The connection between entrepreneurship and small business

This essay discusses the concepts of small business and entrepreneurship and relationship between them. We will try to define and explain the terms?owner-manager? and entrepreneur, in other words who operate a small business enterprises. We also will examine the similarities and differences of these terms.

From the outset it needs to be emphasized that while we will talk about the small business and entrepreneurship, these terms need to be defined. For small business there is still no single definition which satisfies all purposes.

There are several other definitions based on both quantitative, such as number of employees, invested capital and total value of sales, and qualitative characteristics, which was covered in Report of the Committee of Inquiry on Small Firms, 1971. According to that, ?a small firm is one that has a relatively small share of its market. Secondly, ?it is managed by its owners or part-owners in a personalized way, and not through the medium of a formalized management structure.

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Thirdly, it is also independent in the sense that is does not form part of a large enterprise and that the owner-manager should be free from outside control in making their principal decisions.?(Cameron & Massey, 1999, p.5).

These criteria certainly may be applied to an entrepreneurship as well. Most people equate entrepreneurship with either new or small businesses. However, entrepreneurship can be more correctly viewed as a behaviour characteristic. ? An entrepreneur is someone who recognizes an opportunity, raises the money and other resources needed to exploit that opportunity, and takes or all of the risk associated with the executing the ensuing plan?{Barrow, 1993, p.

14).

Further, Barrow indicates that the term of ?entrepreneur? was introduced into economics by Cantillon (1755) and raised to prominence by the French economist J.B.Say around 1800. He used it to describe someone who ?shifts economic resources out of an area of lower and into an area of higher productivity and greater yield?. Classical and some modern economists do not recognized entrepreneurship adequately. J.Schumpeter was the first one who returns to Say?s ideas. In the ?Theory of Economic Dynamics? (1911) he postulated that dynamic instability induced by the innovating entrepreneur, rather than optimization and the balancing of needs and resources, is the norm in a healthy economy.

As we seen above all these terms have many common features. The terms ?small business owner? and ?entrepreneur? are sometimes used interchangeably. However, it is important to note the differences in the titles. As we stated above, small businesses are businesses that are independently owned and operated, are not dominant in their field, and usually do not engage in a new or innovative practices. Hodgetts & Kupatko (1998, p.7) examine differences between these terms. They state that small businesses ?may never grow large, and the owners may prefer a more stable and less aggressive approach to running the business.? In other words, they prefer stable sales, profits and growth, and may purchase as ongoing businesses as well as franchises.

On the other hands, entrepreneur?s primary objectives are profitability and growth. Thus, the business is characterized by innovative strategic practices and continued growth. Entrepreneurs are usually seeking rapid growth and immediate profit. Thus, entrepreneurs may be view as having a different perspective from small business owners in the actual development of their firm.

To illustrate the concept of connection between small business and entrepreneurship we chose the article called ?Defining our entrepreneurs? by J. Kirkwood & K.Brown in NZBusiness (November, 2001). In this article the authors try to paint a picture of New Zealand?s entrepreneurs on the base of survey that has been held in the University of Otago. There were 308 business founders from throughout New Zealand in this survey. The results show that around half of the entrepreneurs had owned another business in the past. Also researches examine who are the ?typical? New Zealand?s entrepreneurs regarding their age, ethic origins and education background. Also the results define that the businesses were largely in the service sector (42%), followed by retail/wholesale (14%) and manufacturing at 9 %; the businesses had an average of 8.7 full-time employees and two-part-time employees, which is within the ?small? category New Zealand classifies its company by.

However, an entrepreneur can of course own a large business, but for this sample, only four businesses employed more than 100 full-time staff. It is important to notice that the primary reasons for respondents, according to the survey, included a desire for independence, to make money, seeing an opportunity, job satisfaction, wanting a challenge, and the desire to be their own boss. Respondents were asked to describe their future goals for the business and they indicate that their goals were to grow the business (61%), to sell the business (13%), to survive or for business to remain stable (9%).

The chosen article shows the close connection between small business and entrepreneurship. Although, these terms have many common features, also they have the differences. Mainly, these differences based on motivation for business start-up and future goals.

The purpose here has been to present the connection between entrepreneurship and small business. We has defined these two terms, has provided brief overview on the origin and development of the term ?entrepreneur? and tried to explain the similarities and differences between small business and entrepreneurship. The article from NZBusiness has been chosen to emphasize that relationship between small business and entrepreneurship very close as well as some existing differences.

The role of small business and its relationship with big business.

The purpose of this essay is to show the role of small business overall and particularly in New Zealand. Also, it necessary to explain the relationship between small business and big business using the example from the newspaper.

Small business is the most common form of business in New Zealand. According to Report of the Ministry of Economic Development (June 2001)?small and medium sized enterprises (SMEs) are viewed as a source of flexibility and innovation, and make a significant contribution to economies, both in terms of the number of SMEs and the proportion of the labour force employed by these firms. The significance of the SME sector in New Zealand is increasing, with further opportunities presented by globalisation and technological development. Nearly 97 percent of all private enterprises are small and medium sized enterprises, accounting for 44.8 percent of private sector employment.?

