Small Business Success and Failure
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PSM523 Entrepreneurship and Public Enterprise Management Africa University 2010
Secrets of Small Business Success When large and small businesses compete directly against
each other, it may seem that large businesses have a better chance of winning . Small businesses have inherent factors that usually work in their favor. You will improve your chances of success in running a small business if you:
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Identify your competitive advantage, Remain flexible and innovative Cultivate close relationships with your customers and Strive for quality.
PSM523 Entrepreneurship and Public Enterprise Management Africa University 2010
Competitive Advantage To be successful in business you have to offer your customers
more value than your competitors do. That value gives the business its competitive advantage The stronger and more sustainable your competitive advantage, the better your chances of winning and keeping customers Your must have a product or service that your business provides better than your competition or the pressures of the market place may make your business obsolete.
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PSM523 Entrepreneurship and Public Enterprise Management Africa University 2010
Flexibility ď‚— In order to take advantage of economies of scale, large
businesses are usually concerned with devoting resources to produce large quantizes of products over long periods of time. ď‚— This commitment of resources limits their ability to react to new and quickly changing markets as small businesses do. ď‚— Small businesses are considered more flexible and more proactive than large bureaucratic organizations and thus react faster to changing circumstances
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PSM523 Entrepreneurship and Public Enterprise Management Africa University 2010
Innovation Real innovation comes from independent inventors and small
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businesses. Small businesses have contributed many inventions we use today. In fact, many say that the greatest value of entrepreneurial companies is the way the force larger competitors to respond to innovation. New businesses innovate new technology, markets, products and ideas. Creative destruction is the replacement of existing products, processes , ideas and business with new better ones. Small businesses are the driving force of change in the development of new technology.
PSM523 Entrepreneurship and Public Enterprise Management Africa University 2010
Four types of innovation have been identified: 1. Product innovation- development of a new or improved product 2. Service Innovation- offering a new or altered service for sale 3. Process Innovation- inventing a new way to organize physical
inputs to produce a product or service 4. Management Innovation- creating a new way o organize business resources. The process of creative destruction is not limited to high technology or to large companies. A small business owner who does not keep up with the market risks being left behind. Knowledge is key to innovation and advancement and for this reason it is important for you to keep up with current business literature by reading periodicals, newspapers and any other specialized trade journals that exist in your type of buisness. 6
PSM523 Entrepreneurship and Public Enterprise Management Africa University 2010
Close Relationship with Customers Small business owners get to know their customers and
neighborhood on a personal level. This closeness allows small businesses to provide individualized service and gives them firsthand knowledge of customer wants and needs. Knowing customers personally allows you to build a competitive advantage based on specialty products, personalized service and quality which enable you to compete with bigger business’s lower prices gained through economies of scale. For this reason you should always remember that rapport with your customers is what makes them come back again and again. 7
PSM523 Entrepreneurship and Public Enterprise Management Africa University 2010
Product/ Service Quality Quality refers to all the features and characteristics of a
product or service that affect its ability to satisfy a customers’ wants and needs. Man managers especially small business owners who are strapped for resources now look for Return on Quality (ROQ), which means paying the closest attention to parts of your product or business that are most important to your customers and your bottom line. Quality for its own sake, in areas that do not matter to customers or don not produce a payoff in improved sales, profits or increased market share waste company efforts and resources. 8
PSM523 Entrepreneurship and Public Enterprise Management Africa University 2010
Getting started on the right footing Before starting your business, make sure you have tools to succeed Look for a market large enough to generate a profit, sufficient
capital, skilled employees and accurate information.
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PSM523 Entrepreneurship and Public Enterprise Management Africa University 2010
Market Size and Definition Who will buy your product or service? Marketing research techniques help you find out what
customers want and in what quantity. With this information you can make an informed decision about the profitability of offering a particular service or good. Once you conclude that a market is large enough to support your business, you will want to learn what your customers hve in common and about their likes and dislikes in order to serve them better and remain competitive 10
PSM523 Entrepreneurship and Public Enterprise Management Africa University 2010
Gathering Sufficient Capital Too often entrepreneurs try to start a business without sufficient startup
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capital. The livelihood of any young business is cash: starting on a financial shoestring hurts your chances of success. Profit is the ultimate goal but inadequate cash flow cuts off blood supply. You may need to be creative in finding startup capital. A second mortgage, loans from friends and relatives, a line of credit from the bank, or a combination of sources may be sufficient. Thorough planning will give you the best estimate of how much money you need. One you have made your best estimate, double it- or at least get access to more capital. You will probably need it.
PSM523 Entrepreneurship and Public Enterprise Management Africa University 2010
Finding and Keeping Effective Employees Maintaining a capable workforce is a never ending task for small
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businesses. Frequently, small business owners get caught up in urgency to “fill positions with warm bodies” before sending enough time on the selection process. You should hire, train and motivate your employees before opening for business. Once established, you must understand that your most valuable assets walk out the door at closing time. Your employees are valuable because it is their skill, knowledge and information that make you business successful. These intangible assets are called intellectual capital.
PSM523 Entrepreneurship and Public Enterprise Management Africa University 2010
Getting Accurate Information Managers at any organization will tell you how difficult it is
to make a decision before acquiring all the relevant information. This difficulty is compounded for the aspiring small business owner who does not yet possess the expertise of experience needed to oversee every functional area of the business from accounting to sales. Consult a variety of information from self-help books to experts in your nearest Small Business Development Center.
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PSM523 Entrepreneurship and Public Enterprise Management Africa University 2010
Understanding The Risks of Small Business Ownership •The decision to start your own business should be made with a full
understanding of the risks involved. •If you go in with both eyes open , you will be able to anticipate problems, reduce the possibility of loss and increase your chances of failure.
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PSM523 Entrepreneurship and Public Enterprise Management Africa University 2010
What is Business Failure Many new businesses do not go past their second or third
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years. Running a small business involves much more than simply getting the idea, hanging out a sign and opening the business the next day. You need vision, resources and a plan in order to take advantage of the opportunity that exists. Even though business owners start their ventures with the best intentions and work long hours, some businesses do fail. Dan and Bradstreet, a financial research firm defines business failure as a business that closes:
PSM523 Entrepreneurship and Public Enterprise Management Africa University 2010
Due to actions such as bankruptcy, foreclosure or voluntary withdrawal from business with a financial loss to a creditor. 2. Because it is involved in court action such as receivership (taken over involuntarily) or reorganisation (receiving protection from creditors) 1.
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PSM523 Entrepreneurship and Public Enterprise Management Africa University 2010
Causes of Business Failure ď‚— The rates of business failure vary greatly by industry and are
affected by factors such as type of ownership, size of the business and expertise of the owner. ď‚— The most common causes of business failure, however, are : 1. Inadequate management 2. Financing
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PSM523 Entrepreneurship and Public Enterprise Management Africa University 2010
Exercise Could business failure due to industry weakness be linked to
poor management? Does business failure due to high operating expenses and insufficient profit margin reflect on management? How about failure due to inadequate capital?
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PSM523 Entrepreneurship and Public Enterprise Management Africa University 2010
Inadequate management Business management is the efficient and effective use of
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resources. For small business, management skill are especially desirable and often difficult to obtain Lack of experience is one of the most pressing problems Small business owners must be generalists and don not have the luxury of specialized management As a s
PSM523 Entrepreneurship and Public Enterprise Management Africa University 2010