Read this article to learn about:- 1. Definition of Small Business in India 2. Features 3. Nature and Characteristics 4. Types 5. Factors Influencing the Location of a Small Business 6. Funding Myths
7. Roles 8. Elements of Office Organisation for Small Business 9. Management Process in Small Business 10. Technology for Small Business 11. Problems 12. Reasons for Small Business Failure 13. Guidelines for Small Business on How to Compete against Larger Companies.
Small Business: Definition, Characteristics, Ideas, Scale, Types, Roles, Problems, Guidelines and More..
Small Business – Definition of Small Business in India
Small scale sector in India is defined as follows:
Small Scale Industrial (SSI) Units – The investment in plant and machinery being up to Rs.1 crore.
Ancillary Industrial Undertakings – The investment in plant and machinery not to exceed Rs. 1 crore. The undertaking must sell not less than 50 per cent of its output to other industrial undertakings.
Export-oriented Units – The investment in plant and machinery is upto Rs.1 crore. The unit must export at least 30 per cent of its output by the end of three years from the date of commencement of production.
Tiny Units – The investment in plant and machinery is upto Rs.25 lakhs irrespective of location.
A service / business (industry related) enterprise with an investment upto Rs.10 lakh in fixed assets (excluding land and building) is classified as Small Scale Service and Business Enterprise (SSSBE).
In case of specified high tech and export – oriented industrial units, investment limit in plant and machinery has been raised to Rs.5 crore to facilitate technology upgradation and to enable the units to gain competitive advantage.
Small Business – Features
The foregoing description reveals the following features of small business:
1. Personal Character – A small scale unit is generally owned and organized by a single entrepreneur or a group of persons. Personal character is an outstanding feature of small business. A census of small scale units in India in 1972 revealed that out of the 1.4 lakh units, about 61% were sole proprietorships and 55% were partnership concerns.
2. Independent Management – Management in small business is independent in the sense that owners themselves act as managers. There is little divorce between ownership and control. The management structure is simple not complex, as number of employees is limited. Due to proprietary ownership and management, success of these enterprises depends upon the initiative, skills and judgment of the owner(s).
3. Limited Investment – A small enterprise requires relatively less capital investment which is provided by the owner(s) through own resources and borrowings. Capital investment is comparatively small because it does not employ highly mechanized means of production.
4. Simple Technology – Small enterprises are generally labor-intensive. The machinery and equipment used are not very sophisticated and they are generally operated manually. Amount of working capital is generally bigger than fixed capital indicating their labour intensity. Labour is the primary input.
5. Local Area of Operations – A small scale unit depends largely on local resources and its operations are localized. It is generally located near the market or near the source of raw material. It operates in a compact area and there is local touch between the employer and the employees. However, the products of small scale industries are exported all over the world.
6. Closely-Held Ownership – The capital of a small scale unit is contributed by one person or by a few individuals.
7. Unorganised Labour – A small scale unit employs a few workers. They generally do not form a trade union. Therefore, the labour working in small scale sector is unorganised.
Small Business – Nature and Characteristics of Small Business
Small business has certain unique features, which distinguish it from large business.
Some of the salient characteristics are as follows:
1. Personal Character – A small business is generally owned and managed by the owners themselves. They operate independently and can give personal service to their clients.
2. Labour Intensive – Small business is an important source of employment generation because of its labour intensive techniques. This feature of a small-scale unit is of great significance in a country like India where the number of unemployed people is phenomenal.
3. Low Capital Investment – The amount of capital required is less than that required by large-scale business houses due to less use of highly mechanised means of production.
4. Local Area of Operation – Small businesses generally have local areas of operations. However, the market for their products may be local, regional or even international.
5. Quick Decisions – Small size of the organization facilitates quick decisions and enables to capture the opportunities at the right time.
6. Short Gestation Period – Small business needs less time to commence business and quick returns. As a result, it has short gestation period.
Small Business – Top 4 Types
The small business can be classified into four groups.
The promotion of small scale enterprise has been out of the strategies for economic development in developing countries since 1950’s. The development of small scale industries as the focal point of industrial development should be given proper weightage for the ultimate objective of tackling the ever growing problem of unemployment.
The main characteristics of small scale industries is that it is labour intensive industry and it has more employment opportunities in relation to large scale industries. Large scale industries are full of automation but small scale employed manual labour to fulfill its objectives. Another characteristic is that it can start with low capital and it is pervasive in every nook and corner of the state.
It also produces basket of precious gold item (jewellery), electronic and optical equipment’s.
Some of the agro, forest, engineering, chemical and food processing industries are mentioned below:
a. Agro based industries – Rice mill, Dal mill, Oil mill, Atta Chakki, etc.
b. Forest-based – Saw mill, wooden furniture, wooden electrical accessories, etc.
c. Engineering based – Steel fabrication, tea machinery assembling and repairing works, etc.
d. Building material industries – Bricks factory, pre-stressed concrete poles, cement concrete pipes, cement grills, etc.
e. Food processing industries.
f. Bakery, ice and ice candy, jam, jelly, juice, pickle, etc.
Very small industries with an investment of less than 25 lakhs is known as tiny industries. There is no restriction on establishment of such industries. The main characteristics of tiny industries is that it can employ only less than 50 persons in this sector. Tiny industries are not managed by professionals. The family members managed these industries generation to generation. Example of such industries is Assamese gold jewellery (Assamese goldsmith). They produce only ornaments of Assamese culture and heritage, Blacksmith, etc.
Industrial undertaking having an investment in plant and machinery not exceeding Rs. 1 crore or is proposed to be engaged in the manufacturer of parts, components, sub-assemblies, tooling and intermediaries or rendering of services are regarded as ancillary industries. Many large firms’ purchase and use components, parts, accessories used from small firms. For example, Maruti Udyog buys some components and accessories used in Maruti cars from such ancillary industries.
4. Cottage Industries:
These are organized by individuals with private resources and with the help of members of the family. Different handicraft product like Bamboo craft, cane craft, wooden craft are example of cottage industries. These industries generally use local resources and local skills. The output produced in each industrial unit is generally marketed in local market and it fulfills local demand.
The small business may be divided also into two categories:
i. Modern small scale industries, and
ii. Traditional industries.
The traditional industries are sub-divided into five sectors:
Types of enterprise and service under small scale sector:
i. Manufacturing of Food products.
ii. Manufacturing of Textile.
iii. Manufacturing of wood products, furniture and fixture.
iv. Manufacturing of paper and paper product, printing and publishing.
v. Manufacturing of plastic and coal product.
vi. Manufacturing of chemical and chemical products.
vii. Manufacturing of metallic (non) mineral products.
viii. Repair of capital goods like (tea machinery carrying lorry), etc.
ix. Storage and warehousing.
x. Education, Research and Scientific Service.
xi. Repair works.
xiii. Plantation Crops.
Small Business – Factors Influencing Location of a Small Business
The choice of location of setting up a small business is a crucial task. Therefore, the entrepreneur has to study various pros and cons before taking final decision about the location of his business.
Generally small business uses indigenous raw material available in the location of plant site. The materials should be available in sufficient quantity and in good condition, suitable for use.
Weber divided raw material into two categories:
(i) Raw materials which are available everywhere such as clay, sand, water, etc.
(ii) Raw materials which are available at particular places only such as coal, iron, ore and based on climate condition such as bamboo, cane, jute, rice, spice, etc.
The products of small and medium business try to cater the demands of the local audience. The raw materials used by the small units generally do not lose weight during the manufacturing process. It can be easily supplied to the near market available. If the weight of the finished products remains almost same to the weight of raw material, the entrepreneur can provide better service to the customer.
The relation with consumer also has to be congenial. This will help in increasing demand for the product. The advantage of proximity to market is not only to minimize the transport cost but also to improve the CRM with personal touch between producers and consumers.
The availability of labour is another factor responsible for consideration while selecting a plant location. The labour supply should be sufficient in the cheapest rate. The mobility of labour sometimes solves this problem. Most of the small businesses are labour oriented so without labour force industrial unit cannot be established.
In Assam, small tea growers depends on labour. But tea labourers are mobilized from West Bengal, Odisha and from South India. They have now become part and parcel of Assam’s economy. The quantum of labour required affects the location of small units. Therefore, it is advised to set up industry near thickly populated area, if the enterprise requires more human resources.
Most of the MSMES applied simple technology to produce goods and services. It needs regular supply of fuel and power. Fuel and power is another factor of determining location of MSMES. The important sources of fuel and power are coal, oil and electricity. A steel fabrication business unit needs electricity to produce gates, grills, railings, steel furniture and fillings as well as artistic item as per demand of the customer.
If the supply of electricity is not sufficient and inferior in quality, naturally this industry cannot produce quality item to satisfy consumer demand. The labour charge will become more costly and as a result customer will suffer. The producer could not supply the finished item to the customer. Productivity of the units is also decreased.