New Zealand today is a mixed economy in which big businesses co-exist with small ones in most sectors. The large firms ?produce standard goods while the small ones produce services, exploit product niches, serve local markets and answer most special consumer needs? (Bollard, 1988, p.7). While small businesses constitute about 97 percent of the business population overall, they are especially dominant in finance and insurance, construction, property and business services and communications sectors.

Small businesses do play a number of useful roles in a market economy. Hamilton & English (1997, p.5) state that they provide an opportunity for enterprising people of transforming unemployment into self-employment. Also small firms are more likely to employ less-skilled workers with no prior work experience. This employment practice benefits the economy in two ways. First, these actions provide reducing unemployment. Second, that gives these workers on-the-job training and work experience.

The traditional role of small firms in New Zealand has been to produce parts or components at a lower unit cost than would be possible for large firms, or what large firms either cannot or will not do. Examples include manufacturing customized products such as metal castings for which there is a spesialised demand, offering services such as farm machinery sales and repairs, landscape gardening and hairdressing where personalized attention is required.

Small firms seem to be a source of innovation in products, services, and techniques which can form the basis of new industries. According to Barrow, (1993, p.31), in a small technological firm, innovation is necessary to ensure survival, whereas the large firm tends simply to maintain its product market position. Also, large firms may prefer to hold technical improvements to a minimum for marketing reasons.

Small businesses also provide important economic advantages for women and immigrants. The number of female employers and female self-employed has doubled over the last 30 years in New Zealand. Data from the 1996 Census shows that the ethnic group with the greatest proportion classified as self-employed without employees is the Asian employed labour force (13.8 percent).

Because of their size, small firms are less likely to encounter problems that can arise from the complex management structures common to large firms. Complex organizational structures generally result in more-rigid decision-making processes.

To demonstrate the significance of the small business in New Zealand and its connection with big business we have picked up the article ?Help for small businesses? wrote by G.Sheeran from Sunday Star Times (1 June, 1997). The author introduces launching a new company, Business Matters, and its boss Allen Bollard.

Mr Bollard has spent many years working as chief financial officer for three large listed companies, including the Fletcher Challenge organisation here and in Australia. "Big business has well-paid, tertiary-qualified professionals who monitor the latest company, tax, employment, health and safety and other laws and who make sure their organisations don't fall foul of them," he said. "But for many small businesses, there are some pretty big alligators out there ready to swallow them up if they put a foot wrong," Small businesses certainly couldn't afford to employ fulltime professional advisers. And in many cases, neither could they afford to pay the fees charged by business advisers to comb every new piece of legislation and spell out its implications, he said. It is in this situation Mr Bollard and business partner Jan Sidall have sensed a new marketing opportunity -- that of business publishing.

Mr Bollard's new company, Business Matters, is targeting small business people with an annual handbook and published updates every two months that explains in plain language how the latest regulations may affect small businesses. "The problem is that while there is a lot of protection now for consumers and employees, it is employers -- and especially small business employers -- who can find themselves vulnerable," said Mr Bollard. New penalties for tax non-compliance made directors and company officers personally liable for incorrect accounting. Mr Bollard said new health and safety regulations were a mine field for the small employer.

Mr Bollard said there were a lot of good things about big business. "But for every good thing I could say about big business I could say something pretty negative too about the way they make decisions and treat customers. In my view, good, well-informed small business is about as good as business gets." The trouble in New Zealand was that many were so small -- more than 90% of small businesses have fewer than seven employees -- that they could not adequately monitor the fast-changing environment around them to do their job adequately. Mr Bollard said he did some face-to-face advisory work, but it could be expensive for many small players. The publishing venture was an attempt to help small business for an annual cost the equivalent of an hour's professional advice to understand the regulatory environment in which they had to work.

To summarise, small firms and large firms are good at different things. What these are depends on technologies available, but also on non-technological features such as operating environment, markets and business attitudes. As these change, they alter the relative roles of small and large firms. Nevertheless, they play inter-complemented role in the modern New Zealand economy.

Reference List

Barrow, C., (1993). The Essence of Small Business. New York: Prentice Hall.

Hamilton.R.,& English. J., (1997). The Small Business Book: a New Zealand Guide. New Zealand:Briget Williams Books.

Cameron, A. & Massey, C. (1999). Small and Medium-sized Enterprises: a New Zealand perspective. New Zealand: Longman.

Ministry of Economic Development. SME in New Zealand:structure and dynamic. Retrieved March 23, 2002 from the World Wide Web:

http://www.med.govt.nz/irdev/ind_dev/smes2001/smes2001-01.html#TopOfPage

Kirkwood, J. & Brown, K. (2001). Defining our Entrepreneurs. NZBusiness. November 2001, 22-24.

Hodgetts, R. & Kupatko, D. (1998). Effective Small Business Management. (6th ed.). Fort Worth: The Dryden Press.

Bollard, A. (1988). Small Businesses in New Zealand. New Zealand: Allen& Unwin/Port Nicholson Press.

Sheeran, G. (1997). Help for Small Businesses. Sunday Star Times, 1 June, 2.