Moving beyond the Rhetoric - Examining complexity in the growth and sustainability of small companies
Nigel Harrison
There is an expectation in governments and many others interested in this subject that it can be tackled in the manner of an instruction manual of ‘how to do it.’ Surely one just has to look at successful businesses and seek out cause and effect relationships within them.
Of course there are dozens (hundreds?) of correlations that exist in small business life that can be and are often demonstrated to be valid by scientific study. These factors often break down nicely into sub groups which themselves can be organised under internal and external factor headings.
But a correlation of factors is insufficient to formulate a predictive theory in the world of small business. Rather what they provide is purely a descriptive explanation of the phenomenon of growth. In explanation, one could put two theoretical companies side by side in the same street and they may each try all or some of the factors contained in our ‘how to do it’ instruction manual but either one may grow, or both will, or both will fail despite them following their instructions to the letter. It is only a betting man that will confidently predict the outcome of which one, if either, will succeed.
It is the complexity of the arena that is at work here. The subject is contextual both from an internal and external viewpoint. Lumping small business together and trying to come up with one common intervention to maximise the growth and sustainability for a particular small business is a non-starter as each company despite experiencing lots of similar problems will have different capabilities and opportunities and threats. The analogy is that of parents who first have one child who they get to know well and then another who has different needs and motivations. By the time of their third child they are becoming quite expert in ‘children’ but still they know nothing about the ‘child’ yet to be born should another happen to come along. So with small businesses, they all require the same environment and care to survive and they experience a lot of the same things but they will develop in different ways.
Despite the complexity, there are things that can be done to encourage growth and to promote sustainability. The overarching theme is that of understanding and collaboration between all stakeholders. It is primarily a societal action.
Clearly governments can only operate at macro level but educating those tasked with helping the sector to appreciate the complexity of the issue could be a useful move to avoid wasteful schemes. It is disappointing that the image of business promoted by our TV and press is still largely negative or simplistic- think of some of current well -known TV programmes that bear little resemblance to reality. Education could start here.
There has to be a realisation that some (some observers believe most) small businesses do not wish to expand so any incentives are not going to be effective in these cases.
If a business is to expand it usually requires more employees and this is a central plank of the government’s hopes for the employment problems of the country. There is however, a natural reluctance for employers to take on staff in uncertain times only to have to go through the dreadful stress for both sides if the business fails to expand as planned and lay-offs are necessary.
Small businesses are thought of as being flexible so that they can react to conditions more quickly than larger ones. There must be some degree of doubt as to this generalisation. A larger business may be better informed about factors that could impinge on the company in the future and may take evasive action sooner. Small companies do not have much spare resource or opportunity for changing direction. A machining company for example may have a large investment in a type of machine and associated skills that can only perform a limited function. It is not easy for them to suddenly swap when market conditions act against them. They may need time to adjust.
It is naive to believe that it is simply the provision of finance from the banks that is the determinant of what makes a company grow. Certainly this is an important factor but finance without opportunities is futile. An owner manager wishing to grow their business will react to market opportunities given sufficient stability in the environment. It is this lack of perceived stability and opportunity that is the present problem. Value purchasing schemes by governments and their agencies rather than buying the cheapest would help to give stability.
If a company is to grow and be sustained over time it must always generate sufficient cash to pay its way. This is the harsh reality for any business but the limited resources of a small business usually means there is not much slack to cope with the unexpected and failure can come when such an event occurs at a critical stage. Help and understanding from banks and government agencies in these times is critical. Using the Darwinian analogy for endangered species, sometimes a little protective intervention may help the long term survival of a species.
If the complexity of the issue is accepted then it is easier to shape interventions to help. Where market opportunities for growth exist, the enormous innovative power of the small business must be unlocked. Collaboration between small businesses, universities and banks is a possible pointer to sustainability where the innovative resource of the small business is teamed with the academic and technical resources of the university backed by the finance from the bank. Schemes do exist that purport to follow this model but they are in no sense integrated with each side struggling to understand the needs of the other.
So for improving the growth and sustainability of small companies, we require education, understanding and collaboration. Banks, unions, universities, government agencies, small businesses and the press must forego rhetoric and agree a common cause.
Nigel Harrison, Director, Kingkraft Ltd
