Enterprise and Small Business Principles

Chapter summary

Growth-oriented small businesses make a major contribution to economic develop­ment and employment generation within local communities and are a crucial engine for the development of national economies. For this reason they attract a great deal of attention, not least from policy makers and support providers hoping to encourage and influence their ongoing growth. However, the existing knowledge base, about how successful growth businesses effectively sustain development, is limited, although there have been a growing number of empirical studies. Commencing from the premise that there is no single theory which can adequately explain small-firm growth, this chapter first sought to draw upon major research studies to highlight aspects which appear to be characteristic of high-growth enterprises. Crucial in many small firms is the central and pivotal role of the owner-manager, though many research studies have had limited success in their attempts to identify key personality traits and characteristics which can be said to typify owner-managers of growth-oriented firms. Nevertheless, the combina­tion of ownership and management, sometimes in a single individual, is a recurrent feature distinguishing small firms from large companies. As a result, the characteristics and capabilities of individuals operating small firms impact substantially on the form of organisation culture of particular small firms and their orientation towards, and success in achieving, sustained growth.

Many studies have focused on the characteristics and development issues of the small firm itself. One such approach is the life-cycle or stages model approach which, whilst a useful vehicle for aiding the diagnosis of organisational problems and diffi­culties that an owner-manager may have to circumvent if growth is to be achieved, is of less value when seeking to explain growth. Similarly, the body of ‘business manage­ment’ literature provides guiding insight to enhance understanding of ways in which organisations may sustain growth through adoption of development choices regarding potential adjustment to their market, product and/or process activities. But much of such insight appears overly rational and systematic when compared with the reality of small business management. In addition, it may be inappropriate for coping with the unpredictable contemporary change environment with which the modern-day small - business manager must struggle. Indeed, an emphasis throughout this chapter is that a prime determinant of growth is the way in which the growth-oriented small business must successfully address the enabling and constraining nature of its external operat­ing context.

It appears, therefore, that the literature provides foundation insight and guiding frames of reference for enhancing understanding of key issues underpinning small-firm growth, without providing an integrated theory of growth. Moreover, much of those areas of literature that are ‘business management’ based seem to be substantially large - company-oriented, failing to fully address the idiosyncracies and problems impacting on smaller firms. As a result, this chapter has made a selective utilisation of relevant literature, which has facilitated a consideration of major barriers that may constrain small-business development, and which must be circumvented or managed if effective growth is to be sustained. Commencing with the external operating context, emphasis is placed on the predominance of totally unpredictable open-ended change and how this must be identified and understood if the small firm is to grow effectively. With regard to the competitive environment, the small business needs to be sensitive to underlying industry and market structure characteristics if it is to understand the broad sources of competition.

In terms of the internal operating context of the small firm, it is suggested that small businesses can be viewed as a ‘potential unique problem-type’ facing problems and barriers to growth, which are owner-manager and/or size-related. Particular attention has been afforded to internal barriers impacting on growth in the form of the poten­tial inadequacy of existing assets, as well as the ability of management to team build and team manage, in order to effectively facilitate the nature and pace of development. Having focused on key barriers that can potentially impede growth, the final section of the chapter considered first the limited utility of rational long-term planning in a small business context and, second, an alternative organisational learning perspective to effect­ing sustainable strategic development in small businesses. In total, the chapter provides an overall context for considering key management issues facing growing small firms.