Success, Satisfaction and Growth
Background
Success
Personal Satisfaction
A Satisfying Job
What’s in a Name?
Growth Dynamics
a. Growth as an Objective
b. No Change by Choice
Leaving the Business
Final Comments
Background
Success in business is a subjective judgment. While rapid growth, market domination, and the owner’s personal satisfaction are likely aspects of it, no measures or ratios or checklists provide an objective determination. Success is a perception rooted in an individual’s value structure. As a result, individuals can reach different judgments about a venture’s success using identical criteria. When the criteria vary, as they usually do, their judgments vary even more. One business owner, for example, may judge a business highly successful because it provides him or her employment doing what the owner likes to do; another business owner may consider a $100 million venture a bust because it failed to live up to its potential; an economic development administrator may determine both have failed because neither created employment in a particular political jurisdiction. Two properties often associated with success are business growth and owner satisfaction. Yet, neither may define or even help define success for the owner. Despite its mercurial properties, the perceived success of an owner’s business is important because it influences owner decisions. It causes some owners to carry on when they otherwise might not. It causes other owners to get out, perhaps avoiding a greater loss than might otherwise occur. It often causes non-owners to try to form their own business when alternative investment opportunities and employment are available. In effect, business success is a flexible yardstick against which the owner can judge his or her enterprise and subsequently adjust plans, operations and procedures. This issue of the National Small Business Poll is devoted to the Success, Satisfaction, and Growth small employers attain in owning and operating their businesses.
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Success
Small-business owners generally feel that their current businesses are successful. On a scale of “1” to “10” with “10” meaning “extreme success” and “1” meaning “total failure,” owners rate their success on average as 7.3 (Q#3). Eleven (11) percent believe that their firms have been extremely successful (a “10”) and another 10 percent evaluate their enterprises as a “9.” Almost half rate theirs in the “7” to “8” range. In contrast, just 17 percent place their businesses below the mid-point on the success scale, i.e., < 6. Almost no one evaluates theirs as a “2” or a “1.” The most likely reason for the absence of cases at the bottom of the scale is that an extreme lack of success has forced them to the market’s sidelines already.
Success can be based on many reasonable criteria. As a result, the survey asked small employers to identify the two factors that most influenced their evaluations of their businesses’ success. Significantly, the most frequent reasons involve the firm’s contribution to others rather than its contribution directly to the owner. Forty-two (42) percent say that one of the two primary factors in their evaluation is the quality of products or services offered (Q#3a). The second most frequently cited reason is the treatment of employees, customers, and business associates (37%). Sixty-one (61) percent of all owners mention at least one of them.
The factor influencing evaluation of the firm’s success cited with third greatest frequency (32%) is the firm’s financial performance. Owners mention personal satisfaction fourth most often (25%). The least likely factors cited of those listed are growth performance (13%) and variance from initial expectations (5%). Note that while half would like to grow (Q#1), just 13 percent say that growth is one of the two most influential factors in evaluating the current success of their business.
Small-business owners who rate their success most highly (“9” or “10”) are also the most likely (56%) to mention the quality of products and services offered as one of the two most important factors in their evaluation. They also are more likely than those less successful to mention the treatment of employees, customers, and business associates (44%). In fact, both reasons are directly related to success, the more often cited the higher rated on the success scale. The comparable figures for those rating themselves as “4” or less are 8 percent and 11 percent respectively.
Success is also directly tied to financial performance, but in the opposite direction. Forty-five (45) percent evaluating their firms with a “6” or lower choose financial performance as one of the two most important factors compared to 23 percent of those giving themselves a “9” or “10.” Owners of less successful firms are also more likely to offer only one reason for evaluation instead of the two requested.
Personal satisfaction, growth performance, and variation from initial expectation do not appear closely related to owner evaluation of success. Comparatively few cite them as one of the more important reasons in their evaluations. Thus, the primary bases for assessing success would appear to differ between business owners themselves and outside observers such as newspaper reporters, public officials, academics and even the general public.
