Managing Small Businesses: Relationship of Theory to Practice - Essay Example

? Managing Small Businesses: Relationship of Theory to Practice Introduction Business experts have developed anumber of business theories to that define how and why small businesses fail. They also explain how these businesses are operated. While some of them might be valid, most small businesses are able to defy them and operate on entirely different foundations (University of Minnesota, 1964, p.58). This paper looks at Eles Clothing, and how it has managed to be in business for over twenty years, making it possible for the firm to be able to continue its success. The document uses Eles Clothing as a case study and goes on to analyze small business theory from a highly practical perspective. According to Reynolds (2000), the fact that most small business owner close at the impediment of a disaster make it extremely hard to get the exact figure id SME failures. Eles Clothing was started in the early 90s and has been operating and serving its customers for a long time. It sells clothing at both retail and wholesale prices to the local community. Unlike popular small business theory, the business has been able to remain steadily in business and use professional management as a way to manage the business. This can be evidenced by the following; Research process To be able to get the information, I had first to search in the internet for small businesses in UK. I was able to find an online directory for small businesses in the UK, from where I then searched for clothing stores. Eles struck my interest because of a number of reasons. First, it had the best customer ratings and then, its history was important because it has been there since the early 1090s. Research was then done about the customer base and the market share. Internet sources were used to research firm. Online customer ratings were indicators about the firm’s success in delivering service to customers. Interviews focused on the manager and a number of employees. The following email excerpts indicate the correspondence between me and Eles. 1.0 Email to the manager Dear Sir My name is () and I am carrying out a research on how SME are managed with an intentions to determine the validity of small business theory. I have an interest in your firm as a small business because it has showed allot of success for the last twenty years and wish I could have an interview with you. I wish to ask for an interview on Friday the 10th of April. I look forward to hear from you. Thank you in advance 2.0 Response email from Eles Dear () I want to thank you for your interest in our business and I wish you success in your research, at Eles, we are always open to outsiders and I wish to inform you that your wish for an interview is granted. However, this Friday, being a workday will not be convenient and I wish to ask you to consider Saturday afternoon. 3.0 My response Dear Sir Thank you very much for your mail. I am glad that I can talk to you and look forward to learn from you, I will definitely come on the 15th of April as agreed. Once again, thank you. Strategy development Business strategy development is a tremendously vital part of success for small businesses (Butler, 2012, p.149). With regard to applying professional management strategy, Eles has been able to carefully apply strategic management in ensuring the business is run in a strategic way. Eles operates in an industry where competition is extremely stiff, and influential players take an enormous part of the market. To be able to compete with clothing giants, the firms has had to use a valid market strategy to gain its market share and to continue to be successful in the market. By maintaining a properly managed business strategy, the firm has been able to manage to stay in the market and remain profitable. While maintaining a local outlook and not managing to be a powerful brand in the larger market, the firm has been able to maintain successful relations with its market and continue to thrive even through the recession. According to Garvin (1993, p.58), strategy development is a vital aspect of business development. This is what has kept Eles from falling away even in an extraordinarily difficult market. Financial leveraging Sheeba (2011, p.250) argues that financial leveraging is a tricky affair because it can either lead to wealth creation for business or wealth depletion. Small businesses also find it harder to get financing from financial institutions (Brown, 1976, P.34). According to small business theory, small businesses shy away from external financing because they feel that they may lose their control on the business (Marvin and Rosko, 2007, p.54). This as Justin (2006, p.8) says stems from the fact that most entrepreneurs are what they are because they like to be independent in the first place. Eles has not only been able to use external financiers to leverage its finances but has been able to use this to be able to remain relevant in the industry where it faces a lot of competition. Eles uses financial leveraging especially from banks that have given the firm small, as well as big loans, to expand its inventory. The firm’s professional management makes it easier for the business to be able to acquire financing from banks. According to Read (1998, P.333), however, the way a business is able to get financing is also determined by the number of stake holders interest in the finances of the business. Customer service excellence According to Yang (2008, p.58), brand development is an extremely crucial aspect of business strategy development. Most experts believe that small businesses are not able to achieve customer service excellence. However, just because a business is small may not necessarily mean that the business will not be able to achieve customer service excellence. Eles has been able to achieve customer service, and this is evidenced, by the way, the firm receives positive and congratulatory reviews on the internet. The firm has been able to train its employees to be able to serve the customers exceedingly well and has been able to achieve the best customer service. By being able to do this, firm has been able to compete with the big players in the industry because happy customers are usually happy to come back again. Brand development Bran development is particularly useful in developing a business and also giving the business a guarantee for success, and it happens at all levels of operations (Franzen, 2008, p.52). This is especially so in the clothing industry and for the business to be able to thrive, developing a visible brand is never a choice (Harris, 1973. P.78). Developing a brand is a heavy task and in many cases