Small business owners play an important role within the communities they serve and the economy as a whole (SBA, 2017). Small business owners typically live the communities of their business. Small business owners may consist of someone who lives in your neighborhood such as a retired military or police officer, school teacher, or softball coach. Small business owners seek the American dream of owning and operating a successful business. However, owning a business does not always result in wealth and prosperity. In fact, the Small Business Administration (SBA) states that entrepreneurs will more than likely sell or close their business within 5 years of being operational. Entrepreneurs or startup companies face many difficult challenges if their business prosper beyond 5 years (Vaiman, Scullin, & Collings, 2012). Research from the Bureau of Labor Statics (BLS) has shown that businesses are the engine of our economy and plays an important part in our economic growth (BLS, 2017). According to the United States 2010 Census, small business account for 99.7% of all businesses in the United States, and 28.8 million small business owners employ 56.8 million people (“Census Bureau, 2018). Additionally, the Census reported 42.9% of the United States payroll comes from small businesses with contributes to a considerable amount of spending to the economy and provides income tax dollars to the federal government. Researchers agree that small business owners face impediments that impacts their business opportunities to grow and succeed. 80% of small business failures are due to lack of working cash (BLS, 2017). Many startups do not have the net income to keep their business afloat from one year to the next (“Census Bureau, 2018”). Additional impeding factors for the downturn of small businesses include but not limited to wrong location, poor business management, an inadequate market plan, competition not thoroughly researched, and innovation.
Self-employment opportunities are aspired by financial independence and employment insecurity that are based on economic uncertainty. The researcher seeks to gain a deeper understanding of the phenomenon of why small businesses collapse within the first 5 years of their grand opening. Investigating the contributing factors of a small business downfall, may provide insightful information that can be used to stop business closures and promote business success.
Background of the Study
A small business is a company in the United States that employs fewer than 500 employees. Small businesses in interwoven into the business fabric of America. Researchers agree that self-employment is a pathway out of unemployment and in some cases, poverty (Fairlie & Robb, 2007). However, owning a business does not always result in prosperity. In fact, according to the Bureau of Labor Statics, 79.8% of startups with employees will survive their first year in business (“Bureau of Labor Statistics”, 2017). The survival percentage decreases to 70% in year two and 50% by their fifth year in business (“Bureau of Labor Statistics”, 2017). Only 30% of small business owners with employees are projected to remain in business beyond their 10-year anniversary (“Bureau of Labor Statistics”, 2017). Entrepreneurs face many difficult challenges if their business prospers beyond 5 years (Fenwick, 2010).
Researcher agree that small businesses are the gateway of a strong economy and has a vital role in the growth and development in our country (Piabuo, Baye & Tieguhong, 2015). According to the United States 2010 Census Bureau, small businesses account for 99.7% of all businesses in the United States, and 28.8 million small business owners employ 56.8 million people (Census Bureau”, 2018). The Bureau of Labor Statistics states that 62% of the new private sector jobs were created by small businesses (“Bureau of Labor Statistics, 2017). Additionally, the United States Bureau of Labor Statistics reported 42.9% of the United States payroll comes from small businesses which contribute to a considerable amount of spending into the United States economy and provides income tax dollars to the government (“Bureau of Labor Statistics”, 2017). Researchers agree that self-employment opportunities are aspired by financial independence and employment insecurity based on economic uncertainty (Glaeser, Kerr, & Kerr, 2015). The researcher seeks to gain a deeper understanding of the phenomenon of small business failures. Knowing the contributing factors to a small business downfall may provide insightful information that can be used for reverse business closures and promote business success.
Background of the Study
Although small businesses are not considered to be a leader in their respective industry, they play an essential role in the economy. Every startup company creates employment opportunities (SBA, 2017). Unemployment rates would be significantly higher if small business owners did not operate their startup businesses and hire employees. Owning a business provides entrepreneurs with the ability to earn what they are worth. Some of the world’s wealthiest people took a risk and created their own business and at the same time expressed an outlet for creativity and innovation. Some well-known millionaires who took a risk and started their own business include Sam Walton, Jeff Bezos, Bill Gates, Steve Jobs, and Mark Zuckerberg. Today, their business, product, or service is a household name. Their companies employ hundreds if not thousands of people in the communities they serve. The researcher will explore why some entrepreneurs are successful while others are forced to close their business within the first 5 years of opening. Further, the researcher will look for common trends and similarities that might link to business failure. The trend and similarities will identify problems and aid in developing a framework to understand better why some people became millionaires while others watch their business fold. Businesses that collapse hurt the economy. Since small businesses are the first place government authorities look at to create new jobs, additional research is needed to help future business owners remain in business past 5 years, hire additional employees, and to expand their business into new markets.