Care must be taken to avoid the obvious, but incorrect interpretation of the reasons for the evaluation of success. These data do not suggest that those small-business
owners who feel successful are primarily interested in “doing good” while those who feel less successful are primarily interested in financial performance. They suggest something more subtle. They suggest that there is a financial (and perhaps growth) minimum required to be successful. The minimum can vary notably depending on the owner. But once that threshold has been passed, less tangible factors take on new significance. Many firms that are rated by their owners as successful are not and will never be financial dynamos. But, they provide enough to allow the owner to operate and judge the firm’s success on a variety of other criteria.
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Personal Satisfaction
Personal satisfaction from something as time-consuming and economically relevant as owning and operating a business is obviously important to the individual. The difficulties inevitably encountered are much easier to tackle when the owner obtains personal gratification from efforts put forward. Most small-business owners, in fact, get a great deal of personal satisfaction from their businesses. On a scale of “1” to “10” with “10” meaning “extreme satisfaction” and “1” meaning “extreme dissatisfaction,” 28 percent rate their personal satisfaction from the business as a “10” (Q#4). Two-thirds (67%) feel their personal satisfaction rates an “8” or higher compared to just 12 percent who rank it below the scale’s mid-point.
There is a direct relationship between personal satisfaction from owning a business and the firm’s success. People who tend to have more successful ventures (by their own evaluations) also tend to feel greater personal satisfaction from owning their firms. However, perceived business success cannot be equated with personal satisfaction. The personal satisfaction achieved from business ownership is more highly rated on average than business success, 8.0 on a ten point scale for satisfaction compared to 7.3 for success. This difference helps explain why many owners who operate financially marginal enterprises remain in business.
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A Satisfying Job
While most small-business owners receive considerable personal satisfaction from owning their businesses, not every aspect of the business is equally gratifying or even gratifying at all. Some parts of the job are simply more pleasant than others.
A plurality of small-business owners (42%) spend most of their time on a typical day working on operations or making goods and services (Q#5). A chef cooking in his restaurant, a teacher working with children in her day-care center, or a carpenter swinging a hammer in his home improvement business are examples. Though all have employees and run the business, their primary activity on a typical day is production. The second most frequent prevalent activity is sales and marketing. Twenty-two (22) percent report that they constitute the day’s primary activity. Sales and marketing can include anything from waiting on customers to working on a radio ad.
Fifteen (15) percent volunteer that they do a little bit of everything; they do not spend most of their time on anything in particular. This is the “jack-of-all-trades” response that stereotypes, with a large element of truth, small-business owner activity. Another 10 percent say that they spend most of their time planning and developing strategy. While the percentage is surprisingly high, the minimal variation by firm size is more so. One would expect owners of larger, small firms to focus more on planning while those in the smallest firms would spend more time hopping from area to area. That does appear to happen. The two areas where small-business owners are least likely to spend the largest part of their day are in finance (6%) and personnel (3%).
One likely reason that so many receive so much personal satisfaction from business ownership is that a majority appear to spend most of their time doing the kinds of things they like to do. Just over half (51%) say that they spend the largest part of their daily activity in the functional area they like most (data not shown). In fact, the proportions among the kind of tasks small-business owners actually perform and the kind of things that they like to perform are similar. Thirty-five (35) percent prefer making goods or services (doing), seven points short of those actually spending most of their time on it (Q#5b). The two areas where small employers as a group would like to spend more time than they are able are sales and marketing (32%) and planning and strategy (17%). In each, roughly 50 percent more would like to spend most of their time in the area than they actually do. Only five percent each most like to spend their time in finance and personnel. Relatively few (3%) volunteer that they prefer doing a little bit of everything.
The functional areas where small-business owners least like to spend their time are generally the opposite of the areas where they most like to spend their time. The two most dreaded functional areas are finance (34%) and personnel (20%) (Q#5a). The former helps explain the high incidence of professionals doing accounting and finance work in small businesses both as consultants and paid-employees. Sales and marketing, though highly desirable for many, is most disliked by 14 percent of owners and making goods and services by 12 percent. Curiously, 7 percent complain that the activity they like least is hopping from area to area. Of the 11 percent who say that they work most in the area they like least, over a third note that they spend most of their time doing a little bit of everything and like it least. They prefer more focused activity.
