SPECIAL CHALLENGES FACED BY SMALL ENTERPRISES

LEARNING OUTCOMES
At the end of the unit, students will be able to:
1. Determine the special challenges faced by small enterprises
2. Identify & explain the ways/strategies used by small enterprises to overcome these
challenges

INTRODUCTION

Business enterprises have a very important role in developing a country’s economy. They
contribute in the reduction of poverty by creating jobs for the country’s growing labor force. One
classification of these business enterprises is small enterprises that serve as valuable partners to large
enterprises as suppliers and providers of support services. Despite policies that aim to provide an
enabling environment for their development, small enterprises still face various constraints that
prevent them from realizing their full growth and potential. Most small enterprises are struggling to
stay competitive against the established market giants but also not coping with their own
challenges. It takes a lot of practice and technical know-how to attain the self-discipline and
determination to develop effective strategies in handling the small business problems and challenges.

PRESENTATION OF CONTENT

MICRO, SMALL AND MEDIUM ENTERPRISES (MSMEs)

 An MSME in the Philippines is defined as any business activity or enterprise engaged in
industry, agri-business and/or services that has: (1) an asset size (less land) of up to
PhP100 million; and (2) an employment size with less than 200 employees. 1 Based on
these categories, it is classified as micro, small or medium (Table 1) regardless of the type
of business ownership (i.e., single proprietorship, cooperative, partnership or corporation).

 In the U.S., the Small Business Administration (SBA) classifies small businesses according to
its ownership structure, number of employees, earnings and industry. For example, in
manufacturing, a Small-Medium Enterprise (SME) is a firm with 500 or fewer employees.
In contrast, businesses that mine copper ore and nickel ore can have up to 1,500
employees and still be identified as an SME. Like the EU, the U.S. distinctly classifies
companies with fewer than 10 employees as a small office/home office (SOHO).
  The European Union (EU) offers clearer definitions, characterizing a small-sized enterprise
as a company with fewer than 50 employees and a medium-sized enterprise as one with
less than 250 employees. In addition to small and mid-size companies, there are micro-
companies, which employ up to 10 employees.

SPECIAL CHALLENGES FACED BY SMALL ENTERPRISES

1. Client Dependence
 If a single client makes up more than half of the business income, it is more of
an independent contractor than a business owner.
 Unfortunately, this can result in a longer-term handicap because, even if the business
has employees and so on, it may be still acting as a sub-contractor for a larger
business.
 This arrangement can work if the main client has a consistent need for the product or
service. However, it is generally better for a business to have a diversified client base
to pick up the slack when any single client quits paying.
2. Money Management
 Having enough cash to cover the bills is a must for any business, but it is also a must
for every individual.
 To avoid this problem, small business owners must either be heavily capitalized or be
able to pick up extra income to shore up cash reserves when needed.
 While this split focus can make it difficult to grow a business, running out of cash
makes growing a business impossible.
3. Fatigue
 Many business owners—even successful ones—get stuck working much longer hours
than their employees. Moreover, they fear their business will stall in their absence, so
they avoid taking any time away from work to recharge.
 Fatigue can lead to rash decisions about the business, including the desire to abandon
it completely.

4. Founder Dependence
 A business that can't operate without its founder is a business with a deadline.
 Many businesses suffer from founder dependence, and this dependence is often
caused by the founder being unable to let go of certain decisions and responsibilities
as the business grows.
5. Balancing Quality and Growth
 Unfortunately, it is usually that level of personal engagement and attention to detail
that makes a business semi-successful.
 Therefore, many small business owners often find themselves tied to these habits to
the detriment of the company's growth.
 There is a large middle ground between shoddy work and an unhealthy obsession
with quality, so it is up to the business owner to navigate the company's processes
towards a compromise that allows scale without hurting the brand.
6. Costs and Expenses
 Without a doubt, the workers’ health is important, but the increased healthcare costs
make finances difficult to manage.
  The cost (equipment, benefits, taxes, bonuses, etc.) of hiring new employees,
unfortunately, keeps rising. All those hurdles come into play before outlining the
position’s salary.
7. Government Regulations
 Each year it seems like the government’s collar around owners’ necks becomes
tighter due to the different government regulations such as environmental laws, tax
laws and the like that businesses need to comply.
8. Lack of Proper Marketing
 One needs to learn that marketing comes in all shapes and sizes (online marketing,
offline, social, direct and more) in order to let people know that the business exists --
and the owner is there to solve their problems.
 “The biggest problems most small business owners have is they fail to market. And
more to the point, they fail to do enough marketing in enough different media to
capture the attention of their prospects and clients.” – Diane Conklin of Complete
Marketing Systems
9. Getting and Retaining Customers
 Building trust and credibility with the customers will help the business retain them.
 Marketing and promoting the product or brand will definitely get new customers but
only the ones who come and stay with you will make your dream come true.
10. Social Media Management Tools
 In order to stay on top of everything as a small business, there is a need to focus on
online presence and put the business on the wavelength.
 Using the right Social Media Management tools will positively save a ton of the time.

