Small Businesses - Essay Example

? SMALL BUSINESS …………………. and Number …………….. …………. Table of Contents Table of Contents 2 Introduction 3 Modern Small Business Enterprises 4 Setting up a small business 5 Why it is worthwhile to set up a small business 6 What small business to be set up? 8 What does it take to be Worthwhile in starting a small business 9 Opportunities and Challenges in setting up the small business 11 Opportunities 11 Customer Focus 11 More direct personal service and Personal Contacts 11 Franchising 11 Shopping centres, loyalty cards and other recent trends 12 Challenges 12 1- Selecting the Proper location 12 Technology 13 Competition 13 Financing 14 Conclusion 14 References 15 Introduction Large multinationals around the world play dominant roles in the market, but, their business operation seems to be inefficient if there are no small scale businesses to assist them in marketing or retailing of their goods or services. Many large multinational companies are trying to avoid middle men retailers and small scale businesses in their distribution channels, but still, consumers have always easy access to small businesses. For instance, in order to avoid small scale business roles in the channels of distribution, large companies like Dell Inc has started ‘direct marketing’, and Apple Inc has launched ‘own-store retailing’, however, a major percentage of their sales are represented by third party sellers and small retailers. Small scale industries and firms constitute a very important segment of the economies around the world. No matter whether it is small scale or large scale, setting up a business is an economic as well as a holistic function and the success of the business purely depends on various factors such as kind of business, the market environment, demand for the goods or service it targets to market etc. From a business point of view, it is very important to analyse and assess the significance and meanings of setting up a small scale business, especially in relation to today’s marketing contexts. This piece of paper addresses the importance of small scale businesses in contemporary market contexts and explains whether it would be worthwhile to set up a new small scale business. The major opportunities, problems and challenges that a business man may face in setting up a small business will be detailed and the ways to overcome the issues will be highlighted in the paper. Modern Small Business Enterprises Business success or failure is not ultimately the result of fate or random chance, but there are good reasons why a business did well or the other one didn’t. When a business man plans to set up a business, he may have some initial concerns such as which particular business to be started, who are the main customers to be targeted, how much capital to be invested and what market to be concentrated etc. In today’s rigorously competitive market landscape, the main indicator for the success or failure of a business is the ability of the business to meet customers’ specific as well as general requirements and thus to ensure customers’ satisfaction. As Freeman (2007) emphasized, no one who starts their own small business plan to fail, but sadly they fail to plan and therefore they fail. No matter whether the business is small or big, developing a well thought about plan and comprehensive strategic planning is critical to setting a business successfully. In the modern business contexts, small businesses represent a good portion of the economy since it 1) provides increased employment opportunities, 2) Requires less gestation period, 3) encourages growth of local entrepreneurship and 4) improves the standard of living of the local people. In the UK alone, it is estimated that there are 3.7 million small businesses and this plays greater roles in its economy. A small scale business is one in which management is mostly independent and usually the manager is the owner, area of the operation is mainly local and ownership is held by an individual or small group of people (Analoui and Karami 2003). Setting up a small business, even in today’s competitive and complex marketing conditions, is critically important to the economy if the business man considers strategic planning as vitally important. Because, it is imperative for a businessman to foresee what specific business is good in a given marketing conditions, who are the main customers to be targeted and what are the major business objectives. More specifically, it would be worthwhile to start a small business if the business man goes for a comprehensive plan about the business to be set up, about the market to be targeted and about the demand to be created etc. Setting up a small business According to Fry, Stoner and Hattwick (2003, p. 44), a small business is independently owned and operated and is not dominated in its field. A small business is one that meets size standards that vary according to the industry. A business that is having fewer than 100 employees, and is independently owned and operated, and not dominant in its field are commonly termed as small scale businesses (Bateman and Snell, 2003, p. 212). Over 98 percent of all the businesses are small businesses, but the impact of both large and small businesses are tremendous. Large businesses vary greatly in size and in numbers of people they employ. As Burke, Clarke and Barrow (2008, p. 2) noted, starting up new ventures will certainly achieve economic aspirations of government and of individual entrepreneurs. The impact of small scale businesses on the economy and the society at large can be illustrated in three ways, they are as following: 1- The impact of the small businesses is economic as there are large numbers of small businesses. Over 98 percent in the US and almost same proportion in most countries are accounted to be small businesses. Around 600,000 small businesses are launched each year. Even though a small business contributes relatively few goods and services, when all the small businesses are added together, the economic impact is substantially important (Fry, Stoner and Hattwick (2003, p. 48). 