Management and Failure Factors in Small and Medium Enterprises
This paper examines the key management and operational challenges that cause small and medium enterprises (SMEs) to fail, particularly within their first two to three years of operation. Drawing on a range of academic and practitioner sources, the paper identifies the absence of adequate managerial skills as the primary driver of SME failure, while also analyzing contributing factors such as weak financial management, poor market understanding, burdensome government regulations, inadequate strategic planning, and the personal characteristics of business owners. The discussion also considers the role of outside assistance and marketing effectiveness. Evidence from South Africa and broader international research is used to contextualize the high rates of small business failure documented across many countries.
- Introduction to SME Management Challenges: Overview of SME operations and high failure rates
- Reasons for Failure of Small Businesses: Common causes including capital and management deficits
- Structural and Environmental Factors: Regulations, market structure, and firm age effects
- Personal Characteristics and Outside Assistance: Owner age, experience, and role of external consultants
- Marketing, Financial Management, and Strategy: How marketing, finance, and strategy shape SME survival
- Conclusion: Managerial skills identified as primary failure factor
✍️ How to write this paper — guide, tools & examples ▾
What makes this paper effective
- It systematically organizes multiple causes of SME failure into clearly labeled thematic sections, making the argument easy to follow and reference.
- The paper grounds its claims in a range of academic and practitioner sources spanning multiple countries, lending credibility to its generalizations about small business failure rates.
- It balances theoretical models (e.g., Jovanovic's model) with empirical survey data (e.g., South African failure statistics) to support its analysis.
Key academic technique demonstrated
The paper demonstrates effective synthesis of multiple sources around a single analytical theme. Rather than summarizing each source in isolation, it groups findings by topic — financial management, strategy, personal characteristics — and uses citations from several authors to reinforce each point. This multi-source synthesis is a core academic writing skill at the undergraduate level.
Structure breakdown
The paper opens with a general framing of SME management challenges and failure statistics, then moves into a categorized discussion of failure causes: regulatory burden, market structure, firm age and size, owner characteristics, outside expertise, marketing, financial management, and strategy. A brief conclusion synthesizes the key findings and restates the central argument about managerial skill deficiency.
Introduction to SME Management Challenges
This paper discusses the management and operational issues faced by Small and Medium Enterprises (SMEs). When considering the management and running of a small firm, it is important to keep in mind that the operations, management activities, and day-to-day processes are all very different from those of large firms. In small firms, the main focus is on maintaining, managing, and carrying out short-term operational activities. The management activities of small firms are mainly concerned with pressures from the external environment and how to predict and control the operational environment in the best possible manner (Sha, 2010).
Prior research and statistics have observed that the majority of SMEs face failure within two years of initiation (LeBrasseur, Zanibbi, and Zinger, 2003). According to Storey (2000; also see Burns, 2001), about 50% of firms stop trading within the first three years of initiation. Storey also suggested that the chances of failure are considerably higher for smaller firms than for larger ones (Storey in Burns, 2001). According to Rwigema and Venter (2004: 68), the ratio of failure of small businesses far exceeds their rate of success in many countries. A survey conducted in South Africa found that approximately 70 to 80% of small businesses fail completely within three years of start-up (Rwigema and Venter, 2004). Lack of management skills is consistently cited as the main reason for the failure of most ventures (Kuratko and Welsch, 2004; Rwigema and Venter, 2004; Longenecker, Moore, and Petty, 2003; Megginson, Byrd, and Megginson, 2003; Storey in Burns, 2001; Sha, 2010).
Moutray (2008) supports this by asserting that "small businesses are eager for a business tax and regulatory environment that allows them to prosper without being overly burdensome, and they worry about maintaining and attracting a quality workforce. The fact that smaller businesses are less able to provide and retain the generous benefits of their larger counterparts makes the competition for talent that much harder" (Moutray, 2008).
References
BURNS, P. 2001. Entrepreneurship and Small Business. New York: Palgrave.
HALL, G. 1995. Surviving and Prospering in the Small Firm Sector. London: Routledge.
HUNGER, J.D. and WHEELEN, T.L. 2003. Essentials of Strategic Management, 3rd edition. New Jersey: Prentice Hall.
LEBRASSEUR, R., ZANIBBI, L. and ZINGER, T.J. 2003. 'Growth Momentum in the Early Stages of Small Business Start-ups', International Small Business Journal, 21(3): 315–330.
LONGENECKER, J.G., MOORE, C.W. and PETTY, J.W. 2003. Small Business Management: An Entrepreneurial Emphasis, 12th edition. Ohio: South-Western.
MEGGINSON, L.C., BYRD, M.J. and MEGGINSON, W.L. 2003. Small Business Management: An Entrepreneur's Guidebook, 4th edition. New York: McGraw-Hill.
MOUTRAY, C. 2008. Looking Ahead: Opportunities and Challenges for Entrepreneurship and Small Business Owners. A working paper for the Office of Advocacy. Accessed March 12, 2012 from
RWIGEMA, H. and VENTER, R. 2004. Advanced Entrepreneurship. Cape Town: Oxford University Press.
SHA, S. 2010. An Investigation Into Problems Facing Small-To-Medium Sized Enterprises In Achieving Growth In The Eastern Cape: Enhancing The Strategy For Developing Small 'Growth Potential' Firms In The Eastern Cape. A thesis submitted in fulfilment of the requirements for the degree of Master of Commerce (Management): Department of Management, Rhodes University. Accessed March 12, 2012 from
SONI, S. 2005. The Challenges Facing Small Businesses: A Global Perspective. The Dorrian Consulting Group. Accessed March 12, 2012 from www.dorriangroup.com/docs/NewsNov2005.pdf
SOUTH AFRICAN CHAMBER OF BUSINESS (SACOB). 1999. Developing the Small Business Sector in South Africa: A Review of Regulatory and Other Obstacles [Online]. Available:
STOREY, D.J. 2000. Understanding the Small Business Sector. London: Thompson Learning.
Already a member? Log in
Unlock the rest of this paper
135,000+ research papers · AI writing tools · Plagiarism & AI detection
7-Day Pass
Does not renew
Get 7-Day PassMonthly
Renews at $12.99/month until canceled
Start MonthlyAnnual
Renews at $99/year until canceled
Start Annual- Unlimited AI writing tools
- Plagiarism and AI text detection tool
Plan details
Unlimited AI writing tools are for individual, non-automated use and are subject to our Terms of Service and abuse-prevention measures.
TextChecker scans: 3 during the 7-Day Pass, or 5 per month with Monthly and Annual.
Prices exclude applicable tax.
Always verify citation format against your institution’s current style guide requirements.