FACTORS CONTRIBUTING TO SMALL BUSINESS HEALTH

Abstract

This study determined the factors which most contribute to the health or prosperity of small businesses. The factors examined were owner/manager learned business tools and inherent traits. The learned tools include Strategic Management, Marketing Orientation, and Financial Management items. The inherent traits refer to entrepreneurial characteristics. Data was collected by mail from 239 small businesses in Saskatoon, Saskatchewan. Simple linear regression, Pearson product-moment correlation, and discriminant analyses were used to test the hypotheses. Perceived importance of Strategic Management and Marketing Orientation were found related to healthier businesses. However, perceived importance of Financial Management was not found to significantly explain variations in businesses health. These results were confirmed by findings that healthy businesses use Strategic Management and Marketing Orientation tools with significantly greater frequency than sick businesses. Again, Financial Management was not found to be a significant factor in determining business health. These results indicate the importance of strategy and marketing to the success of small businesses. Also it suggests that Financial Management plays a subordinate role to both strategy and marketing in determining the success of a small firm. In addition, the inherent entrepreneurial traits possessed by owners/managers were found to be significant in explaining business success. Small business owners/managers benefit from displaying entrepreneurial traits such as possessing the need to achieve goals and ability to innovate. This study also found a positive relationship between the perceived importance of the learned tools and the inherent entrepreneurial traits. Rather than being polar opposites, entrepreneurial traits and fundamental business tools complement one another. Strategic Management, Marketing Orientation, and Financial Management do not come at the expense of entrepreneurial savvy. Finally, the cumulative result is a predictive model of business health, predicting health correctly 72% of the time. The implications of such a model are that it may be used as a diagnostic tool by business owners/managers, investors, and others who may wish to investigate the health or health potential of individual small businesses.