2- Secondly, the numbers of employees that small businesses employ are substantially important. Small businesses contribute greater numbers of job opportunities. Almost half of the total payrolls in almost all the countries are paid by small business operators. 3- When it comes to the technology and innovation, it can be observed that many new products are contributed by small businesses and their contribution to innovation is also vitally important to the economic development. Why it is worthwhile to set up a small business In addition to providing employment and greater contribution to the economy in terms of innovation, production, etc, small firms do greater advantages that large business may not do. One of the major advantages of small scale businesses over big companies is their more direct and personal customer service and their ability to respond quickly to varying opportunities (Nickels, McHugh and McHugh, 2004, p. 185). There are many other factors that make small businesses different from large scale operators and these factors show why it is worthwhile for a business man to set up a small business rather than a large scale. Low-Cost: A small business can be set up with relatively less cost and even on a part time basis. Starting large scale business certainly requires investment of huge capital and it is therefore a difficult task, but starting a small business doesn’t require huge investment. This one of the main reasons why most people who wish to set a up a business prefers a small business rather than large scale business. Independence Another advantage of starting and owning a small business is independence. Most of the people are not willing to be under other bosses, but they wish to be their own bosses. A small business owners’ survey showed that 38 percent of the people who left their jobs from big companies said that the main reason for leaving the job was that they want to be their own bosses (Rana, 2009, p. 2). For starting and owning a small business, the business man enjoy more freedom in taking decisions, in determining major business activities, and this seem to be reward for him. Adaptability to Change Starting a small business in today’s environment will be advantageous because, market and business environment variables are changing almost every day and business also needs to be accustomed with the change around it. For a small business, make change in the business activity according to the changes around them is not a difficult task, as compared to that of a large scale business. When it comes to big business, adaptability to the change is difficult task since there can be resistance from its people and implementing a change is often a very difficult process. In recent years, change and change management have become central issues to large businesses, but for a small businesses owner, since he is the main decision maker, he can make changes to business activities according to the changes around it and there can be little interferences for that. Risk factor Setting up a small business is relatively less-risky. Starting a big business requires compliance to varying legal and other important government regulations, but starting a small business doesn’t involve greater risks as in starting a large business. What small business to be set up? A business man who wants to start a small business needs to have a good idea and then to create a good opportunity. In order to be worthwhile, the business man requires to develop an idea about the business and to find better opportunity that he can convert it to a profitable business enterprise. The idea of a small business It is highly important to start a business with great idea. A new retail business will be a good idea if the business man finds that there are customers that he can serve. When thinking about a retail business, it is also important to see the demand for the goods or service he wants to market, customers that he can target and availability of resources he requires. Starting a retail business is a good idea in today’s highly dynamic business environment because it only requires good contact with customers and timely availability of most demanded goods or services (Nelson, 2004, p. 278). In order to develop an idea of the small business, the business man who wants set up the new business must be able in creative thinking (Treffinger, Isaksen and Stead-Dorval (2005, p. 3) because creative thinking is an essential attribute of a business man when starting, establishing and developing the business. Both creativity and creative thinking are required at various stages of setting and establishing the business. In the initial stage, creative thinking may be helpful to