The decision regarding plant location is very crucial because it affects organization in two reasons. Firstly location affects the cost structure and profitability of the plant throughout its operating life. According to Kimball and Kimball, the “advantageous location is that at which the cost of gathering material and fabricating it, plus, the cost of distributing the finished product to the customer will be a minimum”.
The following important factors are taken into account in the selection of a site:
(i) Availability of raw materials.
(ii) Availability of skilled and unskilled labour force.
(iii) Nearness to the source of necessary power.
(iv) Proximity to the market.
(v) Availability of transport facilities.
(vi) Nuisance of problem (discharge of scrap).
(vii) Suitability of soil and climate.
Besides the mentioned factors, the social infrastructure facilities such as availability of housing and educational, medical and recreation facilities also become important factors to be taken into account while selecting a site for industry or business.
(a) Primary Factors:
(ii) Raw material.
(b) Secondary Factors:
(iv) Topography of site.
(v) Cost of land and building.
(vi) Auxiliary activities.
(vii) Political gestation, future plan, commonly inducement, etc.
Finance is the life blood of any business. For managing day to day business, banking services are considered as an important infrastructural facility. Availability of banking services facilitates depositing of surplus cash, discounting of bills, clearing of outstation cheques and funds, transferring of funds, withdrawal of money to meet the needs of ready cash. Availability of adequate funds with minimum rate of interest is also influencing factor for industrial location. Sometimes owners fund is not sufficient for managing business; therefore some entrepreneur has to take loan and advances from the bank.
The structure and quality of soil and climate encourage some entrepreneurs to establish some avenues and estates in a particular region. If we consider soil and climatic environment of Assam, West Bengal and Tamil Nadu, we find that the rural youths are motivated to set up small tea estates of their own. Assam alone has about seventy thousand small tea growers covering minimum half acre to thirty acres of land. It facilitates financial independence to the rural youths and adults. As a result, socio-economic condition of rural Assam is upgrading.
The industrial atmosphere of a place is also an important factor that influences the location of industry. There are certain places where people can think about of a particular industry and learn the pros and cons of the machine and their operations. Thousands of varied small industries in greater Noida, New Delhi, Kolkata, Assam’s silk industry and small tea growers of Assam are example of this kind. A large number of people are engaged in these industries in those places.
Sometime policy of the Government also encourages the entrepreneurs to set up some business and industry in a particular place. Government adopt policies for minimizing the imbalance growth of industry and business in some areas from time to time and tries to decentralize the growth for equitable distribution of goods and service and prevention of further pollution in that region. Therefore, it offer special advantages in the form of concessions and benefits in purchasing of land, provide subsidies, tax rebates and financial assistance to new entrepreneurs to certain places.
Political and legal environment also influence localization of industry. Political instability and disturbing legal matters discourage the growth of business in that region. Similarly on the account of militant atrocities, threatening, repeated and frequent agitation from different social class, adverse political, law and order situations affect location of industries. The entrepreneurs in such areas are suffering from losses for a long period.
Existence of competitive units encourages the entrepreneurs to localize the business units in a particular area. On the other hand unhealthy competition retards the growth of business in that area.
Existence of other ancillaries industries such as repairing centre for plant and machinery, transportation, communication, facilities for development of better product at lower cost, research laboratories encourages small entrepreneurs, such as soil test for farmers, veterinary services for livestock, etc.
“The problem of plant location with the governing principle that the location which results in the lowest unit cost in producing and distributing the product to the consumer would be the exact optimum location.”
Small Business – Small Business Funding Myths
There exist many misconceptions regarding funding for small businesses. Some prospective business owners may believe that obtaining necessary capital is an easy and straightforward task, when, in fact, the process may be more complicated than initially anticipated. For example, many business owners may feel that it is not needed to implement an effective marketing strategy or prepare a well-devised business plan, which can often greatly contribute to a company’s failure.
Furthermore, there is an erroneous belief that government can offer financial assistance to those who apply and that entrepreneurs can increase their chances of acquiring angel capital if they actively solicit the help from numerous contacts.
An individual considering the prospect of entrepreneurship should be aware that it takes time to evaluate the different options in order to obtain funding and that they may even experience repeated rejections before the needed capital is raised.
The reality- opening the business is not an easy task. It requires planning, business plan, approvals, marketing plan and financial plan. It takes time. It requires deep study of the business, business environment, competitors etc. You should not be very much excited for opening the business unless you have fully planned about your business otherwise after opening the business you will not be able to give proper time for your business problems or by the time you will know your mistakes you would have invested your valuable resources that cannot be reverted back.
Getting all knowledge about business is must. Partial knowledge about business will damage your business because sometimes you may find yourselves in such a problem from where you cannot come out easily. So have patience, do complete planning and then go for the business.
The reality – Obtaining a start-up funding is not easy rather it is a complex and lengthy process. The new entrepreneurs do not have any idea about time duration for getting finance. The investors have many such business plans, they evaluate different business plans. It takes time to get money.
A wise entrepreneur is one who acknowledges this extensive process yet is patient and seeks all means to accomplish this goal. First, these entrepreneurs take time out to meticulously research prospective investors with experience in their field of industry.
In the course of this process, they may be rejected multiple times; however, they still find time to optimize their resources by networking extensively with others. They also use their rejections in a positive way. They work on improving the business plan by removing all the mistakes of business plan and devise a well-detailed business plan. Many investors will not help entrepreneurs in investment if entrepreneurs are not ready with their business plan and other preparations.
Investors also see how much effort entrepreneurs are taking for their business. The investors thoroughly check the entire business plan; they wait if they can get some more interesting business plan. Investors always search for such a plan that involves less risk and maximum profits.
Their invested company’s products and services must also prove to be successful in trial marketing, which may also take a considerable amount of time to execute. A good entrepreneur must be able to get all the financial opportunities to launch their business.
The reality – Many times entrepreneurs are very enthusiastic and overconfident about their business ideas and innovations. Just because they feel that their products or services are marketable does not mean that they will convince the investors for their ideas. The investors have their own attitude and perceptions. They think by their own mind and logic. Every year many people come up with their business ideas and think that their ideas are the best but the fact is that most of them only disappoint.
Many times it happens that even if the idea is good but inventors are not able to defend it from major competitors in the market. Tough competition destroys their ideas. That is why entrepreneurs need to research market, customers and competitors and then should develop the idea accordingly.
An innovative product or service will be successful when customers will be willing to pay for that innovation. This will not only show investors that the company has the potential for producing a large return on investment, but it also gives time to polish any flaws before mass production of a product takes place.
4. Myth – “I know everything about my business; therefore, I do not need to create a business plan.”:
The reality – Approximately 90 per cent of ail small businesses fail within the first two years of operation. It is very surprising that many do not have business plan. If a business plan exists, it may not be updated or the company may even fail to comply with their existing plan. They do not follow the business plan. They even do not know the actual importance of the business plan. That is why most successful entrepreneurs agree that opening, running and surviving a business requires an effective business plan.
Prospective investors start their evaluation from the business plan itself and without business plan they will not be ready for investment. A business plan primarily focuses on purpose of business, daily company operations, customers, competitors, the management team and employees, finances, etc., Business owners and employees are encouraged to follow their business plan and update it accordingly throughout the development of their company.
The reality – A marketing plan is a written document that details the advertising objectives of a company. It shows how you will penetrate the market? How will you reach to the customers? What could be the target customers? It documents a business’ marketing approach and expenditures in promoting their company, brand or company’s product line. Many startups depend on their marketing plan to gain publicity and to promote newly released products or services.
But the new entrepreneurs are not able to make a proper marketing plan; they do not have any plan. They want to sell products or run the business without any plan that leaves them at random without direction. Consumers, on the other hand, are highly influenced to buy products from companies with effective marketing plans and strategies. Hired professionals are known to devise successful marketing plans, which are vital components of a company’s overall investment. Through an effective marketing strategy, plan and public relations, an enterprise and their product line can gain public recognition, further contributing to their success and profitability.
The reality – In the hope of getting required funds for the business the entrepreneurs contacts many investors through e-mails and direct mail. Investors will admit that this is clearly the wrong approach when trying to find investors since mass mailing is considered a waste of money, time and energy.
Entrepreneurs should not be very eager in finding the investors. They should not select any investor. They should select quality investors who have a track record of success. Investors are also an expert. They have knowledge about business and therefore indirectly they help entrepreneurs in their business by evaluating their business plan and suggesting the improvements.
If entrepreneurs will see only money then definitely they will get money but what about business success? In the process of searching entrepreneurs may be rejected but the entrepreneurs should not be stopped and should try to find out credible investors. Upon this research, each prospective investor should then be sent a personalized request. By sending these custom-made requirements, the entrepreneur will gain credibility from investors, who will recognize them for conducting their own due diligence.
The reality – This is a very wrong thinking of the entrepreneurs. In real sense government does not give money directly to the businesses owners. Government just gives their guarantee to the lenders on behalf of the new entrepreneurs so that new entrepreneurs should not face any difficulty from the lenders for getting loans for their business.
