Publication: SAM Advanced Management Journal
Publication Date: 22-MAR-06
Delivery: Immediate Online Access
Author: Harris, Michael L. ; Gibson, Shanan G.
Article Excerpt
Introduction
Small businesses play a prominent role in the national economy by providing job growth, technological innovation, economic diversity, increased local spending, and greater regional loyalty (Luke, Ventriss, Reed and Reed, 1988). According to the Small Business Administration (SBA) Office of Advocacy, more than 99% of all current employers are classified as small businesses, and they employ 51% of private-sector workers (SBA Office of Advocacy, May 2002). The Office of Advocacy also estimates that approximately two-thirds to three-quarters of new jobs are expected to come from small businesses. Female-owned businesses, in particular, have grown rapidly. Between 1987 and 1997, the number of female-owned businesses increased by almost 90% (SBA Office of Advocacy, October 2001). According to the Business Women's Network, women will own approximately 50% of all businesses by the end of 2005 (Business Women's Network, 1999). Given the tremendous growth in this segment, it would be interesting to find out if female business owners are subject to the same problems as their male counterparts.
While the growth in small business ownership is encouraging, owners are faced with many obstacles that limit long-term survival. According to the Small Business Administration, approximately 66% of small businesses survive their first two years. However, the survival rate drops to only 39.5% after six years of operation, and to less than 20% after 10 years of operation (SBA Office of Advocacy, May 2002). Based on prior research, common problems faced by small business owners include managerial incompetence and inadequate financial resources (Robinson, 1982; Luke, Ventriss, Reed and Reed, 1988; Zimmerer and Scarborough, 1998; Monk, 2000), marketing issues (Nahavandi and Chesteen, 1988; Kuratko and Hodgetts, 1989; Wu and Young, 2002), and business operations (Khan and Rocha, 1982; Chrisman and McMullan, 2000).
Literature Review
This study tried to determine the types of problems encountered by rural businesses in the early growth stage of development and the relationship between these problems and the firm's industry sector and owner's gender. Aspiring and existing small business owners use the services of small business assistance programs for a variety of reasons. Prior research has shown that these programs have been effective in helping small business owners solve their problems (Robinson, 1982; Luke, Ventriss, Reed and Reed, 1988; Chrisman, 1999; Chrisman and McMullan, 2000). In addition, research has shown that business owners participating in these programs typically gain advantages over those that do not (Chrisman, 1999), and that outside assistance has a positive influence on a business' long-term ability to "survive, grow, and innovate" (Chrisman and McMullan, p. 51). Personalized counseling better prepares an owner for the many challenges of starting and growing a new business venture.
The organizational development framework used in the study was adapted from prior research by Dodge and Robbins (1992). The four stages in this framework include: (1) formation, (2) early growth, (3) later growth, and (4) stability. In the formation stage, business owners develop a formal plan and attract financial support. The early growth stage is characterized by steadily increasing sales and a growing awareness of customer demands. Nevertheless, a high level of uncertainty still surrounds the business. During the later growth stage, sales begin to level out, often due to new competition and the narrowing of the potential market. During this stage, business owners generally face the crucial decision of whether or not they should expand. A business starts to operate like a small bureaucracy in the stability stage, with the owners searching for new ways to regain their early momentum.
The retail and service sectors are particularly attractive for new small business owners. As pointed out by Brush and Chaganti (1999), there are fewer obstacles for start-ups in the retail and service sectors than any other industry sectors. However, Brush and Chaganti also note that the failure rate is typically higher in these sectors, and these businesses are especially susceptible to closure in the early stages of development. This magnifies the importance of gaining a better understanding of the problems faced...
NOTE: All illustrations and photos have been removed from this article.
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