Small Business: Features, Types, Importance, Role, Strengths &

Weaknesses

Features of Small Business:

Below mentioned are five distinct ways in which small industries successfully coexist
with large industry.

1. Competition:
Small industry can out-compete large industry in certain circumstances and in
selected products. Some of these industries are bricks and tiles, fresh baked goods,
condiments and preserved fruits, goods requiring small engineering skill, items
requiring artistry and craftsmanship.

2. Supplementary:
Small industry can “fill the cracks” between the big volume and standardised
outputs of large factory. Classic case of ‘Head Sahab ke Pohe’ in Indore in front of
Apna Sweets, Palasia.

3. Components:
A small industry can produce components for a large industry. This is the most
common example of the small manufacturing sector and many of them function
under the protection of big industries. Very often they also derive the advantage of a
protected market with assured supply of their output to one or more selected large
manufacturers.

4. Initiation:
Small industry can initiate new products and subsequently grow large with the
growth of the product. In India, the electronics industry took this pattern of
development. First came radio, then b/w television, so on so forth.

5. Servicing:
Small industry can install service and repair the products of large industry. In India
these industries are growing in respect of major industries like refrigerators, radio
and TV sets, watches, and clocks, cycles and motor cycles and motor vehicles in
respect of repair, servicing and maintenance.

It is thus obvious that growth of large scale industries does not necessarily bring
about the end of cottage or small scale industries. Electricity has revolutionised
large-scale industry; at the same time small units based on electricity can also be
cheaply and conveniently started with limited infrastructure.
Besides, many artistic goods, products of craftsmanship, and luxury goods do not
lend themselves to standardisation of large scale manufacturing and are largely
reserved to the cottage, rural and small industrial sectors.
Finally new ventures, so long as they are in an experimental or formative stage are
first tried on a small scale and it is only when their success is demonstrated and their
profitability and capital base established that they are organised on a large scale.
Small business always plays an important role in the development of any country. As
already mentioned, most of the industrial and business activities starts small. With
market opportunities and vision of the entrepreneur, it grows into a large industry.

There are a number of reasons why small businesses are important to our
economy:
1. They are an important source of competition and challenge the economic power
of large firms.

2. They offer wide range of choice to the consumer. Large businesses are more
oriented towards the mass market, but smaller firms can serve specialized needs.

3. They broaden the distribution of economic and political power.

4. In many areas, they bring the development and provide local leaders with strong
local roots.

5. They are sources of innovation and creativity.

6. They are providing large scale employment scattered all over the country.

7. They provide the ancillary support to large industries.

Types of Small Business:

Small business includes a variety of companies.
They may operate in any of the following areas:
(a) Manufacturing,
(b) Trading,
(c) Services and
(d) Others.

The definition of small business in manufacturing sector is given in relation to the

investment made in plant and machinery.

Micro – Investment in P & M not exceeding Rs.25 lakh

Small – Investment in P & M from Rs.25 lakh – Rs.5 crore
Medium – Investment in P & M from Rs.5 - 10 crore
The definition of small business in service sector is given based on their investment in
equipment (excluding land and machinery).

Micro – Investment in equipment not exceeding Rs.10 lakh

Small – Investment in equipment from Rs.10 lakh – Rs.2 crore
Medium – Investment in equipment from Rs. 2 - 5 crore

Role of Small Businesses in India

Industrial units

In an economy so enormous as India, 95% of the industrial units in the country consist
of small business and 40% of total industrial output is contributed by these small
industries. Again, small businesses bag around 45% of the total exports from India.

Labour-oriented

Small business provides immense opportunities in the rural and semi-urban areas. The
weight of the unemployment faced by the Indian economy is lifted by these small
businesses. It is one of the most important roles of them. Like any other economy
having a large labour force, the Indian government also encourage the operations of
small businesses to utilise the labour by drafting policies and establishing
low loan interest rates.

3. Human resource

After agriculture, small businesses are the second largest employment provider in
the Indian economy. In comparison to big corporations, small businesses generate the
most number of employment opportunities per unit of capital invested. Therefore, they
are the second largest generators of employment in human resource.

4. Utilisation of local resources

The awareness of needs and demands of the local community make the small
businesses emerge in rural and semi-urban areas. Small business is community-based
and generally focused on fewer areas.

This gives the opportunity to the businesses to utilise the local resources like raw
material, local talent, labour and demographic opportunities. The utilisation and the
mobilisation of the local resources help elevate the economic condition of that
particular area.
5. Flexible and Adaptable

New business opportunity is captured at right time. The strength to adapt and grow in
the face of upcoming changes gives an edge to the small businesses. Also, being the
manufacturer and distributor, small businesses develop a sense of personal touch with
the area of business and their customers. Limited in size and finance, there is little or
no government intervention.

Any business whether small, medium or large has its opportunities and challenges.
Every coin has two sides and every line has a lineage.