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What’s in a Name?
Poll after poll shows that small-business owners are a highly respected and admired category of Americans. But in an era of delicate sensibilities, the language used to refer to an individual is sometimes taken as a symbol of respect (or lack thereof). Efforts are therefore made to call groups of people what they wish to be called. Terms for people who own smaller businesses are no exception.
People who own and operate small businesses usually wish to be called small-business owners, though it is doubtful that they really care. If given a choice, 47 percent prefer the term “small-business owner;” 26 percent prefer “business owner;” and, 20 percent prefer “entrepreneur” (Q#6). Six percent volunteer that they do not care or are indifferent.
More interesting is the reverse approach, asking these people what they do not want to be termed. Comparatively few object to being called any of the most common terms. Six percent object to being called a “small-business” owner (Q#6aA). Owners of enterprises employing more than 20 people are most likely to disdain the name. Five percent don’t want to be called a “business owner,” though it not clear why they do (Q#6aB). Finally, 12 percent object to the term “entrepreneur” (Q#6aC). Owners of larger firms, those who presumably would be most sympathetic to the term, are in fact the most likely to hold an unfavorable opinion of it. Two percent object to all three terms; 16 percent object to at least one, but 82 percent feel nothing is wrong with any of them.
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Growth Dynamics
Business growth is another popular measure of business success. However, this measure is more common among outside observers than small-business owners themselves. Many in the public appear to assume that most small-business owners want to grow their businesses, and grow them substantially if only the opportunity and resources were available; only the aberrant small-business owner is not interested in growth. The data show that assumption is generally wrong. Many small employers are content with the current size of their businesses. Even those who want to grow more often than not would like to grow modestly. The owner who wants to grow aggressively, let alone possessing the ability and opportunity to do so, is the one who is aberrant.
Just 14 percent offer business growth as one of the two most influential factors in assessing their venture’s success. That is not surprising. Relatively few firms grow substantially once they have leveled from the growth spurt that often occurs almost immediately following birth. The data in the survey show that 18 percent increased sales over the last two years by 30 percent or more (15% annually) (Q#D2). Another 17 percent increased theirs by 20 to 29 percent. The real volume sales of 31 percent appear to have at best stayed about even with inflation and many have not done that.
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a. Growth as an Objective
Still, business growth is an objective for about half of current small employers. Fifty-one (51) percent indicate that they want to grow their businesses (Q#1). In contrast, 46 percent do not. Forty-three (43) percent want to keep their firms approximately the same size and three percent would actually like to contract them. Owners of different size firms exhibit virtually no difference in the basic growth objective. However, those who have owned the firm comparatively few years are much more likely to possess the desire to grow than are those who have owned their firms for many years (data not shown).
The growth envisioned by most small-business owners wishing it is modest. Fourteen (14) percent say that they would like to grow sales, but their growth objective is a level that remains under one million dollars (Q#1a). Another 23 percent would like their sales to ultimately rise to between one and five million. In contrast, 9 percent want them to grow to over $100 million and 6 percent say they want to grow sales as much as possible. Thus, about 8 to 9 percent of the entire population clearly want to own a “growth” firm. The large number of small employers (12 to 13% of all owners) who cannot or will not give a sales growth target are assumed to have modest growth objectives as they appear not to have focused on the growth issue. Since no more than 5 percent of all businesses can be called “growth firms,” the number intending to grow and the number actually growing differ. That raises questions about why those who want to grow do not. Is it a lack of skills, resources or market opportunity, or is it the lack of an intense desire to become larger?
There is no special reason why small-business owners choose their desired growth level. Fifty-five (55) percent who express interest in growing say that they just want the business to grow and they have arbitrarily chosen a growth target (perhaps only because they were asked to do so). In contrast, 20 percent say that they chose a particular sales level because the level is necessary to provide the desired amount of personal income. A small construction business, for example, may not provide enough income with $100,000 in sales; the owner therefore targets $750,000 in sales so that it does. Eight percent say that they chose a growth level because a business has to be at least a specified size for it to survive. Reasons involving eventual disposal of the business are less frequently offered.
