Goals:

• identify important characteristice of small businesses
• recognize the competitive advantages of small businesses
• identify problems faced by many small businesses

Key Terms:

• small business
• Small Business Administration (SBA)

Small Business Basics  

• Small Business Ownership
• Business is often viewed as large corporation who employ thousands of people with locations across the country and the world
• By far the greatest percentage of businesses in the United States are small businesses
• Small businesses employ half of all private sector employees
• According to the Small Business Administration (SBA) a small business is an independent business with fewer than 500 employees
• Based on this definition, 99.9% of the roughly 26 million U.S. businesses are small businesses
• The owner is usually the manager
• It operates in one or very few locations
• It typically serves a small market
• It is not dominant in its field
• 25 million businesses have fewer than 100 employees
• 18.6 million businesses have no staff other than the owners
• 20 million businesses are set up as proprietorships
• Small businesses are by far the greatest number of businesses operating today
• Small Business Employment
• Small businesses are responsible for 60 – 80% of all new jobs
• 12.8% Construction
• 12.5% Retailing
• 12.5% Professional scientific and technical services
• 11.4% Other services
• 10.0% Health care
• 7.7% Hotels and restaurants
• Wholesale trade
• Waste management
• Manufacturing
• Real estate
• Finance and insurance
• Transportation and warehousing
• Arts, entertainment, and recreation
• Information, publishing and broadcasting
• Ownership Diversity
• Women own one-fourth of all small businesses
• 18% have African-American, Asian-American, or Hispanic-American ownership
• Majority of owners are over 35 years old
• Nearly 25% are under 25 years of age
• Almost all have at least a high school diploma
• Nearly 60% have finished some college work
• Half are home-based
• Because most businesses are part-time ventures or service businesses, on average owners report they needed $5,000 or less to start their business
• Full-time businesses with buildings, equipment and employees required more than $100,000 to start.
• Small Business Advantages
• Meeting Customer Needs
• Normally serve customers where the number of products  and services needed are small or the requirements are too specialized for large businesses to make a profit
• It is easier for a small business to meet the precise needs of the customer
• Large businesses have more resources, but to operate efficiently must focus on products and services that meet the needs of a large group of customers
• Small businesses often cannot match the lower operating costs of larger businesses
• Compete by paying attention to their customers
• Usually serve fewer customers
• Have more frequent contact with these customers
• Are located closer to their customers
• Depend less on other businesses  to distribute or service their products
• Large businesses often rely on consumer research to gather information
• Small businesses usually get information directly from their customers about what they like and dislike
• Providing Unique Services
• Small businesses are especially suited to provide unique services for cutomers
• Small businesses must take a special interest in their customers
• They spend time determining needs and discussing alternatives
• Plan and deliver services that satisfy the customer
• Big businesses have the advantage when dealing with large numbers of customers who are willing to buy standard products and prefer low prices
• Small businesses excel when customers have unique needs, want more individual attention and are willing to pay a bit more for the product or service to obtain what they really want
• Common Small Business Problems
• Not all small business succeed
• Small business failure rates are much higher than larger businesses
• Reasons for Failure
• Not keeping adequate records
• Not having enough start-up money
• Lack of management experience
• Lack of experience with type of business
• Not controlling operating expenses
• Poor business location
• Failure to manage credit offered to customers
• Small Business Assistance
• With the right kind of assistance, small businesses can overcome each of the causes listed above.
• Small businesses can get help from a number of sources
  • Universities and colleges often have faculty members who are willing to give advice and support to people with their own businesses
  • Local groups of business people have members who can help- Chamber of Commerce
  • The Small Business Administration (SBA)