business Growth
There are various challenges facing small businesses, which are trying to grow. Some of the challenges of small business growth include, increase in sales, lack of focus on the growing business needs, formalizing the entire practice and, financing the growth of the business. Other challenges include, broadening the management team of the business, having the ability to stay in the competitive market, managing to increase the sales and finally having the ability to manage people. Generally, expanding the business means that the business is being turned around and taking a different direction. Therefore, most of the business needs will have to be addressed.
Generally, small business are usually on a mission to ensure that they constantly evolve hence they find themselves depending entirely on owners personalities and abilities. Many business owners always strive to get past the problems associated with their business growth while other always target to attain a steady business growth. While it is important to establish a constant business growth, the idea itself is bound to create various hurdles throughout the continued growth of the business. There are various problems associated with business growth from the first phase to the last phase. One of the biggest challenges associated with business growth is the need to formalize the entire process.
Formalizing the practice
Formal planning generally emphasizes on the cooperative strategic options and traditional competitive strategic options. In most cases, there would be a higher degree emphasis depending on the cooperative strategic and the competitive strategies. Therefore, small business growth would most likely encourage the need to formalize the entire business.
Managing the Growth
Managing the growth of the small business is considered as a main problem that the faces business growth internally. In most cases, poor or lack of management can generally lead to bad results in the business. This is because the business might find less time to deal with its own internal problems or in some cases, the business might fail to have the much needed skills and experience which is necessary to solve some of its growing problems with a reliable strategy. Overcoming management issues is not difficult only that it needs enough time and the necessary skills to tackle the growing problems or addressing the issues facing the firm.
Financing the Growth
Financial issues are considered as one of the major challenges that most businesses face during their growth. To expand a business and experience a steady business growth, capital would be needed to buy machinery, equipment, supplies and human resources. However, the major problem would be attaining the finances to finance the growth of the business. Small business owners are most likely to suffer from exploitation during the capital search. However, the business has the chance of growing its own capital internally by reinvesting some of the earned profits back to the business. Alternatively, the business can put some of its own saving into the business. However, internal financing might turn out to be a slow venture or generally, slow the business growth hence create more problems for the business. Additionally, the business can rely on external sources to fund its expansion. Some of the common examples of external sources where the business can attain its sources include investors, bank loans, government grants and venture capital.
Financing the growth of the business would also entail the aspect of recruiting new employees and training them. The fact that the business has expanded, the business would be in need of additional staff members to help the business entity achieve its results. In this case, more finances would be needed to help train the new employees during the growth of the business. Most businesses tend to avoid the aspect of employee training in a bid to cut costs. However, employee training is a crucial aspect not only for the workers but also for a better production. Training is also important for the growth of the business in that it generally keeps the team on focus and motivated and eventually, the business would keep growing. The main challenge in this case would be funding employee training. Training employees or new staff members requires additional funding which can prove a challenging task for the business. Using the business funding to finance the employee training can generally derail the business venture in terms of its growth.
Focus
Most of the small business growth experience problems that relate with lack of their focus when it comes to long-term business objectives. In most cases, small business owners get derailed or side distracted by the non-priority aspects in relation to the business. Most of such issues do not positively contribute to the growth of the business. Alternatively, small business entrepreneurs and owners must always focus on establishing a plan, which is effective for the long plan of the business steady growth. Establishing a plan for the growth of the business is essential and will always help in setting out some of the business short and long-term objectives and goals. A plan, which is focused should always include aspects such as financial information and some of the financial intentions of the business. Additionally, the plan can focus on the capital needs of the business as well as the sources of money for the business growth.
Broaden the management team
Due to the increasing size of the business, it is always important for the owner of the business to change various aspects of the business. One of the many changes that the business owner can change about the business is broadening the management team of the business. The management team of the business will always remain an essential aspect for any business enterprise. Therefore, broadening it would be important. However, one challenge that comes with small business growth is the aspect of broadening the management team to cater for the growing business. The aspect of broadening the management team of the business would mean that the business would have to finance the growth of the business. Therefore, the business would need more funding and capital.Broadening the management team would mean adding more workforces in the business. The entire process can prove to be a challenging one especially when the business owners are not prepared enough for the new task.
Apart from broadening the management team,small business owners who seek to expand their businesses also face the challenge of additional staffing for the business. The entire process would require money; hence, the process could prove to be a challenging one especially to the business owner. Additionally, attracting and affording some of the best workforce for the business might prove to be a challenging task for the growing business. In most cases, larger firms tend to offer better job benefits and compensation hence this aspect might derail the entire recruitment process.
Continuing to be adaptive and entrepreneurial in nature
Expanding from a small venture to a larger business venture can be challenging not only to the business owner but also to the entire business. After expanding the business, there would be need for a continual adaptation and entrepreneurial in the nature of the business. The business needs to be at per with other rival business ventures. The business might find it difficult and challenging to maintain most of these aspects. In this event, the business owner must find a way of coming up with other alternatives and solutions to help the business adapt its entrepreneurial nature.
Conclusion
Dealing with the competing challenges in a small business growth is always important. Generally, small business growth would tend to experience various challenging aspects that range from management issues to finance issues. Dealing with these issues, which might derail the business, is important for the continual growth of the business. One of the major challenges in small business growth is financing the growth of the business. However, the small business can grow on its own capital internally. This can be doneby reinvesting the profits back to the business. The business can also put some of its own saving into the business to ensure its own growth. Alternatively, the business owners can apply loans and government grants to fund the growth of the business. Broadening the management of the business would most likely require additional funds, and capital. This could be attained through bank loans and government grants. Ensuring that the business is adaptive and entrepreneurial is also a challenging aspect that small businesses face during its growth. To ensure that the business manages to maintain an adaptive and an entrepreneurial nature, there is need to establish an effective management system in the growing business.
