CQ 3: What types of uncertainty do small businesses face?
15 important questions on CQ 3: What types of uncertainty do small businesses face?
What 5 things do SB owners not know to do?
- They buy less machinery
- They work with temporary workers
- They do not give permanent contracts
- They delay investments
- They make decisions despite 'uncertainty'
What types of uncertainty do small business face? (2)
- External uncertainty: owners of small businesses can limit such uncertainty by 'managing by walking around' but are more likely to face a challenging environment (alignment strategy by involving workforce)
- Internal uncertainty: managers of large businesses more likely to face difficulty of translating their 'vision' of the business to their employees
What are the 3 dimensions of external uncertainty?
- Market uncertainty
- Customer uncertainty
- Aspirational uncertainty
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What are the 3 factors of market uncertainty?
- A key difference between LB and SB is market power: the small businesses more likely to be a price taker than a price maker
- Concentration in particular (easy to get into) sectors
- Response: cut down costs everywhere and focus on 'niche' advantages
What are 3 expressions of the market power (LB versus SB)?
- Perfect competition versus monopoly
- Price is beyond control
- Usually a limited number of customers
What does 'concentration in particular (easy to get into) sectors' mean?
- Hair dressers
- Window cleaners
- ICT consultancy
What entails the 'response' on market uncertainty?
- Specialist
- Timely or geographical advantages
What are 2 factors of customer uncertainty?
- Entrepreneurs are uncertain about their revenues
- Respons: certainty versus profitability
What does 'entrepreneurs are uncertain about their revenues' mean? (3)
- Compare wages of employees
- Quantity is beyond control
- 1 new/leaving customer usually makes a big difference
What entails the 'response' on customer uncertainty? (2)
- Subcontracting (stability/specificity)
- Analogy: solo self-employment 'own-account worker' (ZZP)
What is the factor of aspirational uncertainty?
- To earn an income, to provide for a family, to grow the business
- No external party that sets the goal for you
- So you can't assume SB is profit maximizer
- Differences in aspirations greater if we include those with more than one business (portfolio entrepreneurs) or business run by a team
What are the 5 approaches SME's take to deal with external uncertainty?
- Focus on niche - to gain local market power
- Focus on short-term survival and growth (not on long-term benefits, training)
- Invest less heavily in equipment, machinery
- Register as a limited company, this may protect the personal assets of the entrepreneur
- Establish a portfolio of businesses, this spreads the risk faced by the small business owner
What are 3 stylised differences between large and small businesses?
- Internal organization
- Market power
- Risk of failure
What entails internal organization? (2)
- Informal versus formal (hierarchy)
- In SME less focus needed on internal uncertainty reduction
What entails risk of failure? (2)
- High versus low
- No news if SME fails or if in trouble
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