Systematically cataloging small businesses’ problems and growth patterns may seem hopeless at first glance since many small businesses differ in size and capacity for growth. They are often characterized by independence of action, differing organizational structures, and varying management styles. However, upon closer inspection, it becomes apparent that they experience common difficulties at similar stages in their development. 
These points of comparison can be organized into a framework that increases our understanding of the nature, characteristics, and problems of businesses ranging from a corner dry cleaning establishment with two or three minimum-wage employees to a $20-million-a-year computer software company experiencing a 40% annual growth rate.
For owners and managers of small businesses, understanding these commonalities can aid in assessing current difficulties, like the need to upgrade an existing computer system or hire and train managers to address unplanned growth and appropriately plan for future challenges to those growth benchmarks.
Developing a Small Business Framework
Numerous researchers have developed models for examining businesses, and each one uses business size as one factor and company maturity or the stage of growth as a second factor. While helpful in many respects, these frameworks are inappropriate for small businesses. As beneficial as start-ups can be for macroeconomic development, they can also be chaotic for a couple of reasons:
- The risk for start-ups is extreme, and the total cost can be exorbitant. Founders put in more time, energy, emotion, and capital than they anticipated would be required. Since most start-ups fail, the total cumulative cost to launch and maintain them is enormously underestimated.
- Start-ups disturb the price structure. While trying to get a position in the economy and before they know what it takes to capitalize on business growth, a classic start-up exercise is to enter the market with low prices. This sounds like honest opposition; however, established corporations know what they must charge to sustain their business. Even after a start-up runs out of investment and leaves the marketplace, damage to the price structure remains.
Small businesses that survived the financial crisis did so by establishing what it takes to run their business in the leanest terms. One of the consequences of their trial-by-fire is that these firms have emerged in better shape than after previous significant economic downturns. Here are six reasons for their success:
- Fewer start-ups. There have been lower price structure disruptions since 2008.
- The banking industry has confirmed an unparalleled lack of business loan demand, which is ironic since interest rates have never been lower.
- Stronger balance sheets. Reduced debt plus methodical retailing, inventory, and supply chain practices that prevent inventory creep all improve critical financial ratios.
- More gross profit. Rigorous expense control relieves pressure on gross profit from flat sales and pricing pressure.
- Enhanced capital and cash. All the above practices contribute to profitability, which is more likely to be retained in the current environment. Retained income pushes capital and cash toward sustained operations and long-term success.
- More creditworthiness. Firms that grow beyond organic funding will be more worthy of credit and preferred terms and rates.
Signs that your Start-Up is Maturing into a Small Business:
- Customer needs do not appear to be evolving rapidly.
- Consolidation by leading competitors is reducing economic intensity.
- Disruptive innovations and new applicants gradually gain share and top out at relatively low levels.
- Marketplace shares of leading contenders have hardened and are changing gradually, if at all.
- The price, brand, and channel stratagem have replaced product innovation as key value drivers.
- Cash flows progressively turn positive and return to investors rather than market investments.
Final Note
Small businesses play an essential role in any civilization. When first recognized, they represent how corporate owners test their business ideas in a market. Small businesses that create jobs for labor, in addition to the owner, offer even more economic stability, providing a steady source of income for business owners and employees alike.
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