So government provides an opportunity to the prospective entrepreneurs for building their business. Even any one cannot take the benefits of this opportunity; a prospective applicant should have a good credit history, proof of income, a solid business plan, marketing plan, financial plan and collateral in order to be considered.
Even though loan is smaller in amount but approval of a government, increases chances of obtaining additional capital from many lending institutions. The fact is that the grant funding is small in size and therefore entrepreneurs cannot use it for financing the business at initial stage.
Even after getting grants businesses have to search for the additional sources of capital. It is also a very competitive process to obtain a central grant since there is only limited funding available. Entrepreneurs who strongly believe that their business falls into the category of receiving government grants should target different organizations and propose a grant request.
The reality- Venture capitalists invest in already established business. They do not invest in a very new business. Venture capitalists collect their money from various sources and select the company with good revenue record. They are very sensitive while selecting the companies for their investment.
They want to invest their money in good companies so that they can get return on that. Angel investors, contrary to the venture capitalists invest in startups and early stage businesses, the businesses that are not properly established and not yet seen any success.
They use their own money for funding young companies, making their investments more “risky” than that of venture capitalists. However, they are also selective with their applicants, who need to convince them that their company will produce a large return on investment.
Small Business – Roles of Small Business in India
In India, more than 65 per cent of the total population lives in rural areas. These areas have been deprived of the benefits of industrialisation and economic development. In the light of this, small business has good opportunity to play its role in these areas.
This role is as follows:
1. Promotion of Industrialisation:
Small business leads to industrialisation of rural areas. Large business is not spread widely in rural areas. Small business undertakes projects of smaller sizes in these areas.
2. Employment Generation:
By locating business units in rural areas, small business generates employment which benefits the rural population.
3. Use of Local Resources:
There are so many local resources which remain unutilised in the absence of business activities. Small business uses these resources profitably resulting in suitable utilisation of resources at the national level.
4. Removal of Poverty:
By providing employment to local people and using their resources, small business generates income to people of rural areas. This results in equality in income distribution to a great extent and removal of poverty.
5. Better Standard of Living:
Standard of living of people of rural areas is very low, much below the national average. By generating income for people of rural areas, small business makes their standard of living better.
6. Cultural Heritage:
India is known for its cultural heritage in the form of handicrafts and other novel products. These are labour- intensive and require specific skills which are available in rural areas. These activities may be undertaken only at small scale because of special attention that these businesses need. Therefore, small business helps in preserving the cultural heritage of the country.
7. Contribution to Export:
Small business is in a better position to contribute significantly towards increasing export volume as it can produce specialised products based on manual skills which have good export potential.
8. Entrepreneurial Development:
Small business leads to entrepreneurial development. Very often, people are tempted to do what they see and feel attractive to for earning income. Small business provides this opportunity to the people as they are scattered over wide areas. This way, small business develops entrepreneurship in the country, more particularly in rural areas.
9. Contribution to Large Business:
Small business contributes significantly to the development of large business by manufacturing raw materials, parts of machines, etc., which are used by large business. Further, small business plays a significant role in providing services to large business.
Small Business – Top 5 Elements of Office Organisation for Small Business
The main elements of office organisation for small business are as follows:
1. Office layout,
2. Division of work,
4. Office machines, and
5. Recruitment and training of staff.
Element # 1. Office Layout:
Office layout refers to the arrangement and placing of personnel, equipment and furniture within each department or section of the office with a view to make the best possible utilisation of available space. It involves – (i) determining the correct amount of space for each employee and the machinery, equipment and furniture they use; (ii) correct arrangement or furniture, equipment and machines, and (iii) provision of best possible environmental conditions.
The objective of office layout is to ensure economy and efficiency in office work by improving the flow of work. In other words, “the problem of layout relates to the arrangement of work stations in the space available so that all equipment, supplies, procedures and personnel can function at maximum efficiency”.
An office is generally divided into small sections for easy supervision. But the work performed by employees in different sections is interrelated. Therefore, the allocation of space to each section should be so made that the activities of different sections can be coordinated and controlled easily. Unplanned or faulty arrangement of furniture, equipment and staff results in needless wastage of time and energy.
Faulty placing of physical facilities requires needless walking back and forth leading to increase in the cost of office operations. Therefore, a major task before the office manager is to plan the layout of office scientifically so that available space is utilised optimally, there is a regular flow of work, and efficiency and economy in office operations.
Importance of Good Office Layout:
A good office layout is important because it provides the following advantages:
(i) Efficiency – A well-laid out office promotes efficiency because it is based on the route that documents are likely to follow. It allows for smooth flow of work and saves time as the documents follow the shortest route.
(ii) Economy – A well planned layout ensures best possible utilisation of office space. Therefore, it leads to reduction in office costs.
(iii) Less investment – A good layout helps in joint use of machines and equipment. Optimum use of machines and equipment reduces the amount of investment in the office.
(iv) Effective supervision – A proper layout facilitates supervision and control of office operations. The time and cost involved in supervision are reduced.
(v) Faster communication – A good layout speeds up internal communication because related activities are placed in a sequence. Better communication facilitates cooperation and coordination between different sections of the office.
(vi) Employee morale – A well-laid out office ensures comfortable and congenial work environment to office staff. Therefore, it improves their motivation and morale.
(vii) Goodwill – A properly laid out office creates a favourable impression on the visitors’ mind. As a result the reputation of the firm will be high.
Element # 2. Division of Work:
Division of work or specialisation is a basic principle of organisation and management. It implies that the total work should be so divided among the staff that every person can concentrate on the performance of a single leading function. The pioneers of management such as F. W. Taylor and Henry Fayol suggested the application of division of work. This principle is applicable in all types of organisations, e.g., factories, offices, shops, etc.
Division of work provides the following advantages:
(i) By performing the same job continuously over a long time period, the job holder becomes an expert in doing the job. His productivity or efficiency increases. He can do the job more quickly or in a lesser period of time.
(ii) A person can better concentrate on a single function.
(iii) Suitable machines can be developed to perform the job.
Division of work, however, makes the job dull and monotonous. The jobholder’s knowledge and experience is confined to one function and his outlook becomes narrow. Moreover, there is comparatively less scope for division of work in small business due to limited scale of operations.
Element # 3. Record-Keeping:
Records are the information documents used by an enterprise to carry out its functions. Recordkeeping refers to the activities designed to control the life-cycle of records from their creation to their ultimate disposition. It consists primarily of safe and convenient maintenance and retrieval of records for future reference.
Filing is the main form of record-keeping. Filing is the process of so arranging and storing original records or copies thereof that these can be readily located as and when required. The main objectives of filing are – (i) proper arrangement of records, (ii) careful storing of records, and (iii) easy availability of records.
Filing performs the following functions:
(i) It performs the library function by storing the records for future reference.
(ii) It performs an administrative function by maintaining and supplying the various documents for framing business policies.
(iii) It performs, historical function by preserving in a systematic manner the important records showing the progress of the organisation.
(iv) It performs the information function by supplying the relevant information for various uses.
Essentials of a Good Record-Keeping System:
A good system of filing should contain the following characteristics:
i. Simplicity – The filing system should be simple to understand and easy to operate. However, usefulness of the filing system should not be sacrificed to simplicity.
ii. Economy – The filing system should be economical in time, space and money. The costs incurred on the filing equipment should be in proportion to the benefits derived from it. The equipment should save space and time of filing staff. The equipment should not be very expensive to install or to operate.
iii. Compactness – The filing system should be compact so that it occupies less space. Space is very costly and should be used economically.
iv. Accessibility – A good filing system should be so designed that records are easily available whenever required. It should allow the making of necessary insertions without disturbing the existing order of files.
v. Flexibility – The filing system should be elastic so that it may be expanded or contracted according to the changing needs of business. It should also be capable of being used for more than one use.
vi. Classification – The filing system should be supported by a proper system of classification. Proper classification helps in inserting as well as locating the documents in the files. For this purpose too many miscellaneous files should be avoided.
vii. Cross reference – When a document can be filed under more than one head, cross reference should be given to avoid confusion and to facilitate location of files. It saves time and effort.
viii. Indexing – A well-designed index plan should be used to supplement the filing system. It will help to locate the file quickly when it is required.
ix. Safety – Documents kept in the filing department must be protected from dirt, insects, rats, fire, theft, etc. Fire-proof almirahs, restricted entry to the filing room, issue of files only on proper requisition, timely return of the issued files, etc. help to keep the documents safe.
x. Retention – Records must be retained or discarded on the basis of their usefulness. Dead material must be discarded according to a specific policy.
Element # 4. Office Machines:
Machines and equipment have become an integral part of a modern office. There are large numbers of machines and appliances which may be used for different operations in the office. In fact machines and equipment are considered to be indispensable in a modern office for the speedy, accurate and efficient performance of office work. Since office work involves routine and repetitive operations, use of mechanical devices helps to reduce monotony, fatigue and operating costs.