Statement of the Problem
Small business owners are motivated to be successful, but some lack the proper knowledge and strategy for their business to be successful. Small businesses failure negatively impacts local economies through employment and unemployment rates (Miles, Covin, Heeley ; 2000). Half of all small businesses owners realize their dream of operating a successful business fall short within the first 5 years (Sarasvathy, Menon, ; Kuechle, 2013). The general problem small business owners realize is that they do not have a good idea or clear understanding about entrepreneurship or what is the most important pillars within their business construct (Joshi, 2014). In addition, 21% of small business owners report business taxes being the number one problem that small business owners faced today. Another problem small business owners face is competition from competitors. A new startup company may implement strategic from the Blue Ocean Strategy and offer newer and better services at a lower price. Also, small businesses fail by trying to compete on price instead of finding or investing in a market niche. When business owners compete on price, they end up under capitalize because their margins are thin which ultimately affect their lending potential. The specific business problem is why small business owners lack skills and resources such as working capital, planning, preparation, creative thinking, and innovative ideas to sustain their business beyond 5 years. The general business problem that small business owners’ face within their respective industries to create new market space without making the typical tradeoff between value and cost. Further, several small business owners do not know that value innovation is a combination of both differentiation and low cost.
According to the United States Small Business Administration (SBA), by the fifth year of operation, approximately half of all small businesses owners are forced to close their business (SBA.2017). The most reported reasons for small business owners to go out of business include poor management, location, unexpected growth, and lack of experience (SBA.2017). Despite reported failures, small enterprises are vital to the local and national economy (BLS, 2017). Small companies that are in operations account for approximately 99.7 percent of all businesses that hire employees (BLS.2017). Additionally, the Small Business Administration states that small business owners account for 64 percent of all new jobs in America (SBA.2017). Small business owners add value, growth, and innovation to the local community where they operate.
Purpose of the Study
The purpose of this qualitative study is to explore the strengths and weaknesses of small business owners. Additionally, the researcher will observe business and marketing strategies that small business owners use to sustain their business beyond 5 years. This study will examine how business owners react to a crisis situation that can lead to their business demise. The researcher will explore the difficulties business owners encountered during their first five years of business. Small business owners who sustained their business past 5 years will be the target population for this study. The study will focus on small start-up companies that benefit the local economy, local communities, families, and employees. The significance for positive change in local economies, identifying strategies, marketing techniques, and providing consumers with outstanding service, will help in increasing the survival rate in small businesses.
Business owners who work on improving their business and not work in their business will likely be more successful than those who do not (Ogbari, Ibidunni, Ogunnaike, Olokundun, & Amaihian, 2018). Business owners should strive to get their product or service to the consumers who need it while simultaneously work on improving their business performance. This marketing technique should be the number one factor in their business success. Additionally, when small business owners become the marketer of their business and not the doer of their business, the faster their profits and business will grow. Further,
A qualitative methodological approach is pertinent to this research. The researcher will focus on exploring business practices that contribute to small business sustainability. A qualitative research analyzes the things in their natural setting. Further, qualitative research attempts to evaluate things by the meaning people bring to them. The researcher is using a qualitative method because it is relevant to exploring human experiences that are related to the phenomenon. Qualitative research is primarily facilitated via interviews and focus groups in order to draw an understanding of the people that are taking part in the data. Qualitative research is a methodology used to comment on a phenomenon that is too difficult to quantify mathematically or with statistical data.
When small businesses have the proper resources, they can have a positive impact throughout the entire economy. The Small Business Administration states that small business owners create two-thirds net new jobs in America (SBA, 2017).
Searching for a competitive advantage is ongoing among companies. Small business in the United States and around the world are searching for ways to decrease cost while maintaining quality products and services. Small business owners have a myriad of challenges they face on a daily basis. The biggest challenge small business owners face is how to grow, develop, and sustain their business. As technology continues to improve, small business owners are looking for ways to be more sustainable. To better understand the phenomenon surrounding the impact on small business, the researcher will explore the following questions:
a. What business strategies small business owners use to sustain their business beyond 5 years?
b. How are the strategies measured to ensure success?
c. How are barriers addressed when implementing new strategies?
