What Is Needed to Start a Small Business  Term Paper

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Small Business

Uncovering Critical Success Factors for Starting a Small Business Venture

Small businesses have been considered the mainstay in countries around the world. In many European countries for example, the small business has been considered crucial to the success and flourishment of the country in general. Most individuals embark upon a small business venture in the hopes of realizing ownership, independent profits and personal success. Small businesses can prove extremely successful when planned properly. Studies suggest that several small businesses however, close or fail within the first few years of operation. This failure suggests that a majority of small business owners may not have as yet realized the crucial success factors necessary for successful implementation of a small business.

There are as yet, few empirical studies conducted that specifically address key factors for the success of small businesses across several industries. As such, the aim of this paper is to determine what is needed to start a small business and what the key success factors are for maintenance of a small business within the United States and abroad. This researcher assumes that for purposes of this study, the results discovered will can and will be generalized to corporations across the United States and in foreign countries. It also assumes that this research can be generalized to all small businesses, regardless of the type of business being conducted.

Thousands of new entrepreneurs attempt to start new businesses every year. A majority however do so without investigating the tasks required to form a small business successfully. There are several factors that have historically been identified as critical to the success of a small business. Among these include the ability of an owner to develop a business plan, appropriately market their business, and appropriately categorize the small business according to its entity type.

Traditionally small business has been considered only in the context of big business, and its relation to it. Big business is a concept that was popularized within the U.S. economy as early on as the late 1800s, when a "wave of corporate mergers" swept the country (Odaka, 1999:1). During the end of the nineteenth centering, mass production methods were beginning to be introduced into the economy promoting the idea of maximized profit, production and minimal costs (Odaka, 1999:1). Big Business became synonymous with economic abundance and a capitalistic society. Eventually however, individuals began to realize that opportunities might exist for other types of business.

Small businesses came into creation as individuals realized that they could have a piece of a capitalistic economy, and provide services that were worthy of note to customers within the United States and eventually throughout the world. Small firms historically have been noted for their ability to establish long-lasting and trusting relationships between customers and employers. Small businesses have been defined by numerous standards; for purposes of this study however, a small business will be considered that which is under 200 employees. Small businesses over time under certain conditions have become the mainstay of many different economies. Small business owners, equipped with the right tools, have the ability to drastically affect the outcome and efficiency of an economy.

In many countries small businesses are actually more predominant than large ones. This is evident by an international comparison of small businesses by S. Kato in 1967, which showed that manufacturing establishments in Germany with less than 100 employees comprised "98.2% of the total" businesses in West Germany (Odaka, 1999). Times have changed however, and the face of many countries has changed. Within the United States, the trend seems to be toward struggling as related to small businesses. More and more mega-corporations are seemingly pushing out small business entrepreneurs.

Thus, this study intends to examine the structure of small businesses in an attempt to ascertain what exactly is necessary, or critical success factors for small business operation within the United States. In doing so, this study will also attempt to identify common factors among businesses that have failed, in order to identify an appropriate methodology for defining what factors make a small business successful vs. unsuccessful.


The purpose of this study is to examine critical factors for success related to small businesses within the United States. This study is intended to be explorative in nature. The intention of this study is also to identify what factors are necessary for a small business to be created. For purposes of this study a small business will be defined as that which has less than 200 employees, though businesses in general of less than 500 employees will be examined in order to obtain the most comprehensive results as possible. This study intends to be primarily exploratory in nature. At this point there are few if any relevant theories related to successful small business formation. As such it is the intention of this study to develop a framework from which new business entrepreneurs can develop a framework for development of a successful business venture.

This study aspires to investigate the following questions related to small business creation and formation:

What critical success factors are necessary for the success of a small business?

What are the leading causes for failure of a small business?

What legal steps does a small business have to follow to ensure success?


Research suggests that four out of five new businesses fail each year despite owner's best intentions at success (Attard, 2004). The aim of this study is to identify key success factors for success, to reduce the percentage of businesses that close or fail within the first few years of operation.

There are several countries that have successfully through time supported the cause of a small business. For example, in Europe many small businesses are thought to contribute to the economy more so than large corporations. In the face of a rapidly changing society however, many small business owners are pushed out of business before they have the ability to adequately establish their business or make an impact on economic operations. A majority of small business owners fail not because they are not educated or motivated, but rather because they lack adequate knowledge of the tools necessary to ensure a businesses success. Many small business owners also realize short-term success, but find that through poor planning or improper structuring, they are subject to IRS investigation and tax liabilities.

Small business owners need to be presented with a methodology and broad scope of facts and statistics in order to successfully implement a productive strategy conducive to productivity and efficiency.


The purpose of this study is to examine critical success factors for establishment, maintenance and productivity of today's modern business. Small business has been a popular concept for centuries. Though large businesses are traditionally credited with adding to the success of a capitalistic economy, many countries historically have recognized the significance of small businesses. Unfortunately, many small businesses fail before they have an opportunity to adequately establish themselves. The aim of this study thus, is to identify critical success factors for establishment and maintenance of small business throughout the United States. To do this, exploration of historical and current practices and recommendations from governing authorities will be examined.

For one to analyze the concept of a small business, one must first be able to define a small business. This definition has varied from state to state and country to country throughout time. The UK defines a small business as that with 200 or fewer employees for example; this compared with Japan or Korea who define a small business as less than 300 employees, or 500 in the following: France, Germany, Italy and the U.S.A. (Odaka & Sawai, 1999:4). For some what might be considered a 'small' business in one respect might be considered a medium sized venue in another. For many people a small business might consist of one person. This is often the case of the independent contractor, where business is conducted under the assumption that an independent contractor operates as a sole proprietor.

Studies suggest that a large number of small businesses exist within Western Europe and North America in particular (Odaka & Sawai, 1998). Within the United States, in 1953 the Small Business Act created the Small Business Administration (SBA) in an attempt to "aid, counsel, assist and protect, insofar as possible, the interests of small business concerns" (Kilpatrick, 2002:1). SBA provides loans for financial assistance to small business owners among other things. The SBA is known for providing loans to small business owners that might not otherwise be considered an acceptable credit risk for private lenders.

There are several steps small business owners should consider prior to starting their business. First and foremost a new business owner should determine what the local, state and federal laws might be applicable to their new business in order to ensure they do not unintentionally violate any regulatory details. There are certain common requirements that are necessary for a small business to operate. These include the following: (1) acquisition of…

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