formulate an idea or think about further opportunities and this will later become the reality of the enterprise. The Opportunity for a small business A good business man is one who spots, creates and exploits the opportunities in a variety of ways (Bateman and Snell, 2003, p. 218). The business man should be an innovator and opportunity seeker because he should perceive an opportunity to grab it and to create new product or change the existing product or process to create a new marketable contribution to the economy (McDaniel, 2002, p. 57). Drucker (2007, p. 17) argued that innovation is one of the very specific and basic requirements of a business man who wants to set up a new business. In the contemporary business environment, one who wants to start a small business will be able to discover opportunities by considering the factors such as: Technological Advances: Start ups in bio-technology, micro computers and nanotechnology have found to be better opportunities. Demographical changes: Most of the health care organizations have increased potential and opportunities to serve aging population. Lifestyle and Taste Changes: Clothing and Music trends among the general public are better opportunities for a small business man to think about, because people are willing to spend for their tastes, fashion etc. Fast food, desert or confectionary can also attract large numbers of customers (Bateman and Snell, 2003, p. 218). What does it take to be Worthwhile in starting a small business No matter what specific kind of the business to be set up, the business man is required to possess certain business skills and potential abilities that can lead him to be successful. Some of the major attributes that a small scale business operator is required to have are detailed below: 1- Commitment and determination: Bateman and Snell (2003, p. 219) emphasized that successful business man is very decisive, tenacious, disciplined, able to immerse and willing to sacrifice etc. It is in fact the business man needs to have a passion for what he is doing. These are some of the essential characteristics required for a business man who wants to set up a new business. A business man with commitment would also be able to bear the risks. Entrepreneurship is not just establishing a business, but is more comprehensive in concept as it focuses on seeking opportunities, taking risks beyond safety expectations and inculcating tenacity to module ideas and strategies in to reality (Kuratko, 2008, p. 3). This explains how and why a successful entrepreneur helps make his idea become a profitable business entity. 2- Leadership One who is in the initial stage of setting up the business is a self-starter and is therefore a team-builder, superior learner and a teacher to others (Bateman and Snell, 2003, p. 219). Some people are inherently skilful and able in starting the business than others. They are able to establish an enterprise through education, experience, learning etc and therefore they can be encouraged to improve their enterprising abilities (Gibb, 2007, p. 5). As Gibb (2007, p. 5) stressed, one who starts, runs and establishes a business must possess qualities such as initiative, leadership, hard work, flexibility, independence, need for achievement, imagination, higher belief in control, strong power of persuasiveness etc 3- Opportunity Obsession: the business man starting with a new small business needs to have intimate knowledge about customers needs and market factors. Opportunities and Challenges in setting up the small business Opportunities Customer Focus Customer Focus is perhaps one of the most effective business strategies today. Longenecker, Moore and Palich (2005, p. 13) stressed that customer focus is an opportunity because business opportunity remains for those small or large scale businesses who produce products and services desired by customers. Though good customer service and customer focus can be provided by any firms of any size, small firms have greater potential than larger businesses for achieving this goal. More direct personal service and Personal Contacts Small scale business enjoys the advantages of more direct contacts with individual customers. This is evident only for the small scale retailers or small other service businesses. Large scale operators, for instance, super market, hyper market or departmental store do not keep a personal relation and personal contact, but small business especially in rural areas keep more closer personal relation with customers (Nickels, McHugh and McHugh, 20004, p. 142). Franchising For an entrepreneur who proposes to establish a business, franchising will be an opportunity because with franchising his burden and risks can be up to an extent eliminated. Many large scale businesses with highly established brands offer franchising so that people who wish to set up a small business will have an option to start as franchising (Nickels, McHugh and McHugh, 20004, p. 158). Shopping centres, loyalty cards and other recent trends In recent years, there are many retail as well as small scale business trends like shopping mall and loyalty card etc. An entrepreneur who plans to start a small business can select a location in the shopping centre and this will contribute more benefits to him such as increased numbers of customers, advanced facilities, fewer risks in transportation etc. Similarly, when it comes to a small business, the