Survival and Growth of Small Firms

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Survival and growth of small firms


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) success; (4) take-off; and (5) resource mature. Failure to address the key problems of each stage will hamper organisations from growing (Hill, Nancarrow and Wright, 2002).

This essay aims to explore the reasons of failure and non-growth and forces lead to survival and quickly growth. The structure of the essay is as follows. Firstly, I examine the understandings of small ventures’ ‘survival’ and ‘growth’. Secondly, I analyse the reasons behind businesses failure through reviewing theoretical and empirical findings. Finally, I discuss the forces lead to success and fast-growth of businesses.

Survival and failure
There is still no commonly accepted definition of ‘failure’. When referring to failure, researchers use different expressions such as exist, closure, and bankruptcy etc. However, to some extent exist and closure do not mean true failure, as some owner may turn attention to invest in other promising industries or some entrepreneurs close business for retirement, or avoiding excessive debt (Headd, 2003). Watson and Everett (1993) have outlined 5 dimensions of ‘failure’ in their survey of retail start-ups, including (1) discontinuance of ownership--- businesses are sold to new entrepreneurship, (2) discontinuance of business, (3) bankruptcy, (4) preventing further losses, and (5) failed to “make a go of it”--- low return. In this essay, I apply definition of ‘survival’ as continued business.

Growth and non-growth
Similarly, there is no consensus definition of growth and non-growth because the measurement of ‘growth’ varies according to different scholars (Barringer et al., 2005; Delmar et al., 2003; Delmar and Wiklund, 2008). Brush and VanderWerf (1992) claim that sales and employment change is a better measurement to assess business performance. While recent researchers tend to use productivity, profits and profit margins as parameters for business growth (Davidsson et al. 2005; Allinson et al. 2006).

Root causes of small and medium-sized businesses failure and non-growth

Empirical evidences suggest that nascent firms are more likely to fail (Storey and Wynarczyk, 1996). Further, previous studies show that a large proportion of small entreprises stagnate and only a small number of firms grow rapidly. Based on past studies, the underlying causes of small businesses failure and non-growth are generally characterised into 2 dimensions: endogenous and exogenous factors.

Endogenous factors
Endogenous factors, which are seen as the main causes of failure, consist of characteristics of the owner (Fredland and Morris, 1976; Hall and Young, 1991; Hall, 1992; Gaskill and Van Auken, 1993), inadequate finance (both on starting stage and continuous growth) and poor management (Watson and Everett, 1993). Williams (1975) took a sample of 5,456 failed owners to study the critical reasons. 82% respondents believed that endogenous factors count, while 18% owed to exogenous ones.

Characteristics of owners
Owners’ personal characteristics play a significant part (Kalleberg and Leicht, 1991), as they are responsible for all the business operation. The entrepreneurs are required to ‘make all the critical management decisions: finance, accounting, personnel, purchasing,...
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