For instance, a production unit of a New York Stock Exchange listed company not long ago installed an additional steam generating plant at a cost of $3 million. Such limitations mean that small businesses can seldom survive mistakes or misjudgments.
Changes in government regulations, tax laws, and labor and interest rates usually affect a greater percentage of expenses for small businesses than they do for large corporations. In addition, external forces tend to have more impact on small businesses than on large businesses. Similarly, small businesses cannot usually afford to pay for the kind of accounting and bookkeeping services they need, nor can new employees be adequately tested and trained in advance. No matter that excessive price cutting quickly destroys profits.Īlso, the owner-manager’s salary in a small business represents a much larger fraction of revenues than in a big company, often such a large fraction that little is left over to pay additional managers or to reward investors. For one thing, small businesses tend to be clustered in highly fragmented industries-wholesaling, retailing, services, job-shop manufacturing-that have many competitors which are prone to price-cutting as a way to build revenues.
Resource poverty results because of various conditions unique to smaller companies. We would argue, though, that the very size of small businesses creates a special condition-which can be referred to as resource poverty-that distinguishes them from their larger counterparts and requires some very different management approaches. Underlying that assumption has been the notion that small companies are much like big companies, except that small businesses have lower sales, smaller assets, and fewer employees.
A traditional assumption among managers has been that small businesses should use essentially the same management principles as big businesses, only on a smaller scale.
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