Identifying a Small Business
Dr Peter Ellis
The owner-manager of a small enterprises usually retains features of a microenterprise, such as the entrepreneur’s passion, desire for self-determination, and personal control over the actions of their enterprise. A small enterprise is an expanded micro enterprise with the addition of one or more partners, and other income generators. Owning a small enterprise, the owner-manager now has administrative responsibilities that requires additional human resource management and to transition fully to a small enterprise will take on skills such as the reduction of micro-management activities, through the process of ‘Letting Go’ and allowing employees to make independent decisions regarding carrying out the work for which they were being paid. Also, having employees, they need to learn how to cope with conflict resolution issues within the enterprise by becoming more of a manager than a colleague. In addition, basic systems, processes and procedures are beneficial, such as expected income generation or system management. As a small business owner, they must now make all the major business decisions as necessary in an ad hoc manner. That said, continued growth is not always possible due to a limited market stage. For example, a dental practice is restricted as a result of the geographical area of its surgery.
A small enterprise is defined as an enterprise with more than one income generator.
owner is the final decision maker, thus commonly operates within an ad hoc management system. In addition to micro skills, the owner must have time-management, HR and conflict resolution skills, all of which they must carry out as they manage the finances and plan for further company business opportunities. Like a micro-enterprise, their business also offers its clients service and support.
The small enterprise owner that has developed from a start-up, initially acts in the same manner as a micro-enterprise owner regarding work and cash-flow maintenance. However, the movement of an entrepreneur choosing to grow from the micro-environment happens quite soon after starting their enterprise. Thirty three percent of those trying to grow into a small entity have not fully established the skills or organisational activities. They have higher sales and more employees than a micro-entity, but are still being managed as a micro-enterprise, in terms of the entrepreneur micro-managing everything themselves.
As sales increase and the owner-manager is unable to cope alone, they realised that more employees are required, but not all new small enterprise owner-managers understand how to manage them in a larger enterprise. Some give the new employees tasks, others employ them with no instructions as to what they should do, expecting them to have the experience to get on without guidance. Others do not understand why employees do not have the same enthusiasm, attitude and drive as the employer, and others closely micro-managed employees giving them no decision-making opportunities.
Podcast Series Discussion on Business Growth and Transitional Growing Pains
To develop into an established small enterprise, owner-managers use any commercial knowledge and experience they have to develop their business accordingly. The successful owners increase their technical abilities and management skills by finding a mentor, taking a management course, or reading management books to transition towards the characteristics of a small enterprise.
Once the entrepreneur begins investing further in income-generating staff, several situations arise. Some small owner-managers learn the required skills of relationship management, others struggle to manage the extra work and staff and continue to micro-manage their organisation. Those that begin to develop the required new skills, still have several possible issues. For example, new income generators may be employed but not managed to exploit the best return from their services. Others continue to micro-manage and do not allow staff to self-manage, preventing the business from growing. Some owner-managers work hard themselves to keep the enterprise generating income. Some take no holidays or work extra time to take up the slack when their staff are absent. Only about half transition fully to a small enterprise, developing the necessary small enterprise mindset and skills, and can accept some of the positive advantages of building the business. Others leave the other income generators who bring in sufficient funds, to be managed by the general or practice manager.
In order for the owner-manager to control a small enterprise, they have to put the necessary personal abilities and organisational activities in place. If this does not occur, it is possible to remain in a state of transition for the entire life of the enterprise. Where owners abdicated the management of the cash flow and give the task of administering the business to the bookkeeper, in thirty percent of enterprises, the organisation is not given direction and the staff are left to manage themselves without guidance. Without the required leadership, an enterprise where the staff is directed by the bookkeeper, it is generally found to be in a static situation, between being a micro and small enterprise. In that instance the accounts are done, but the employees are not managed, and the business stays in a state of perpetual transition.
The first thing that those owner managers who do fulfill all the requirements of a small enterprise notice, is that they have achieved two things that made their work easier. First is that by staying in control, but also ‘letting go’ or retreating from total micro-management of employees, they reduce the number of time-consuming activities that they had to carry out. Second, they find that giving key performance indicators (KPI) to employees enabled employees to realise their abilities and increase the enterprise income. This gives the entrepreneur more personal time and changed their activity to being more of a manager than a colleague. Some owner-managers are competent to manage their staff themselves, while others prefer to employ a general or practice manager to take care of the administration and ensure that the income generators brought in the funds.
These owner-managers are aware that while they still work in the business, they are developing a culture for the enterprise and are able to understand and manage the cash-flow as well as focus on the marketing aspect of the enterprise. A small minority are still interested in growing further, but only a few know how, or what is required to do this. Those that are interested in growing their business further are not at first fully aware of the process required but want to increase the size and income of the enterprise.
The private sector organisations that plan to grow from a small enterprise and try to transition out of that stage do so for several reasons. Some have a growing demand for their services or products, others have personal reasons, such as wishing to leave the hands-on work to others. Whatever the reason, the next step is to decide and plan what they need to do to grow. Some want to grow in sales but not in structure and continue to micromanage or just expand the organisation within the same configuration. A percentage of small firms that continue to transition to medium size, want to build their business and work hard to put the elements of the larger structure in place. Those that want to grow to the next stage, begin by separating the work areas and commence to departmentalise their organisational structure. Entrepreneurs that do not manage to transition out of the small size, are frustrated by their lack of management development, and possibly many other non-business reasons.
Only a very small percentage or entrepreneurs understand that if they want to grow further, they have to ‘let go’ of the type of micro and small management systems they have been using, and become a manager rather than colleague if they wanted to free themselves to increase the business. At this stage, unless the entrepreneur either uses the company income to expand or gets a loan to invest in the business, the current staff continue to do all the work and growth is limited. Therefore, new mindset, set of management skills and a completely different set of organisational structuring is required to make the next level of transition.
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Dr Peter Ellis
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