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Why do small businesses stay small?

Discussion in 'General Business and Entrepreneurship' started by Isaac Kieffer, Apr 21, 2016.

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  1. Isaac Kieffer

    Isaac Kieffer Member

    Why do small businesses stay small? I investigate creating new businesses all the time to see what kind of opportunity lies in small businesses. for example, a painting company can hire 2 painters at 20$/h to do a gig and make 1k$ for setting up the deal. Why are painting businesses still small considering they can scale that and keep on moving up? I'm asking because for the longest time I thought you need to be innovative to be successful, but it seems that one could do it from doing something as simple as painting!
    T J Tutor likes this.
  2. bob1978

    bob1978 Member

    Lots of factors prevent scaling of businesses. The capabilities of the owner probably play a big part in it. How well they're able to manage their business, how much business they can pull in, their decision-making/strategic skills, their choice in employees, and so on. Another factor is competition, if the market is crowded with service/product providers, then growth will be rather limited. Another factor is resource, not everyone has the resource needed to scale businesses. Most of the time, only established players do, and if there's a gap in the market, they'll probably be the first ones to cover it.

    There are things one can do to get past these blocks of course, but once again, the business owner has to be savvy enough to know when to do it. A slight misstep towards doing that, could sometimes also mean the end of the business.
    Isaac Kieffer likes this.
  3. azgold

    azgold Moderator MVP Member

    @Isaac Kieffer - not everyone wants to scale up. I've known two people personally who intentionally kept their businesses small, even refusing orders.

    Why? Because they wanted only to have a small, manageable family biz that earned them a comfortable living but didn't cause them much stress or time away from their lives.

    Depends on what's most important to the biz owner and what they're will willing to sacrifice.
  4. T J Tutor

    T J Tutor Member

    This is a mindset thing for many. Typically, those in an example such as yours are self subordinated in business. They limit themselves without knowing it. The vast majority of small business people at a level of blue collar businesses lack the inspirations, introspection, drive, motivation, and self promotional capacities to look forward in a fashion to plan on growth.

    You are correct in identifying that most small businesses lack scaling. I also agree that most any of them can scale, but without believing they can scale, without taking it upon themselves to educate themselves with regards to scaling, they stay whatever size they initially achieve.
    Isaac Kieffer likes this.
  5. Corazon

    Corazon Member

    As @bob1978 said, there are lots of factors that are directly related to the business. Speaking of growth, the first consideration is the intention. If the owner is complacent for his own reasons then there is now way for the business to grow. One person I know owns a small bakery store which is open 24/7 due to large demand. When I asked why he seems content with just one store when it looks like it is easy for him to have branches. The owner said that he enjoys having brisk sales and with that one store, he has no pressure, no stress. Maybe that's a good enough reason for the business to stagnate.
  6. pwarbi

    pwarbi Member

    The business was small that I bought and now I'd say it's a medium sized business and if it goes bigger great, but I'm not chasing it.

    Maybe I'm different as a business owner though, and the first year is the only one where we didn't finish the year with a substantial profit so I regard the next 3 years as if we can continue to do that a success.

    Bigger isn't always better in business, and if you start putting profits and size, before customers and employees happiness, you'll soon end up with no business, nevermind a big one.
    djbaxter likes this.
  7. Apolloniac

    Apolloniac Member

    There are many millions of factors out there but if we're talking about business-savvy will then a business owner should have ambitions for their business. They have to think with the future in mind and not to be complacent about competitors. Always stay on the cutting edge because capitalism runs on the theory of creative destruction.
  8. remnant

    remnant Member

    Some businesses stay small because of the economies of scale. The modus operandi these days is to stay lean and mean. Overheads are less in smaller businesses and its is easy to adapt to varying circumstances easily. The problem of liquidity is easier to mitigate since turnover tends to be higher compared to capital invested.
  9. Nathaneal

    Nathaneal Member

    For some people the vision is small. The size of the city/town/industry might also bring down the potential size. If you want to start a business then set a little guideline before and in a few months or years look back and make sure it is what you want it to be.
  10. Goldstandard89

    Goldstandard89 Member

    Some people don't want the problems that come with big businesses. The requirements for a huge corporation is quite different than a small two person llc. Some jobs can't be scaled up. As an illustrator, I have my artwork under the protection of an llc but no one can draw like me so I can't just hire out my work and then claim the work as my own. If I wanted to, I could probably pull a Hello Kitty and make a standard character to put on everything. Which is something I am considering but I don't really want to be stuck with one character for the next fifty years. Being pigeoned holed as an artist is a form of hell. So on some level, there are simply some businesses that don't scale up because of what they are selling and partly because the owners don't want to.
    djbaxter likes this.
  11. rz3300

    rz3300 Member

    Well certainly it is a desire of many businesses to stay small, and I think that is something that a lot of people forget about. Not everyone is out to sell the most and have the greatest margins and all of that. Many are, yes, and the economics of it is just survival at its core, but I do have several friends who have no desire to expand or enter new markets or anything and completely content at their current levels of everything. Of course things change, but I do think that it is important to remember that many businesses WANT to stay small.
    djbaxter likes this.
  12. pwarbi

    pwarbi Member

    It's easy to think that people who don't expand their business aren't ambitious, but that isn't the case at all. People who start a business will obviously start off with a plan of what they want to achieve, and if they hit that target, they might be quite happy to stay as they are.

    At the end of the day, if a business is a success, the owner and employees are happy, then who are we to say what they should and shouldn't do in the future?
    djbaxter likes this.
  13. Small to Feds

    Small to Feds MVP Member

    Limiting growth in certain specific stable niches has its advantages. The founders can retain control and still exeperience solid income without the expense of more people, space and marketing.

    For instance staying within the small business size limit for certain industries allows a 10 year government contract set-aside potential for minority, veteran owned, woman-owned and HUB zone located businesses. The programs allow establishing a past performance record, a stable work force and similar traits before competing in the open market and substantially expanding to a larger enterprise.

    azgold and djbaxter like this.

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