24.1 Characteristics of small enterprises

Definition of a small enterprise

The definition of a small enterprise tends to vary according to the nature of its activities, the purpose of the definition, and the level of development where the enterprise is located. The criteria for describing an enterprise as “small” might be the number of employees, the money value of sales, capital investment, maximum energy requirements, or various combinations of these and other factors. As the ILO suggests,1 “it is up to each country to formulate its own definitions for micro, small and medium-sized enterprises”. In most discussions and writings on the subject by management consultants, a small enterprise is taken as one in which the administrative and operational management is in the hands of one or two people, who also make the important decisions in the enterprise. Such an operational definition has been found to include more than 85 per cent of all small enterprises no matter how defined.

The consultant should be aware of a number of factors that usually distinguish the small from the larger enterprise. First, the small enterprise is primarily financed from personal or family savings with limited recourse to outside finance during the formative stages. The assistance of the family, in terms of both finance and moral support, plays a vital role in most small enterprises. Second, the manager has close personal contact with the whole workplace; and, third, the enterprise usually operates in a limited geographical area. These “smallness” factors greatly influence the consultative process.

The small enterprise possesses distinct advantages, including the ability to fill limited demands in specialized markets; a propensity for labour intensity and low-to-medium-skill work; and the flexibility to adapt rapidly to changing demands and conditions. Managerially speaking, there is an advantage in having a personal involvement in dealings which goes beyond price, product and delivery dates. Owner–managers are usually more highly motivated than salaried managers – they work longer and harder, and provide greater motivation to workers by personal example.

A simple organizational structure means more direct and less complicated lines of communication inside and outside the business. The smallness of the firm assists in identifying and developing the capabilities of workers more quickly than in larger firms.