Survival and Growth of Small Firms

3052 Words Mar 23rd, 2011 13 Pages
Survival and growth of small firms

Introduction

Peacock (2000) argues that small business is different from large corporations by small size and rate of turnover and failure rate. According to Small Business Association, two-thirds of newly founded firms can survive within the first 2 years and only 44 percent are still in business after 4 years. Lowe et. al (1990) argues that failure ‘exists between failing and growing small firms.’ It can be perceived as there are 2 levels to develop small enterprises. The first prime aim is to make business survive in a short term, and the final objective is to keep it growing in the long run. Churchill and Lewis (1983) illustrate a 5-stages model to develop business: (1) existence; (2) survival; (3)
…show more content…
In other words, they should be hard worker, risk take, goal setter (Siropolis, 1997). Especially during the beginning stage of business, entrepreneurs must have confidence, a sense of urgency, superior conceptual ability, low need for status, and an objective approach to interpersonal relations (Welsh and White, 1981; Brockhaus and Horwitz, 1986). As a result, they will be able to perform successfully and avoid start-ups failure. Low education and limited managerial experience (Bates, 1990) would hamper business growth. And Davidsson (1991) argues that entrepreneurs’ experience is more important than education background for actual growth.

Poor management
Evidences show that many small businesses’ failure due to ‘non-rational behaviour and decision making of the entrepreneur and/or owner-manager who does not obey the ‘rules’ of classical management theory’ (Jennings and Beaver, 1995). Bruderl, Preisendorfer and Ziegler (1992) state that entrepreneurial survival is connected with the productivity of the founder , which leads to higher profits. In other words, management efficiency helps to appeal more customers and investors. According to Dun and Bradstreet (1991), ‘Management incompetence of the business owner’ is the critical reason of business failure in the United States. In their survey of reasons for failure, more than half of respondents associate failure with poor management, which includes dimensions of ‘the owners’ inability to
Open Document