Lecture 2 SME Management

8/13/2019 Lecture 2 SME Management

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Lecture 2: SME in a GlobalEconomyCourse Code:Course Title: SME Management


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Learning Objectives To define Small Business

To explore and identify strength and weaknesses

of small business

The role of small business in the economy

Trends expected for small business


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History Rooted back in 4000 years ago

Arab, Babylonians, Greeks, Jews, Romans et. al.

In 2100 B.C. Hammurabi, King of Babylon drafteda code of 300 laws to protect consumers andsmall business persons

During 1980s and 1990s, small businesses beganto enjoy more esteem and importance in theeconomy


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What is a smallbusiness?

The Small Business Administration (SBA) Independently owned and operated

Not dominant in its field of operation < 500 employees

The Organization for Economic Cooperation andDevelopment (OECD) and the U.S. Chamber of

CommerceAny firm employing fewer than 100 people

White House Conference on Small Business

< 500 employees


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Definition Criteria

Revenue or net sales

Number of employees

Profits

Type of management-ownership structure


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Vary by Industry & Country

Revenue or net sales: [limits vary by industry]

retailing $3.5 million to $13.5 million

Services $ $3.5 million to $14.5 million

Construction $7 million to $17 million

Number of employees:

fewer than 50 employees in nonmanufacturing and 100

employees in manufacturing industries Fewer than 75 to be eligible for Counseling assistance for

Small Business Program

Some agencies may use larger numbers upwards of 250

1500 depending on the industry


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Vary by Industry & Country

Profits

Net operating profit of $200,000 or less.

Type of management-ownership structure

The degree to which the owner is also the day

to day manager

Independent management; owner-suppliedcapital; local area of operations; small size

within industry


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The Contributions of Small

Business Represent more than 99.7 percent of all

employers.

Employ more than half of all private-sectoremployees.

Pay 44.5 percent of total U.S. private payrolls.

Generate 60 to 80 percent of net new jobs

annually. Produce 13 to 14 times more patents per

employee than do large patenting firms.


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Contribution Contd. More labor intensive than large companies

Create more jobs than they lose

Responsible for a majority of innovations and inventions thatwe benefit from today

Productivity and Profitability:

Bias for action

Close to the customer

Autonomy

Employee stake

Hands on managers

Less bureaucracy


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Contribution Contd.Flexibility; able to respond more quickly to

changes in the economy

A country has a better chance of achievingeconomic well-being if entrepreneurialactivities are supported by that society

Long term interest in the community in

which their business operates


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Strengths Customer Focus

Attentive and responsive to customer wishes (not

bureaucratic). Quality Performance

Quality is not limited to large firms.

Provide exceptional service to the community.

Integrity and Responsibility

A solid reputation builds loyal customers.

Known by everyone in the community as fair/honest


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Contd. Innovation

Small firms are the leading source of innovation.

The Dependence of Big Businesses on Small Businesses

Creation of New Jobs

Special Niche

Providing uniquely specialized services can be a powerfulcompetitive advantage.


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Small Business by Industry

(2002)

[insert Figure 1.2]


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Exhibit 1.6: List of Reasons for

SB Success or Failure Age

Capital

Economic Timing

Education

Expertise

Marketing

Parents

Planning


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Interesting facts about Small

Business failures and closures 550,000 small businesses closed in 2000

The business failure rate for one-person businesses =

38.2%

If the firm survives for two years, the chance of successstarts to go up for each additional year

Many of the failures are

hobby

or casual businesses 88.7 % of business failures are due to management

mistakes

About 1/3 of closed businesses were successful at

closure


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Exploding Myths about

Small Businesses The 80%-failure-rate myth

Research shows a failure rate of only 18% for smallbusinesses over an 8-year period.

Low-wage-jobs myth

Rapidly growing small businesses (gazelles)accounted for 56% of new job growth and addedto the majority of high-paying jobs from 1980 to1990.


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Small Business RisksOverestimating the market

CONDUCT MARKET RESEARCH ON CUSTOMERS

Environmental uncertainty DEVELOP A PLAN BIN CASE THE FORECAST IS INCORRECT

No salary for the owner HAVE ADEQUATE SAVINGS TO DRAW ON FOR A YEAR OR TWO

Loss of investment capital (BORROWED FROM RELATIVES?) ONLY TAKE MONEY FROM PEOPLE WHO CAN AFFORD TO LOSE IT

Long hours and high stress (60-80 HRS/WK) EXPECT LONG HOURS AND DEVELOP STRESS-REDUCING ACTIVITIES

Disillusionment STICK TO YOUR PLAN AND BE PATIENT


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Additional Worries for Small BusinessesADEQUATE CAPITAL

-- FINANCING ISNT ENOUGH, WE NEED MORE $$$$

ECONOMIC CONDITIONS AND CYCLES

-- CAN WE SURVIVE???

EXPERIENCE (More is needed)

-- IN THE INDUSTRY AND IN MANAGEMENT

GOVERNMENT REGULATION

-- HARDER FOR SMALL BUSINESSES TO COMPLY

GROWTH/MAINTAINING THE MARKET

-- KEEPING CUSTOMERS AND ATTRACTING NEW ONES


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Contd.PERSONNEL

-- FINDING AND KEEPING EXPERIENCED, RELIABLE WORKERS

PROFITS

-- REINVESTED IN THE BUSINESS OR DRAWN BY THE OWNER?

STRUCTURAL EVOLUTION

-- LOSS OF CONTROL AS THE BUSINESS GROWS

TECHNICAL ADVANCES

-- HOW TO KEEP UP AND AVOID OBSOLESCENCE?


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Factors that Improve the

Likelihood of Business Survivability If the business is an employer

If the business has >$50,000 starting capital

If the owner has a college degree

If the business is started for personal reasons

If the owner has previous experience owning

and operating a business

If the business has a management team

If the owner starts the business from home

If the owner has developed a business plan


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10 Deadly Small Business MistakesMeir Liraz, President of BizMove

Sticking to a single idea too long

Not having a results-driven marketing plan

Not knowing your customers

Ignoring your cash position (working capital)

Ignoring your employees (morale)

Confusing likelihood with reality

Not having a sales plan

Being a Lone Ranger (learn to delegate)

No Mastermind (get an advisory group or mentor)

Giving Up


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Trends11 SMALL BUSINESS TRENDS FOR 2012By Frank J. De Raffele Jr

#1 Trend - Value Proposition Must Be Bigger Than Ever

#2 Trend - Listening to Customers in New and Creative Ways.

#3 Trend - Aggressively Identifying and Pursuing NewOpportunities for Growth.

#4 Trend - Creating Stronger Stakeholder Relationships.

#5 Trend - Capitalize on Emerging Markets


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Contd. #6 Trend - Segmentation for Profitability

#7 Trend - Creating Quality Content Online

#8 Trend - Increasing the Online Marketing Budget.

#9 Trend - Mobile Marketing

#10 - Geo Target Marketing

#11 - Co-Marketing


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Assignment 1

Due: Next Class

Lecture 2 SME Management

Documents

Transcript of Lecture 2 SME Management