INTRODUCTION

Small businesses surround us. They are on every other street and in every corner. Every second
thing someone buys comes from a small business. In India where unemployment is a serious
issue, small business gains a special position in the industrial structure because of their ability to
utilise labour and create employment. Let us learn about meaning, nature and types of small
business.

Small businesses are either services or retail operations like grocery stores, medical stores,
tradespeople, bakeries and small manufacturing units. Small businesses are independently owned
organisations that require less capital and less workforce and less or no machinery. These
businesses are ideally suited to operate on a small scale to serve a local community and to
provide profits to the company owners.

Nature of Small Business

The nature of small businesses can be classified as follows:

1. Shoestring Budget

A sole proprietor or a small group of people operate small businesses. These businesses often
run on ‘shoestring budget’ meaning that small businesses function on a very tight budget.

2. Labour intensive

Small businesses are mostly labour intensive. Various types of small business largely rely on
labour for their functioning. The primary nature of small businesses is more involvement of
physical work rather than intellectual work. The lack of machinery makes the employees
manage their operations manually.
3. Community-based

Small businesses are started with the motive of satisfying the needs and demands of a local
area or community. These businesses demographically target few areas of concentration and
are hence community-based.

4. Indigenous technology

Due to small businesses being community focused and labour oriented they often thrive upon
native methods of operations. In India, there are many businesses in the rural sector that still
use outdated technology. This might give uniqueness to the products but hinders the
development of the business
WHY DO MANY SMALL BUSINESSES FAIL

Running a business is not for the faint of heart, as entrepreneurship is inherently risky.
Successful business owners must possess the ability to mitigate company-specific risks while
simultaneously bringing a product or service to market at a price point that meets consumer
demand levels. While there are a number of small businesses in a broad range of industries that
perform well and are continuously profitable, a larger portion of companies fail within the first
18 months of operation, according to the Small Business Administration (SBA). Without the
proper tools in place to achieve critical business objectives, small businesses are on a path to
failure.

To safeguard a new or established business from falling into the 80% of failed companies, it is
necessary to understand what can lead to business failure and how each obstacle can be managed
or avoided altogether. The most common reasons small businesses fail include a lack of capital
or funding, retaining an inadequate management team, a faulty infrastructure or business model,
and unsuccessful marketing initiatives.

1. Lack of Capital

Of the vast number of small businesses that fail each year, nearly half of the
entrepreneurs state a lack of funding or working capital is to blame. In most instances, a
business owner is intimately aware of how much money is needed to keep operations running
on a day-to-day basis, including funding payroll, paying fixed and varied overhead expenses
such as rent and utilities, and ensuring outside vendors are paid on time. However, owners of
failing companies are less in tune with how much revenue is generated by sales of products
or services. This disconnect leads to funding shortfalls that quickly put a small business out
of operation.
 In addition to finding funds for working capital and overhead expense needs, business
owners, more often than not, miss the mark on pricing products and services. To beat out the
competition in highly saturated industries, companies may price a product or service far
lower than similar offerings with the intent to entice new customers. While the strategy is
successful in some cases, businesses that end up closing their doors are those that keep the
price of a product or service too low for too long. When costs for production, marketing, and
delivery outweigh the revenue generated from new sales, small businesses have little choice
but to close operations.

Small companies in the startup phase also face challenges in terms of obtaining financing
to bring a new product to market, to fund an expansion, or to pay for ongoing marketing
costs. While angel investors, venture capitalists, and conventional bank loans are among the
myriad of funding sources available to small businesses, not every company has the revenue
stream or growth trajectory needed to secure major financing from these sources. Without an
influx of funding for large projects or ongoing working capital needs, small businesses are
forced to close their doors.

To protect a small business from common financing hurdles, business owners should first
establish a realistic budget for company operations and be willing to provide some capital
from their own coffers during the startup or expansion phase. Over time, it is imperative to
research and secure financing options from multiple outlets before the funding is actually
necessary. When the time comes to obtain funding, business owners should have a variety of
sources to which they can ask for capital.

2. Inadequate Management

Another common reason small businesses fail involves the lack of business acumen held
by a management team or business owner. In some instances, a business owner is the only
senior-level personnel within a company, especially when a business is in its first year or two
of operation. While a business owner may have the skills necessary to create and sell a viable
product or service, he is often lacking the attributes of a strong manager and the time
required to successfully manage other employees. Without a dedicated management team, a
business owner has greater potential to mismanage certain aspects of the business, whether it
is finances, hiring, or marketing.