Small Enterprise Weaknesses

Financial Limitation
Small enterprises find it difficult to get enough funds for their operations. Unlike
multinational, they do not receive red carpet treatment by financiers when asking for
a loan.
A small enterprise cannot use credit as a selling tool as readily as companies ‘with
large financial reserves like multinationals.

Staffing Problems
Small companies cannot pay fat salaries and provide opportunities and status
normally associated with big companies.
Small enterprise owners must concentrate on the day-to-day problems of running
the business and have little time left to think about objectives.

High Direct Cost

A small enterprise cannot buy raw materials, machinery or supplies as cheaply as a
large company or obtain large producer’s economies of scale.
Per unit production costs are usually high for a small enterprise, but overhead costs
are generally lower than that of multinationals.

Lack of Credibility
The public accepts a large company’s product because its name is well-known.
A small company needs to struggle to prove itself each time it offers a new product
or enters a new market. Its reputation and past success in the market place seldom
carry weight.

Small Enterprise Strengths

Personal Touch
Customers will often pay a premium for personalized attention. In many companies
where products and prices differences are minimal, the human factor emerges as a
prime competitive advantage.

Greater Motivation
Key management of small enterprise normally consists of the owner(s). They work
harder, longer and with more personal involvement. Profits and losses have more
meaning to them than salaries and bonuses have to the employees of a multinational
company.

Greater Flexibility
A small enterprise has the prime advantage of flexibility. A big company cannot stop
operation without opposition from organized labor, or even increase the price of
their products without possible intervention from the government.
Small enterprises have shorter lines of communication. Their product lines are
narrow, their market limited and their factories and warehouses are close by. They
can quickly spot trouble or opportunity and take appropriate action.

Less bureaucracy
In a small business, the whole problem can be understood readily, a decision can be
taken quickly and the results checked easily. But in a multinational company, bogus
management structure can lead to delay in taken action and bureaucratic influences.

Unobtrusive (Less Conspicuous)

A small company can try new sales tactics or introduce new products without
attracting undue attention or opposition. This is possible because it is not quite as
noticeable as a multinational company.
A large company is constantly faced with proxy battles, antitrust actions, and
government regulations. It is also inflexible and hard to change or restructure.

Common Traits of the Most Successful Entrepreneurs

Many people dream of being an entrepreneur. They envision their business as
majorly successful; allowing them to make enormous wealth, be the boss, have the
freedom to come and go as they please and work how and when they want. If
only this were the reality, everyone would be an entrepreneur! Unfortunately, this is
not the experience for most. Being an entrepreneur can be tremendously rewarding,
but it is hard work.

On average, entrepreneurs work harder and put in longer hours than their
employees, while taking on much more risk.

The failure rate of new businesses is estimated to be between 30 percent and 70

percent within the first two years.
Despite the odds, thousands of people launch new businesses every year. Some will
be wildly successful, some will muddle along to sustainability and others will fail.
While luck cannot be overlooked, success for a new business is mostly the result of
the vision, effort and ability of the founding entrepreneur.

1. Vision
Successful entrepreneurs have a clear vision of what their business will be and can
concisely articulate its purpose, goals and market position. They have identified (and
can succinctly describe) the who, what, where, when and why of their business.

2. Passion
A successful entrepreneur is passionate about their business. It is hard work, and
putting in long hours will be tough if you don’t love what you are doing. People with
passion know what it is that drives them to keep working to achieve their vision.

3. Tenacity
Entrepreneurs remain tough when the going gets rough. They don’t give up easily.
They can accept rejection and are willing to learn from their mistakes. They are
willing and able to adapt and modify their plan in order to be successful the next
time around.

4. Willingness to work hard

Being an entrepreneur is harder than being an employee. To be successful, the
entrepreneur must be willing to put in the time and effort required, often for little or
no pay at the beginning. Successful entrepreneurs recognize the risk and necessary
work that achieving their goals will entail.

5. Confidence
Successful entrepreneurs have confidence in themselves and in their business. They
must believe in their ability and in their idea. Every entrepreneur will face rejection
along the way and successful entrepreneurs are those with the confidence to keep
going and bounce back after a setback.

6. Flexibility
Things do not always go as planned. A successful entrepreneur is flexible. They learn
from their mistakes and are willing to adapt and change as they go along. They take
advice from others and are open to trying new approaches

7. Can sell
An entrepreneur must be comfortable selling. Even with a sales team, the leader
must be an expert at networking and be able to promote themselves and their
business to bankers, customers, suppliers and staff.
 8. Prudent with money
Successful entrepreneurs are good money managers. They prudently invest in
overhead and always keep track of the money and manage their cash flow.

9. Willing to ask for and accept help

An entrepreneur needs to be a jack of all trades but the most successful
entrepreneurs know their limitations, realize they can’t do everything and are willing
to delegate to others. They are willing to ask for help. They seek out and pay for
expert advice when needed.

10. Resilience
No matter how successful your business, there will be bumps along the road. A
successful entrepreneur is resilient and can bounce back from a setback. They use
setbacks as an opportunity to learn and grow. They understand that failure is part of
the game.