SMALL
BU,SIINESS
A
Strategic
P,erspect:ive
EI,y
Edward!
If"
IMlorrlson
Fedell',a'I"state'o:rlocalprogramstoass~stsFrlall
tn.llsinessIre
generallly'eest
asbroaderntiifh!mell1l
pr'ograms,:
,a:nry.qualiified
sm81ll~business
,Is
,eiliigible
1,0:(
,assiistanoe.IBeeause
'~hey
havenospecmc
focus,theseiprog
ramsoften
try
tohelp'toomany
bUls"inesses
andwinduP,sqiuander:ingsea'ree
"esources"
By
betterlunderstsindjngthev,arlioustylpesofsmall
bus~nesses,and
thecOnlpetitive
strateglies
they
follow"
a
oommuolty
can
dev,e10P'8~~amewo.rk
tolIlellp'r,efinethe
objec:tives
of:
Ih,
sma~~
IbusiinessdevelO1pment
prog1rams.
The
iinitia~
"OCU$
'of,any
o,fthese
programsshollJldbeon1hefirms,thattrade,wl't'"
clJ!stome:rsoutsidethe
Iloca~
economy,
sir1lcetheeXjpansiolil
,of:
these
businesses,
,offen;,
'the
surest
hopefororeatlng
higlh
qlllal~ty
,iobs.
Thecareandfee~lil1gofsml'lUbusiness
is
iUI
im.port~r.rtgOO:I
of
most
staHl
and
~oeaI
econeraic
de
v
elopmenl
Jl'·og:rams.
It
iseasyto
800wily..
Re-cenlstudies
by
research
teame,~ttbe
MClSSaCLm,seUS
Ij]stiUl~e01
Tecli:nologyalid
the:Brook-ings
]nstilutimlJ
foundthat:sm,allbusi-nesses
play
an
imV'O'l~tam
role
~n8ener-
ath'ig
fl.eW
jobsJertlieeeonomy,Con-
dllii:lO;fi:If
yonwauutmO!IfC
jobs,pmmote
smallbueinesses,
Ihii:re
is
o:nly
one
problem
w,uth
this
I1r-escl1.pt~lOlI'!.Not.
,aJI
smaJJinns
gener-
ate'new
jons-
I!II
fuel,onlyafraC'liul'iofsmallI1rms(tOilein
seven
8ccordi!ng
to
MIT,
Brookmgs
and."'
nhl'ersity
ofCat-ifQrni.areports)
accoumsfor
all
tile
Job
grol"vth
by
sm<illbusinesse,This
HI.Cl
makes
u
diffJJC1i.!ltto
desiga
a
liot:llS"iMe
smallbusincss
diey,eloprnell!l:program.
How
isilpos8'ubJetoo
dewrtfJ:li"e
e.,aure
wi:lichlirmsare
Hi>,dy
WprQ",idejob
growth
111
the
eC;l}~omy?
Equany
iiii:ipDr-
rant,is
titlere!:l!flIY
\:vs;y
oJ~letermi:niilli!!U.e
lypt:sof
job".
tli:ait
are
tike;lynlO
begen-
creredfromdiUe:fell.llsm.alll;m
sinesses?
WeaU
wanlJo.os,ibU!t
to
increase
living
slllllilclanl:s,we
woidd
prefer
!highers:killed
jol!;,tominimum
wa:geJobs..
Ifempl!oymerllgrowth!depends,OIithe
competitivesuccess
or
a,smallbtlsiness,
'Ihenweneed
to
know
sometning
about
the
i.Y!pes
·of
Q;;onl.pethive-
st,.ategies4hatsmall
blJ~;i.fle~~~e8
ollow,Whlil
,ill
beuer
'l.I1j;(ier$taildig~:g[lot
olil]ly
ofthese
sl:rn,t~-
giesbut
,:lI.~s.o
-of
tilefirm's
tilll~
fo~IO"W'
them.h
j,Si
PQs~fble~od,evelopa£rnme-
work
'f(lI'
a'jlla~}!zi[ij;
hecontribution
of
mall
busiaesstOj,obgrowthinan
,eCOTl-
(lIllY·
~dwa.:rd,F.
Momro[j,
isa
pan.nerWiillil
MI..
J\!lJt'llril
Associate!s.
an,
eeoitO,ltiic
devcl~QP~
mellill::on5ultingfirmba:sedb,CambD'itlg:e.
