If you want to run a small business, what would you care about?
In order to analyze the steps, which are needed to run a small business, it is necessary to define the term “small business”. For the purpose of this paper, the definition by the U.S. Small Business Administration (SBA) is adopted. According to the SBA, a small business is an independently operated and owned entity, which is established for profit and does not dominate the industry of operation (U.S. Small Business Administration, 2011). Its success is often related to the entrepreneurial ability of the founder, and offers many kinds of rewards, such as the opportunity to be independent and to explore own talents, the possibility of large financial gains, and a guarantee of employment. However, along with the positive aspects of being an entrepreneur, running a small business is correlated with a number of threats, such as the change in demographics, economic recessions, development of new technologies and a change in consumer preferences. Small businesses are also very vulnerable to the external competition, especially when their rivals exceed them in size, market share and possess higher bargaining power. That is why it is so important to pay careful attention to the key success factors in the industry and to the common practices of running a small business, which have proven to be effective, when applied to the real-world market. Moreover, it is crucial to continuous assess strengths and weaknesses of the business in comparison to the competitors, and carefully follow market trends (Steingold, 2011). Running a small business can be usually subdivided into two distinct steps: opening a business and managing it. In this paper both of these steps are considered in the further discussion.
Opening a small business
In order to open a small business successfully, it is first necessary to have a viable business idea. If an entrepreneur has no own unique idea, it is always possible to find a partner, who already has an idea, to buy a franchise or to purchase an existing business. It is important to keep in mind that an idea should be original, feasible and it should give a possibility of long-term differentiation from competitors and imitators (BusinessTown, 2003).
The second step in any business start-up is the development of a business plan. A well-prepared business plan gives an opportunity to assess business prospects both for the company insiders and for external stakeholders, such as lenders and investors. A business plan helps to answer many important questions about the future of the business. It identifies its marketing strategy, price, positioning and product promotion, defines the amount of financing and resources required. It also becomes the first step to complete all the legal formalities, such as registering a name, defining a legal structure of the new company, as well as obtaining a tax number and the necessary licenses/permits. Moreover, it helps to clarify the relationships and responsibilities of the company with its stakeholders, especially with partners, employees and society. In order to demonstrate the validity of the business plan, it may be useful to conduct a market research, which can help to identify potential customers and to evaluate the success of the business idea. This step can significantly contribute to the development of the business strategy and it should be conducted also on later stages of the business in order not to lose customer-orientation and to be up-to-date with the current market trends. Once all the formalities and initial research are completed, the business is officially functional and it is time to tackle the major challenge – managing it.
Managing a small business
Running a business requires clear definition of objectives and a comprehensive positioning. Only if every business decision adheres to the overall aims and if all the stakeholders understand and support business aspirations, it is possible to direct joint efforts and to achieve common goals. Therefore, managing a small business requires a definition of a business mission, its long-term vision and short-term objectives.
Company organizational structure and culture are also important to consider, when managing a small business. Although a small company usually has a very limited number of employees, their relationships, span of accountability and incentive system can have a significant impact on the company performance. Therefore, organizational aspects should be aligned with company aims and they should be flexible enough to be modified in response to the change in market environment or business objectives (Daft, 2008).
Once the business is fully operational, it is crucial to evaluate its success based on a few indicators and to benchmark it against competitors. Therefore, it is important to identify the key success factors for the company and to achieve transparency as well as to measure improvement in these areas for assessing the overall health of the company. Although every small business is created for profit, according to the definition presented above, profitability should not be the only success parameter for the company. There are numerous ways to achieve high profits by jeopardizing long-term company success and the strength of its cash position, while a short-term decrease in profits may indicate a necessary investment into research, marketing etc., which will improve company position in the future (Tonchia & Quagini, 2010).
Most importantly, an entrepreneur in a small business has a very strong leadership position, thus he/she defines future company orientation, maintains integrity and ethics in business practices and serves as a role model for the employees. Therefore, running a small business requires strong leadership qualities, such as strong commitment to the undertaking, enthusiasm, charisma and ability to envision the future, which are essential factors for leading a company to the success (U.S.Small Business Administration, 2011).
References
BusinessTown. (2003). Getting started - overview. Retrieved from
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Daft, R. L. (2008). Organization theory and design. (10th ed.). Mason, OH: South-Western
Cengage Learning.
Steingold, F. S. (2011). Legal guide for starting & running a small business. (12th ed.). Berkley,
CA: Nolo.
Tonchia, S., & Quagini, L. (2010). Performance measurement, linking balanced scorecard to
business intelligence. Heidelberg, Germany: Springer Verlag.
U.S. Small Business Administration. (2011). Managing a business. Retrieved from
http://www.sba.gov/category/navigation-structure/starting-managing-business/managing-
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U.S. Small Business Administration. (2011). What is sba's definition of a small business
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