Machines and equipment assist human brain in efficient management of office operations. A modern office is dependent on machines and equipment for its proper functioning. An office manager has to decide whether to use machines or not as well as to select suitable machines and equipment for the office.
Objects of Mechanisation:
Mechanisation in the office refers to the process whereby machines and equipment are used in the office with a view to assist the process of administration.
Mechanisation in the office has the following aims:
(i) To save labour either by reducing the total wage bill or the number of employees.
(ii) To save time by producing more work or by speeding up work.
(iii) To increase accuracy of office work.
(iv) To reduce monotony of repetitive operations.
(v) To reduce the chances of fraud in office work.
(vi) To standardise work procedures in the office.
(vii) To store a large volume of data for future reference.
Element # 5. Management of Personnel:
The people working in a business enterprise make it what it is. An efficient and dedicated work-force is required to carry on various operations. Such a work-force can be built through proper recruitment, selection and training.
i. Manpower Planning:
Before recruiting staff, it is necessary to define job requirements. Job requirements can be determined through job analysis. Job analysis is a detailed study of a job to ascertain the tasks and duties involved in it and the qualifications required to perform the job efficiently. With the help of job analysis, two statements are prepared—job description and job specification. Job description is a written statement of job title, job duties responsibilities of the job holder, task requirements, working conditions, etc. Job specification is a written statement of the education skills, training and experience required for the job.
On the basis of these statements the quality of staff required in the firm can be determined. Number of employees needed in the firm can be estimated on the basis of production and sales budgets of the enterprise. This process of estimating the number and kind of people required in an enterprise is called manpower planning or human resource planning. Unfortunately manpower planning is a neglected area in small-scale firms in India.
Recruitment is the process of searching for prospective employees and stimulating them to apply for jobs.
Recruitment in small-scale industries is difficult because these industries cannot offer the salary, promotional avenues and other benefits offered by large scale industries.
The main sources of recruitment available to small-scale firms are:
(a) Promotion and transfer of existing employees (internal recruitment).
(b) Relatives and friends of present staff.
(c) Persons recommended/referred by the friends and relatives of the proprietor.
(d) Advertisements in newspapers and journals.
(e) Employment agencies—public and private.
(f) Technical institutes, colleges and universities.
Various research studies reveal that kinship, caste and communal loyalty, friendship, relatives and village ties are very important bases of recruitment in small-scale firms.
Selection is the process of choosing the most appropriate candidates to fill the available jobs. The method of selection differs from job to job and from one enterprise to another.
However, some of the common steps in employee selection are given below:
(a) Application – Candidates are generally asked to submit an application stating their name, age, qualifications, experience, etc., scrutiny of applications will give a broad idea about the candidates.
(b) Employment tests – Many business firms use tests to judge the potential of candidates. Several types of tests, e.g., intelligence test, achievement test, aptitude test, personality test are used in employee selection. However, tests are not popular in small-scale firms.
(c) Interview – Personal interview is the most important step in employee selection. The small-scale enterprises can size up the candidate through a face-to-face talk.
(d) Reference Check – The persons named by the candidate in application as references may be contacted to verify the candidate’s credentials.
(e) Physical Examination – A medical examination will ensure that the candidate is physically fit for the job and free from any serious disease.
The new employees should be made familiar with the firm’s policies and rules and the specific nature of his job. A formal orientation programme may not be necessary in small firms. But the boss or senior colleague of the new employee should introduce the newcomer to existing staff, and work environment of the concern. Some employers furnish employee handbook for the guidance of new staff.
v. Training and Development:
In order to improve the knowledge, skills, attitudes and job performance of employees, the small-scale entrepreneur has to provide them training. With the help of training employees can be prepared to shoulder higher responsibilities and to take over from retiring persons. Training can be provided cither on the job itself or outside the job. On-the-job training can be given through demonstration, performance coaching and inspection.
Outside-the-job training can be given in the classroom and in a work shop. In small-scale firms job rotation is a very useful method of training. Under it, the trainee is moved from job to job to provide a thorough understanding of different functions.
Research studies and experience reveal that employee training has been a neglected area in small-scale sector due to lack of interest on the part of the proprietor. Various governmental agencies like National Small Industries Corporation, Small Industries Development Organisation and Small Industries Extension Training Institute are conducting, training programmes for workers, supervisors, executives and proprietors of small-scale enterprises.
Small Business – Management Process
Small business has its own distinctive features. The owner himself often acts as the chief executive and looks after more than one functional area. Therefore, managerial strategies and practices used successfully in large firms cannot be blindly applied to small scale units. Basic managerial functions in the two types of business—large and small are the same. But the manner in which these functions should be carried out can be different.
1. Planning Process:
Planning is the process of deciding the objectives of business and choosing the most appropriate course of action to achieve the objective. Planning is a rational process because logical reasoning is used in setting objectives and in choosing course of action. Planning involves thinking and judgement and is, therefore, called an intellectual process.
Planning is a continuous process as changes in plans have to be made from time to time to take care of changing environment. Planning is forward looking because plans are prepared for a future period of time. Planning is a basic function as it lays the foundation for other management functions.
Quite often a haphazard approach is adopted to planning in small firms. There is a misconception that small firms are simple and do not require planning. The small scale entrepreneur does not want to involve his staff in the planning process due to the desire to keep the secrets with himself. Personal responsibility for results, lack of planning skills and absence of specialised staff are other major hurdles to planning in small firms. Generally small scale units tend to take a short range view of problems and seldom develop long range strategic plans.
Planning is very important for small business. It helps to focus attention on objectives, provides direction to decision making, assists in facing uncertainty and change, improves efficiency of operations and facilitates coordination and control.
Systematic planning in any business consists of the following steps:
1. Mission Statement:
First of all the basic mission or overall philosophy of the enterprise is clearly defined. Mission statement should reflect the interests of the owners, customers, employees and the society as a whole.
2. Analysis of External Environment:
Such analysis should cover economic conditions, government policies and regulations, technological changes, political conditions and social situation. It will reveal opportunities and threats which the firm is likely to face. Special attention needs to be paid to market conditions and competitive situation.
3. Analysis of Internal Environment:
Situation audit is undertaken to judge the current position of the firm in terms of market share, capacity utilisation, sales turnover, profit margin, etc. Appraisal of the firm’s resources (resource analysis) should be carried out to identify its strengths and weaknesses. Physical facilities financial position, managerial capabilities, marketing competence, etc., are covered in resource analysis. Financial and non-financial ratios are often used to judge the resource position.
Analysis of external and internal environment together is called SWOT (strengths, weaknesses, opportunities and threats) analysis.
4. Formulation of Objectives:
On the basis of information collected through SWOT analysis, the goals which the firm wants to achieve in future are decided. Goals should be challenging but attainable. Goals should also reflect the mission of the firm. Goals are laid down both for short period (next year) as well as long term (e.g. next five years).
5. Development of Action Plans:
Action plans refer to the future course of action to be adopted to attain the objective.
Action plans include the following:
(i) Priorities of different goals
(ii) Alternatives selected to exploit opportunities and to face threats in the environment
(iii) Timing of different courses of action
(iv) Action programmes for different functional areas of business.
Plans should be formalised in the form of working documents. Such formalisation is necessary for effective communication and implementation of plans.
6. Execution and Review of Plans:
Plans and action programmes are implemented. The plans are reviewed on a continuous basis. Whenever necessary revision in the adopted plans and programmes should be carried out. Such updating is essential to take care of changes in the environment and capabilities of the enterprise.
2. Organising Process:
According to Peter F. Drucker the process of organising consists of three steps:
1. Activities analysis,
2. Decisions analysis and
3. Relations analysis.
1. Activities Analysis:
It involves the following steps:
(i) Determination of major functions involved in achieving objectives of the firm
(ii) Various sub-functions involved in each major function
(iii) Volume of work involved in each major function and its sub-functions
(iv) The positions required to perform the activities.
Activities analysis will reveal the tasks to be performed in the enterprise.
2. Decisions Analysis:
It consists of the following:
(i) Deciding the basis of departmentalisation so that tasks could be grouped into specialised units. Generally, functional departmentation is appropriate for small scale units. Products, territories, customers are other major base of departmentalisation.
(ii) Choosing the type of organisation structure so that departments are integrated into a formal structure.
3. Relations Analysis:
Specific positions and activities are inter-linked through the chain of command and horizontal relationships. The authority, responsibilities and accountability of every position and its relationship with other positions is clearly defined. Various positions are manned with persons having the necessary education, training, experience and other qualifications.
Types of Organisation Structure:
There are four main types of formal organisation which are as follows:
1. Line Organisation:
In this form of organisation, a straight line of command exists from the highest to the lowest position. The authority and responsibility of every position is clearly defined. Each subordinate is accountable to only one superior. But there is no specialisation. Line organisation is considered to be the most suitable for small scale units.