entrepreneur can go for a specific marketing strategy, such as loyalty cards in order to survive in the market and to attract larger numbers of customers (Birkin, Clarke and Clarke, 2002, p. 51). Challenges 1- Selecting the Proper location One of the highly critical problems while starting a small business is the selection of the business location. As Zimmerer, Scarborough and Wilson (2008, p. 515) stated, nearness to customers, availability of raw materials and labors, transportation and demand for the goods or service are of greater significant criteria for a good location. Pinson and Jinnett (2006, p. 39) found that tax and government regulation also will be critical points in selecting the location. In order to ensure long term profitability, the entrepreneur is required to figure out how the location decision will contribute to the business success (Pakroo and Pakroo, 2008, p. 50) and this is more important when the business is a service business (Katz and Green, 2009, p. 357). As Mariotti (2007, p. 90) detailed, how important is the market to a business, the same importance does the location holds to a small scale business. Technology As almost all the business activities in today’s contexts are largely influenced by modern technology, an entrepreneur who plans to start a small business has to take technology in to account. Traxler (2002) described that information technology such as mobile and internet communication play dominant roles in today’s business arena and a new business entering to the market therefore would certainly require implementing the type of technology that it requires for its operation. Dosi, Teece and Chytryn (2007, p. 3) argued that technology is a factor that largely determines the competitiveness of the business. In order to overcome the issue of technology, the entrepreneur (while setting up the business) should evaluate which sort of technology is required for his/her business and obtain it. Competition Competition is merely a challenge for both start up as well as a growing business. When there are many shops competing with each other, the number of customers within the market region will be shared by the shops and the benefits will be relatively less. Competition itself is a challenge and it creates other challenges (Gillman and White, 2001, p. 23) Therefore, the new or growing business may have to come up with strategies in order to beat its competitors. In a competitive market, there can be many challenges like price, raw materials, labours etc. Financing Setting up a new business requires investment. Financing in recent years is not a difficult task since banks and other financial institutions lend money for the business start ups. However, the entrepreneur still faces difficulties in relation to which specific bank or institution to be approached for financing and what specific financing to be sought (Read, 1998, P. 188). Conclusion This piece of research paper has detailed the theoretical and practical aspects of setting up a small business, in relation to how worthwhile it will be to start up a new small business. Small business constitute an important segment of the economy and it is estimated that around 98 percentage of all the business are small scale businesses. Though a small scale business can potentially contribute relatively less to the numbers of new products and services, it is very evident that when all the small businesses are added together, the contribution to the economy is substantially good. Setting up a small business would be worthwhile because it doesn’t require huge investment in capital and there is greater independence for the business man in taking decisions. A small business is more adaptive to the changes around it because implementing a change in a large business is an extremely difficult task since people do inherently resist the change, but a small business owner has flexibility and his business is more adaptive to changes. Though these are some of the advantages of starting a small business, it is highly important that the business man should create an idea of the business, seek better opportunity for his business by analysing factors such as technological advances, demographical changes, life style and tastes etc. This paper found that the contemporary business contexts are extremely complex and therefore a business man who is setting up a small business needs to have many personal and professional skills and abilities such as creative thinker, leader and decision maker etc. This paper has highlighted major opportunities and challenges that a business man is more likely to face while setting up a small business. The main opportunities are Customer focus, use of information technology, more direct customer service etc. Main challenges are competition, technology, financing, and selecting the location etc. References Analoui, F and Karami, A, 2003, Strategic management in small and medium enterprises, Cengage Learning EMEA Bateman, T.S and Snell, S.A, 2003, Management, The New Competitive Landscape, Sixth Edition, The McGraw Hill Companies Birkin, M, Clarke. G and Clarke, M, 2002, Retail geography and intelligent network planning, John Wiley and Sons Burke, G, Clarke, L and Barrow, P, 2008, Growing Your Business: A Handbook for Ambitious Owner-Managers, Illustrated edition, Taylor & Francis Dosi, G, Teece, D. 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