Smart business owners outsource the activities they do not perform well or have little
time to successfully carry through. A strong management team is one of the first additions a
small business needs to make to continue operations well into the future. It is important for
business owners to feel comfortable with the level of understanding each manager has
regarding the business operations, its current and future employees, and the products or
services the business provides.

3. Business Plan and Infrastructure Issues

Small businesses often overlook the importance of effective business planning prior to
opening their doors. A sound business plan should include, at a minimum, a clear description
of the business; current and future employee and management needs; opportunities and
threats within the broader market; capital needs including projected cash flow and various
budgets; marketing initiatives; and competitor analysis. Business owners who fail to address
the needs of the business within a well laid-out plan before operations begin are setting their
companies up for serious challenges. Similarly, a business that does not regularly review an
initial business plan, or one that is not prepared to adapt to changes in the market or industry,
meets potentially insurmountable obstacles throughout the course of its lifetime.

To avoid pitfalls associated with business plans, an entrepreneur should have a solid
understanding of their industry and competition before starting a company. A company's
specific business model and infrastructure should be established long before products or
services are offered to the consuming public, and potential revenue streams should be
realistically projected well in advance. Creating and maintaining a business plan is key to
running a successful company for the long term.

4. Marketing Mishaps

Business owners often fail to prepare for the marketing needs of a company in terms of
capital required, prospect reach, and accurate conversion ratio projections. When companies
underestimate the total cost of early marketing campaigns, it is often difficult to secure
financing or redirect capital from other business departments to make up for the shortfall.
Because marketing is a crucial aspect of any early-stage business, it is necessary for
companies to ensure they have established realistic budgets for current and future marketing
needs. Similarly, having realistic projections in terms of target audience reach and sales
conversion ratios is critical to marketing campaign success. Businesses that do not
understand these aspects of sound marketing strategies are more likely to fail than companies
that take the time necessary to create and implement cost-effective, successful campaigns.
HOW TO OVERCOME IT

A fundamental part of overcoming business failure is rooted in the mindset you have. It begins
with a flexible and positive attitude and a willingness to change. Winston Churchill stressed this
vital factor, saying, “To improve is to change; to be perfect is to change often.” Failure is a part
of life, and that includes business failures. How we deal with failure determines whether or not it
ultimately leads to success.

We can learn a lot from successful business owners of the past, such as Colonel David Sanders,
the founder of KFC (Kentucky Fried Chicken). At 65, this financially unstable retiree, with only
a $105 to his name, roamed America in search of an investor for his fried chicken business. He
faced rejection. However, armed with a positive mindset for change, he pushed ahead with his
plans. Finally, someone saw his worth, invested in him, and KFC was born. He sold the company
for 2 million when he was 74.

1. Adopt a Forward-Thinking Attitude

Before you plan out your business, start with a vision. Write the vision down. Use it as a
map to create your business plan.

Even if you've already started your business, you can still look ahead. What outcomes do
you want for your business? Where would you like the company to be in the coming
months and years?

To help you decide, your vision could include:

• Your mission statement

• The products or services you will offer

• Your business niche

• Ways to find prospects

 • Marketing strategies

• Problems you will solve

• Ways to position yourself against your competitors

This list is not set in stone. Your vision could be as large or as small as you want it to be.
The important thing is making it workable and achievable.

2. Conduct Frequent SWOT Analyses of Your Business System

A SWOT (strengths, weaknesses, opportunities, and threats) analysis is an

examination of the internal and external areas of your business.

This exercise aims to identify areas that are working and those that are not. Here's
a breakdown on each aspect of a successful SWOT analysis:

• Strengths are good internal factors within the business. Things are working in this
area. Therefore, develop this part of your business. Use it as a model to build
upon.

• Weaknesses are damaging internal factors. Something is not working properly.

Look at how to make immediate changes, work toward something new, or stop
what you’re doing entirely.

• Opportunities come from external factors and represent good prospects for the
future. Capitalize on these ventures and act to make the most of them.

• Threats are adverse external factors that pose potential damage to your company.
An obvious example would be your competition. Determine which areas of your
business are affected by this problem, and set goals to make improvements that
will minimize the potential for harm.
 To prepare a SWOT analysis, begin by making a list of your identifiable strengths and
weaknesses. Ask yourself where you would like your business to be in the future. Look at
where you are now. Use the results of your SWOT analysis to design the goals you intend
to accomplish and to develop a plan of action to accomplish them.

3. Manage Cash Flow Efficiently

Without consistent cash flow, your business will eventually dry up and die. You need to
have money coming in, or you won’t be able to pay expenses. First, have a cash flow forecast
so you know what money is coming in and out. Remember, this is only a forecast, but it will
give your insight into your financial future.

