© 2000 John Petroff
|
|
© 2000 John Petroff |
3)- Small and medium company opportunities
The previous paragraph seems to suggest that small and medium firms do not have a chance of succeeding. It is not so. It depends on management's goals, the phase of the product life cycle, the composition of the market, the nature of the product and possibly government assistance. If the goal of a small firm is to take on corporate giants more than ten times its size, success may be doubtful; but if the goal is to cater to a growing and attached clientele that values a particular feature of the company's product, the prospects are much better. This is especially true if the firm has establish itself in an expanding market. Competing in a market of similarly small firms should be easier, but not always. Big or small, the danger from competitors is their predatory strategy. A small firm can very well find a secure future in the shadow of a big peaceful giant, but suffer from aggressive promotion of an even smaller firm down the street. For some products, the required minimum investment is so large that it is inconceivable for a small operation to be profitable. This is the case of automobile manufacturing where the economical plant capacity starts at 100,000 cars per year. However, there have been tiny operations (e.g. Ferrari or DeLorean) even in this industry, which succeeded in business for some time. This tends to show that there will be niches to exploit in any product.
Governments in almost all countries assist their small firms in part because all big firms had to be small in their entrepreneurial beginning and it is essential for the country to cultivate this most important source of vitality. Helping small firms is one way of reducing the chances that one firm will monopolize a market. Small firms are also at a disadvantage in gathering market information, obtaining credit information, learning operating standards, complying with the multitude of government regulations, and so on. They need often minimal help in basic aspects of running their business; help that a Small Business Administration (SBA) in the United States provides efficiently. In some countries, such as France for instance, the small business administration will do a lot more than provide information: seed money, employee training, credit and even grants are given in certain regions and for certain activities. In general, one can say that it would be desirable the American SBA could give additional assistance to all small businesses at the very early stage by having a consultant conduct a financial and industry analysis (as described in this manual) that would reveal if the small business strategy is misguided. This would reduce the dismal proportion of small business failures.
How to determine the viability of a small business? Essentially, in the same manner as for any firm. But there are a few additional safeguards that an analyst must use. In the first place, in a small business, the entire range of skills and knowledge required for all functions of operations is likely not to be present. If so, one must determine that the firm is aware of that, and that it is able to obtain what it needs from outside. Most important among all functions is the marketing function, because, as it has amply been illustrated, sales is the life blood of any business. And because businesses are often started by people with ideas and technical skills, but without selling expertise. Later, being a salesman is definitely the most important. An analyst must study the business plan of the small business with the help of a product expert to assess that the strategy has a chance. Another pitfall to be aware of is undercapitalization. Finally, because the firm is by definition consisting of a few people, it is crucial that these individuals work as a team, and that depends primarily on managerial and leadership skills of the small business owner. Other than that, all that has been said about evaluating a loan or a stock, is very much applicable to a small as well as large business.
See review questions Q-14C3.1 through Q-14C3.7.
See research assignments R-14C3.1 through R-14C3.3.
| Previous: 2-Leadership |
|
Next: Alliances |