involves having to spend a lot of money. This is why small businesses like Eles may find it extremely hard to survive in the industry. However, Eles has defied this is a mighty powerful way because it has been able to create a powerful brand in the local market. Although it has not been able to create a global business like most of its competitors in the market who have a global brand recognition, Eles has developed a brand that is easily recognized in the local market. This makes it easier for the firm to succeed in the local market. The firm has been able to develop a recognizable brand even with the limited resources that the firm has in its exposure. Slow growth leads to high chances of failure Although business experts argue that small businesses that grow slowly are more likely to suffer failure, this has not been the case with Eles. Although the firm has grown slowly over the years, the firm has maintained steady growth over the years and has not been put off by unfriendly forces such as the 2008 economic recession that hit both small and large businesses. Eles has been able to defy most of the theories advanced with regard to small businesses and continues to thrive in shark infested waters. It has also been able to maintain a happy and satisfied clientele, most of whom are repeat customers. Theories about small business growth argue that these businesses are out of resources for growth, and that is why they seek to join franchises in order to access resources for expansion (Stokes and Wilson, 2010, p.266). Management: Personalized management style The other theory about small business management and their failure and or success is about the management style that the owners to the business choose to use in managing the business (Cooper, 2009, p.89). In this regard, experts argue that owner managers of these small businesses refrain from using professional management styles and use personalized management. This is, however, not so in every situation because some businesses have showed that they can operate as a small business and still have a professional management style. According to Longernecker (2011, p.48), small business owners are supposed to understand when to look for professional managers and stop acting as the multifunctional managers of the business. This is exemplified by Eles because although the firm is a small business, the firm has managed to achieve a professional style of management. In fact, Eles has a team of management that oversees every aspect of the business. This is why Eles has been hugely successful even though it is a small firm in a market with so many barriers and competition from large multinationals. This is unlike the traditional arrangement where according to Cary and Ronald (2011, p.74) the businesses’ human capital was only limited to the human capital provided by the founders. Common small business theory also argues that owner manager follows personal taste, as opposed to following customer taste. Following owner taste and neglecting the taste and needs of the customer is retrogressive for any business because the main role of the customer should be to meet the customer’s needs. Most small businesses are at risk of making this small business, and they may be at risk of losing market if they do not look at the tastes of the customer. This is more so in the fashion industry in which Eles operates. However, Eles management understood this right from the beginning and has avoided this mistake at all costs. To meet the customer needs and tastes, the firm is always looking for ways in which to understand customer tastes in order to meet them. Eles has managed to clearly understand the tastes of its customers and in this regard has been able to maintain its customers. This ability to understand the local market and know their tastes as well as develop a strategy around these tastes has been crucial in giving Eles a successful operation in the increasingly competitive market. It is also argued that small businesses suffer because the management fails to motivate staff and delegate duties. Failing to motivate staff can lead to dire consequences because of a number of issues. First, unmotivated employees do not have the urge to have understood the mission of the firm and are, therefore, in a way not aligning their actions to the mission and goals of the firm. For instance, if the employees are not motivated, they are more likely not to give the best customer experience, and this can have dire results on the business. However, as Kok (2003, p.23) argues, a CEO of a small business can still be able to implement high quality human resource management as long as they clearly understands the principal of efficient human resource. Eles has been able to achieve this, and it has been able to motivate their employees, and this has helped in meeting customer needs and giving customer good experience when they buy from Eles. This can be evidenced by the fact that most customers who buy from Eles are happy about the service they get from the sales people at Eles. Only motivated employees can operate in this kind of way and service to customers. Business management experts also argue that owners of small businesses are only willing to take friendly advice about the operations of their business but fail to heed critical advice that may move them out of the comfort zone. Eles has been able to avoid being the kind of business that only takes sugar-coated advice. Modern business environment is highly dynamic and requires the mangers be extraordinarily knowledgeable about the industry and the business. According to Cornelius (2001, p.141), performance management is also a crucial aspect of increasing productivity in the workplace. The owner is willing to take advice from the business manager that he has employed and this has helped him from operating under illusions. Eles has benefited a lot from professional management and the way issues are handled, including areas like HR and marketing. This is important because the firm could not be able to operate successfully if it failed to understand this concept and use it. The argument that managers in small businesses only takes friendly advice also postulates that these managers are adamant in refusing to take professional advice from either external or internal sources. This, however, is not true with Eles because the firm benefits from professional managers who provide for leadership. According to Porth and Saltis (1999, p.4), small business are getting into the trend for consulting, and this can be extremely useful for businesses that cannot afford in-house experts. Eles is one of the small businesses that have already realized that there is a benefit in external