2. Line and Staff Organisation:
As an enterprise grows management requires the services of staff experts. These experts advise line managers but the final authority for taking decisions and issue orders remains with true executives. Line and staff organisation provides the benefits of specialisation and unity of command. But there is danger of conflicts between line officers and staff experts.
3. Project Organisation:
In this type of organisation, a separate team is created for every major project. The team provides expert and focused efforts for timely completion of the project.
4. Matrix Organisation:
This structure is a combination of functional and project responsibilities. In addition to the permanent functional departments, project teams are created temporarily. The staff for projects is largely deputed from functional departments. On the completion of a project the staff returns back to their respective departments. A small scale firm may adopt project structure when several projects are carried out simultaneously and each project requires high degree of coordination among several technical experts.
Principles of Sound Organisation:
1. Division of Work – The work to be performed should be divided into meaningful tasks and one employee should as far as possible concentrate on one type of work only.
2. Unity of Command – Each employee should report and be accountable to only one superior. Orders and instructions should come from a single boss.
3. Parity Between Authority and Responsibility – The authority of every employee should be commensurate with his responsibility. The authority and responsibility of every position should be clearly specified in the form of job descriptions and organisation charts.
4. Scalar Chain – The chain of command from the top position to the lowest position must be direct and clear.
5. Departmentalisation – Similar tasks should be grouped into the same department on an appropriate basis.
6. Balance Between Centralisation and Decentralisation – Proper delegation of authority should be made to ensure that there is the right degree of decentralisation.
7. Appropriate Span – Span of control means the number of subordinates reporting directly to one superior. The span should be appropriate in view of the nature of work, ability of the superior, competence of subordinates, degree of coordination required, etc. Generally, small enterprises prefer a wide span as they cannot afford the cost of additional layers in the organisation.
8. Human Use of Human Resources – The requirements of work should be integrated with the capabilities and aspirations of employees.
9. Flexibility – The organisation structure should be able to adapt to changes in the internal and external environment.
3. Leadership and Motivation:
The quality and style of leadership determine largely the success of business. In small firms generally the owner provides leadership. Therefore, the behaviour of the owner make or mar the enterprise. Leadership is the process of influencing people towards the accomplishment of organisational objectives. It involves motivating and guiding people. The leader creates team work, improves morale and maintains discipline.
The leader may adopt a hard or soft style to influence the employees. The style depends upon leader’s assumptions about human nature. Douglas McGregor has formulated two extreme theories concerning human nature.
Its assumptions are:
(i) An average human being has inherent dislike for work and will avoid it.
(ii) An average person prefers to be directed and wants to avoid responsibility.
(iii) An average human being has little ambition and wants security above all.
(iv) Therefore, people need to be coerced, controlled, directed and threatened with punishment to wax them to work towards objectives of the organisation.
Managers who follow Theory X tend to be autocratic. They do not delegate authority, exercise close supervision and use pressure tactics to get things done.
Its assumptions are:
(i) Expenditure of physical and mental energy is natural like rest or play.
(ii) An average individual learns under proper conditions not only to accept but also to seek responsibility.
(iii) People will exercise self-direction and self-control in the service of objectives to which they are committed. External control and threat of punishment are not the only means of motivating people.
(iv) Commitment to objectives is the result of rewards associated with their achievement.
(v) The capacity to exercise relatively high degree of imagination, ingenuity and creativity in solving organisational problems is widely, not narrowly, distributed in the population.
(vi) Under conditions of modern industrial life, the intellectual potential of people are only partially utilised.
Managers who believe in Theory Y assumptions adopt participative leadership. They involve employees in the process of decision making.
Qualities of a Good Leader:
1. Physical Qualities – Sound health, stamina, enthusiasm, nervous energy, forcefulness.
2. Intellectual Qualities – Intelligence, sound judgement, decisiveness, maturity, vision.
3. Moral Qualities – Integrity, moral image, fair play, will power, sense of purpose and responsibility, achievement drive, objectivity.
4. Social Qualities – Ability to inspire, tactfulness, persuasiveness, self-confidence, empathy, initiative, knowledge of human nature, communication skills.
Communication is the interpersonal and on-going process of exchanging information and views between two or more persons with the objective of creating mutual understanding among them.
(i) Sender – Sender may be a speaker, a writer or an actor.
(ii) Messages – Message may be verbal, written or gestures or a combination of all. It may be encoded in symbols or words, etc.
(iii) Channels – The message may be sent through face to face talk, telephone, mail, etc.
(iv) Receiver – The receiver may be a listener, a reader or a viewer.
(v) Decoding – The receiver converts symbols etc., in the original message to understand it.
(vi) Feedback – It is the reverse flow of message indicating that the receiver has understood/ misunderstood the message.
Effective communication is essential for the success of small as well as large business. It enables the employees to understand what the employer wants and to participate in business affairs. Sound communication system also enables the employer to understand the needs, attitudes and aspirations of employees. In small firms, communication takes place mostly through face to face talks due to direct contact between employers and employees.
Controlling is the process of setting standards of performance, comparing actual performance with the standards and taking actions to bridge the gap between the standards and the actual. Managers use several techniques for monitoring performance and regulating operations. Supervision, reports, breakeven analysis, budgets, management audit, financial ratios, PERT and CPM are examples of these techniques.
A good control system should be goal oriented, forward looking, quick, flexible, objective, economical and simple. It should focus attention on exceptional or critical deviations between standards and actual results.
5. Management of Time:
Time is a very valuable resource especially for a small scale entrepreneur who is often burdened with multiple roles in his business. The entrepreneur can achieve considerable improvements in his firm’s performance through more efficient use of time.
Management of time involves the following steps:
(i) Time Use Analysis – First of all a systematic analysis is made to find out the proportion of total time spent by the employer and his staff on different activities.
(ii) Setting Priorities – Critical or vital activities should receive greater time. Activities taking more than the justified time need to be identified. Irrelevant or time wasting activities should be eliminated.
(iii) Time Allocation – A work-cum-time schedule should be prepared. Proper time should be allocated to each activity. The tasks one wants to do but for which he does not have time should be noted.
(iv) Adhere to Time Schedule – The most difficult part of time management is to complete each activity within the prescribed time period. For this purpose, it is necessary to delegate tasks to subordinates, to organise every workday and to continuously evaluate the time management system.
Small Business – Technology and Small Business
Technology implies the know-how, design and intellectual input of doing things. It refers to the practical application of the principles of science to day-to-day industrial and commercial use. In the modern era, technology is changing very fast. Enterprises with superior technology often have an edge over their competitors.
Appropriate technology is the technology that best suits the resources and requirements of an enterprise. For example, the most modern sophisticated technology which is employed profitably in a giant steel mill may not be appropriate for a mini steel plant. The choice of an appropriate or relevant technology is a very crucial decision as it is bound to have a long term and lasting impact on the future of the enterprise.
The choice of appropriate technology depends upon several factors:
(i) Nature of Product – For some products, e.g., safety matches, detergents, etc. low technology may still be appropriate. On the other hand, for manufacture of high precision watches and advanced process control equipment high technology has to be employed. As new and more sophisticated products are being introduced, high technology is becoming necessary.
(ii) Volume of Production – Desired volume of output depends on the size of the market. In case of small scale firms the market is often local and therefore low tech plants are sufficient. For example, a small steel rolling mill may use simple technology and yet be successful. But large firms producing large volumes need automatic plants.
(iii) Investment Capacity – High technology requires large capital investment which is often beyond the capacity of most small scale units. Therefore, small scale firms often depend on manual operations.
(iv) Manufacturing Strategy – Choice between general purpose and special purpose machines depends on the manufacturing strategy or the enterprise. Two small scale firms in the same industry may adopt different technology due to differences in their manufacturing strategy.
(v) Engineering and Technical Evaluation – Process requirements, design considerations and engineering feasibility influence the choice between high tech and low tech.
(vi) Economic Evaluation – While choosing appropriate technology considerations of cost per unit and return on investment are important. Risk associated with investment should also be considered.
(vii) Social Considerations – Environmental, legal and cultural aspects and employees’ attitudes are significant. As the public is becoming more concerned about industrial pollution, need for antipollution technology is increasing
Rapid improvements in technology require entrepreneurs to learn to cope adopt and absorb technology. The progress of technology can be ignored at one’s own cost. By constant use, machinery becomes obsolete and unserviceable. New technologies and better models of machinery come in the market.
Therefore, an entrepreneur needs to replace his worn out/obsolete machinery with improved ones. Modernisation or up gradation of technology helps to increase productivity, to reduce cost per unit and to improve quality of output.
Several institutions at the Centre as well as in States have been set up to assist small scale units in modernisation and up gradation of technology. A Technology Development Division was set up in the office of the Development Commissioner (Small Scale Industries) for up gradation of technology. Small Industries Development Organisation (SIDO) has launched several technology support programmes for the benefit of small scale units throughout the country.
