In contemplating an essay about the definition of a small business, I considered many characteristics. The SBA defines a business as “small” based on annual revenue, and the SBA size standards are assigned according to industry. In other words, in one industry a company is considered a small business if it generates less than $7 million per year, while in another industry a company may be considered a small business if it generates less than $500,000 per year. For the SBA, the term “small business” denotes a business that qualifies for SBA programs and resources.
A business can also be categorized as “small” based on number of employees. In general, the IRS considers a small business as one that has less than 100 employees. Various government agencies in the U.S. have their own standards for determining whether a business is technically considered small. For the purposes of financing, official classification, and eligibility for government and private programs for small businesses, you will need to research the specific organization’s definition of small business to see if your business would be included in the definition.
Although the official definition of small business varies from one organization to another, in my mind, there are certain essential characteristics that define a small business, regardless of number of employees or annual revenue.
1. Small Staff that Works as a Team to Divide Tasks
In any small business, the number of employees is smaller than the number of job descriptions included in the company. This means that each employee has to fill multiple roles. For example, in a traditional small business the owner might act as a salesperson, accountant, and inventory manager. One employee may handle customer service, signage, and cleaning tasks. It’s true, in most businesses big and small there is incomplete division of labor. Most employees have at least a few tasks to handle. But in a small business, an employee’s tasks are often incongruous. The same employee with expertise in engineering may be called upon to handle marketing, even though he/she has no experience in marketing.
2. Limited Resources to Hire New People
A small business usually has a core staff who functions as a team to complete all the included tasks. As an employee or even an owner of a small business, you will more than likely be required to branch out into tasks that are not your forte, because the business cannot afford to hire a specialized person for every job.
3. Synergy Between Employees
The third aspect I think is essential to small businesses is that everyone involved must have passion for the work, the mission, and/or the company. A heightened level of dedication by every team member is essential for a small business to flourish. In psychology, this is called synergy, and is defined as a system in which the team as a whole surpasses the sum of its parts. In other words, when we work together, the shared energy allows us to achieve more than we would have achieved separately.
Most small businesses struggle with growth because the owner is too busy to take on marketing singlehandedly. But, unless you opened your doors to a huge client base from the start, you will need to grow in order to stay in business. If your staff doesn’t synergize, you may find that growing your business is next to impossible.
Growth comes from keeping existing customers AND finding new customers, not just one or the other. While everyone in your staff doesn’t necessarily have to participate in marketing efforts, you need everyone to be “on board” with your plans. Your entire staff has to believe in what you’re doing, and in the future of your business, or your growth will be stifled from day one. At the very least, your entire staff should talk up your business and help draw traffic to your doorstep or to your website.
In this post I’ve discussed some hallmarks of successful small businesses, but one of the great things about small businesses is that there is no single formula for success. Your passion is what got you into business in the first place, and your single biggest mistake could be becoming too busy with daily maintenance to let your passion carry the business in new directions.
Outsourcing has a bad rap these days. Most people think of it as sending jobs overseas, seeking out cheap labor by hiring remote workers who will work for less money. The result of this type of outsourcing is a common scenario in which, for example, when you try to call the phone company for tech support, you are connected to someone located in a call center in Bombay, who reads from a script in such a thick accent that even if you understood the technical questions, you wouldn’t be able to decipher the words. For small businesses who wouldn’t even consider hiring international workers, outsourcing can still be a useful tool.
For our purposes, outsourcing can simply mean hiring someone else to do a specific task. If you’ve ever hired a company to take care of your lawn, or even hired a babysitter, you’ve used a form of outsourcing. In a small business, the owner and often very small staff struggle to get everything done. Sometimes there is too much work, and sometimes not enough, so many small businesses can’t afford to hire new employees on the if come.
Sometimes, you’ll end up spending less money and a lot less time by hiring people to complete tasks for your business, either on a one-time or continual basis. Outsourcing can mean calling on a family member that’s good at photography to help with advertising materials, or hiring a nephew to help with a landscaping project for your business. At the same time as you’re relieving yourself of the burden of too many tasks and a shallow pool of labor, you’re offering work to people who will appreciate it and do a good job. To boot, you can hire newbies who will work harder and for less money than seasoned professionals in exchange for referrals and resume material.
Sometimes, insourcing is the answer. Insourcing means assigning new tasks to existing employees of your company. Ask your employees about their other interests. Find out what they’re good at. You might find that you have a salesperson who’s also a good painter or who knows a lot about computers. Part of the charm of small businesses is the feeling of working as a team. You can increase this team mentality by embracing the talents of your employees in multiple ways. You’ll get more done, and your employees will feel more fulfilled.
Small business owners sometimes hurt themselves by refusing to give up tasks, even if doing it themselves isn’t really working out. Case in point, I have a close friend who works for a small business in which the owner is in charge of e-mail marketing. They have a huge subscriber list and the idea is a good one, but it’s so poorly executed that it does more harm than good. For a little bit of money, the owner could hire someone who knows what they’re doing, see more return on the investment, and free up a lot of his time. But he’s so married to the task, he won’t consider giving it up.
Don’t get stuck like this in your own business. Be open to the idea of letting tasks out of your direct control, and finding someone you trust who can do a better job. In the end, it’ll be worth it.
For most small business owners, the bottom line is money. I’ve coined the term “smart-sourcing” to mean finding the smartest way to get tasks done, and one consideration is cost. You’d be surprised to learn that it’s not always cheaper (and it’s definitely not best) to do everything yourself. Particularly if you take into account your time, you’ll find that assigning tasks to someone else clears your plate for more important jobs, and in the long run saves you money. Insourcing and outsourcing, used effectively, can be a small business owner’s best friends.
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In the April 2009 issue of Decanter magazine, author Margaret Rand discusses how wineries are dealing with the recession. She makes an interesting point about how small businesses are persevering while the big guys are drowning in debt and going out of business.
Quoting wine consultant Mike Paul, Margaret discusses wineries in the context of small businesses in general:
“‘How will the independents cope? The usual ways, is the answer: by being flexible and imaginative, by giving better service, and by being leaner and fitter than their rivals.’ On the plus side, Paul says that ‘family businesses are six times less worried about going under than normal businesses. Their cost base isn’t that high, and they have less debt and are better prepared for a recession.’”
Six times less worried? I’m not sure worry can be measured this exactly, but the sentiment is an important one. Small businesses are always in a sort of recession. We have a lack of cash flow, a small pool of resources, and we constantly worry about whether we will succeed in both the short and long terms. It’s so refreshing, in the context of panic and the collapsing of some of the country’s largest companies, to hear that small businesses are more likely to “make it.”
Perhaps in the long run the country will be better off for the elimination of big companies that have dominated, and in effect, monopolized, many of our industries. Small book stores that can’t compete with Barnes & Noble would get more business if Barnes & Noble wasn’t around. A small grocery store would welcome a new flood of customers that used to shop at a nearby Schnuck’s.
Can we get back to the days of the corner market, instead of the corner strip mall? I think so. Is it possible that this recession will leave behind an economic climate more friendly to small businesses? I hope so!
We all love some of the things small businesses have to offer, like primo service, unique products, and the feeling that our money is feeding someone’s family as opposed to financing a 12th vacation for a CEO. But many of us compromise all of those good feelings to save a few bucks by shopping at a conglomerate. Is it worth it?
I think now would be a good time for all of us to patronize small businesses. Let’s discourage the monopolizing of every industry and get ready for what lies ahead. Perhaps small businesses are our future.
In the end, it’s the hard work and blood, sweat, and tears of small business owners that will see this economy through the rough times. Making sure the rich stay rich can’t be our priority anymore.
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