Small businesses make a significant contribution to the economic progress of a country. Prosperous nations have a booming and blooming number of small and medium enterprises. They are regarded as facilitators of growth and development, contributing enormously to the Gross Domestic Product (GDP). Small enterprises create employment for both the rural and urban work force, and also enhance desirable sustainability and innovation in the economy.
Characteristically, small businesses are informal and have relatively small share of its local market. Also, the owners of Small and Medium Enterprises (SMEs) have the freedom to take principal decisions independent of outside control. Growing a business is largely dependent of four distinct factors: characteristics of the entrepreneur, characteristics of the firm, environment or industry specific factors and management strategies.
One characteristic that differentiates small businesses from large ones is their correspondence between ownership and management. For small businesses, owners tend to fill the management role themselves or keep a significant level of control and oversight of the business. This kind of control influences greatly the growth orientation of the firm. This is because the characteristics of the entrepreneur influence the culture and behaviours of their firms.
Factors attached to the personal characteristics of the entrepreneur include his/her educational background, work and entrepreneurial experience, interpersonal relationships, family background, ambitions, leadership and ability to inspire others as well as psychological characteristics. Researchers report that younger firms grow more rapidly than older firms.
This is because; within older firms are established processes, routines and norms which prohibit translation of entrepreneurial behaviours into positive performance outcomes. Hence, older organisations particularly struggle with overcoming age related contextual factors even when their strategies support positive growth. On a positive note however, with age also come intangible and tangible resource benefits like skills, networks and capital resources that place larger firms in a better position to harness growth opportunities.
Older firms are in a better position to utilise these benefits to their advantage and boost their growth. However being young doesn’t necessarily guarantee growth for small firms. Some firms are born small, live small and die small. This is because most startup businesses are imitative businesses and as such have limited growth potential.
Notably also, researchers have observed the impact of external influences and the unpredictable ways in which they emerge and change over time, thereby exerting considerable influence on the nature and pace at which small businesses grow. This is exacerbated by other factors such as lack of understanding of market changes, little management expertise and limited time to adjust to sudden changes, making it even harder for small businesses to survive, let alone grow.
Building Wealth; Five Ugandan Entrepreneurs Democratizing Access to Investments.External environmental factors such as economic growth, government policies, social, cultural and historical underpinnings, industrial and technological advancements and interest rates play a role in the growth of businesses.
Factors relating to Management strategy
This refers to any initiatives the business owners take once the business is in operation, in order to enhance its growth. These initiatives might be planned and explicit, but in most cases they are implicit and emergent in small firms.
This entails decisions regarding production development, use of external equity as opposed to retained earnings or reserves, innovations, marketing initiatives, business and production planning, embracing better technologies, human resource policies, strategies and practices like recruitment, reward, workforce motivation, training and use of expert advice.
Uganda has one of the highest entrepreneurial indices in the world. It is also marred by one of the highest business failure rates however. The problems Ugandan businesses face aren’t new and aren’t insurmountable either. Many of the richest Ugandan businessmen have persistently worked around them and that is what distinguishes them from the struggling ones.
Additionally, the economy of this country lies implicitly on the resilience of its small businesses as these create the jobs, pay the taxes and improve the standards of living of the people.
Michael Tibagendeka can be reached at: www.sparkle.co.ug
