Small Business Growth: Development of Indicators

ABSTRACT While small businesses continue to flourish in the private sector, there still continue to be small businesses that either do not experience the success that the owners desire or that ultimately fail. In order to better understand the conditions that indicate when a small business is growing or ready to grow, not only do indicators of growth need to be developed, additional indicators concerning the organization's plans, communication, and human resource management issues of trust and challenges need to be examined, since these issues might influence organizational growth. This article attempts to develop instruments that can be used to assess small businesses and the conditions that need to be present in the business in order to enhance the likelihood of successful growth of the business. INTRODUCTION A large component of the U.S. economy is the result of successful small businesses. To illustrate the role that small businesses play in the U.S. economy, statistics found in small business textbooks (e.g., Scarborough & Zimmerer, 2003) indicate that small businesses account for the following: * 98.5 percent of all businesses; * 75.8 percent of the nation's new jobs; * 52 percent of the private sector workforce; * 51 percent of private sector GDP; and I percent of private sector GDP; and * 47 percent of business sales. These facts provide evidence that small businesses are important to the health of the U.S. economy. While the role that small business plays is impressive, it is also important to recognize that big business and corporate America is not employing as many people as it has in the past, as evidenced by continuing downsizing and layoffs (Howard, 2001). In addition to representing such a significant portion of the U.S. economy, when young adults move into the workforce, 67 percent obtain their first employment in small businesses (Scarborough & Zimmerer, 2003). Even though the evidence demonstrates that small business accounts for a majority of the U.S. workforce and new job creation, much of the research on small business growth focuses on profits, sales, and market share, largely ignoring growth of the workforce. Most of the research on the growth of the workforce has been either exploratory or descriptive in nature, but has not effectively addressed the issue that growth in the workforce can lead to increased profits, sales and market share (Howard, 2001). The present study attempts to extend preliminary research conducted by Howard (2001), where the focus was to begin to determine when a small business owner might consider expanding his or her workforce. Planning, communication, trust and additional human resource management concerns that might influence organizational growth in areas such as profits, sales and market share will also be considered. Planning in small business has not only been found to exist, but has been found to influence the success of the small business, and that to successfully expand the workforce, planning must be completed (Barringer & Greening, 1998; Howard, 2001; Morrison, Breen & Ali, 2003). Communication has been identified as an area to address when expanding the workforce in small businesses, and that effective communication can assist the organization in its operations, thus having a potential influence on organizational growth (Greening, Barringer & Macy, 1996; Nichols-Nixon, 2005). Trusting employees has been found to have a positive influence on organizational profits, while human resource problems have not only been found to exist as small businesses grow, but that organizations do make efforts to address these problems (Howard, 2001; Kotey & Slade, 2005). First, this study will discuss the literature to date, focusing on growth, planning, communication, trust and human resource problems. Second, the research method will be described. Third, the measures being examined for inclusion in the various scales will be presented. …