Small Business – Top 6 Managerial Problems faced by Small Business
In the course of their operations small scale units have to face a number of managerial problems which are described below:
1. Shortage of Materials and Power:
There is acute shortage of basic raw material required by small scale units. These units are under a handicap in obtaining raw materials of requisite quality at reasonable prices. For instance, the handloom industry is facing shortage of yarn. Some bogus units secure the quota of scarce materials and sell them at inflated prices.
The quality of raw materials available to small scale units is also not reliable. Small scale industries also face shortage of power due to which they are unable to make full utilization of plant capacity. Majority of them cannot afford to install their own power generating sets to ensure uninterrupted operations.
2. Lack of Adequate Finance:
All business firms require sufficient funds to meet their fixed capital and working capital requirements. Small scale units are often unable to procure adequate financial resources for the purchase of machinery, equipment and raw materials and for meeting day-to-day expenses. On account of their low goodwill and little fixed investment, they find it difficult to borrow at reasonable interest. Credit facilities for small scale firms are inadequate and they have to depend largely on internal resources. Sometimes, small firms have to close down or curtail their operations due to shortage of funds.
3. Outdated Technology:
Majority of the small scale units use old techniques of production and outdated machinery and equipment. They cannot afford new machines and equipments and are, therefore not in a position to use the latest techniques of production. They do not find it possible to conduct research and development on a continuing basis. Therefore, the productivity and quality in small scale firms tends to be low while unit cost of production is generally high.
4. Inadequate Marketing Facilities:
Small scale units have to face several difficulties in the marketing and distribution of their products. Most of them do not have their own marketing network. They find it difficult to sell their output at remunerative prices due to higher cost of production and non-standardized quality of products. Small scale industries cannot afford to spend much on advertising, sales personnel, transportation, etc. They have to sell their products at throw-away prices due to weak bargaining power and immediate need for money.
5. Weak Organization and Management:
Small scale firms are generally managed by owners who very often do not possess the skills required for the efficient management of the enterprises. There is lack of proper division of work and the benefits of specialization are not available. Some owner-managers are reluctant to adopt modern methods of organization and management.
6. Lack of Trained Personnel:
There is lack of small entrepreneurs who possess both the motivation and the competence to make a project viable and successful. Small scale firms find it difficult to recruit, retain and motivate skilled managerial and technical personnel as they look for better opportunities in the large scale industries. Therefore, they get the second rate talent or have to depend on family members who do not have diversified skills. Small scale firms also face competition from large scale sector.
They have to suffer when there is a recession in the organized sector which buys their products. In fact, small scale industries face problems at every stage of their operations whether it is buying of raw materials, manufacture of products, marketing of goods or raising of finance. These industries are not in a position to secure the internal and external economies of scale.
Small Business – Reasons for Failure of Small Business
New entrepreneurs of small business are not very much serious about strategic planning they think that their business is too small for strategic planning. Or they will offer any number of other excuses why they do not use strategic planning for their business. This is a sad commentary on the thinking of these small business people. They do not realize or comprehend that their business or organization is on the pathway to the business graveyard without a strategic plan. New entrepreneurs do not understand that strategic planning is a tool to grow the business.
Well the real reason they do not do strategic planning is related more to fear than anything else. So the question arises “why are so many of these businesses strategically challenged, strategically averse and/or just plain scared or fearful of strategic planning?” why small entrepreneurs do not go for strategic. Following are the reasons that drive small businesses away from strategic planning.
Success in business is never automatic. It isn’t strictly based on luck – although a little never hurts. It requires efforts and a proper planning. It depends primarily on the owner’s foresight and organization. What he thinks about the business and how he wants to move forward the business. Even then, of course, there are no guarantees.
Starting a small business is always risky and the chance of success is slim. The new small entrepreneurs have to take many efforts to run a business. According to survey over 50 per cent of small businesses fail in the first year and 95 per cent fail within the first five years.
Following reasons can be considered for small business failure:
i. Lack of experience
ii. Insufficient capital (money)
iii. Poor location
iv. Poor inventory management
v. Over-investment in fixed assets
vi. Poor credit arrangements
vii. Personal use of business funds
viii. Unexpected growth
x. Low sales.
a. Choosing a Business that isn’t Very Profitable:
By unknowingly entrepreneurs select such kind of business where there is not much profit and in or even if there is a profit they are not capable enough to cash that profit. The entrepreneurs must take in deep information of that business after that only they should choose the business. Even though you generate lots of activity, the profits never materialize to the extent necessary to sustain an on-going company.
b. Fear of Strategic Planning:
Most of the small entrepreneurs even are not aware of the term strategic planning. These things become a major obstacle for the growth of the business of the small entrepreneurs. Fear of being intimidated and overwhelmed by the strategic planning process. Many small business owners and leaders have pre-conceived an idea of what strategic planning is and fear that the process of strategic planning will be too overwhelming for them. Therefore, they feel intimidated by the process and do not want to even start the process.
c. Inadequate Cash Reserves:
When entrepreneurs start their business, just having the little amount, then the real problem starts. They think that the little amount of money will be sufficient to start the business. They do not properly estimate the real requirement of the business.
They have a tendency to solve the problem when that will come but actually they entrap themselves. If you don’t have enough cash to carry you through the first six months or so before the business starts making money, your prospects for Success are not good. Consider both business and personal living expenses when determining how much cash you will need.
d. Fear of Past Experience:
Fear of repeated past bad experiences with strategic planning. Small business leaders may have had some extremely negative and possibly harmful experiences with strategic planning in the past. Most of the small entrepreneurs have thought of that even they have also spent money for that but they did not get proper satisfaction. They may have had a very poor consultant that was brought in and nearly ruined the business.
Maybe they spent weeks in meetings without accomplishing one thing because they did not use a professional facilitator. Or maybe they launched a plan without any means of accountability. Here the entrepreneurs are not aware of the good consultants to whom they can contact. So just by bringing the consultant does not solve the problems.
e. Failure to Understand Market, Customers and Customers’ Buying Habits:
Entrepreneurs start the business just by looking to the other entrepreneurs’ business or thinking that I will earn profit. They do not estimate that who are their customers? You should be able to clearly identify them in one or two sentences. How are you going to reach them? Is your product or service seasonal? What will you do in the off-season? How loyal are your potential customers to their current supplier? Do customers keep coming back or do they just purchase from you one time? Does it take a long time to close a sale or are your customers more driven by impulse buying? Just by copying others, entrepreneurs cannot run business. Entrepreneurs must thoroughly go to the deep knowledge of the implementation of the business.
f. Failure to Price Your Product or Service Correctly:
Entrepreneurs are not able to perfectly set the price of their services or products. They are the new ones in the business and without taking help of the experienced ones if they will try to do everything then it will have a bad impact on the business. Proper pricing is directly related to the profit of the business.
You must clearly define your pricing strategy. You can be the cheapest or you can be the best, but if you try to do both, you’ll fail. The new entrepreneurs must know the strategy of the pricing. They should analyze the pricing strategy of the other entrepreneurs who are in the market for long years that will give the idea regarding pricing strategy.
g. Fear of Wastage of Time:
New entrepreneurs do not want to devote much time to the strategic planning. Fear of the amount of anticipated time and commitment to develop a strategic plan. Small businesses do not have a large corporate staff and are so busy putting out fires and managing day-to-day activities that they believe they will not have time to focus on long-term and strategic thinking.
They want to keep working “in the business” but avoid working “on their business”. Entrepreneurs think that it will just waste their time and they are not so much confident about the tragic planning. And this translates to a basic fear that if they divert time to strategic planning, the business will fall apart in the meantime.
h. Failure to Adequately Anticipate Cash Flow:
The new entrepreneurs’ problems are that they do not get credit easily from their supplier and they do not get customers easily there is a time gap. New entrepreneurs are not aware of the proper strategy to play with both the customers and suppliers without loss.
When you are just starting out, suppliers require quick payment for inventory. If you sell your products on credit, the time between making the sale and getting paid can be months. The mismanagement of cash flow results in risk of business survival. This two-way tug at your cash can pull you down if you fail to plan for it.
i. Failure to Anticipate or React to Competition/Technology/Other Changes in the Marketplace:
Small entrepreneurs are not capable to change instantly. Because change requires something new into your business and it is not possible for the new entrepreneurs. They cannot instantly shift to new technology or process. They cannot suddenly change the taste of the product. It is dangerous to assume that what you have done in the past will always work.
Challenge the factors that led to your Success. Do you still do things the same way despite new market demands and changing times? What is your competition doing differently? What new technology is available? Be open to new ideas. Do Experiment. Those who fail to do this end up becoming pawns to those who do.
j. Fear of Benefits of Academic Theory:
Fear of academic or the ivory tower thinking. Small entrepreneurs have their own way of business. They do not go through theory. Even most of them are not aware of those things even if entrepreneurs know they are not much confident about theory and they just want to apply their own experience. They do not show trust on systems, generalizations and formulas. They are fearful about the application of the theory in the real world.
