Small Business Strategy

Small Business Strategy – At first glance, it seems futile to categorize the problems and growth patterns of small businesses in a systematic way that is beneficial to entrepreneurs. Small businesses vary widely in size and capacity for growth. They are characterized by independence of action, different organizational structures and diverse management styles.

But upon closer inspection, it becomes clear that they experience common problems that arise at the same stage of their development. These commonalities can be framed within a framework that enhances our understanding of the nature, characteristics, and problems of businesses ranging from corner dry cleaners with two or three minimum-wage employees to $20 million worth of computer software annually. The company achieved an annual growth rate of 40%.

Small Business Strategy

Small Business Strategy

For small business owners and managers, such insights can help assess current challenges; for example, the need to upgrade existing computer systems or hire and train second-level managers to sustain planned growth.

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This can help predict key requirements at various points; for example, excessive time commitments and need for authorization for owners in the startup period, and changes in management roles as the company grows and becomes more complex.

This framework also provides a basis for assessing the impact of existing and proposed government regulations and policies on one’s business. An example of this is the dividend exemption from double taxation, which can be very useful for a profitable, mature and stable business like a funeral home, but not for a fast-growing high-tech company.

Finally, the framework assists accountants and consultants in diagnosing problems and matching solutions for small companies. A 6-month business issue with 20 people is rarely handled with recommendations based on a 30-year manufacturing company with 100 people. For the first, cash flow planning is crucial; For the latter, strategic planning and budgeting are extremely important to ensure the coordination and control of operations.

Over the years, various researchers have developed models to study business (see Appendix 1). Each uses the business size as one dimension and the maturity or growth stage of the company as the second. While this framework is useful in many ways, it is not suitable for small businesses in at least three respects.

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First, they assumed that a company had to grow and go through all the stages of development or die in the process. Second, the model fails to capture critical early stages in the birth and growth of firms. Third, this framework characterizes company size mostly in terms of annual sales (although some mention the number of employees) and ignores other factors such as added value, number of locations, complexity of product lines, and rate of change of product or production technology.

We use a combination of experience, literature research and empirical research to develop a framework for small and growing businesses. The framework developed from this effort describes the five development phases shown in Annex 2.

Each stage is characterized by indices of size, diversity, and complexity and is defined by five management factors: management style, organizational structure, scope of formal systems, key strategic objectives, and owner involvement in the business. We explain each phase in Exhibit 3, and we explain each one narratively in this article.

Small Business Strategy

At this stage, the main concern of the business is to acquire customers and deliver the contracted product or service. Key questions include:

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The organization is simple – the owner does everything and directly supervises subordinates of at least average competence. Minimal or zero formal system and planning. The company’s strategy is simply to survive. Owner

The business performs all basic tasks and is an important supplier of energy, direction and capital with relatives and friends.

Entity companies range from start-up restaurants and retail stores to high-tech manufacturers that have not stabilized production or product quality. Most such companies never gain enough customer acceptance or product capacity. In this case, the owner closes the business when the starting capital is exhausted and, luckily, sells the business for the value of its assets. (See endpoint 1 in Appendix 4). In some cases, business owners simply cannot accept the time, finances, and effort the business demands of them, and they leave the business. Companies that remain in operation become Tier II companies.

Having reached this stage, the entity has demonstrated that it is a viable business asset. It has enough customers and satisfies them enough with the product or service to retain them. Thus, the main problem shifts from mere existence to the relationship between income and expenditure. The main problem is as follows:

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Organization is still simple. Companies may have a limited number of employees overseen by sales managers or chief executives. Neither of them makes big decisions independently, but carries out clear commands of the owner.

Minimal system development. Formal planning is cash forecasting at best. The main goal is to survive, and the owner is still synonymous with business.

In the Survival Phase, the company can grow in size and profitability and move on to Phase III. Or, as many companies do, it may remain in the Survival Phase for a period of time, earning a marginal return on time and invested capital (last point 2 in Appendix 4), and eventually go bankrupt when the owner gives up or retires. “Mom and pop” stores also fall into this category, as do manufacturing businesses that fail to sell their products or processes as planned. Some of these marginal businesses eventually developed enough economic viability to sell, often at a small loss. Or they may fail miserably and disappear.

Small Business Strategy

The decision the owner faces at this stage is whether to capitalize on the company’s successes or whether to keep the company stable and profitable, laying a foundation for alternative owner activities. Therefore, an important issue is whether to use a company as a platform for growth (a sub-stage III-G company) or as a support tool when owners leave the company in whole or in part – that is, a sub-stage III-D company. makes it. . (See Appendix 3.) Behind the departure may be a desire to start a new company, run for political office, or simply pursue hobbies and other outside interests while keeping the business more or less the status quo.

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In the Success-Wipe substage, the company has achieved true economic health, has sufficient size and product market penetration to warrant economic success, and generates average or above-average profits. The company can survive this stage indefinitely, provided that environmental changes do not destroy its market niche or that ineffective management does not reduce its competitiveness.

Organizationally, companies have grown quite large and in many cases have required functional managers to take over certain tasks performed by their owners. Managers must be competent, but not necessarily of high quality, because their potential for improvement is limited by company goals. Cash was plentiful, and the key was to avoid consuming cash in rich times that would harm a company’s ability to withstand the inevitable hard times.

Also, the first professional staff come, usually the controller in the office and perhaps the production planner in the factory. Basic financial, marketing and production systems are in place. Planning in the form of an operational budget supports functional delegation. Owners and, to a lesser extent, corporate executives must follow the strategy to effectively maintain the status quo.

As the business matured, the business and its owners became more distant, partly due to the owner’s activities elsewhere, and partly due to the presence of other managers. Many companies persist in the Success-Deletion substage for a long time. Some product market niches do not allow for growth; This is the case for many service businesses in small or medium-sized, slow-growing communities and franchisees with limited territories.

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Other owners have actually taken this route; If a company continues to adapt to changing environments, it can continue as is, be sold or merged for profit, or further encouraged to grow (end point 3 in Annex 4). This last option for the franchisor requires purchasing another franchise.

If the company, like many auto dealers in the late 1970s and early 1980s, failed to adapt to changing conditions, it would either go bankrupt or revert to being a marginally surviving company (last point 4 in Appendix 4).

In the Success-Growth substage, the owner consolidates the company and resources for growth. The owners took cash from the company and built up borrowing power and gambled it all on growth finances.

Small Business Strategy

Key tasks include developing managers to meet the needs of growing businesses and ensuring that the core business remains profitable so that cash resources are not depleted. This second task requires the hiring manager to look into the future of the company rather than its current state.

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The system should also be set up taking into account future needs. As in sub-stage III-D, operational planning is in the form of a budget, but strategic planning is comprehensive.

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