A firm may become so promising or so strong that it reaches the public stock exchanges. Sixteen (16) percent of those who want to grow also claim that they would eventually like to have their firms publicly traded (Q#1c). That is approximately the same number who would like their firms to eventually reach at least $100 million in sales. Nothing like that number will ever be listed. Yet, the number expressing an interest shows that many small-business owners have big ideas.
The owners of many firms with the potential to “go public” choose to remain private. The reasons vary. Most are personal, but usually involve retaining control of the business. While the data do not tell us whether the owners who say they want to “go public” are actually more attractive candidates for the exchanges than those who do not, the overwhelming majority intending to grow want their firms to remain in private hands.
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b. No Change by Choice
Over two in five small-business owners say that they are happy with the current size of their businesses. Probing further, 44 percent of this group or 19 percent of all respondents indicate that they are comfortable with their business as it is (Q#1e). They do not want its size to change. Another 14 percent feel that expansion requires risks that they are not willing to assume. Thirteen (13) percent more claim that the market is limited; they may have a nice business, but there is no room for a larger one. Still, 22 percent express no desire to grow because the financial or people resources are not available. These latter owners are probably not candidates for growth despite the reason provided. While they may be open to growth if the additional resources become available, their response suggests a passive approach that is probably not conducive for growth.
The proportion of small employers who want to get smaller is minuscule. As a result, it is not possible to quantify the reasons for their outlook (Q#1d).
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Leaving the Business
A tiny fraction of operating businesses will go bankrupt. Only a few more will close their firms owing debts to a creditor. At the same time, business turnover is considerable and business owner turnover is even higher. Small-business owners are constantly in the process of leaving businesses that they have formed, though not necessarily due to the lack of success.
Twenty-three (23) percent of small employers indicate that they plan to get out of their current business within the next few years (Q#2). Of that group, almost 59 percent intend to sell the firm as their way of leaving (Q#2a). Sixteen (16) percent plan to pass their enterprise to an heir and 15 percent will shut theirs down. While sale is preferred to closure or abandonment, many owners intent on selling their businesses are likely to be disappointed. The Wells Fargo/NFIB Series on Business Starts and Stops indicates that only three of every eight employers sell or transfer their firms while five of every eight either close or abandon them.
The sizeable number intending to exit their businesses also suggests that many, if not most, termination decisions are well-considered rather than “spur-of-the-moment.” (A general rule of thumb is that somewhat more than one in 10 employers leave in any year even though exit is “front-loaded.”) That means many business owners plan to leave well before the time they actually do. Perhaps the reason for the time interval is that finding a buyer for the business takes time. Perhaps the reason is that hope springs eternal and it still might be possible to reverse adverse trends. An important factor is that most do not seem pressured into leaving. Those intending to leave soon rate their businesses as 7.0 on the success scale compared to 7.4 among those having no such plans. Whatever the reason for leaving, many expect to get out long before they actually do.
One reason to leave a current business is to start another business. About one in four (25 percent) of those who intend to get out in the next few years plan to start another business after they leave their current endeavor (Q#2b).
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Final Comments
Small-business owners do not have to own a large or rapidly growing business to feel that theirs is successful. In fact, four times as many believe that they have a highly successful venture as can be considered a “growth” firm. Moreover, financial reward does not necessarily determine the owner’s evaluation of success. While some financial minimum, albeit an arbitrary minimum, is necessary to continue operating, many factors besides financial performance contribute to the success of their enterprises. Certainly, the very high level of personal satisfaction associated with owning a firm and the fact that a majority spend most of their time doing what they like to do helps create a positive feeling about their ventures. So is the idea that their firms produce quality products or services, and treat people “right.” Someone once observed that a good business is about makin’ a little money, havin’ a little fun, and doin’ a little good. Small-business owners as a group appear to subscribe to that philosophy in a big way.