Mas~9.ch~I~~tl~.Hedesignedland
!ltlpefVi~
llt1.e
~'Iii,all
bll~i"~~5stUQ'yfor
tI],(~
RhodeMandi
:S:u~:tegiiC':De.vek!!r.m~bl,tComl!h1Ji£s~oi'l..
Co,nside:i"Ul~
case
oftwo
dille:I<llllt
smal~
firms.The
find
started
out
liS,~Itleigil-
borhoodrestaurantAsafamilybusi-
Ilfl..SS,
i~
be..ga.rn.
by
c'lnplo}'ilig
fivepeopk.
l'llerestsuraatdid
weill
ill
~tsearly
years,
andthe
familydecided
10'
expand
thebusinessto
anotherlecation.
E_pJoy-
ment
m
the
firm
more
lhan
dm.l!bltld
wH.hH'Ie-secoad
restauraat.
After
arcqUl:iWing
~woother
location:s,
thefuIDiIy
deddled
t.hatthenext
growth
:\1t.e{i
VaS
to
&',[1;".
chise
its
operatloOflI.s.Empioyment]llc~eg!sediwitl1each
nc:w
locatio.n.How-e·Vel,file
lI]~lurc
of
thejobshassteyed
nUicli
the
sam:e~\li,a-jUles.esshortorder
COOKS
andbus,
boys..
Contrast
this
liilIil3:tiOlJlw.itha;
sheet
metal
flCll:!riiciiting
hop.Uketherestau-
rant,the
firmSlanted!outas..
f~m.i.ly
bl!l'$:in,e.s~.
It~1~Q
cQmpe'es
bypit{ilvidi[ij;
qJl!IaHtyproducts<1M
rel.u:nliJ1~
ser....iCieto
itscustomers,
]]1
its
'~ii1dy
Y'e..'1!1'Sthe
cem-
~W"3s,ajo'bshep,
~endlillg
8hretmJ~'~
i[lto
cJllstorl1er-,srec41ied
sha:pc-s.
As
the
f<lmli}!,decidedtoexpalldthefirm,
h:()w-
ever,tile
IHHu[',!;)
uf
ib
business
dll.:mg.ed_
ThecompaIlYstarted
to
machinepre-,C]Simlpartsfor
customers
ill.
titre
R10lcnililery
aridelectronics
indiiJstry.In
thebeginning,
the
firm'semployeesru'lllired:litue
llHli'llIi
ng
to
bend!metal,As
thecompanymeved
Into
piie(.i~iolil
machiningoperations,
however,
the
comrpo~iliollofitsworkforce
changed,
Torun
its
'~I]S~
aess,the
fumi~y
mustnow
Ih'L[eski]led
mac,l:Ih:l!islS.
We](Ic;rs,
a[ldi
e
Il,gi
neers,
'TIir.Csewo
e);:~lJlpJes
were
dniwill
troll]
interviews
conduerea
by
1.l:IeRhode
lslana
Slrate!!li.(
Dcvldopm"::lIt
Commis",
sien
i[l
its
stlJdy
,of
smallbusinesses
in
the
state.Thecontras
t
between'UiCI"W{J;
make:o;,3!!lirnponaD'i
pOinli
abuut
smaU.
Itll.l!sincs:ses'
flbhlity
lO
crealejDbs.Inlhe
Ca5ti
of
i:hc
n"stI.'lUlrnnl,
the
firn]'~
,e:Xj)U!l--
~ionaddiedm~;IJ:e
l,{l'w
skiU:ed
jobsto
Hi£
ocoI:lorny"s
e~l1ll?l£!ym.c
nt
stock.
Tilitj:oibs
payItear
the
m~iliml![Ijwage
wm.'tih
few
benefits.
With
U'ie
job
SJlOp,
however
the:jobs
are
moresecure-lIlll.d
higfler-
paying..B'!mefir£sarealsobetter:pa;id
familyBlue
[ross."tWO
weeks
paid
\ra.catton.a
Cliristmfis.]bOl1ll1S
and
<J!
pnli_flt-
sharingplan,
~[1
Sl!Im,
differ·el'!;t
sm,!.Il
businessescreate
di1i:terent
typesofjob~,"
Wearelefl,""",iHi
f!
t
wo"pmn!!!,:edprob-
Iem,
,Only
a
fi:::>cljo:n.
ofallsrnaHbusi-
nessesC[eaJl~l1I£w
jo'lb\~;
and!
thosebusi-
nesses~lIartdo
'el'lpall'd
candI:lI.e,
wi.dely
in~he
ql!Lality
of
jobsth,ey
produce,
Howcan
\¥e
besttarget
.sc~publkresources
'1.0
enCOfllf,a,8:,t:
tliose
firm'llwhichhavethe
highestprobabil!ilYofgtrlerating
,qualityjobs?,
oanswer
this
Q,u(;Ostioi[l,
weneedtoleavethewortd
ofthc
academicecon-
omistsand]enterI:til.ewodd.of
business
~,Inll~gy.