WAYS TO OVERCOME SMALL BUSINESS FAILURE AND THRIVE IN HARD TIMES

1. Adopt a Forward-Thinking Attitude
 Before planning out a business, start with a vision that is workable and achievable.
 Write the vision down and use it as a map to create your business plan.
 Even if business had already started, one can still look ahead. What outcomes do you
want for your business? Where would you like the company to be in the coming
months and years?
2. Conduct frequent SWOT Analyses of the Business System
 A SWOT (strengths, weaknesses, opportunities, and threats) analysis is an
examination of the internal and external areas of your business.
 To prepare a SWOT analysis, begin by making a list of the identifiable strengths and
weaknesses.
 Use the results of your SWOT analysis to design the goals the business intends to
accomplish and to develop a plan of action to accomplish them.
3. Manage Cash Flow Efficiently
 Have a cash flow forecast so one knows what money is coming in and out.
 Use the forecast to project likely sales and expenditures (including cash transactions).
 Other aspects of managing cash flow efficiently include sending out invoices on time,
taking deposit payments in advance, paying bills on time, and promptly following up
with customers who fall behind on payments.
4. Believe In Yourself and Prepare for the (Inevitable) Bad Times
 Safeguard yourself by developing resilience. Understand that life comes with
problems.
 Assess the situation objectively. Speak with a trusted friend or family member instead
of ignoring the problem. Don’t be hard on yourself, and keep believing you can
overcome the obstacles you are facing.
 Surround yourself with the right support network of people. Don’t give up.
5. Perseverance, Determination, and a Positive Mindset Reign Supreme
 Embrace the warrior mindset and refuse to become a number in the statistics of
business failures.
 Use success stories of people who failed their way to success to inspire and motivate.
6. Keep the Customers at the Heart of the Business
 Loyal customers are the success stories of your business.
 Involve them in the business strategies, marketing campaign planning, and new
product development.
 Share their case studies, consider their points of view, absorb their feedback (both
good and bad), and make them feel important.
7. Embrace Failures as Short-Term Setbacks
 Successful people use failure as stepping stones to climb out of their troubles.
Understanding their struggles will boost motivation when you are faced with failure.
 Reflect on what went wrong and find solutions to the problem that caused the failure.
Learn from your mistakes and do things differently next time.
 Draw inspiration from people who failed many times but eventually achieved their
dreams.
8. Set Smart Goals and Develop Achievable Strategies to Attain Them
 Write down the business goals. This will give clarity and make it easier to work
towards achieving them.
 Use the SMART goal-setting method to keep yourself focused:
o Specific: State what you want to accomplish.
o Measurable: What results do you want to see? Break them down into easy steps.
o Achievable: Are your goals realistic? Make sure you have the time and resources to
make them a reality.
o Relevant: Your objectives should line up with what you’re trying to accomplish for
your business.
o Timely: Set a deadline and stick to it.
 Develop a plan to put the SMART goals into action. Answer these questions to get
ahead:
o What are the steps you will need to take?
o What are the time frames for each of those steps?
o Who will help you?
9. Invest in an Advisor or Mentor and Draw From Their Expertise
 Find a business mentor or advisor to guide you.
 Draw from their pool of knowledge and personal experiences to help your business
grow.
  Mentors have been in similar situations, and they know how to help you. They’ll share
valuable advice, give you constructive feedback, and connect you with the right
people.
10. Take Sensible Risks and Step Out of Your Comfort Zone
 Think carefully, weigh the options, and test them out.
 Don’t take risks when your emotions are running high.
 Be objective, and discuss your plans with colleagues, friends, or family.
 Before taking sensible risks and step out of your comfort zone with your business,
make the most of your wisdom, knowledge, and experience.