Significance of the Study
The significant of the study is to understand the sustainability of small businesses. Sustainability is an essential part of steady business development (Warren & Szostek, 2017). Being sustainable is considering the impact a business has on an environment, a workforce, and on communities. Most startup business in the early stages of development usually thinks about environmental issues. However, leading small business consider both environmental and social issues to create added value for their customers, their people, and their bottom line. Small businesses benefit when they integrate these aspects of sustainability within their business. Environmental issues such as the reduction of energy, waste, and water can improve gross margins. Small business owners who focus on social issues can align their business goals, mission, or values as well as community and customer expectations. The alignment saves money, retain employees, attract new customers as well as meet new governmental regulatory requirements. Further, small business owners should explore new markets in competitive advantage and reduce risks that come from environmental, social impact issues, legal issues, or financial issues. By reducing risks, business owners can improve brand recognition and therefore have access to new capital.
Definition of Terms
For additional clarity, the following terms are used for this study:
Organized efforts of a company to supply consumers with good and services for a profit. Businesses require some form of investment and customers to sell their product or services to. The net profits earned will aid in sustaining their business. A sole proprietor can own a business, or they can be a part of a larger enterprise. For elucidation of this research, a business is an organization that employ up to 500 workers.
A business environment is the total of internal and external factors that influence business. For small businesses, internal factors may include the company’s owner, management, leadership, organizational structure, organizational culture, and employees. External factors consist of suppliers, customers, competitors, and financial institutions to name a few.
Business success refers to a business longevity and profitability for 5 or more years.
Capital wealth in the form of money or other assets such as property that is viewed as a sign of the financial strength of an individual’s organization. Capital is beneficial in boosting growth and generating revenue. Capital should not be mistaken as money. Capital can include items such as currency or any other assets introduced into the business by the owners.
Small Medium Enterprise Entrepreneurship
An entrepreneur takes a concept of ideas in business and fills it. Small entrepreneurship focus on local markets. Small entrepreneurs are not global operations. Small entrepreneurship is fundamentally important companies to an economy in a region because they serve a need.
An economy is an area of the production, distribution, or trade and consumption of good and services by different agents.
Innovation is creative thinking that is executed. Innovation takes an idea that comes from creative thinking and produces a product or service. Innovation is value creation and achieving something that did not exist before.
Leadership is having ethical and moral standards and empowering others. Further, leadership is a mindset and not a title. Leadership is serving others and not self-serving. Leadership is learned and not restricted. Leadership is not about being out in front. Instead, leadership helps each member of the team succeed. Leadership is a combination of behavioral and personal characteristics.
Management is the association and coordination of exercises of business with the end goal to accomplish characterized objectives. Management is a factor of creation alongside machines, materials, and funds. Further, management comprise of the joining elements of making business approaches and arranging, controlling, and guiding a businesses’ assets with the end goal to accomplish the goal of that strategy.
Revenue and Profits
Revenue is the sum of money a business makes. A business earns its revenue by selling a product or service to consumers for a predefined price. Profit is the net amount earned after deducting the cost of goods sold, expenses, and losses. Profits are also referred to as net earnings or net income.
Small business is a privately owned and operated business that employees fewer than 500 employees (SBA, 2017). Further, small businesses are defined by its industry. The size of a small business may have a maximum number of employees or maximum annual revenue basis. Small business can be a single person startup to a more substantial business. For the purpose of this study, a small business is a company that employs fewer than 500 employees.
Assumptions and Limitations
The assumption of this study is all small businesses do not have the same lending opportunities. Further, the researcher assumes that all participants provided an unbiased and truthful response to proposed questions. The researcher assumes that the strategies that are successful for one small business owner may not have the same or similar results in another small business (Brutus, Aguinis, and Wassmer, 2013).
Nature of the Study
Qualitative research is a phenomenon in which the result of data collected cannot be counted. Qualitative research is a systematic collection, organization, and interpretation of textual information. Qualitative research questions are thoughtful, deliberate, conceived of broader attention to context and relative strengths and limitations of a qualitative in its method. Also, qualitative research is systematic.
To conduct this study, the researcher will use a qualitative method by using semi-structured open-ended questions during the interview process. Further, the researcher will explore sustainability strategies as well as study the company’s internal documents. According to Marshall and Rossman (2016), case study, ethnography, phenomenology, and narrative design are common designs for qualitative research.