Success and Failure of US Small Business Firm
INTRODUCTION
This paper discusses in detail the research proposal on the survival of small business firms in the United States. In particular, the research will focus on examining the different survival strategies employed by these small business firms. In this research proposal, the background, context and theme of the study are presented; the objectives of the study and the research statements are formulated. Here, vital concepts, questions and assumptions are stated. Finally, the scope and limitation of the study, methodology to be used and the significance of the research are discussed.
Purpose of the Study
The primary objective of this study is to investigate how are small businesses in the United States faring in a competitive economy. To address this objective, the researcher will examine the performance of small business firms in the US based on existing literatures. This will be examined in terms of the survival strategies employed by small business firms.
Specifically, the study will focus on determining the factors that contribute to the success and failure of a small business firm. The study will point out the strength and weaknesses of strategies. Moreover, this study will understand the nature of small businesses so as to analyze the contributing factors that determine their survival. A survey and interview on the cause of the failure of a small business will be conducted. Finally, this study will offer suggestions on how to minimize risk. This will be done by providing recommendations based on the literature review and fundamentally from the data obtained from the questionnaire survey and in-depth interview.
Statement of the Problem
The focus of this problem statement is to trace what cause the survival and failure of small business firms in the US. This researcher finds the necessity for a study that specifically tackles how to avoid business collapse. The researcher finds it useful that a comprehensive study be made to help small business firms protect their businesses from hazardous events.
Small businesses have been perceived as the bread and butter of American society, and the increasing number of small businesses that have collapsed indicates that there is a problem with this development. This research will attempt to answer the following questions:
1. What are the factors that influence the survival and collapse of US small business firms?
2. What are the survival strategies employed by US small business firms?
3. How effective are these survival strategies?
Objectives of the Study
The objectives of this study are:
1. To examine how small business firms in the US fare in a very competitive environment.
2. To understand the nature of small business firms in relation to their vulnerability to failure.
3. To investigate the different factors affecting the survival of small business firms.
4. To know the survival techniques of small business firms.
Significance of the Study
This study will be beneficial to future small business entrepreneurs who are planning on establishing their own businesses. This study will present to them a picture of the current situation in the different small business firms. By knowing the problems encountered by earlier small business firms, they can safeguard themselves from the financial risks and will save them enough money by safeguarding their planned endeavor earlier.
METHODOLOGY
Methods of Research to be Used
There are three kinds of research methods, correlational, experimental and descriptive. (Walliman and Baiche, 2001) The correlational kind of research method is used due to ethical problems with experiments. It is also used due to practical problems with experiments. Moreover, inferring causality from correlation not actually impossible, but very difficult. This mode of study is widely applicable, cheap, and usually ethical. Nonetheless, there exist some “third variable” issues and measurement problems.
The correlational research refers to studies in which the purpose is to discover relationships between variables through the use of correlational statistics (r). The square of a correlation coefficient yields the explained variance (r-squared). A correlational relationship between two variables is occasionally the result of an outside source, so we have to be careful and remember that correlation does not necessarily tell us about cause and effect. If a strong relationship is found between two variables, using an experimental approach can test causality.
On the other hand, the experimental method is the only method that can be used to establish cause-and-effect relationships. (Creswell, 1994) That is, it is the only one that can be used to explain the bases of behaviour and mental processes. In this method, the subjects are split into two (or more) groups. One group, called the experimental group gets the treatment that the researcher believes will cause something to happen (this treatment is formally called the independent variable). The experimental and control groups are compared on some variable that is presumed to reflect the effects of the treatment, or outcome. This is formally referred to as the dependent variable.
For this study, the descriptive research method will be utilized. In this method, it is possible that the study will be cheap and quick. It can also suggest unanticipated hypotheses. Nonetheless, this method will be very hard to rule out alternative explanations and especially infer causations. This descriptive type of research utilizes observations in the study. To illustrate the descriptive type of research, Creswell (1994) states that the descriptive method of research is to gather information about the present existing condition.
The purpose of employing this method is to describe the nature of a situation, as it exists at the time of the study and to explore the cause/s of particular phenomena. The researcher opts to use this kind of research considering the desire of the researcher to obtain first hand data from the respondents so as to formulate rational and sound conclusions and recommendations for the study.
To come up with pertinent findings and to provide credible recommendations, this study will utilize two sources of research: primary and secondary. Primary research data will be obtained through this new research study. Questionnaire survey and interview will be conducted. On the other hand, the secondary research data will be obtained from previous studies on the same topic.
