Ineffective marketing strategies
issues brought about by growth Fraud
Disaster
Ultimately, business failure will be a company-specific combination of factors. Monitor101, a
company that developed an Internet information monitoring product for institutional investors
in 2005, failed badly. One of the cofounders identified the following seven mistakes that were
made, most of which can be linked to managerial inadequacy: [40]
1. The lack of a single “the buck stops here” leader until too late in the game
2. No separation between the technology organization and the product organization
3. Too much public relations, too early
4. Too much money
5. Not close enough to the customer
6. Slowness to adapt to market reality
7. Disagreement on strategy within the company and with the board “Entrepreneurs Turn Business Failure into Success”
Bloomberg Businessweek’s 2008 cover story highlights owners who turn business failure into
success.
http://www.businessweek.com/magazine/content/08_70/s0810040731198.htm KEY TAKEAWAYS
• There is no universal definition for small business success. However, many small business owners see success as their own independence.
Saylor URL: http://www.saylor.org/books Saylor.org 21
• The failure rates for small businesses are wide ranging. There is no consensus.
• Three broad categories of factors are thought to contribute to small business failure: managerial inadequacy, financial inadequacy, and external forces, most notably the economic environment.
EXERCISES
1. Starting a business can be a daunting task. It can be made even more daunting if the type of business you choose is particularly risky. Go towww.forbes.com/2007/01/18/fairisaac-nordstrom- verizon-ent-fin- cx_mf_0118risky_slide.html?thisSpeed=undefined, where the ten riskiest businesses are identified. Select any two of these businesses and address why you think they are risky.
2. Amy Knaup is the author of a 2005 study “Survival and Longevity in the Business Employment Dynamics Data” (seewww.bls.gov/opub/mlr/2005/05/ressum.pdf). The article points to different survival rates for ten different industries. Discuss why there are significant differences in the survival rates among these industries.
[1] William Dunkelberg and A. C. Cooper. “Entrepreneurial Typologies: An Empirical Study,” Frontiers of
Entrepreneurial Research, ed. K. H. Vesper (Wellesley, MA: Babson College, Centre for Entrepreneurial
Studies, 1982), 1–15.
[2] “Report on the Commission or Enquiry on Small Firms,” Bolton Report, vol. 339 (London: HMSO,
February 1973), 156–73.
[3] Paul Burns and Christopher Dewhurst, Small Business and Entrepreneurship, 2nd ed. (Basingstoke,
UK: Macmillan, 1996), 17.
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[4] Graham Beaver, Business, Entrepreneurship and Enterprise Development(Englewood Cliffs, NJ:
Prentice Hall, 2002), 33.
[5] Terry L. Besser, “Community Involvement and the Perception of Success Among Small Business
Operators in Small Towns,” Journal of Small Business Management37, no 4 (1999): 16.
[6] M. K. J. Stanworth and J. Curran, “Growth and the Small Firm: An Alternative View,” Journal of
Management Studies 13, no. 2 (1976): 95–111.
[7] Roger Dickinson, “Business Failure Rate,” American Journal of Small Business 6, no. 2 (1981): 17–25.
[8] A. B. Cochran, “Small Business Failure Rates: A Review of the Literature,”Journal of Small Business
Management 19, no. 4, (1981): 50–59.
[9] Don Bradley and Chris Cowdery, “Small Business: Causes of Bankruptcy,” July 26, 2004, accessed
October 7, 2011,www.sbaer.uca.edu/research/asbe/2004_fall/16.pdf.
[10] “Equifax Study Shows the Ups and Downs of Commercial Credit Trends,”Equifax, 2010, accessed
October 7, 2011,www.equifax.com/PR/pdfs/CommercialFactSheetFN3810.pdf.
[11] Don Bradley and Chris Cowdery, “Small Business: Causes of Bankruptcy,” July 26, 2004, accessed
October 7, 2011,www.sbaer.uca.edu/research/asbe/2004_fall/16.pdf.
[12] Don Bradley and Chris Cowdery, “Small Business: Causes of Bankruptcy,” July 26, 2004, accessed
October 7, 2011,www.sbaer.uca.edu/research/asbe/2004_fall/16.pdf.
[13] Anita Campbell, “Business Failure Rates Is Highest in First Two Years,” Small Business Trends, July 7,
2005, accessed October 7, 2011,smallbiztrends.com/2005/07/business-failure-rates-highest-in.html.
[14] T. C. Carbone, “The Challenges of Small Business Management,” Management World 9, no. 10
(1980): 36.
[15] John Argenti, Corporate Collapse: The Causes and Symptoms (New York: McGraw-Hill, 1976), 45.
[16] Graham Beaver, “Small Business: Success and Failure,” Strategic Change 12, no. 3 (2003): 115–22.
[17] Sharon Nelton, “Ten Key Threats to Success,” Nation’s Business 80, no. 6 (1992): 18–24.
[18] Robert N. Steck, “Why New Businesses Fail,” Dun and Bradstreet Reports 33, no. 6 (1985): 34–38.
[19] G. E. Tibbits, “Small Business Management: A Normative Approach,” in Small Business Perspectives,
ed. Peter Gorb, Phillip Dowell, and Peter Wilson (London: Armstrong Publishing, 1981), 105.
