Why Small Businesses Fail to Grow?

Only available on StudyMode
  • Download(s) : 348
  • Published : February 24, 2011
Open Document
Text Preview
"No one is rich or poor who has not helped himself to be so." - German Proverb

These words represent one of the strongest motivations by which individuals seek to become entrepreneurs. An entrepreneur can simply be defined as someone who undertakes and operates a business venture. History has shown that many have chosen to chart this course of self employment in a bid to play a role in determining their own destinies. However, the process of undertaking the business venture is where the challenges and problems lie. There are a number of factors that could ultimately lead to the downfall of small businesses such as: the failure to draw a proper business plan, insufficient capital, entry of a new competitor, having a seasonal business; to mention a few. These factors can be grouped as internally generated; when caused by the entrepreneur himself, and externally generated, when caused by outside forces beyond his/her control. The entrepreneur’s role in determining the success or failure of the business cannot be underestimated. Basically it’s not enough for an entrepreneur to have a great idea to achieve success, but the other steps and choices that are made after, lead to the business success or failure. Some entrepreneurs fail to grow their businesses because of the refusal to take responsibility for their mistakes, and then put the blame on other factors. By doing this they hinder themselves from thoroughly analysing the feasibility of the business idea and making necessary adjustments that may be required such as; securing more capital or hiring competent managers.

Furthermore, the entrepreneur has to be willing to do all it takes to make the business grow. At the early stages of any business, there are a number of administrative tasks that need to be carried out and usually the entrepreneur might have to multi task to get them done. This failure to put in enough effort could lead to other problems such as: absence of performance monitoring, poor market research leading to inaccurate understanding of target customer wants and needs, poor inventory management and a host of over problems that could ultimately stifle the growth of any small business.

There is a proverb which says ‘’he who fails to plan, plans to fail’’ (www.quotesdaddy.com) and this appears to apply to entrepreneurs. Based on an article by Moya k. Mason, majority of small businesses fail within a few years simply due to poor planning or no planning at all. Most people go into businesses related to their current employment or favourite hobby without really studying the market to see if the demand for their product or service is increasing, declining or stagnating. Also without a business plan, the entrepreneur is unable to list goals for next few years and create yardsticks by which performance of the business can be measured yearly.

Apart from the problems the entrepreneur can cause for the business, one major constraint for business growth is insufficient capital. In several cases of small business failures, the lack of funds has been a major factor. A number of entrepreneurs tend to have unrealistic expectations regarding how much capital may be required to cover production costs, and so half way through they get cash strapped which could lead to over borrowing, poor debtor management, and in some cases bankruptcy. However, a research article by Moya k. Mason states that the major causes of financial distress for small businesses is actually a management failure rather than external factors like imperfect capital markets because the lack of managerial expertise prevents these firms from exploring other financing options to grow the business.

Moreover, this leads to another key factor limiting growth, which is an inexperienced management. Managers of bankrupt firms don’t usually have the knowledge, vision or experience to run their businesses and so tend to make a number of foolish business decisions that could cripple the...
tracking img