MGNT 9

2.  To know what are the problems in
small firms and larger firms.
 To know how a firm will survive
 To know how will they maintain
growth and development
 To know how to make profit

3. I. Problems in Small Firms
i. Identification of Small Firms
ii. Lack of Competitive Edge
iii. Relying on “Thinks” instead of Facts
iv. Crises Resulting from Faulty or No Planning
v. Lack of Competent Professional Advice
vi. Lack of Capital
vii. Lack of Cash Planning
viii. Managerial Problems
a. Lack of General Managerial Abilities
b. Lack of Specific Managerial Experience
c. Inability to Change Managerial Style
d. Succeeding-Generation Management Gaps

4. II. Problems in Larger Firms
i. Clearly, Fully, Specifically Stated Objectives
and Policies
ii. No Unified Sense of Direction
iii. Inadequacy in an Important Functional Area
iv. People Problems
v. Lack of Living by Marketing Concept
vi. Lack of Good Controls or Too Many Too Late
vii. Lack of International Mentality
viii. Visions of Grandeur

5. Identification of Small Firms
1. Management is independent because managers are the
owners.
2. There are three or fewer top managers so that
functional areas must be managed by a single
manager.
3. The area of operations is localized.
4. The market area is localized unless a direct mail type of
sales is used.

6.  For success, every business needs some
reason for being, something that the firm
does that is desirable from its customer’s
viewpoint and that sets it apart from, and
gives it an edge over, its competition.
 The means for survival

7. The following questions should be
asked:
 Is the competitive edge based
on facts?
 Is the competitive edge based
on accurate cost data?
 Is the competitive edge with the
firm’s capabilities and
constraints?
 Is the competitive edge based
on conditions that are likely to
change rapidly?

8.  “thinks” - tend to rely on guesses,
hunches, hearsay, and intuition.
 To prevent such poor decision-
making “thinks” from being used, the
following questions might be used as
the basis for making a decision:
1. How can I check to find out if the so-
called facts are really true?
2. Is there any contradictory evidence?
3. What interpretation of the “thinks”
would fit the situation, but result in
a different decision?
4. What additional solid facts are
needed to make a good decision, and
how can I get them?

9.  Faulty or no planning is evident
time after time to consultants
to small firms.
 Two reasons:
1. It is so broad in implication
that it cuts across practically
every other small business
pitfall.
2. Telling someone to use good
planning in running a business
is like telling a twelve year-old
to use good management in
running a grass cutting
business.

10.  What kind of planning should prospective
retailers do before they open? At the very
least they should:
1. Decide upon the type of merchandise or
service to be offered based upon
research.
2. Determine the competitive edge of the
store.
3. Analyze the physical requirements based
upon space-productivity ratios and
normal rent range as a percentage of
estimated sales.
4. Evaluate the store location, including
community, area, and specific site
evaluation.

11.  What kind of planning
should prospective
retailers do before they
open? At the very least they
should:
5. Assess the competition.
6. Segment the market target
group.
7. Decide upon all of the
merchandising policies.
8. Plan the financial
management of the store.

12.  The ABC’s of Planning
1. Outline every factor you are going to
plan.
A small business might make a list of
the factors it wishes to plan, such as
the following:
• The competitive edge
• Marketing research
• Product information
• Marketing plans
• Action timetable
• Numbers plan
• Controls

13.  The ABC’s of Planning
2. Determine possible
sources of information
3. Gathering facts and
organizing them
4. Make the decisions and
put them into action
5. Evaluate and update
your plan

14.  Many small business owners do not seem
to realize that professionals can be hired
from nominal amounts to:
1. Set up their books (accountants)
2. Add protective clauses to contracts that
will prevent surprising and often
unpleasant legal actions from occurring
(attorney)
3. Help save substantial amounts of
money by buying the right insurance in
the right amount (insurance
advisor)
4. Perform or supply reliable market
studies that may change the entire
course of the business (market
researchers)

15.  A highly successful businessman make these
suggestions regarding the hiring of
professionals:
1. The best is not necessarily either the most
expensive or the cheapest.
2. Ask plenty of questions.
3. You are not married to the consultant.
4. Do not try to be your own professional.
5. Look for consultants who are future oriented,
the ones who can help prepare you for things
that have not yet happened but probably will,
or might happen.