[20] Jim Brown, Business Growth Action Kit (London: Kogan Page, 1995), 26.
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[21] Christopher Orpen, “Strategic Planning, Scanning Activities and the Financial Performance of Small
Firms,” Journal of Strategic Change 3, no. 1 (1994): 45–55.
[22] Sandra Hogarth-Scott, Kathryn Watson, and Nicholas Wilson, “Do Small Business Have to Practice
Marketing to Survive and Grow?,” Marketing Intelligence and Planning 14, no. 1 (1995): 6–18.
[23] Isaiah A. Litvak and Christopher J. Maule, “Entrepreneurial Success or Failure—Ten Years
Later,” Business Quarterly 45, no. 4 (1980): 65.
[24] Hans J. Pleitner, “Strategic Behavior in Small and Medium-Sized Firms: Preliminary
Considerations,” Journal of Small Business Management 27, no. 4 (1989): 70–75.
[25] Richard Monk, “Why Small Businesses Fail,” CMA Management 74, no. 6 (2000): 12.
[26] Anonymous, “Top-10 Deadly Mistakes for Small Business,” Green Industry Pro19, no. 7 (2007): 58.
[27] Rubik Atamian and Neal R. VanZante, “Continuing Education: A Vital Ingredient of the ‘Success Plan’
for Business,” Journal of Business and Economic Research 8, no. 3 (2010): 37–42.
[28] T. Carbone, “Four Common Management Failures—And How to Avoid Them,”Management
World 10, no. 8 (1981): 38–39.
[29] Anonymous, “Top-10 Deadly Mistakes for Small Business,” Green Industry Pro19, no. 7 (2007): 58.
[30] Rubik Atamian and Neal R. VanZante, “Continuing Education: A Vital Ingredient of the ‘Success Plan’
for Business,” Journal of Business and Economic Research 8, no. 3 (2010): 37–42.
[31] Howard Upton, “Management Mistakes in a New Business,” National Petroleum News 84, no. 10
(1992): 50.
[32] Rubik Atamian and Neal R. VanZante, “Continuing Education: A Vital Ingredient of the ‘Success Plan’
for Business,” Journal of Business and Economic Research 8, no. 3 (2010): 37–42.
[33] Arthur R. DeThomas and William B. Fredenberger, “Accounting Needs of Very Small Business,” The
CPA Journal 55, no. 10 (1985): 14–20.
[34] Roger Brown, “Keeping Control of Your Credit,” Motor Transportation, April 2009, 8.
[35] Arthur R. DeThomas and William B. Fredenberger, “Accounting Needs of Very Small Business,” The
CPA Journal 55, no. 10 (1985): 14–20.
[36] Hugh M. O’Neill and Jacob Duker, “Survival and Failure in Small Business,”Journal of Small Business
Management 24, no. 1 (1986): 30–37.
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[37] Arthur R. DeThomas and William B. Fredenberger, “Accounting Needs of Very Small Business,” The
CPA Journal 55, no. 10 (1985): 14–20.
[38] Jim Everett and John Watson, “Small Business Failures and External Risk Factors,” Small Business
Economics 11, no. 4 (1998): 371–90.
[39] Jim Everett and John Watson, “Small Business Failures and External Risk Factors,” Small Business
Economics 11, no. 4 (1998): 371–90.
[40] Roger Ehrenberg, “Monitor 110: A Post Mortem—Turning Failure into Learning,” Making It!, August
27, 2009, accessed June 1, 2012,http://www.makingittv.com/Small-Business-Entrepreneur-Story-
Failure.htm.
1.3 Evolution
L E A R N I N G O B J E C T I V E S
1. Define the five stages of small business growth.
2. Identify the stages of the organizational life cycle.
3. Characterize the industry life cycle and its impact on small business.
Small businesses come in all shapes and sizes. One thing that they all share, however, is
experience with common problems that arise at similar stages in their growth and
organizational evolution. Predictable patterns can be seen. These patterns “tend to be
sequential, occur as a hierarchical progression that is not easily reversed, and involve a broad
range of organizational activities and structures.” [1] The industry life cycle adds further
complications. The success of any small business will depend on its ability to adapt to
evolutionary changes, each of which will be characterized by different requirements,
opportunities, challenges, risks, and internal and external threats. The decisions that need to be
made and the priorities that are established will differ through this evolution.
Stages of Growth
Understanding the small business growth stages can be invaluable as a framework for
anticipating resource needs and problems, assessing risk, and formulating business strategies
(e.g., evaluating and responding to the impact of a new tax). However, the growth stages will not
Saylor URL: http://www.saylor.org/books Saylor.org 25
be applicable to all small businesses because not all small businesses will be looking to grow.
Business success is commonly associated with growth and financial performance, but these are
not necessarily synonymous—especially for small businesses. People become business owners
for different reasons, so judgments about the success of their businesses may be related to any of
those reasons. [2] A classic study by Churchill and Lewis identified five stages of small business
growth: existence, survival, success, take-off, and resource maturity. [3] Each stage has its own
challenges.