This research will base its findings partially through quantitative research methods because this permits a flexible and iterative approach. During data gathering the choice and design of methods will be constantly modified, based on ongoing analysis. This will allow investigation of important new issues about employee training and questions as they arise, and allow the researcher to drop unproductive areas of research from the original research plan.
This study will also employ qualitative research method because it intends to find and build theories that will explain the relationship of one variable with another variable through qualitative elements in research. Through this method, qualitative elements that do not have standard measures such as behavior, attitudes, opinions, and beliefs will be analyzed.
Furthermore qualitative research is multimethod in focus, involving an interpretative, naturalistic approach to its subject matter. This means that qualitative researchers study things in their natural settings, attempting to make sense of, or interpret phenomena in terms of the meanings people bring to them. Accordingly, qualitative researchers deploy a wide range of interconnected methods, hoping always to get a better fix on the subject matter at hand.
For this research design, the researcher will gather data, collate published studies from different local and foreign universities and articles from books and journals; and will make a content analysis of the collected documentary and verbal material. Afterwards, the researcher will summarize all the information, make a conclusion based on the hypotheses posited and provide insightful recommendations on employee training.
For this study, a survey and interview will be conducted. The process will include identifying the general population for the survey, designing of the instrument (survey-questionnaire) and validation of the instrument. After the validation, the researcher will present the instrument to the supervisor for approval, before administering the instrument. Finally, with the help of a statistician, the researcher will make the statistical analysis. After gathering the results, a preliminary analysis of the results of the survey and focus group discussion will be conducted. Then the supervisor will check the preliminary analysis. Afterwards, the researcher will conduct detailed analysis of the results.
Factors and other variables will not be considered for this study because of the relatively short period of time allotted to finish the project. This might have an impact on the results of the study.
Limitation of the Study
This study investigates the different causes of success and failure of small business firms in the US. A survey of the current small business firm survival strategies will be presented. The researcher will depict the contemporary set-up of small businesses in terms of their product and organizational structure, the business mishaps that they might encounter and the internal and external activities of the market specifically other small businesses firms. Analysis in this study will be limited on the outcome of the survey and focus group that will be conducted. This research will also depend on the review of related literature. In addition, this paper will depend on the existing literature on business journals and books tackling the problems of small business firms.
RESEARCH MANAGEMENT
To carry out the overall aim the researcher will first examine the overall performance of small business firms in the US through previous and latest literatures. A review of related literature on the fragile nature of small business firms, survival of small business firms in the US, the different survival strategies, and on other relevant themes will be undertaken. Afterwards, the researcher will identify main issues and problems. The researcher will design the instrument to be used in survey and interview; it will be validated and approved by the supervisor. After the approval, the researcher will conduct the survey and the interview with the help of some friends. As this study will have a sensitive topic, the researcher will make sure that the information given by the respondents and interviewees will be confidential. Finally, after the presentation and analysis of the data, the researcher will generate significant conclusions and insightful recommendations.
This study will be divided into five chapters. The first chapter will introduce the topic and the background of the problem. Chapter Two will discuss and review the available literature mainly on the factors that have a great impact for the success and failure of small business firms. Chapter Three will discuss the methods that will be used. Chapter Four will be the presentation and analysis of the results of the survey and interview. Finally, the Chapter Five will provide the conclusion and recommendation.
LITERATURE REVIEW
The important role of small business in the US economy suggests that an understanding of failure of small business firms is crucial to the stability and health of the U.S. economy (Gaskill, Manning & Van Auken, 1993). Robinson and Pearce (1984) recognized a growing interest, statewide and on the federal level, in identifying factors associated with the conduct and performance of small firms.
Recognizing the dynamic relationship between the firm and its operating and environmental characteristics, Keats and Bracker (1988) proposed a conceptual model of small firm performance. This model suggests that performance outcomes are a function of many variables, including individual owner characteristics, owner behaviors, and environmental influences. Their model transcends the belief that small firms are merely miniature versions of large businesses and recognizes small firms as unique entities (Gaskill, manning & Van Auken, 1993).
Keats and Bracker (1988) stated that small firm performance is influenced by multiple constructs which have been labeled as “Entrepreneurial Intensity” (entrepreneurial characteristics and behaviors which differentiate entrepreneurs from other individuals); “Task Motivation” (intensity of entrepreneurial motivation to attain goal achievement); “Perceived Strength of Environmental Influences” (strategic choices and reactions in response to environmental elements); “Behavioral Strategic Sophistication” (acquisition and implementation of sophisticated strategic management practices); “Cognitive Strategic Sophistication” (comprehension and integration of strategic management practices); and “Task Environment Factors” (structure of the industry in which the organization operates).
