Unit 1: Defining the Small Firm

Unit 1: Defining the Small Firm
Small firms “constitute the bulk of enterprises in all economies in the
world” (Storey, 1994, p7). Despite the different definitions that can be
made of small firms, they constitute at least 95% of enterprises in the
European Community.
On the face of it, defining the small business should be an easy task. It
is a business that is small – but how small? What should be the cut-off
point between large and small? Do small businesses actually differ from
large ones – and if they do, in what ways do they differ? Do these
different characteristics help us to differentiate the small business
sector?
Your Objectives
When you have studied this Unit and completed the assignments,
YOU WILL BE ABLE TO:
•
Define the small business sector.
•
Appraise the characteristics of the sector.
•
Make international comparisons of small firms.
•
Understand the development of small firms over time.
•
Compare small and large firms.

Unit 1: Defining the Small Firm
The term ‘small’ should be easy to define. However, it is a comparative
and relative term, which therefore can be variously interpreted,
depending on the unit of analysis. Storey (1994, p.8) found that “there is
no single, uniformly acceptable, definition of a small firm. This is
because a ‘small’ firm in, say, the petrochemical industry is likely to have
much higher levels of capitalisation, sales and possibly employment,
than a ‘small’ firm in the car repair trades.”
We can use specific measures that work within specific industries.
However, when the notion of the small firm is generalised across all
industries these measures are no longer robust, whether they relate to
how many staff are employed, sales turnover or profitability. Storey
comments that “Definitions…which relate to ‘objective’ measures of size
such as number of employees, sales turnover, profitability, net worth,
etc., when examined at a sectoral level, mean that in some sectors all
firms may be regarded as small, while in other sectors there are possibly
no firms which are small” (Storey, 1994, pp8-9). That being the case we
end up with measures that characterise the industry but fail to help us
appreciate the nature of small firms in general. Equally, Curran and
Blackburn (1994) note that there is no
official
definition of the small
business as governments and researchers alike have variously used
definitions that relate to their area of interest or study.
Nevertheless, we are left with an enduring idea of the small business. It
may not be an accurate picture – which is the problem – but at least we
can sensibly compare very small and very large businesses. The very
small businesses with which we may be familiar are a local car
mechanic business, a village fruit and vegetable shop or a family-run
restaurant. Equally, there are examples of large businesses that are
self-evident: Levi, Pepsi, Ford and Microsoft are cases in point. Making
comparisons between significantly different companies at least helps to
throw into relief our understanding and awareness of small business.
However, there are fundamental challenges in defining small businesses
that are not manifested with large companies. Small firms have less
clearly defined characteristics, have less in common with each other
than very large firms (which might have similar management systems)
and – while we think of them as one sector – many individual firms
actually have a very transient existence. This makes measurement
difficult: there are a great many small firms that are opening and closing
for business often with short life spans, making it difficult to define the
sector. Small firms may not register with state authorities – and may
indeed exist within the black market, causing significant difficulties of
measurement in the sector (Storey, 1994).
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