ECQ,!'];o<rnjstslllavefoc1tl:>OOa
gf,ea.t
deal
of'resources
Oil
t~le
£cd8tiol1];slir:i!p'
hllmlili.
b"Y:s~rne$stoI1'iC
jo'Ib'gtinii,,:raltDI(l,r1
r1Qce8:S,.
Ulilil'orllJ:md~I)'.:[rom
the
perspe'C:lilie·OIE'
state
and
b;:al
dcv;eIlol'lme:i1t
policy,
'Iheir
aiQ~ly
ses
are
notpflrli(;lt~a:r.lrIle.lpful
lJ.ecaV!setheyaretoo
abstract.
Anew,approach
is
needed.•
By
lookIDgcloseLy
:!Il
line.dliff~rel1il
r~;(ll:s
thatsll'Iilill.l1nns
folio..tobecompetitive,wecanbegin
totailorrpublicpolicie»whkh.oornp]e-
m.e[l(
andsu.pport
S:l!Icces'sfu[priVIJiW
!>lrot.esies.
'fr,aded
,and
Slheltem>d
FlrlmSi
ToibflUerl!.lnd,er,~talldsrnaJ]
business
crpmpel:itive
5tl'-.-te,gies,it
is
impo[la:nt
'to
fi«'sotistinguishbetween:lirms
thai
tra.d!e
willi.
CUSlOmi:ni
outsideal)economy
(tradedfirms]and
those
thatconduct
mostoftheir
bnl'sineS5witlir:il1an.
econ-
omy(sh1.llteredfi.rrns..)
The
bOIll.nd:a.rie:·
of
I:IfI
ccolJiomy~allu:l1
the
~pp]ic;~tionof
these
definitiolls---<lbvio:lls.lydepem:is.
on
ollle's:peupeclive.
Acompa.IlY
ill
Shreveport'
l
Louh,ian:a,
l~,al
!!hipsbUSI-
nessform'Stoagas.lalio]}
i:i'I
13-01(011
Rouge
IS,
atmdc<lbrmfrom'tllu:
lliiilYO!
of.sh[cv~'port'sperspective.Ye~fromthevantage
flQi!'!!!:
of
the
starede\'etop=
[llellt
(lffic,e,both
fiml$
moe
lilrely
1'0'
be
COil
idered:iJieltcrc(J.
bUl;ili.CSSC:S,
since
tbey
do,
hU:l~
businessoutsidethestate,
Nevertheless,
thedistill1;:tiOI1l
between
tradedl1,nnsafi(~
shelteredfi:r'liiu
is
imporrtantT!!1Iidcd.f\irms
increase'the
wCIJIth
ofan~cono:rny
'by
exploitingits
compal"aliv,eadvant.1I,ge
wil:&!
'theoutside
wortd_
xpa.ndlillg
trade
]8iH'lpOrLartl
be,causc
:it
i:;,
one
,o:f
the
major
avenaes
O'f
economicgrowth,(The
othe:1l"
is
P'l'().
dllcl:ivityimprovements.)
Seen
inanother
lignt,
trO"1!dediiil"llu
p:t1)vtcle
Ute
we~11h
to
11lourish.
shelteredlirms.•
A.,
walk
dOWIi
thestreets.of
YOIl,ngSl.owliI,
Ohio,
illu:;,.
lrac.e,~
&!epoint..
Thedemise
of
lh.e
steel
imllustlfY
in.that
city
hasledtoa
['iIPI).lillg
shindownof
reSl:a1Jnm~S,
~ooo$~Qresarid
,gas
$taliom~i:il~
businessesthlll
!'It
one
time
is
ervedYoungstownresidents.
These
businesses
had
sW'vjved
orathe.
incomethatYIJunEs'!,owll
\~,~~S
bleto
gencirnt..:bytradlingsteel\vitll
til.
waird
outsideI:hl;city.