Numerous researchers attempt to determine the causes of failure of small business firms. The numerous characteristics shared by failed firms are directly related to personal decision-based characteristics of the owner, managerial deficiencies and financial shortcomings (Gaskill, Manning & Van Auken, 1993). On the contrary, Star and Massel (1981) stated that failure rates were higher for firms that were smaller in size, located in rural areas, sold low priced merchandise, and operated as sole proprietorships. Peterson, Kozmetsky, and Ridgway (1983), in their survey which asked existing firms why businesses failed, found that lack of management expertise and financial-related factors were most cited. Wichmann (1983) reported that accounting and management capabilities were important attributes affecting small business success and failure.
The important relationship between financial distress and bankruptcy was recognized early by Beaver (1968) and Altman (1968). O’Neill and Duker (1986) examined the role of managerial quality and found that failed firms have greater debt loads, relied less on the advice of accountants and offered more inferior products than did surviving firms. Dekimpe and Morrison (1991) examined the life expectancy of retail stores and found that appropriate management training programs and a supportive atmosphere can increase the duration of a firm’s existence. Edmunds (1979) found that failure rates were increased due to the heavy burden of taxation and regulation.
Haswell and Holmes (1989) reported that managerial inadequacy, incompetence, inefficiency, inexperience explain small business failures. Weitzel and Johnson (1991) describe crises management and lack of planning as one of the last stages prior to failure. Several studies have suggested that the firm’s inability to compete in the market results in failure (Gaskill, Manning & Van Auken, 1993).
The economic and financial risk that small businessmen has to face amidst the economic saturation that the United States is suffering coupled by increasing competition on much larger corporations is further exacerbated by the risk that they have to confront on asset and capital protection. The ensuing issue is the mechanism to minimize this risk.
The small businessman has so often been taken for granted as being an essential pillar of our democratic society that it frequently comes as something of a discovery to realize that in actuality we know very little about his ideas, beliefs, or values (Bunzel, 1962). In many respects we know more about small business than we do about small businessmen. The survival of the small businessman, while significant as an economic reality, is even more noteworthy as an ideological phenomenon. In the past half century American society has witnessed the growth and spread of industrialism on the largest scale imaginable (Bunzel, 1962). At the same time, the ideology that was once suited to a society of small capitalists has persisted almost as if it were the economic law of the land. Only the existence of a healthy, militant small business community can prevent the erosion of our democratic way of life by the organization and power of big business (Bunzel, 1962).
References
Altman, E. (1968) Financial ratios, discriminant analysis and the prediction of corporate bankruptcy. Journal of Finance 23 (September), 589-609.
Beaver, W.H. (1968) Alternative accounting measures as predictors of failure. Accounting Review 43 (January), 113-122.
Bunzel, J. (1962) The American Small Businessman, Knopf.
Dekimpe, M., and D. Morrison (1991) A modeling framework for analyzing retail store durations. Journal of Retailing 67 (Spring), 68-92.
Edmunds, S.W. (1979) Differing perceptions of small business problems. American Journal of Small Business 3 (April), 1-14.
Gaskill, L. R., Manning, R. A. & van Auken, H. E. (1993) A factor analytic study of the perceived causes of small business failure. Journal of Small Business Management, Vol. 31.
Haswell, S., and S. Holmes (1989) Estimating the small business failure rate: A reappraisal. Journal of Small Business Management 27 (July), 68-74.
Keats, B.W., and J.S. Bracket (1988) Toward a theory of small firm performance: A conceptual model. American Journal of Small Business 12 (Summer), 41-58.
O’Neill, H.M., and J. Duker (1986) Survival and failure in small business. Journal of Small Business Management 24 (January), 30-37.
Peterson, R.A., G. Kozmetsky, and N.M. Ridgway (1983) Perceived causes of small business failures: A research note. American Journal of Small Business 8 (Summer), 15-19.
Robinson, R.B., and J.A. Pearce (1984) Research thrusts in small firm strategic planning. Academy of Management Review 9 (January), 128-137.
Star, A.D., and M.Z. Massel (1981) Survival rates for retailers. Journal of Retailing 57 (Summer), 87-99.
Weitzel, W., and E. Johnson (1989) Decline in organizations: A literature integration and extension. Administrative Science Quarterly 34 (March), 91-109.
Wichmann, H. (1983) Accounting and marketing–Key small business
Problems. American Journal of Small Business 7 (Spring), 19-26.
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