The hurdles confronted by small companies
The long weekend recently got me thinking about some of the problems small businesses face. In general, small businesses are defined as those that employ fewer than 20 people.
According to the Small Business and Family Business Ombudsman’s 2019 report, such businesses account for nearly 98 percent of all businesses in Australia. They employ 44 percent of the Australian workforce. Medium-sized companies (20-199 employees) make up 2.2 percent of all companies and large companies (over 200 employees) make up a tiny 0.2 percent of the total number of companies.
Given these numbers, it seems like a daunting challenge to transform smaller businesses into much larger businesses. This is underlined by survival rate statistics. Over a period of four years, just over 40 percent of the smallest companies fail, and around a third of companies with one to four employees go out of business. The bigger the company, the less likely it is to fail, as only 15 percent of the largest companies close.
Building a company is a very demanding task. Often times, small businesses can stall due to the drying up of their cash flow. Sometimes this is associated with mismanagement and overinvestment in equipment, premises, or even staff. Perhaps more often, it is simply that long delays in payment can be enough to put something on the wall unless they are into getting blood from stones.
Another problem is the unfamiliar success that can lead to the same premature demise. Rapid expansion can be spectacular, but if the company is not well prepared and geared to grow, things can quickly get out of hand. Recruiting the first handful of employees can often be easy – they almost choose themselves. These can be people whose skills you are well aware of.
But if the company grows in double digits and then reaches the Bermuda Triangle near 20 employees, companies here can suddenly disappear from the radar. As the business grows, there are more and more tasks to be done, hiring additional staff without giving enough thought to how their skills will add beyond the current need for extra hands.
As the company grows, the normally unwritten ideas about how things work, who does what and when, are no longer effective. People need a lot more management. You need clear communication and increasingly written policies and procedures that are not self-authored and may require a specialist to take care of these issues. Finance and accounting systems, IT systems, pretty much everything has to be reinvented. Repeated. Each of these changes pose a risk to the company. If you get any of them wrong, the result can be fatal.
The start-up culture can also be problematic. While the founders and early entrants may share a vision and see the value, or even the need, of working very long hours and long weekends, a culture of workaholism and even potential bullying, if not verified early on, can develop. Suddenly it is no longer a handful of passionate, talented people who are all invested, but a larger group that is not that invested.