Trying to do everything for everyone is a sure road to ruin. Spreading yourself too thin diminishes quality. The market pays excellent rewards for excellent results, average rewards for average results and below average rewards for below average results.
l. Fear of the facilitation process:
The most effective strategic planning meetings use the skills of a professional facilitator. Small business owners and managers may fear that the meetings, no matter how well intended, will end up as gripe sessions or hours of aimless wandering without a clear agenda or purpose.
m. Overdependence on a single customer:
When you start thinking from the point of view of only single customer then here you do a mistake. If you are depending on a single customer for your business then you must stop! Having a large base of small customers is much preferred. Mostly it happens that the small entrepreneurs’ customers are already small, in that too they are dependent to some customers only. So if that customer is reluctant to new purchase then it affects the business of the small entrepreneurs. For the new entrepreneurs it becomes difficult to search the new customers. Customers do not suddenly trust on them.
n. Uncontrolled growth:
Slow and steady wins every time. Controlled and predictable growth is always superior to inconsistent one. Growing a business is good but when you are not able to handle your business growth then real problem starts from there. You must have control over your business. You must have manpower to handle the growth. It should not happen that your business is growing but profit is not coming because of mismanagement in handling the business. You may be taking loans to fulfill the growing requirement of your business but don’t leverage yourself so far that if the economy stumbles, you’ll be unable to pay back your loans. When you go after it all, you usually become less selective about customers and products, both of which drain profits from your company.
o. Putting Up with inadequate management:
A common problem faced by Successful companies is growing beyond management resources or skills. As the company grows, you may surpass certain individuals’ ability to manage and plan. If a change becomes necessary, don’t lower your standards just to fill vacant positions or to accommodate someone within your organization. Decide on the skills necessary for the position and insist the individual has them.
Troubles Faced For Business Survival:
Underestimating the difficulty of starting a business is one of the biggest obstacles entrepreneurs face. However, success can be yours if you are patient, willing to work hard and take all the necessary steps.
One fact reported has been that “8 of 10 small business start-ups are no longer in existence after five years due to lack of management knowledge and skills.” While no longer in existence” does not translate into “absolute failure” it appears that the “8 of 10” is extremely high. These are troubling statistics.
How can you tell when your business is going to fail and make corrective action? Unable to survive business is the last stage of an organization’s life cycle. Business decline, leading to failure is characterized by management who has become reactionary. The result is inadequate or nonexistent planning and inefficient decision-making.
The most common reasons for business to underperform (low productivity, low profits) or fail (bankrupt, cease being) are as follows:
a. Poor cash flow management.
b. Absence of performance monitoring.
c. Lack of understanding or use of performance monitoring information.
d. Poor debtor management. A combination of not paying your debtor on time and not coordinating payments with incoming cash flows.
e. Over borrowing. The company is overleveraged and debt is not being reduced.
f. Over reliance on a few key customers.
g. Poor market research leading to an inaccurate understanding of the target customers wants and needs.
h. Lack of financial skills and planning.
i. Failure to innovate.
j. Poor inventory management.
k. Poor communications throughout the organization.
l. Failure to recognize your own strengths and weaknesses.
i. Trying to do Everything Alone:
Most of the entrepreneurs try to do all the work of the business by their own. They do not take help of others intentionally or unknowingly. If you do not take external help unknowingly then it means you do not know exactly where you should take the help of others in the business.
The new entrepreneurs cannot select the valid or the expert person for their business who can help them in their business. The entrepreneurs who do not take external help intentionally may be because of two reasons the first is that they may be the expert one in their business and do need any help from the outside world.
The second is they may have ego. They want to do everything by their own. They think that they are the superior ones and nobody can help them rather they can run their own business in a better way. When the entrepreneurs do not take help from the outside world whatever may be the reasons for that they cannot survive their business.
In the competitive world running business alone without any help is very risky. Trying to do everything by yourself and not seeking external help. Whether this external help be as simple as hiring additional staff or going to professional services such as a lawyer, accountant, banker or business coach.
ii. Unwillingness to Take Responsibility:
Any entrepreneur who runs the business must have an honesty to take the responsibility of business failure. If you are trying to run your business and want to earn the profit and in case you do mistakes and because of that your business suffers then you should not blame it to others rather you must try to find out why business is not running? What mistakes you have done? If you will simply blame others for your fault then you will never learn from your mistakes and can never become a successful businessman.
iii. Shortcomings in Managerial Knowledge:
New businesses are more likely to go down because they lack in managerial knowledge, business knowledge and proper financial planning. In contrast, older businesses are more likely to fail because of their resistance to change. These are the conclusions of a new research paper that examines factors underlying corporate bankruptcies and compares the main causes of failure between young and old firms.
iv. Inability to Commit:
In order for the business to succeed, entrepreneurs must be able to gather information, weigh the facts and then make a prompt decision. The new entrepreneurs are not capable of taking proper decisions. They are not aware about the methods of decision making. They do not know what to do before decision making. What are the factors they should consider while making the decisions? Decision making is not the simple task it requires information, survey and study and many more but the entrepreneurs lack these qualities.
v. No Feasibility Analysis:
It sounds simple, but the number one reason why businesses succeed or do not survive is because the business owner did not take time to conduct a feasibility analysis, market and business plan. Why? Sometimes an idea is developed that the business owner thinks is good but no one else does. Sometimes an idea is formulated that the business owner believes is so good that the potential customers will find it themselves. And sometimes the business owner thinks that everyone is a potential customer.
vi. Unrealistic Expectations:
Entrepreneurs set unrealistic expectations from the business. They just want to become a rich person within few years. They do not want to take many efforts. Entrepreneurs forgot that to get something there are steps that they should follow. They should set short term as well as long term goals and then try to achieve that.
Many individuals assume not only that most businesses succeed, but that they’re lucrative from the get-go. This is definitely not the case. Normally it takes at least a year to develop a profitable business. The first year’s goal is usually earning back your investment. Even then, the money has to be reinvested in the business. In other words, in your first year, you should not expect income from the business rather should have other sources of income to live on.
vii. Lack in Potential:
A clear and consistent finding of prior research is that firms face highest survival risk when they are young and small. But if there are factors other than liabilities of newness and smallness that contribute to firm failure, what are they and how can their influence be mitigated? From the perspective of the resource-based view of the firm, firms will not survive if they are unable to generate self-sustaining levels of organizational rents. For new businesses, the critical challenge then is to establish valuable resources and capabilities before initial asset endowments are depleted. Among older firms, which have survived the liabilities of newness, it is imperative to ensure that resources and capabilities continue to provide value as the competitive landscape changes.
Thus, you should observe different causal mechanisms between businesses that fail early and those that fail at a later stage. Young failures should be attributable to inadequate resources and capabilities (relative to initial endowments). Older failures should be attributable to a mismatch between resources and capabilities and strategic industry factors.
viii. Amount of Effort Exerted:
Business demands efforts. If you will put your efforts then the chances of getting success are higher. But when you take efforts for your business there should be consistency in your efforts. It should not happen that some time you take efforts and some time you relax. There should not be any fluctuations in your outcomes. You must always be ready to join any meeting anywhere when that meeting benefits your business. Do not show your laziness here. You must have discipline to work independently.
Because it is your business then it should not happen that you are taking decision according to your comfort. You must maintain the same work schedule of the same number of hours virtually every day even if you don’t have anything scheduled. When you have your own business then you should not count your working hours. It’s your business you cannot work like an employees within specific time. Entrepreneurs should be ready to work at any time for their business. You have to put in long hours and, if necessary, work weekends as well. This is especially true in the start-up stage.
ix. Make Your Market Niche as Small as Possible:
Again, this is counterintuitive—shouldn’t you try to appeal to as many people as possible? The paradox is that the more you try to appeal to EVERYONE, the less you will appeal to ANYONE. The entrepreneurs try to target everyone for earning money but they forget that business cannot serve to everyone’s need it will create complexity and require more focus. At the initial stage, it is better to focus on the niche because you are not the experienced one nor having enough knowledge or strategy. So better to focus on your niche market otherwise business will suffer.
x. Lack of Planning:
Another fact rarely considered is that the majority of new businesses fail within a few years mostly due simply to poor planning or no planning at all. Successful small businesses don’t just happen. They are the result of intentional and well-executed business plans. Many entrepreneurs are so eager to get started that they neglect business planning and jump in headfirst with little more than a dream and an idea. That might cut it in some arenas, but not in small business. If you have already started your business and don’t have a business plan, your first priority should be to get one. Fast!
