THE NEW KID ON THE BLOCK FOR SMALL BUSINESS SUCCESS: ETIDCS?* Harriet Buckman Stephenson Seattle University Deborah Kahle Thomas Management Corporation, Missoula, Montana ABSTRACT "By the year 2000, small businesses will be the major growth machine of the U.S. economy, providing a multitude of benefits in the forms of personal independence, financial rewards, and ·economic dynamism" (Anwar & Stahlecker, 1989). Small businesses now account for 40% of the GNP and create approximately 70% of the new jobs in the U.S., yet the majority' of all small businesses fail within a few shon years (Polansky). The most common reasons given for these failures are management incompetence, poor or no planning and the inability to secure financing. For the first time, however, a study of factors imponant to success of small business places ethics in the workplace high on the list. 1be difference between success and failure for many small business owners/entrepreneurs will be their ability to cope successfully with problems associated with running a business (Goodell & Kraft, 1989). Thrining and education become key to the success of.the small business owner, and resean:h indicates that there is a need foi educational assistance that is largely not being met (Goodell & Kraft, 1989). Lack of available management training leaves a gap between an idea and the ability to implement it successfully. Common Barriers to Small Business Success Two broad classifications of problems, internal and external, must be dealt with by small business owners. The former type becomes the primary focus and includes financing, people skills and physical resources, whereas the latter type needs to be dealt with and recognized but cannot be controlled. In 1978 the literature pointed to the fact that" ... it is apparently easier to blame external factors than to apply remedies such as self discipline, training, experimentation, planning strategies and working harder to survive ... "(Goodell & Kraft, 1989). Today, however, more small bus- iness owners recognii.e internal problems as a key to the success of the business and are seeking opportunities to learn how to solve them. • Recipient of third place in the distinguished paper awards, presented at the 1992 National SBIDA Conference in Washington, D.C. It was not reviewed by the JSBS Editorial Advisory Board. 67 The list of problems or critical success factor!\ is potentially a long one, and the process of iden1ifying !hem is ongoing. Garsomhke and Garsomhke ( 1989) discussed lhe influence of technological change on small-mediun1 size tirn1 pcrfonnancc. while Roitman and En1shoff ( 1984) listed the inadequacy of the financial and hu111an resources needed to in1plen1ent product ideas and market strategics as major barriers to the entrepreneurial tirn1's success. Bracker and Pearson ( 1985) idenlified firm size. lypc of producl, indus1ry malurily, and 1he age of 1he firm as significanl factors in company performance. Rocha and Khan ( 1984) and Pe1erson ( 1984) recognized lhe inlerrclaledness of several recurring problems confronling small businesses. Anwar and S1ahlecker ( 1989) slressed lhe importance of planning. and Nahavandi and Chesleen ( 1988) idenlified slralegic planning deficiencies and the impact of outside consulting as critical factors in venture success. Cragg and King ( 1988) found 1hal lhe qualily of planning ac1ivi1ies. markel orien1a1ion. and lhe characteristics of the owner/manager were associated with small business success. while Hofer (1987) zeroed in on induslry slruclure as having lhe grealesl impacl on performance. MacMillan, Siegel, and Narasimka ( 1985) hold lhe enlrepreneur 10 be the crilical success faclor. Ibrahim and Goodwin ( 1986) idenlified enlrepreneurial values. managerial skills. inlerpersonal skills, and environn1ent characteristics as key indicators of new and established venture success. Psychological or personality traits of the entrepreneur have been examined with contradicting resuhs (Brockhaus & Horwilz, 1986; Carsrud, Gaglio, & Olm, 1987). Dun & Bradslreel's reports ( 1988; 1977) indicate that the major barriers to business success arc n1anagerial incompetence and lack of owner experience. For many small businesses, financing or financial advice is critical (Lister, 1991). For 15 consecutive quarters. taxes were cited as the number one problem with finances in the NFIB Quurterl_v EcontHnic Report for Sn1al/ Busi11eJs (Dunkclhcrg & Dennis, 1988). OWners rated finances in the following order (after start-up financing): taxes, poor sales. government regulations, competition from big business, quality of labor, cost of labor. general financing, inflation and shortage of malerial (Dunkelherg & Dennis. 1988). Marketing is often noted as a critical factor for the successful small business owner(Mendelssohn, 1991; Ram & Forbes, 1989; U. S. Small Business Adminis1ra1ion [SBA]. No. 4). In a recenl survey. 68% of lhe respondenls viewed lhe lack of a markeling plan as a frequemly experienced problem (Weinrauch, Pharr, Mann, & Robinson, 1989), and analyzing lhe markel from lhe customer point of view may also be a critical success factor (SBA. No.4). The cost of insurance is a relatively new problem facing the small business owner (Fraser, 1991; lnlindola, 1991; SBA, No. 88-1190). Finally, growth may be an issue in that it creates a need for different systems, skills, structures and, g~nerally. cash, presenling new problems for 1he small business owner (Fiamhohz, 1989; Hambrick & Crozier, 1985). The use or non-use of computers and the ability to create systems to keep the business running smoothly also constitute a potential dilemma for the small business owner (Nadel, 1988; SBA, No. 88-1133; Schleich, Corney. & Boe, 1990). As au1oma1ion and infonnation overload increase, the owner must take time to plan in order to achieve a satisfactory level of efficiency and effectiveness in managing. When the European Econornic Cornrnunity unlocks the doors to the largest econon1ic power in lhe world, 1he 1990's will begin a new focus for lhe world 1ha1 has never existed before (Naisbin & Aburdene, 1990). While small business owners will be seeking opportunilies abroad (Edmunds 68 & Khoury. 