Characteristics of Small Business Owners and Nature of Small Businesses - Essay Example

Characteristics of Small Business Owners and Nature of Small Businesses Summary This paper gives an account of the attributes of small business owners and the nature of small businesses in general. It begins by giving the definition of small businesses according to the Australian Bureau of Statistics and the United States Small Business Administration. Further, the features of small business owners are highlighted with a focus on various studies done in relation to the topic. The paper further discusses the nature of small businesses in comparison to large businesses. An analysis of the distribution and operations of small businesses in Australia is also presented. Table of contents Summary i This paper gives an account of the attributes of small business owners and the nature of small businesses in general. It begins by giving the definition of small businesses according to the Australian Bureau of Statistics and the United States Small Business Administration. Further, the features of small business owners are highlighted with a focus on various studies done in relation to the topic. The paper further discusses the nature of small businesses in comparison to large businesses. An analysis of the distribution and operations of small businesses in Australia is also presented. i Table of contents iii Introduction 1 Characteristics of small business owners 1 Nature of small businesses 3 Conclusion 5 References 7 Introduction There is no single definition of the term ‘small business’ globally. This is due to the fact that a business enterprise that might be considered small for the purpose of one regulation may be considered large for the purpose of another. For instance, according to the Australian Bureau of Statistics (ABS), the term ‘small business’ refers to a business enterprise that employs less than 20 people (MacGregor & Vrazalic, 2007). On the other hand, the United States Small Business Administration defines small business as a micro-business with less than 10 employees. However, numerous studies have demonstrated that there are qualities commonly found in small businesses, which distinguish them from large ones. These distinct qualities are found in the successful small business owners as well as to the nature of these businesses in general. One of the most distinct characteristics of such businesses is that they are usually owned and managed by independent persons who are in charge of making all decisions, (Stokes & Wilson, 2010). In addition, depending on the attributes used for measurement, small businesses have a distinctly small share in the markets in which they operate. Thus, the term a ‘small business’ refers to a business enterprise which is owned and managed by independent persons and which has a small market share. In view of this, this paper seeks is to examine some of the unique characteristics of small business owners and also the nature of small businesses in general. Characteristics of small business owners The characteristics of small business owners are varied. First, small business owners are portrayed as risk takers. Certainly, they assume some risk by investing their own money in the businesses, Longenecker et al (2005). Further, the stress and the time required to run these businesses may placer them and their families at risk. However, according to Longenecker et al (2005), small business owners are moderate risk takers. They only accept risks over which they have some control. They are not extreme risk takers who accept results depending purely on chance. Second, small business owners are systematic hard workers. A study conducted by Jeffrey et al (2010) on small business owners from Australia found that such individuals have a desire for independence and have a sense of initiative which makes them want to use their own abilities in achieving their goals to the greatest extent possible. Further, the study showed that such people are willing to work long so as to make their businesses succeed. Further, according to Longenecker et al (2005), successful small business owners have a strong passion for or commitment to their businesses. They generally have an attitude that results in tenacity in the face of difficulties and willingness to work hard and thus, they do not give up easily. Another unique characteristic of small business owners is that they react quickly to change. Usually, change inside and outside a business enterprise affects a small business more than a large business. According to Longenecker et al (2005) small business owners react quickly and effectively to change so as to take advantage of opportunities and threats. As well, small business owners are individuals who are highly motivated to achieve. According to Longenecker et al (2005), they tend to be doors and always possess the feelings of ‘making things happen.’ This explains the fact that successful small business owners are very competitive. Also, small business owners usually have a desire for independence and a strong sense of initiative. This makes them to want to use their own abilities in their businesses to the greatest extent possible. Small business owners are strategic planners. A study conducted by Mazzarol et al (2009) in Australia on small business firms found that most small business owners possess formal written business plans, and are more likely to have stronger support network partnerships, formal quality assurance and the ability to lead change among other people. This study further found a positive correlation between an above average level of annual sales turnover and the personal vision of the small business owners. Despite these unique positive attributes, various studies indicate that a small business owner possesses some negative characteristics. For instance, most small businesses lack experience in management expertise to operate their businesses effectively. Also a study conducted by the Australia Asia-Pacific Small Business in 2009 indicated that most small Australian business operators lacked management training (Okpara (2011). Also, in a study conducted by Okpara (2011) on small businesses in Nigeria, it was found that most small business owners lacked adequate skills to operate their businesses. Okpara (2011) found that most of the small business owners are generalists “who lack the support of skilled professional staff in areas such as marketing and research, financial analysis, advertisement and other areas.” Nature of small businesses As noted earlier, it is possible to distinguish small businesses from large businesses owing to their uniqueness in nature. To start with, as the term ‘small business’ suggests, these business enterprises are relatively small in a given industry or market, (David & Wilson). This can be measured in terms of size, the number of employees, sales volume, number of potential customers or other significant comparisons. This characteristic leads to dependence on a limited customer base, both numerically and geographically. In Australia for example, the small business sector generates about 30% of Australia’s economic activity (NSW Office of Women and Cabinet, 2007). Further, these businesses employ only a few individuals and often, they are managed by one person. Further, most of them are non-employing businesses. In Australia, 58.9% of small business enterprises are non-employing businesses. Another remarkable attribute of small businesses is that they are usually managed in a personalized way. As Gottfridsson (2010) points out, the managers who are often the owners of small businesses are often involved in all aspects of management and do not share key decisions with others. Consequently, these businesses display the personality of the owners. Marketing in such a business follows a pattern in which, the owner-manager tends to assume responsibility for both development of marketing strategy and implementation of marketing programs. In addition, small business owners are different in the way they understand the needs of their customers and establish relationships with them and the perception they have to their business products or services. This explains the fact that each small business is distinct in the way it responds to competitive opportunities and threats and to commitment to quality (Bridge, 2003). Small business enterprises are the majority by number in most countries and are mainly home-based businesses. In Australia for example, there are approximately 1.88 million small businesses representing 95% of all businesses (NSW Office of Women and Cabinet, 2007). In the whole of Australia, they employ approximately 3.6 million people, majority of whom are men. This represents 47 percent of private sector’s non-agricultural employment. As such, the small business sector is the largest employer in Australia. Further, according to NSW Office of Women and Cabinet (2007), 67% of these are home-based businesses (NSW Office of Women and Cabinet, 2007). Usually, small businesses generally experience resource constraints. According to Stokes & Wilson (2010), small enterprises have less to spend on marketing compared to a larger organization due to the impact of fixed costs that takes up a higher proportion of revenues. Further, these businesses are restricted by financial constrains from employing business specialists such as marketers. Another key attribute of small businesses is that they face a lot of uncertainties, which they have to cope with. According to Stokes & Wilson (2010), this stems from the lack of control over the market, a small product and customer base and the diverse liabilities and motivations of the owners-managers. The successful small enterprises adjust in the new conditions in a continual process of evolution. This has a great impact on marketing since short-term priorities take over longer-term planning. This explains the fact that planning for marketing for small enterprises is problematic and tends to be reactive in style. Conclusion In conclusion, small business owners portray distinct characteristics, which make them unique. Such individuals are usually risk takers, though, they assume calculated risks. Second, they are systematic hard workers with strong passion for or commitment to their businesses. As noted in the discussion, such persons possess an attitude that results in tenacity in the face of difficulties and willingness to work hard and thus, they do not give up easily. Further, small business owners react quickly and effectively to change so as to take advantage of opportunities and threats. As well, the owners of small enterprises often have a desire for independence and a strong sense of initiative. On top of that, they are strategic planners. However, they lack experience in management expertise to operate their businesses effectively. As this discussion demonstrates, small businesses have some inherent attributes that give rise to their distinctive nature. First, these business enterprises are relatively small in a given industry or market either terms of size, the number of employees, sales volume, number of potential customers or other significant measures. Remarkably, most of them reflect the behaviours of the owners. Small businesses form the majority of all business enterprises and are the leading source of employment in most countries. As well, most small businesses are home based, majority of them being operated by men. They generally experience resource constraints. Finally, small businesses face a lot of uncertainties which arises from the lack of control over the market, a small product and customer base and the diverse liabilities and motivations of the owners-managers. References Bridge, S., Cromie S. & Neil, K. O. (2003). Understanding Enterprise, Entrepreneurship, and Small Business, New York: Palgrave Macmillan Publisher. Burke, M.E. (2011). “Knowledge sharing in emerging economics,” Library Review, 60(1): p. 10. Gottfridsson, P. (2010). “Development of personalised services in small business: An interactive learning process.” Managing Service Quality. 4: 388-394 Jeffrey, L. M., Hide, S. & Legg, S. (2010). “Learning characteristics of small business managers: Principles for training.” Journal of Workplace Learning. 22 (3): 7-11. Longenecker, J. G., Moore, C. W., Palich, L. E., & Petty J. W. (2006). Small Business Management: An Entrepreneurial Emphasis. Ohio: Cengage Learning. MacGregor, R. C. & Vrazalic, L., (2007). E-commerce in regional small to medium enterprises, London: Idea Group Inc (IGI). Mazzarol, T, Reboud, S. & Soutar, G. N. (2009). “Strategic planning in growth oriented small firms.” International Journal of Entrepreneurial Behaviour & Research. 15 (4): 20 – 345. NSW Office of Women and Cabinet (2007). “The newsletter of the office of women.” retrieved 21 September 2011, from http://www.dpc.nsw.gov.au/__data/assets/pdf_file/0006/83616/NSW_Women_Issue_7.pdf Okpara, J. O. (2011). “Factors constraining the growth and survival of SMEs in Nigeria: Implications for poverty alleviation.” Management Research Review. 34(2): 166-171. Perren, L. (1999). “Factors in the growth of microenterprises (part 1) developing a framework.” Journal of Small Business and Enterprise Development. 6 (4): 38-42. Stokes, D. & Wilson, N., (2010), Small business marketing issues, Small Business Management and Entrepreneurship, Hampshire: Cengage Learning EMEA Read More