SESSION FIVE

SMALL BUSINESS
MANAGEMENT

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• Small businesses form a large proportion of
businesses in Kenya as in other countries.
• From time immemorial they have always
existed alongside large businesses.
• In spite of the general recognition of the role
and importance of small business enterprises
in a nation’s development, it has not been
possible to arrive at a universally acceptable
definition of a small business.
• Small businesses have been referred to in
various ways such as micro enterprises,
informal businesses, small scale enterprises
and other ways.
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Small Business Characteristics
• In spite of the definitional problem, a small
business can be identified by the following
characteristics:
1. It is owner managed or family owned and
controlled.
2. It has a relatively small market share usually
confined to the immediate local community.
3. It relies on simple technology e.g. for production
and communication. Production tends to be
labour intensive.
4. It has little capital invested.
5. It has relatively few employees, if any.
6. It tends to be of the sole proprietor type.

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7. Owner tends to raise all the capital for starting
and running the business. Sometimes, friends
and relatives assist in raising the capital.
8. Tends to rely on informal training known as
apprenticeship, where skills are acquired
through attachment to an expert in the trade.
9. Inputs tend to be confined to the locally
available i.e. local raw materials, local labour
force, etc.
10. It tends to have low sales turnover.
11. It has relatively short life span. Most of them do
not survive their fifth birthday. Those that do
tend to live for very long.

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 Common Sectors for Small
Businesses
• There are many types of small
businesses in a society which include:
farming, retailing, restaurants, salons,
cyber cafes, matatus, motor vehicle
repair, metal works, welding, posho-
milling, ‘boda boda’, handicrafts and jua
kali businesses.

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Role of Small Business in the Kenyan Economy
• The small scale sector plays the following role
in the Kenyan economy like in other countries:
i) Creating employment opportunities
ii) Source of income for many people
iii) Contributing to a balanced development of the
economy. The sector creates jobs for the
marginalized groups in the society. Marginalized
due to politics, race, sex or religion.
iv) Mobilize and utilize local resources

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v) Assist in national output and growth. The total
volume of goods and services produced by small
enterprises though usually unrecorded is huge. In
recent years, the sector has began to make
significant contribution to the export sector. For
example, woven baskets are being exported to
USA, India, Japan, Britain, and South Africa.
vi) Help create rural-urban balance in population by
creating job opportunities in the rural areas. It is
expected to check or control the drift of people from
rural areas to urban areas to search for employment.
vii) Accelerating the industrialization process

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Constraints to the Development of Small
Enterprises in Kenya
i) The Kenyan legal environment. For example,
obtaining licenses tends to be cumbersome and
somewhat a bureaucratic process.
ii) Unconducive economic environment for small
businesses. Most lending institutions in Kenya
charge high interest rates. Even after acquiring
borrowed capital, the high interest rates make the
debt repayment a burden.
iii) Poverty. Most people in Kenya live below poverty
line. This leads to low purchasing power resulting in
low demand for small business goods and services

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iv) Limited markets for goods from the small business
sector. This is because the sector lacks access to export
markets and market information. They also lack access
to government tenders. Government gives tenders to
established large businesses with a reputation.
v) Poor infrastructure such as roads. Without good
infrastructure production and distribution suffer. There is
also limited electric power distribution network in rural
areas, consequently production suffers. Other
infrastructure limitations have been those of security,
finance, and insurance. Communication is no longer an
issue.
vi) High cost of land and consequently rent for premises
vii) The rapid change in technological environment are
disadvantageous to small business. The sector has poor
access to technology, and ineffectively uses even the
existing information technology.
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Aspects of Management Unique to Small
Businesses
Planning
• In large organizations, planning is formalized i.e.
official and documented, while in small businesses, it
is often no more than wishful thinking and tends to be
informal.
• It may not be thorough and elaborate. Those in
charge may also lack the requisite skills for planning,
hence the process and practices adopted may leave a
lot to be desired.
• Decision-making associated with planning, however,
tends to be quicker. The owner makes most of the
decisions. Often no meetings are required.
Protracted meetings delay decision-making.
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Organizing
• In small businesses the structure tends to be quite flat, if it
is there at all. The owner has the top position with
everyone else reporting to him or her.
• The jobs are not rigidly or specifically/clearly defined and
hence decision-making may be confusing.
• There could also be a conflict of roles and uncertainty of
responsibility among the employees. Rules and
procedures are less rigid.
• Structure is non-bureaucratic, hence quick response to
market needs and better attention to customers.
To what extent would you expect the following organizing
principles to apply in small businesses?
− Parity principle
− Chain of command
− Unity of command
− Span of control
− Height of structure 11
Staffing
• Is concerned with ensuring that organizational jobs are
maintained with the right people all the time.
• This may not be so in small businesses owing to lack
of rigorous recruitment and selection procedures.
• Even the other staffing functions may not be formally
or effectively carried out.
• There may be high turnover relating to employees.
Why?
• The staffing function, if there at all, are not elaborate
and are fairly informal.

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Directing
• This is concerned with communication, motivation and
leadership in the organization.
• In small businesses, communication tends to be quite
effective due to the more or less direct, personal and
shorter channels used. The owner or boss has direct
contact with the staff and understanding tends to be high
in such circumstances leading to faster and much clearer
feedback that facilitates better responses.
• Motivation can be high or low depending on the nature of
the boss or owner. Motivation can be achieved in small
businesses in the following ways:
– Employees identifying themselves with the business. This
creates a sense of belonging. If employees are treated with
courtesy and consideration, it is easy for them to identify with
the owner and/or the family of the business.
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 – Pay and reward system which may be more personalized i.e.
directed to the unique needs of each employee.
– A wide range of duties for individuals thereby reducing
boredom and monotony.
– Training and development is less formal. Skills are acquired
by being attached to an expert in the trade.
• Leadership referred to as the ability to influence others
to follow you in the desired direction may depend more
on the personality of the boss e.g. whether charismatic
or not.
• It may also depend more on implied authority than
defined or prescribed authority. Applying appropriate
leadership styles based on circumstances and nature
of subordinates is quite possible because of high
personal contacts in such businesses.
• Accuracy in understanding others makes it easier to
influence them. 14
Controlling
• This is a function which ensures that performance is
consistent with already laid down plans. Small
businesses do this by looking at their production,
productivity targets, sales turnover, expectations, etc.
• Monitoring performance is based more on MBWA than
on reports which may take a long time and may have
less impact.
• The small size of the business facilitates detection of
deviations, causes of deviation, responsibility for
deviations. Quick and appropriate corrective action is
possible, which may not be so in large business.

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