1986; Morrow. I 988; Sisisky, 1989). there will be obstacles to overcorne including personnel issues, tariffs. taxes, 111onctary systc1ns and cultural diversity. Selling internationally will require hard work, perseverance. a con11nitn1cnt of resources. 111arkct research and attention to detail (SHA. 1989). 'fhe husiness owner who has planned ahead will have carefully evaluated each of these issues in order successfully 10 penetrate this n1arket. Ethical Issues - A New Potential Barrier to Success Ethical issues huve bcco1nc an increasing area of concern for the entrepreneur (Ackoff. 1987), and rnuny AACSB 1nen1bcr schools arc searching for ways to inject ethics into the curriculum (Schoenfeldt. McDonald. & Youngblood. -1991 ). In Shostack's view. "all entrepreneurs who value their con1panics and hope to sec thcn1 prosper n1ust take a firn1 stand on ethics" ( 1990), but small business owners n1uy he n1ore dcn1anding in the area of ethics than managers of larger firms (Longenecker. McKinney. & Moore. 1989) .. Unfortunately. many people may just pay lip service lo ethics. According to Godfry. ethics has a long way to go (1988). James Chrisman summarized the major problems that were identified from nine small business surveys conducted between 1978 and 1984 ( 1988). Again, problems ranged from financing, accounting. long- tenn planning, advertising and promotion to taxes, inadequate sales, employee motivation. capital. and marketing. However, the subject of ethics was not included.· METHODOLOGY A survey containing issues of concern noted from past studies and interviews was mailed to 155 book s1ore owners listed in Contacts /11flue11tial, an inclusive directory cove~ing a n1etropolitlln geographical area in the Pacific Northwest. Thirty-three responses were received for a return rate of 21'k. The sarnple includes 1nostly sn1all businesses with under $1 million in sales (8lo/o) and under 100 employees (94%) and with 84% having twenty or fewer employees. Of the respondents identifying their gender. 6090 of the owners were n1alc and 40r/,; were female. FINDINGS Out of the list of issues of perceived i1nportance to the group of business owners. the number I issue was "Reaching und Maintaining Cuslorners." followed closely by "Ethics in the Workplace ... Table I contains the list of problen1s presented in the rank order of their pcn.:civcd in1portance. CONCLUSIONS AND IMPLICATIONS The literuturc suggests that 1nanagen1cnt co111pc1encc. use of so1nc type of planning process and the ability to n1anage finances arc critical factors related to the success of business owners. While this new study. like its predecessor. includes n1any of these same factors (e.g. "Reaching and Maintaining Cus10111crs." "Ethics in the Workplace." .. Stabilizing Cash Flow," "Development of Managen1ent Skills," and .. Deterniining Your Custon1er Base"). for the first tin1e. the issue of ethics emerges as the nurnber l\vo concern. The ethics issue was not significantly more important to small business owners than bigger businesses: however. unlike previous studies. both small and larger business O\.vners \\.'ere keenly aware of ethics as an integral part of their business. 69 Table I Business Owner Survey (Including Means of Responses) Given the items listed below, please rate each item from 0-5. Coosider "O'' to be Not Important to "5" being Very Important to the success of your business. Not lmponant 0 2 FACTORS Reaching & Maintaining Customers Ethics in the Workplace ...... . Stabilizing Cash Flow ....... . Development of Management Skills (i.e. planning, negotiating, analyzing) Determining Your Customer Base Employee Educationrrraining Lack of Capital ....... . Taxes ............. . Development of Operational Skills Important (i.e. hiring, delegating, collecting on bad checks) Availability of Quality Workforce· ..... . 3 Company Culture, Value System & Mission ... . Benefits/Compensation for Employees . . .... . Managing Growth .......... . Community Involvement ..... . Benefits/Compensation for Owner Effective ·utilization of Computers Defining Your Competition .... Financial Retirement Planning for Owner . Environmental & Social Responsibility Issues Network/ Associations for Owners .... . Managing Accounts Receivables ..... . Effective Selection & Use of Consultants . Diversity in the Workplace ........ . Planning For & Developing Your Successor Exploring International Markets ...... . Very lmponant 4 5 TODAY 4.75 4.53 4.38 4.09 3.97 3.87 3.72 3.68 3.61 3.61 3.61 3.55 3.53 3.44 3.09 3.03 3.03 2.88 2.71 2.47 2.42 2.03 2.10 1.66 . .78 The high rating of "Ethics in the Workplace" was not anticipated in that prior surveys did not indicate such perceived importance as a success factor by small business owners. It is possible that the nature of the businesses surveyed and/or their geographic locations influenced these results. This does suggest that prior studies were not totally generalizable, a fact which is not surprising. In any event, the question of whether these findings may be appropriately generalized should be explored. Further development and clarification are desirable to determine if this indeed suggests that the issue of ethics is a "new Kid on the Block," one which should be defined and incorporated 70 into entrepreneurial training, education and consulting. How should this be explored in the SBI programs? 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