Thedistinctienbetweentradedaod
sheltered
firms
correspondis
closely
to
thedistlncucnbetween
mam.lfaC!m.iilg
Mad
servicefirras.Hutthereareincon-
,l1lruiti£:S.Piirms
that
pm,.ide
business
services,
'St.l!l:::ll
as
law,
aCCml[lling
Oil
liI}l'ln~mentcons!:!iting.areoftell
traded
bu:shnesses'fromtitleloeal
eoonomy's
pen:pectivt;..
By
OOIlll",asl.l:ncr,e~
man-
lr~ac:!Iring
:l'inns
Ll'i8!t
commolll}'
nav'I.'la
I.••
rmv
market
area
and
silolJlld
he
COIl=
slderedsheltered
businesses,
M,o
t
commercialp:rj'fil~!;;!'S",regoo(1•.
_iunples.
TlT'ad~dFiilrli!ilS.tra,tegIe'S
Bes.idescxp'l,oi:[jin;ga
local
eO()inomy's.
co·t.npa.ra:i:uVC;
3iIJYaJliI:I.ag.'e
aad
IiIIQI.llish
~l!Ig
sl:t:~ltemd
t'irms.tradedfirms,are
.ill1ip{lr~
tall!
fr{!lm
aaother
pers[DecQive,aswell,
Thesebusinesses
tendto:foUow:rno.re.soprusti.caled
,cumpetitive
sirnlegiesUlallslic:Ucrodl1nns.•Typi'eaHy.
traded
businessecam
exercise-
greate:rconlrolover
It
heircosts
,aile!sellingprices.Asaconsequenceof
ha,vii:iJg
!If-eater
strare,gic
Fweed,oJ'1ll,
tl,u~fje
:fi[IDSC,1in!
increase
tile'I'~JIl,e...,addectJ~HJ!r-
10011
QftheLrtot@.1
:ru~n[le,
(Vah.l~
ad(l~d
isequ:Fl.]to
the
dd:r>e:~[IcClJet.w~:1iI
slides
'rev,ciblticaJlld
the
costofpurehased
mate-
rials..)
Thus,
il~S
oe:s.!}~-l~Ry
important
'[0
IDllIrturoe
t~eSle-
ifirmsile'C8Juse
illl
,c,t:luno.ni:f
grows1J~'movillg
toward
hig;hervalue-
addedilctiviU,!,;:S.
T.hiJ.
str.Lleglh:;
freedom
holJlp:scxplaiD'l
why
hi;gil·gr,owChu:adedl
lli[(iitS
aIS·Qtendtocreate
jobs
with
iii
hiherva:hlea(hJr.:u
peremployeethan
(lth~r
lims
in
!HI
tic.onomy.
The:
chartdetaillsa
p11
0liile
of
20'suaiill
bIllSI'f11Ie$S
t!T;'·?I.d,~,d
":urns,~n,'\'oIved
in,
mU[i-
ufacu.lll"inginRhode
hh:lll1d
from~.97~to
~
,;
"ij;
;:!
e
<>
s
;:>
I:
(II
:!
..
Iii:
•
.e
•
V
!lJ
""
0
•
i.
e
.1
JIJ•
•
'.g_
O
'"
0
'i!:I
.""
~
.2
~~~
.,
•
.,
..
'.
•
.,.
"
•
-ZO·I
------~------~----~----~------~----~
AnnualGlFO\vth.
~ate-
III
Ei!mplo1me!nt
1911-1982
~~--------------~.--==~~~--~--------------~
<
.:2
11...
).
rEnn,i>ltlYll'lentGrCwth
for
Fill
MI:LnlJflill;:h.lIr:jlilg
10.000
iJalueMd:el:l
per
Emplo)'oo
(S)
19$2,
]D,Ulriing
this
period,the
s~:a~e
O
:m,<!!1JUlf,g,c-tl!l!l"i[!ge
mph)yment
ae
Ul,any
decUnedby
Z
per'ccmt.Fifteenof~hese:
small
bU!kull.e:sscssIgllilki.lmly
outper-formed
tin.:Sl.:atc'smallfll[:lcitllillg
r.etto[
a...
11
wh{lll~.
Detailed
interviews
confirmed
tllillt
these
20,
I'i
nns
g:ener.i:!I'Qledjobs
wiU]
above
average
III
come
leyeJ:;fo.illl(.
economy.
