How can the size
of a business be
measured?
Enterprise,
Business Growth
& Size
“Chapter 3”
Enterprise,
Business Growth
& Size
Learning Objectives
• Understand the reasons why businesses remain small
• Explain the problems with business growth
• Discuss the reasons why businesses fail
Enterprise,
Business Growth
& Size
• Decentralization
• Over expansion
Business size
Problems of business growth:
X Larger businesses are harder to control: Decentralizing them
make it easier to operate (divide it into units).
X
X
Poorer communication: Decentralizing will make it
easier to communicate, plus using latest IT &
telecommunications equipment.
X
Expansion costs are high: Always ensure long term
finance is sufficient, and make the expansion process
slow using the business profits.
Integrating with another business is difficult: Introducing
different styles of management will require good communication
with the workforce.
Business size
Why do some businesses stay small?:
•
Type of industry the business is operating in: E.g. Hairdressers,
car repairs, catering, etc., which give personal services and
therefore cannot grow.
• Owners’ objectives: Not all owners want to
increase the size of their firms and profits. Some of
them prefer keeping their businesses small and
having a personal contact with all of their
employees and customers.
• Market size: If the firm operates in areas
where the total number of customers is
small, such as in rural areas, there is no
need for the firm to grow and thus
stays small.
Business size
Some businesses fail
• Over-expansion: Expanding too quickly can cause managerial
and financial problems.
• Poor management: lack of experience which could lead to bad
decision making. New entrepreneurs could make mistakes when
choosing the location of the firm, the raw materials to be used for
production, etc.,
• Poor financial management: This will mean
that the employees cannot be paid and
enough goods cannot be produced. Poor
cash flow can therefore also cause
businesses to fail.
Business size
Some businesses fail
• Failure to plan for change: The demands of customers keep
changing with change in tastes and fashion. Due to this, firms
must always be ready to change their products to meet the
demand of their customers.
• Risks of new business start ups: Poor planning and
inadequate research, lack of experience and decision
making skills.
5 minutes Activity !
Why did the below companies fail?
(1)
(2)
(3)
(4)
(5)
Kodak
Toys R Us
Compaq
Blockbuster
Bob’s Big Boy