Entrepreneurs' Contributions to Small Business: A Comparison of Success and Failure

Entrepreneurs' Contributions to Small Business: A Comparison of Success and Failure

M. Gordon Hunter (The University of Lethbridge, Canada)
Copyright: © 2015 |Pages: 31
DOI: 10.4018/978-1-4666-6551-4.ch008

Abstract

This chapter compares success factors and failure factors of small businesses. In an attempt to determine the relative importance of these factors, the two sets are compared. Thus, each failure factor is related to a corresponding success factor. A discussion of the aspects related to small business success and failure sets the context for the comparison. The relatively more important success factor involves aspects related to administration. Unfortunately, this is the one aspect that most small business owners/managers either lack the skills to perform or the time to allocate to this function. Within the administration, function leadership emerged as a relatively important skill contributing to small business success.
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Introduction

Small business contributes a significant portion of the national Gross Domestic Product (GDP) of many economies. For instance, in Canada small businesses contribute a total of 29% toward GDP and in the United States the contribution is 30%. Furthermore, small business employs a large percentage of the total workforce as shown in Table 1.

Table 1.
Percentage employment of total workforce
CountryPercentage Employment of Total WorkforceSource
Canada48 Industry Canada (2010)
United Kingdom47Department for Business Innovation and Skills (2013)
United States50 Michma and Bednarz (2006)

In general, few small businesses survive for very long. Zontanos and Anderson (2004) reported that over two thirds of small businesses close within the decade they open. More specifically, Industry Canada (2010) reported that 30% of small businesses fail within one year and up to 75% after nine years. In the United States (Small Business Administration, 2010) a full 33% of start-ups have failed by the end of the second year and 50% have failed after four years. Additionally, very few small businesses exist for a long time as the attrition rate is quite high. According to Cater et al (2006), only 30% of small businesses are passed to the second generation with only 12% being passed to the third. Further, only 4% survive to the fourth generation.

This chapter investigates those aspects of small business which contribute to both success and failure. To provide some context, the next section reviews the concepts related to small business and entrepreneurs. Then, success and the requisite characteristics are presented. As a comparison to success, issues related to small business failure are reviewed. Each of the success and failure discussions is concluded with reference to a set of specific contributing factors. A subsequent section maps these two competing sets of factors to form an analysis from which an emphasis is proposed for the owner/manager upon which to focus in an attempt to create an environment of success for the small business. While the emphasis of this chapter is on research conducted in a Western cultural context, some brief general comments are included relating to other cultural influences.

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Small Business Defined

Some decades ago, an interesting definition of a small business was developed by the Wiltshire Committee. A small business is, “…a business in which one or two persons are required to make all the critical management decisions.” (Wiltshire Committee, 1971:7).

Key Terms in this Chapter

Performance: This is the process of evaluating business operations. This evaluation may involve analyses of the production process and the finances necessary to continue business operations.

Administration: The formal process necessary to carry out business operations.

Success: Initially, the small business must make a profit. Then, success may be measured by growth or by longevity. Both growth and longevity should reflect the goals of the small business manager.

Growth: Results from increased sales along with maintaining profit margins. Consequently, more employees may be necessary. Eventually, expanding operations may become slower.

Product/Service: What the small business produces/develops and provides to customers/clients.

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