Sixteen
of'll1e
20
exceededthe
average
valueadded
perempil.oyed'QTallofRhOO!e
Islandmanufacturing.Whileiif:1ltervlews
withshelteredfirmsdiduneever
SOlri,e
bu:sil1,ess.eswittl
ar,e.lativ,6Iy
h;Ugilr.
vrnm:
OMId.,edper'emp~oy.cc-t'WO
~omli'u.'l:rd~l
primte.rsare
,ex!lmp,les-rli,e
majorutll'
of
theseIlnnsgeIL'i'!ratedva!ue
added
,OIl
levels
bel,Qw
averagemanu.factul'illg
emplQymool.,
TQI
ibeit,(!1T'
I!,Ili1"derstand
!j!lliI1a.lll
Ib:usilness,comlpetitive
s,trategles,
II~~S'
~!'!i!lporta!'l~oiirs,t
dls,tin,guisl1lbetweenlfirms~hiat
traml:
witlil
cJU:sl!o!lil1er'SQllItslde,al'il
eeCllillO_,
(traded
firnms,)
,and
those
thalt
,condudmos,t
10'1'
'~heir
buslness
'Wllh~n
,81n
e(:oliilomy
(sliiiell!erOOfirms)I"
Despite
thefactthat
lraded
IimlS
aee
the
j'!ll,pOrl:alll
engines
CiIf
smidt
business
growth.,theydo
n.ol
followthe!lame
oOMpe,mivcst.ru:~egi.es.
II:I;terview~ill
Rhode
.rnsllOlJIJ.d
I!.u:r:oovered
~hreedis~ilct
~trac,e.g&es•
fradfelIDSub('olllrlu!Jtor:Jli'irms~M8[,W
3[).O[}OO
4O.00()
5O,OO[)
:lim.all
bl.l~iIiC
ises
CAD~t
assubccmraetors
Q'f~ertt'ltdJcd
:liIrm;s.,Thecust,ome::rha,'ili1'
is
the
crUic..
1v~f'i1.lb1e
:un
defill~ni!llheSle
bl!l~iliu;l:sse:$..
A'~
an
QJlenlil:iQIl~J
nde.a
~IJiIx:.ol1llr:aclorfi'ITllwasC()I1S
idclied
to
be
an.ysmallbusiness
W](!l0",1)11'
30percent
ofits"alesto
liIlily
OI1I~
customer.
The
fo:rtlllJe'$.of
thesebuslnesses
<life
dool;!!ly
tied.
b}'
de<fillitioR,
to'
thecompetuive
uccessoftlleirmajoreustomess,
As
SlIi,
eample,
marliY
snnaJ!Ji
tc'xtile
firms-«
commissiun
wellv'~rs,
sewersand
dyers-perforiITI
their
w'Orkfor
01.
rela-
thr,el),smallnumberof
larger
~extiie
m~liIL1f<1lc~urenl
ccsted
OI.1!side
tile:s;~atc.
:Someprofiles
O[5U·DCOI'lt.rndor:nr.liIils
am
prescated
[iii
F~gl.if:re
t,
Eolita'bli.shediThadfdF1mu.
Some-
sInai!.
IJIIJs:i:lDcsses
I:Ilave,!Ill
eS-labl:ishedmarket()Qsitio:tladi'versmedcustomerbaseand
it
growtllratethat
tlpproxim;d£1y
tracks
theeconomy'slong-term,gro..vtI]rate.
These
firms
have
typically
found.amar-
ket
niclile
in
which
to
CO.llllPete,
T.heyarc
oOlfnpeti!tive
becausetheyhaveeitherachievedalow-cost
.flQsitiolf!]~
themar-
ket
or'because
l~y
h<l!'v'e
rnv,e®t·edsli.!f-
fk:iemt[yW
achieve
aprice
p,remhm.l
fo:r
lheirproduct"fhlSeompetltiveb,uners
that
dcliilD£
the
Ilkhecanarisefi'omavariet],'of'variables,
sueh<I!i.e:!i'lgi·rteen,!l!:l
expertise.pf(iduc~av~Habiiit,yand
deUvery.
and
PHlil.lilCliolli
CCtJrliomi,s;s.
Examplesofasrabllshedtradedfinnsare
I~;s~ed"in.
igu[-e
2-
S~81i1:Up
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