consulting. Theories about small businesses postulate that management in these small businesses is past oriented and fails to look at the future. However, this is not true with Eles because the firm has been able to operate in a truly future oriented manner and in this case has been able to see what customers needs are. In fact, without this, it is not possible to succeed in the clothing industry for as long as Eles has done because the clothing industry. Eles has been hugely future oriented in terms of trying to understand the future and this has been critical in giving the firm a lot of success, albeit in accordance with the size of the firm. It is also argued that small firms are more prone to adversity than prominent firms and that in the face of adversity; they are more likely to give in and close down their doors. The reality of this cannot be clearly established since the previous global economic recession saw both small and big businesses fail to sustain themselves in the market. According to the last recession, it seems that recession or any economic adversity has the same effect on both small and large businesses. With regard to Eles, this theory is put to dust as the firm was able to successfully navigate through the hard time of the just ended global economic recession. Eles managed to maintain its stamina through the difficult times of recession. This was extremely influential in that the firm had to continue serving its clientele and through this indomitable spirit Eles as a fashion and clothing business has been useful in making sure that it stays in the market including when the market is not at its the best. Small businesses are also more likely to have accounting problems. According to small business theory, these firms are either not able to carry out proper accounting processes or may not have the right accounting data (Raymond, 1994). Historic accounting data is useful in the analysis of a firm is useful in managerial accounting to do analysis and offer managers with analysis that can then be used to create a strategy for future success. This argument is true in a number of ways. First, small businesses may not have the financial resources that are necessary to be able hire professional experts to help in accounting strategy. They may also not be able to afford expensive management systems that are useful in capturing, storing and analyzing accounting data. This means that the firm is not able to reach its goals in terms of strategy development. Many small businesses display these characteristics and, therefore, this theory can be proved to be valid. It is also extremely useful to understand that those small businesses do use the accounting data since they only need enough accounting data for tax reporting. This can be a terribly weak point for the firm because the company will not obtain any advantage from accounting data as successful firms do. This argument is particularly influential with regard to Eles because the firm also seems not to have enough accounting data. This lack of accounting data may be attributed to the fact that Eles does not need to report to such parties as stockholders. The fact that Eles has grown at a considerable slow pace over its history can be credited to the lack of proper accounting. Comparison with competitors The main competitors to Eles are the Oasis Fashion and NO Just A Label clothing stores. These two clothing stores sell designer garments cloths to the public. The Not Just A label clothing store is especially very creative in delivering the best fashion products to the firm. However, Eles has done a much better job in creating a market niche and creating a fan base among the customers. Eles however has not been able to deliver a designer based product and depends on suppliers to bring in their designed so t can retail for them. In terms of strategic management, Eles has been able to have a better application of professional management that has helped the firm to be able to continue with its success. One thing that really makes Eles to stand out among small scale clothing businesses like it is that it has managed to utilize financial leveraging. This has kept the firm going and has give the firm a chance to be able to serve its customers continually without failing to deliver customer needs. More so, unlike the other clothing business of its caliber, Eles has been able to employ professional managers. Other clothing businesses in UK that are of the same caliber as Eles are usually managed by the proprietor even where the proprietor may not have as much knowledge and competency to manage the business effectively. Reflection In doing this project, I was able to lean a number of important things. First, I was able to learn that there exists a difference between reality and theory in terms of how small businesses are managed and run. Although some theories about small businesses are actually true, I was able to understand that they are not true to the businesses and some businesses can deny them. More importantly, I was able to learn that the main important thing for a small business is to improve customer service. Through this study, I was learnt that small business can actually use the disadvantage of being a small business to their advantage by personalizing the services they give to their customer and thus having a fan base from the customers. This study was influential in understanding small businesses, the theories about them and factors that affect their success. In a nut shell, the main factors that affect the success or failure of a business include the size of the business, age of the business and type of ownership of the business. I was also able to learn that the sector in which the business operates also provides unique factors of failure since every sector has its own challenges and barriers as well as opportunities. Also discussed in detail was the past performance of the business as a crucial success factor that can affect whether the business is going to succeed or to fail. As well, the macroeconomic conditions present in the economy, management attitudes with regard to human resource are also decisive factors. The location of the business is also considered to be an extremely powerful factor that affects how a small business will survive in the market. These theories also argue that businesses in receipt of state subsidies are far more likely to fail due to the fact that usually those businesses that receive subsidies are those that are in high risk areas. The firm type was also discussed as a major factor of failure or success where the small business is concerned. References Brown, R. (1976). 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