16.  Starting a business without enough
capital is given as the reason for
failure of many small business.
 Major problem in inability to
forecast financial needs for a year.
 Things that may lead to the
downfall of small business owner
are:
1. Lack of capital planning
2. Neglect of anticipating capital
requirements
3. Too much haste
4. Too little patience

17.  Capital can be conserved in many
ways and often cash planning
presents facts that will answer the
following questions allowing
proper decisions to be made:
1. Shall we hire extra sales
personnel?
2. Shall we spend more on
advertising?
 Cash planning avoids too much
concentration on growth without
consideration of the money
constraints that have often
caused direct consequences for
the small business owner.

18. Methods to conserved cash
1.Slow down excessive growth
2.Avoid investments in fixed
assets that can often be leased
at favorable rates
 Cash analysis and planning will
also direct attention to other
means of conserving cash
which are luxuries the small
business person cannot afford.
 The more widespread the line
of products offered, the higher
the inventory and the lower the
chance for economies of scale.

19.  Managerial problems
covers:
1. Lack of general
management abilities
2. Lack of specific managerial
experience in the industry
3. Inability to change
managerial style as the
business grows
4. Succeeding generation
management gaps

20.  Entrepreneurs should ask themselves
the following soul-searching questions
before they decide to start their own
businesses:
1. Will I enjoy being my own boss,
working pretty much by myself,
making my own decisions or would I
prefer working with others in a larger
organizations where the decisions are
not solely on my shoulders?
2. Am I the kind of person who, If I
work for myself, will ruin my
personal life by taking my worries
home every night?
3. Can I work extremely long hours?

21.  Entrepreneurs should ask
themselves the following soul-
searching questions before they
decide to start their own
businesses:
4. Am I capable of carefully
controlling expenses and at the
same time spending money when
the right opportunity presents
itself?
5. Has my past decision-making
ability proven satisfactory?
6. Can I honestly say that I have the
general management experience
and know-how to run a business?

22.  The key individual must not only have
general management ability but in many
fields, but also must have specific know-
how for the particular industry.
 For example, the apparel business, a
combination of production-financial
individual will go into partnership with a
sales-oriented person. The failure rate in
small apparel businesses is appalling.
 Reasons why do they make this error:
1. They think they can master the skill
rapidly
2. They fail to identify the one most
important skill that separates the winners
from all others.

23.  The owner-manager is a doer. This
may include:
 Opening up early in the morning
 Sweeping out the accumulated
mess
 Seeing that the work is started
 Opening the mail
 Making the bank deposits
 Taking a customer to lunch
 Settling a dispute between
employees
 Writing an ad
 Helping with a production
bottleneck
 Wearily locking the door at night

24.  A person works diligently and
long and build a business, but
the sons or daughters may not
have interest or the capabilities
to run the business.
 The problem for the original
owner becomes twofold:
1. Does the “next-in-line” have
both the desire and the
ability?
2. If not, what preparation
needs to be made to ensure
the survival of the business?

25.  Problems to be solved are:
1. Who will operate the business?
2. In case of death, will there be enough
capital left to operate the business?
3. How do you prevent squabbles
among the heirs that will impair the
earnings of the business?
4. Is the business always in a condition
to be sold at a fair price?
 The answers to these questions: An
owner or part-owner of a small or
medium sized firm must plan in
advance for these eventualities,
unpleasant as they may be.

26.  If the planning is done many heartaches can be
minimized or eliminated. Some of the possibilities
might be:
1. Training a successor over a period of years.
2. A voting trust with a preselected person given
voting control.
3. Sufficient life insurance payable to the business
to insure payment of an agreed upon fair amount
for the deceased’s share of the business.
4. A buy-and-sell agreement with funding either
through loans or insurance to prevent dilution of
control.
5. A regular plan of stock gifts to family members.

