The Small Business Rise

Small Business Startup - Complete Controller

At first glance, cataloging the problems and growth patterns of small businesses in a systematic way that is useful to entrepreneurs seems hopeless. Small businesses differ widely in size and capacity for growth. They are characterized by independence of action, differing organizational structures, and varied management styles.

However, on closer inspection, it becomes obvious that they experience common difficulties arising at similar stages in their development. These points of comparison can be organized into a framework that increases our understanding of the nature, characteristics, and problems of businesses ranging from a corner dry cleaning establishment with two or three minimum-wage employees to a $20-million-a-year computer software company experiencing a 40% annual growth rate.

For small business owners and managers, such an understanding can aid in assessing current challenges, such as the need to upgrade an existing computer system or hire and train second-level managers to maintain planned growth.

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Developing a Small Business Framework

Numerous researchers have developed models for examining businesses over the years. Each uses business size as one dimension and company maturity or growth stage as a second dimension. While useful in many respects, these frameworks are inappropriate for small businesses. As great as startups can be for macroeconomic development, they can also be chaotic for several reasons.

  1. The risk for startups is extreme, and the total cost can be exorbitant. Founders put more time, energy, emotion, and capital than they ever thought would be required. And, since most fail, the total cumulative cost to launch startups that succeed is enormously underestimated.
  2. Startups disturb the price structure. While trying to get a position in the economy and before they know what it takes to capitalize on business growth, a classic startup exercise is to enter the market with low prices. This sounds like honest opposition and good for customers. However, established corporations know what they must charge to sustain their business. And, even after a startup runs out of investment and leaves the marketplace, damage to the price structure remains.
  3. Small companies that lasted the financial crisis and aftermath did so by establishing what it takes to run their business in the leanest and meanest terms. One of the consequences of this trial by fire is that these firms have emerged in better shape than after previous significant economic bookkeeping downturns.Download A Free Financial Toolkit

Here are six reasons:

  1. Fewer startups. There has been less price structure disruption since 2008.
  2. The banking industry has confirmed an unparalleled lack of business loan demand, which is ironic because interest rates have never been lower.
  3. Stronger balance sheets. Reduced debt plus methodical retailing, inventory, and supply chain practices that prevent inventory creep all improve important financial ratios.
  4. More gross profit. Rigorous expense control relieves pressure on gross profit from flat sales and pricing pressure.
  5. Enhanced capital and cash. The above practices contribute to profitability, which is more likely to be retained in the current environment. Retained incomes push capital and cash toward sustained operations and long-term success.
  6. More credit-worthy. Firms that grow beyond organic funding will be more worthy of credit and preferred terms and rates.CorpNet. Start A New Business Now

Signs that your Startup is Maturing into a Small Business:

  1. Customer needs do not appear to be evolving rapidly.
  2. Consolidation by leading competitors is reducing economic intensity.
  3. Disruptive innovations and new applicants gradually gain share and top out at relatively low levels.
  4. Marketplace shares of leading contenders have hardened and are changing gradually, if at all.
  5. The price, brand, and channel stratagem have replaced product innovation as key value drivers.
  6. Cash flows progressively turn positive and return to investors rather than market investments.

Final Note

Small businesses play an important role in any civilization. When first recognized, they represent ways corporate owners test their business ideas in a market. Small businesses that create jobs for labor, in addition to the owner, offer even more economic stability. Providing a steady source of income for business owners and employees is just one reason they are important.

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