Problems of Smallness

Business size at each of the stage not only requires a distinct management structure. Also it has its own problems and its typical weaknesses.

The main problem of small and fair-sized businesses is usually that they are too small to support the management they need. The top management positions in the small and fair sized business many require greater versatility than the corresponding positions in the large or very large company. They may well require as much competence. Top management is not, as in the larger business, supported by a host of highly trained technical and functional people. But the fair-sized business in particular is often too small to be able to offer its managers adequate inducements. Financially it may not be able to pay what a first rate manager can get in a large business even in lower ranking positions. It cannot easily develop tomorrow’s manager in adequate number or quality. Above all, it dies not, as a rule offer the challenge and scope in management positions which the large business offers. The perennial problem in the fair-sized business is the gap between the demands on management and the competence of management, a gap that, only too often, cannot be closed as long as the business remains fair-sized.

Another typical problem of the small or fair-sized business arises out of the fact that it is often family-owned. Senior management positions are therefore frequently reserved to family members. This is all right as long as it does not lead to the vicious practice of giving jobs in management to members of the family not competent to hold them. The argument that ‘we have to support Cousin Paul and might therefore just as well put him to work’ is common in the family business. It is also fallacious. The job Cousin Paul is appointed for is not done properly. Able, ambitious, competent men, who happen to be employees of the small and fair sized business and not toe the wrong line taken by members of the Family become discouraged. They may quit the company and go elsewhere or they “quit on the job” cease to exert themselves and do just enough to get by.

Finally, top management of both the small and the fair-sized business is apt to suffer from narrowness of outlook and constriction of outside contacts. As a result it is in danger of becoming backward in knowledge and competence, technologically as well as economically, and ignorant of the social forces which in the last analysis determine the success if not the survival of the business. It may not even realize that it has problems of management organization. Above all, it may totally fail to see the need for thinking and planning, may try to manage intuitively and “by the seat of its pants” when the very survival of the business demands careful analysis.

In many fair-sized businesses these problems are so serious that there is only one solution: expand the business by merger with another small or fair-sized company, or by the acquisition of another such company. Even if it endangers family control, such a move may be preferable to the maintenance of an organization that is too small to be managed properly.

What can the small and the fair-sized business do? First, it has to take great pains to ring an outside viewpoint into its management councils to broaden its vision. This is one of the main reasons why the need for an outside Board in the small company is desirable.

Secondly if the business is family owned, it should adopt an ironclad rule that no member of the family should ever be given a job which he has not earned. That Cousin Paul must be supported is one thing. To support him, however, by making him sales manager or treasurer is something else again. As charity case or as a pensioner, Cousin Paul costs only his annual stipend. As sales manager he might well cost the company both its market and the services of the managers it needs most. Family members might be given preference if they are as qualified as non-family members, but they should never be appointed or promoted in preference to a better qualified non-family member of management.

The most important rule, however, is to make sure that planning, thinking analyzing are not slighted under the pressure of action decisions. Top management in the small and in fair sized business should at least set aside one week each year for a planning and review conference. This conference should be held outside the office. It should be attended by every senior member of management. It should focus on the needs of the company five years ahead and lead to the setting of objectives in all key areas. It should appraise results in these areas achieved during the past year. And it should assign responsibility for performance in each area to individual members of the group.