Why Some Businesses Remain Small
- Many firms start small and grow into large companies or even multi-national corporations (Amazon started in a garage)
- Some businesses remain small - this may be intentional
- In 2021 98.9% of businesses in the European Union (EU) were classified as small firms with less than 49 employees
- Small businesses dominate some industries such as hair and beauty, home improvement and childcare services
- In 2021 98.9% of businesses in the European Union (EU) were classified as small firms with less than 49 employees
Reasons why Small Firms Exist
They offer a personalised service and focus on building relationships with customers (excellent customer service) |
They are unable to access external finance for expansion |
They provide a product that is in a niche market - small market size but potential for high profits |
By remaining small they are able to respond quickly to changing customer needs/preferences |
Rapid growth can cause diseconomies of scale which can be avoided by remaining small |
Small business owner's goal is (satisficing) rather than profit maximisation |
- Changes in technology often benefit large businesses but some can work to the advantage of small firms
- The Internet offers low cost access to market for many firms
- Social media allows even the smallest business to achieve an online presence and target specific groups of customers
- Online storefronts such as Amazon Marketplace, Etsy and Ebay provide low-cost distribution options
An Evaluation of Remaining Small
Advantages |
Disadvantages |
|
|
Exam Tip
Do not focus too much on making a judgement about whether businesses are better big or small. Businesses of all sizes can - and do - succeed
It is more important consider whether the size of the business allows it to achieve its overall aim and whether other factors such as its culture and organisational structure contribute to its success