STRATEGIES USED BY SMALL ENTERPRISES TO OVERCOME CHALLENGES

Challenge Strategy/ies
Lack of money to implement  Begin with projects that have a good payback.
change  Look for rebates and assistance to help with the projects,
since many organizations and utilities are available to
help small businesses
 Connect with local businesses with local sources of
funding
Lack of time to make changes  Focus on the top priorities
 Identify initiatives that are aligned with the overall
business goals, have a significant impact, and have a
good payback and prioritize those
 Build a team. Having a green team will enable you to
receive input from other employees and get help with
your initiatives so that you’re not doing it all yourself.
 Look for ways to integrate sustainability into what
people are already doing
Non-engagement of employees  To have employees who are engaged, you need to give
them opportunities for engagement by creating
channels for them to get engaged.
 If you want employees to be engaged, you need to allow
them to have some autonomy, some say in the
initiatives that your business is working on, and that
must contribute to their sense of purpose.
Not sure how to get started or  Use existing frameworks and build on the proven best
what sustainability initiatives practices that other businesses have used.
make sense for the business  Certifications will provide frameworks that you can use
to ensure that you’re building a good sustainability
foundation for your business. An added benefit is
that you’ll also get some public recognition for your
efforts.
Company culture doesn’t  Getting buy-in from management is key because it will
support sustainability. allow rank-and-file employees to feel that they have
support from above.
  Expand sustainability beyond just one department so
that it is a company-wide endeavor. This will also help
with employee engagement.
 Provide sustainability training to employees can make a
significant difference.
Lack of support and limited  Look for those that share your values
options from vendors.  Begin the conversation around supply chain
sustainability with your vendors. For example, you can
develop a sustainable supply chain policy or a
sustainability questionnaire for suppliers.
 Offer to work with vendor to pilot a more sustainable
option.
Educating customers about the  Focus on educating the customers about the benefits to
benefits of purchasing them of using your products/services
products/services from a  Tell your sustainability story in a way that is authentic.
sustainable business. Be honest and transparent with your customers about
what you’re doing and what you still need to work on.
Unforeseen roadblocks  Try not to panic. Go ahead and be proactive.
(poor sales, economic  Now is a good time to evaluate and eliminate debt.
uncertainty, tec.)  Consider downsizing and do what you can to reduce
overhead costs to free up cash.
Trouble hiring and retaining  When you hire someone, offer a robust salary and
excellent employees benefits package.
 Ensure you're competitive in the industry if you want
to attract and retain top-notch talent, and do
everything in your power to keep those employees
stay content.
 It's also a good idea to provide recognition to
employees, such as extra time off work and gift cards.
 Make sure to offer mentorship program and encourage
work-life balance for employees.
 Aim to promote from within if possible and always
strive to have a line of open communication.
Navigating state, federal and  Decide the structure of the business
government regulations  Ensure that there is understanding of the topics like
federal and state taxes, workers' compensation
insurance, unemployment and sales tax.
 Reach out to experts for guidance along the way.

FEEDBACK
A. If you are given the chance to put up a small enterprise, what will it be in terms of purpose
and form? What will be the product/service you are going to offer? What are the possible
challenges you may encounter and what will you do to combat them?
SUMMARY OF THE UNIT

Starting a business whether its micro, small, medium or large enterprise is a big achievement
for many entrepreneurs, but maintaining one is the larger challenge. For small enterprises, they may
face many challenges such as client dependence, money management, fatigue, founder dependence,
balancing quality and growth, , costs and expenses, government regulations,, lack of proper
marketing, getting and maintaining customers and social media management tools.

Considering that a competitive drive is often one of the reasons why people start their own
business, every challenge represents another opportunity to compete. How one responds to the
challenge will change the “game” – as he/she becomes more successful, thereby leaving his/her rivals
by the wayside. It’s important to remember that these challenges are just that – challenges and
people do overcome them by finding effective and efficient ways and strategies. As long as the
business owner manage the business effectively and focus on providing high-quality customer service
and products, the business can survive unforeseen roadblocks and come out stronger than before.

REFERENCES

Online Resources:
 https://www.senate.gov.ph/publications/AG%202012-03%20-%20MSME.pdf
 https://www.investopedia.com/terms/s/smallandmidsizeenterprises.asp
 https://www.investopedia.com/articles/pf/12/small-business-challenges.asp
 https://smallbiztrends.com/2017/10/biggest-challenges-for-small-business-owners.html
 https://statusbrew.com/insights/small-business-problems-faced-by-small-business-owners/
 https://www.cultivatingcapital.com/small-business-sustainability-challenges/
 https://www.thebalancesmb.com/how-to-overcome-small-business-failure-4142683
 https://www.business.com/articles/overcoming-smb-problems/