They also fail to allot proper time for administrative tasks. Most new business owners assume the majority of their time will be spent on producing and marketing their product or service. Unfortunately, this isn’t the case. An inordinate amount of time is spent on administration – talking on the phone, purchasing supplies and equipment, filling out government forms and taking care of other mundane duties. Internet business-to-business services are helping to cut down the time factor of some of these duties; however, it’s still a relevant oversight.
xi. Inexperienced Management:
The main reason for failure in survival is inexperienced management. Entrepreneurs of bankrupt firms do not have the experience, knowledge or vision to run their businesses. Even as the firm’s age and management experience increases, knowledge and vision remain critical deficiencies that contribute to failure. A second key failure happens in financial management. Some of the businesses fail because they are not capable of doing the effective financial planning. Third failure happens in forming a good capital structure.
They are not capable in handling the working capital because of their poor planning and most of the time they do not get on time payment from their customers. Both old and young bankrupt businesses suffer this deficiency. Many bankrupt businesses face problems in attaining financing in capital markets; but, it is the internal lack of managerial expertise in many of these businesses that prevents exploration of different financing options.
xii. Inadequate Financing:
When the people try to get fund for their business they have wrong perceptions about the funds needed to start a business. They even do not have initial amount for their business. Furthermore, a considerable number have virtually no cash or liquid assets and expect either a bank or the government agencies. In maximum cases the banks or the government are not going to help unless that person invest significant portion of his or her own funds.
Most people mistakenly think that government will provide them with 100 percent financing based solely on their good ideas. But if someone has no cash at all, it usually reflects poorly on his or her ability to manage finances – something the government takes into consideration. Funds may be derived from cash savings, personal credit lines or family loans.
xiii. Accept a Customer Just for the Money:
When you have started your business and serving the needs of a niche market then accept only those customers who are suited to your business i.e., do not accept the customers who are outside the boundary of your niche. For example if you are serving a particular segment say youths then do not focus on older one unless you establish into the business. Do not be in hurry. Taking on a client outside your niche inevitably results in frustration for you, dissatisfaction on the part of the client and in the end, usually cost you more than you make. Ask any successful business owner and they’ll tell you this is true!
xiv. Assemble Your Support Team:
Look for the people who can help you in the area where you are weak or do not know anything. Some examples – bookkeeper, marketing writer, web designer. Then add the people who give you professional business advice – a lawyer, an accountant, a business coach. Finally, include the people who support you personally – your family, friends and colleagues.
Don’t forget to be part of other’s support teams, too. Share your expertise at Solo-E, start a networking group where business owners support each other, share a referral with a colleague. Solo Entrepreneurs supporting other Solo Entrepreneurs is what will make us all successful!
Small Business – Top 8 Tips for Competing against Larger Companies
If you are a small business and a bit intimated by competing against larger companies then follow the guideline given below:
Do you think that because you have a small business you can’t compete against larger companies? Do you have a fear about your business? If you do then you have to think again. Most small business owners don’t feel that they are in the same arena as larger companies so they don’t even bother to try. They give up even before the actual race begins. This can be a big mistake and one that can cost your company in the long run.
Growing your company takes some competitive moves. Sure, you can continue to operate as you always have but this routine will not get you ahead. You must think differently. There are some guidelines, however, if you want to expand your business opportunities and compete against the big companies.
Always have the big picture in mind. Thinking big means picturing what can be more than what already is. Always try to add something to your business. If you will become satisfied with your current situation then from that moment your business will stop progressing or even it may decline.
Try to think something new for the business, try to set the big goals and divide those goals into the targets. If you will not think big then you will be doing the same business throughout the life without any additional achievement in your business. The day-to-day routine can get you in a rut and you can get so hung up on it that you fail to look ahead.
Loving what you do can help you get ahead. Passion is the primary condition of being a competent. The passion you have for your business not only helps catapult the company ahead but also helps motivate employees on a daily basis. Without passion the business then becomes only a formality for you. You do not take interest in that. The Passion also translates directly to sales.
The passion you feel for your business can be more easily brought to the bottom line when there are fewer employees. You should also generate the same passion into your employees so that they will take the business from their heart. Larger companies have to work twice as hard to get the same feelings across to customers.
This may sound like an old formula but it is really true. Out of box thinking will help you for formulating unique ideas and that idea will help you to grow in the business. If you can have vision to do things differently you just may get ahead. Business is all about the game of unique things. If you do the same thing in a different and more useful way then definitely you can give a tough competition to the big players.
This is particularly true when it comes to competing with larger companies. You must think of ways that your company can provide something better than the large company can. Always try to adopt new processes for the company, try to bring more efficiency and effectiveness with new methods that will help your company.
Instead of thinking about this month’s numbers you should be looking towards the future. You should always plan for the future. Try to see what will happen to the future and how you will change your business accordingly to take benefits from the future opportunities. Great companies are made by revolutionaries – those who look ahead to the future to see the possibilities.
Instead of entrapping yourselves into the current market situation try to think what will happen in the future, what kind of preparation is required for facing the future? A continuous forecasting should be done to reap the future opportunities. Larger companies may use technology to serve the customers but you can use the same technology on a smaller scale to serve the customers.
Market is big; numbers of customers are there in the market with their own need so you can serve those customers who need your technical products. By doing this you can provide the same service, features and benefits at a much smaller cost.
Once you know what your market is you’ll be much better able to cater to it. Try to give your business a position in the market for what you should be known in the market. Small new entrepreneurs instead of catering to the whole market customers they should try to cater to specific segment of the market. At initial level this will be the best strategy for you.
Larger companies often lose focus and try to market to too broad a group. Instead use your marketing skills to your advantage. Yes, you have a much lower marketing budget than the larger companies do. But you can use your marketing strategies to your advantage if you know your niche. Marketing the specific segment will not create any complexity to you. You will be more focused to your customers and can better serve to the needs of the customers.
The web has brought large and small companies to an even playing field. Make sure that you use the Internet to boost your business. Always have a web site presence. Don’t skimp when it comes to your website. You don’t need lots of pages but you do need a professional look. Be sure to put your website address on all your brochures and business cards. Internet is one of the gifts for the business. The small or big any entrepreneurs can use it. E-commerce has given the new strength to the small companies. Even if they do not have any branches in any area they can do business with the help of their e-commerce.
The products sold in shops and purchased in an organizations are the result of a complex web of relationships between manufacturers, component suppliers, wholesalers, retailers and the logistic infrastructure that links them together.
Look for weaknesses in your competition and use those to build your business. For example, one place where many larger companies fail is in providing good customer service. Small businesses can give better service because they care about each customer. Be sure to use that to help you win business over the larger competition. Customers are hungry for the good services.
It does not matter whether the company is big or small what matters is that whether companies give respect to their customers or not. Whether they take care about their customers or not? Customers want good services and they want complete satisfaction of their needs.
You as a small entrepreneur should always think of what extra you can do for the customers. How can you attract the customers? Try to provide those services that are not given by any of the companies. It will help you a lot to grow your business.
Today new small business owner are facing new business problems and lacking knowledge in converting the opportunities into a profit. Sustaining a business requires continuous upgradation of the business knowledge and a regular scanning of the market environment for getting new ideas, solutions or best practices. However, borrowing ideas and best practices can be wrought with danger. Learn what big business already knows about benchmarking best practices and how to effectively borrow or steal ideas, tactics and strategies.
What is a Best Practice?
A best practice is the process of searching and getting new ideas, solutions or strategies from outside your business to make effective changes in any area of your business. Big business has used best practice benchmarking over decades and earned huge profit in all areas of business operations and sales. Small business has an opportunity to get complete benefits from best practices.
Benefits of Best Practices for Small Business:
i. Reduce Costs – Small businesses already do not have enough money for their business and therefore it becomes quite difficult for them to do any new inventions like big companies. By taking the knowledge of what other companies have productively done, a small business can save money and generate revenues without investing enough money in testing new ideas.
ii. Avoid Mistakes – Solving business problems on your own may not be much fruitful because you don’t have any exact idea about the outcome of your solution. It can also cost you very badly. Learning what others have done to solve their business problems can keep your business in business.
iii. Find New Ideas – Adopting the “Not-lnvented-Here” attitude can spell disaster for small business. Learn to borrow the best from beyond your company.
iv. Improve Performance – When your business looks for best practices outside your business, you learn the new things that you do not know and therefore your performance improves. You do what other businesses do in market and you keep your business according to the current trends in the market. You raise the bar of performance and set new standards of excellence to propel your company forward.
Steps for Best Practices:
i. First understand thoroughly the existing business processes.
ii. Look for one metric to measure.
iii. Analyze others’ processes.
iv. Select one business process or service at a time to develop.
v. Compare it with the standard process or with others process.
vi. Find out the gap and improve processes.
vii. Execute the process then measure the outcome.
Remember to survey companies of all sizes. And the time to complete a best practice study doesn’t have to take months. A few weeks of literature research and telephone interviews are often enough for small business. Borrowing best practices from other businesses and industries can dramatically improve your small business. Take the time to learn the ingredients of success and your business will excel in good times and bad.