Use the forecast to project likely sales and expenditures (including cash transactions) so
you know how much you’re likely to have in your bank account.

Other aspects of managing your cash flow efficiently include sending out invoices on
time, taking deposit payments in advance, paying bills on time, and promptly following up
with customers who fall behind on payments.

5. Invest in an Advisor or Mentor and Draw From Their Expertise

Find a business mentor or advisor to guide you. Draw from their pool of knowledge and
personal experiences to help your business grow. According to a survey carried out by Sage,
93% of medium-sized businesses credited their mentors for helping them succeed.

It’s tough running a business alone. Entrepreneurs need encouragement, guidance, and
reassurance when faced with problems. Mentors have been in similar situations, and they
know how to help you. They’ll share valuable advice, give you constructive feedback, and
connect you with the right people.
6. Take Sensible Risks and Step Out of Your Comfort Zone

Taking a sensible business risk is not gambling blindly without considering the
consequences. Think carefully, weigh the options, and test them out.

For example, let's say you want to try a new marketing strategy that costs 20% more than
your usual campaign. Test it out first, by doing a sample run with a smaller investment. If it’s
successful, pour more money into this new strategy.

Don’t take risks when your emotions are running high. Be objective, and discuss your
plans with colleagues, friends, or family. At the end of the day, you’ll have to take sensible
risks and step out of your comfort zone with your business. But before you do, make the
most of your wisdom, knowledge, and experience.

7. The Bottom Line

Having a failing business doesn’t mean it’s the end of the road. You will encounter obstacles
along the way, but you will also find ways to overcome those obstacles. Someone somewhere
has gone through the same trials you face. Learn from their stories and use your own story as
a lesson for improvement and business success.
CAN SMALL BUSINESS ADAPT THE BIG BUSINESS STRATEGIES?

Eventually, you would want your small business to grow into a big business, right? Many
start-ups and small businesses get intimidated in a competitive marketplace.

There are many big-business growth strategies that might work for you. While not every
strategy will work for a small business, there are some strategies that small businesses can use:

1. Market segmentation

If you are starting your small business in a market that has established competitors, then
you need to develop a laser-like focus on niche markets and go deep early and fast. Most big
businesses are good at carving out their corner of the market, which allows them to do
whatever as they own that space.

2. Leveraging partnerships

Big businesses can pay for partnerships upfront, while small businesses have to negotiate
for partnerships that pay per sale. The advantage of small businesses is that they can leverage
their personal brand and connect with the target market, strategic partners, community and
stakeholders. Knowing when and how to join forces with another business is a key factor that
will help any small business grow.

A strategic partner can help provide either capital, expertise, global exposure or let you
leverage their brand. They could help you win business by offering services that are not
available in your company, and yet help build those competencies within your team.
 If you are looking for quick wins and results, then tap into the power of other people’s
community. An easy way to do such is to tap into the power of influencers and your own
employees.

Small business can have an immediate leg up on the competition with service. You can
leverage your personal brand, personal relationships and human touch to make your
customers feel special.

It is important to set the right expectations at every opportunity and have the agility to
make quick decisions regarding services. Create products that are revolutionary and are also
valuable to customers.

One huge advantage of being a small business is that they can directly interact with the
customers, bypassing the bottlenecks and bureaucracy that big businesses encounter. This
will allow them to deliver better customer experiences and exceed their expectations
consistently.

3. Make scalable plans

Don’t think small. Think big and focus where you need to and plan for growth. Make
sure you have the capability and the infrastructure to grow with the business. Truly scalable
business is the one that keeps the costs marginally low, while increasing the revenue.

For investors, the best business ideas are scalable with three pillars—high profits,
minimum employees and low support.

Most big businesses either grow organically or inorganically through acquisitions.

Prioritize your investments based upon your goals. Invest where you need to so that you can
stay and remain competitive. Try to create partnerships with other market players as it is
more advantageous than outdistancing them.
CONCLUSION

Small businesses transform and develop communities. Entrepreneurs create ways to

connect resources and growth across cultures, policy contexts, economic conditions and
political situations that differ from a region to another (Carrasco-Monteagudo and Buendía-
Martínez 2013). They must create strategies that will ultimately resolve major economic and
social challenges and, in this sense, improve the quality of life of the region where they are
located (Godar, O’Connor, and Taylor 2005).

The current special issue represents an important contribution to research findings in the
field of small businesses and their role in economic and social development. This special
issue stimulates research in this topic and leads to a better understanding of knowledge.
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