Small Business Advantages and Growth Methods

Small Business Advantages:

• Greater focus: focus where they want; in places with greater profitability; in specific markets
• Greater cachet: greater sense of exclusiveness so they can charge more for their output, leading to higher profit margins
• Greater motivation: more prestige can motivate managers/employees
• Competitive advantage: giving a more personalized service and being more flexible
• Less competition: focusing on a niche gives limited competition
• Internal growth: slowly, steady and out of the existent operations of the business. They don't take many risks. Expands by selling more products or by increasing its product range. Usually self-financed
• External growth: quick and riskier methods. Expands by entering into an arrangement with another business. It usually needs financing

Types/Methods:

• Merger and Acquisition: 2 businesses integrate by joining in a bigger business or by an acquisition
• Horizontal Integration: businesses in the same line and chain of production. Disney bought Pixar
• Backwards Vertical: integrate from another at an earlier stage in the chain of production to protect its supply chain. Starbucks buys a coffee manufacturer
• Forward Vertical: business integrates with another of a later stage in the chain of production to ensure a secure outlet
• Conglomeration (Diversification): 2 businesses in unrelated lines integrate
• Joint Ventures: 2 businesses combine resources for a specific goal over a finite period of time. They don't lose their legal existence or identity. It is like a partnership
• Strategic Alliances: businesses collaborate for a specific goal different from joint ventures because more than 2 businesses
• Franchises: a franchisor (business) sells the right to offer their concept and sell their products. It has to be consistent/identical to the business concept

Responsibilities:

• Franchisor: the stock, global advertising and promotion, legal financial help, staff training
• Franchisee: set prices and wages, pay royalty on sales, advertise locally, sell only the products of the franchisor

Advantages Franchisee:

• the product is usually well known, set-up costs reduced, has a secure supply of stock

Disadvantages Franchisee: has no control of what to sell or over the supplies, has to pay royalties to the franchisor, unlimited liability for the franchise

Advantages Franchisor:

• quick access to wider markets, makes use of local knowledge and expertise, gains more profit and the sign-up fees

Disadvantages Franchisor: loses control of day-to-day operations, can suffer if the franchise fails or does not perform properly