27.  If the planning is done many heartaches can be minimized
or eliminated. Some of the possibilities might be:
6. A life insurance plan payable to heirs so that cash to pay
taxes will be available.
7. Selling part of the stock either to investors or the public
while the business is good.
8. Converting the owner’s equity to preferred stock and
giving the heirs common stock, which would then have a
lower value but would insure voting control.
9. Developing an outside board of directors knowledgeable
and interested in the business who would then be
available for help, sound advice, and possibly an
investment in the business.

28.  Medium and large business firms are discussed
together because they have common differences
from, and advantages over, the small firm:
1. They have an individual manager for each major
functions.
2. They have access to large capital markets.
3. Either the companies serve broad markets, have a
diversified line of products, or both.

29.  Pitfalls are often the result of
inherent conflicts associated
with:
1. Strong managerial style
differences as well as
viewpoints among various
important executives.
2. The diverse personal goals of
the top executives which may
not be compatible with the
overall goals of the enterprise.
3. The highly visible differences
between the firm and its
environment.

30.  Chief Executive is
responsible for success,
mediocrity, or failure of both
large and small firm.
 Strong Chief Executive
may be able to reconcile these
conflicts or may only succeed
in submerging them so that
they are at least temporarily
hidden.
 Weaker Chief may hardly be
aware that they exist until they
break out into the open and
breed disaster.

31.  The best managed firms have written
objectives and policies covering:
1. The specific industries in which the firm
operates
2. The competitive edge it has and is
seeking
3. The constraints it recognize
4. Specifics regarding its marketing posture
5. People goals
6. Financial objectives with a timetable
7. New product policy
8. Research and development goals and
policies
9. Production objectives
10. The organization structure

32.  The best managed firms have written
objectives and policies covering:
11. Long-range planning procedure and
responsibility
12. Accounting and control systems
13. Inter- and intra company
communications policies
14. A complete set of objectives and
policies for each separate division
15. The sum of the numbers for
resources utilized and returns
expected for the division to tie into
and support the overall corporate
goals

33.  Lack of unified sense of direction is
without a doubt the most difficult,
single problem of the chief executive
and total enterprise.
 Conflicts come about for many
reasons. Some of them are:
1. Age differences
2. Previous training
3. Vocational aspirations
4. Natural styles of leadership
5. Differing social positions, speeds
of thought, technical abilities,
educational backgrounds

34.  The law averages procedures one firm
from having superiority in all functional
areas over all of its competitors for any
long period of time.

35.  The real fundamental
differences between
businesses in the same field
of endeavor is always
people.
 It is helpful to divide the
analysis into subheadings
similar to the following:
1. Board of Directors
2. Chief Executive Officer

36.  It should
be pointed out that the
marketing concept has been generally
followed by our largest corporations.

37.  “They no longer work,” it is meant that any of the
following may have happened:
1. The paperwork became so voluminous that the
really important controls were buried in reams of
electronic data processing paper that were either
never studied or barely reviewed.
2. Responsibility was passed down the line.
3. The optimum level for any given control was not
specifically spelled out in advance.
4. By the time the right person got the report, it was
too late for that person to do much about it,
including making certain it did not happens again.

38.  Fear of the unknown
 This fear of
international business
has been strong that
many firms did not
even try to establish an
overseas branch of their
business.

39.  One of the most
common problems
of large companies
is the psychotic
desire for rapid
growth.

40. In this Chapter, we have attempted to point out
and explain some of more important and
most frequently observed management
lapses that cause small business mediocrity
or failure.
Progress in large firms is very spotty. Some do
well, others stagnate. Sheer size alone is no
guarantee of success. In final analysis the
major roadblock in the way of prosperity as
well as the prime mover behind those firms
who are unusually successful is the chief
executive officer.