Table of Contents
This is the beginning
History
Why SMEs fail
4.Reasons of failure in SMEs (solutions).
In conclusion
This is an introductory piece.
In the last decade, academic research has been gaining momentum on small and medium-sized enterprises (SMEs). This is due to the strong logical basis in this area. This type of research, while it provides different perspectives on SMEs, focuses primarily on their success (Sarasvathy, 2014). Due to the high failure rate in the startup process, it is not surprising that studies only look at success factors. (Chandler & Hanks, 2008). According to the findings of the European Commission report titled Business Dynamics: Start ups, Transfers and Bankruptcy, 50% of new businesses established in European countries failed within five years. In addition, literature reviews on the subject show that experience gained from failures is a great way to improve career skills and knowledge (Minniti and Bygrave 2011, for example). Sitkin (2012) argues that the failure of an enterprise is the prerequisite to learning, which allows one to identify what caused the bankruptcy. Sitkin’s argument is similar to McGrath, who believes that failure allows the occupations to reduce uncertainty and find new business opportunities. (McGrath ,2009).
But, those who studied the success of SMEs and their failure did not pay enough attention to them. We know very little about how to deal with failure and learn from it (Shepherd, 2013). Scholars can also make significant progress by analyzing insolvency rather than focusing only on successes (Sitkin2012). The study aims to analyze SMEs’ failure. Due to the lack of information in this area, the extensive research conducted on the factors leading to SMEs’ failures and what they can learn from it has been undertaken.
BackgroundSmall medium-sized enterprise (SME) is a complicated identity that encompasses an economic endeavor, regardless of its form. SMEs refers to small-sized businesses which employ fewer that 250 people. The key factors in determining if a company falls under the SME category are its employees, total turnover and balance sheet. The role of small and medium-sized companies is crucial to the growth of an economy. SMEs are primarily concerned with developing many relationships that cross organizational scope to improve performance, gain, and support competitive advantage. Most importantly, they want to increase market flexibility. SMEs are faced with the challenge of determining their long-term performance (Saunila, 2013). M. Saunila, 2013, According to general evidence, successful companies are more likely than others to continue to succeed in the future.
Several studies have analyzed failure in SMEs differently. Several studies use bankruptcy as a measure of failure. According to Perry (2011), bankruptcy is defined as the legal collapse of a company and its termination of operations. This results in a loss for creditors. Everett and Watson (2008) suggest, however, that failure will only be considered as bankruptcy if it is characterized by a limited view. For example, many businesses which still operate even though they are losing money, would not be included in the analysis. (Cannon & Edmondson, 2015) argue that failure is a deviation from the expected or required results. In this context, failure can occur when SMEs do not meet their demand targets or are less serious in their processes.
Cope (2011) says that failure can be one of the most challenging, complex and valuable experiences for SMEs. This is why venture failing should be understood in the context of business.
Both individual, organization and environmental factors are responsible for the success or failure a business (Zacharakis Meyer & DeCastro (2009)). External causes are external events. Internal causes are decisions and actions under the management’s control. In many cases, there are a variety of factors that contribute to the failure of a business. Manage inability or poor leadership is the first factor (Gaskill and others, 2013). Poor management is the inability to manage the business to apply solutions to problems. In addition, Hayward and others have identified that the failure of a company is due to a lack of confidence in their ability to manage risks. al. 2016). On the contrary, poor financial management is the reason for many failures of businesses. Business failure is directly related to manager behavior and decisions.
Some academics conclude that the failure of a business is due to external causes, such as poor economic conditions (Gaskill and al., 2013, for example). Other factors such as government policies, financial resources or misfortunes can also contribute to business failure. (Cardon et al., 2010)
Some studies have also been conducted to analyze the relationship between age and failure of a business (Honjo 2010). They found that the failure of younger firms is more due to internal problems such as poor management, inexperienced, and incompetent staff, or other management errors, while mature companies tend to fail because of factors like environment, demand, and competition (Lukason Hoffman,2015). Inexperienced firms often fail because of their limited resources or lack experience (Thornhill, Amit). Recently, (Egeln 2010) has argued that inexperienced and incompetent managers are more likely to be responsible for the failure of successful young companies due to their lack of financial resources. The failure of mature companies is more often due to the inability to adapt to changes in their environments. (Thornhill & Amit, 2013,) The study of (Lukason 2015) shows that internal and external factors are very likely to cause failure in any age group of business.
4.Reasons of failure for SMEs (solutions). It is generally believed that SMEs gain from their failures. Failure provides an opportunity to learn and grow as a business (Cardon and others, 2010). Sitkin 2012 was a pioneer in the field of authors with similar views. He goes on to explain how failures can help organizations learn. According to Huovinen & Tihula (2008), failures can lead to entrepreneurial knowledge and founding experiences. According to (Politis & Gabrielson 2009), the experiences of SMEs in their work and life shape their attitude towards failure. They report that past SMEs experiences and the closure of a business were associated with a more optimistic attitude towards failure. (Cope 2011), recovery and failure are viewed as functions of distinctive higher-level processes that help SMEs learn about their own SMEs and themselves. These findings indicate that SMEs can be better prepared for the future after failure.
Two key learning outcomes are analyzed in the literature. The learning outcomes include how to capitalize on the opportunity and learn how to manage and organize a new business. The SMEs opportunity is when new goods, materials, services and methods of organization can be introduced at prices higher than their costs (Casson). The ability to recognize an opportunity and seize it is regarded by many as the most crucial skill for a thriving SMEs (Shane & Venkataraman, 2009). Venkataraman, 2017, says that people tend to be interested in information-related opportunities. The information that people possess is different because of their unique experiences. Minniti & Bygrave (2011) emphasize that SMEs failures reduce the uncertainty which can lead to new opportunities. Failures and successes can both increase the ability to recognize opportunities. Failure can also be a positive experience that helps to recognize new opportunities.
Profit from a perception of an opportunity and the behaviors you adopt to reach it (Choi Shepherd 2014). (Cooper et al. According to 2009, people are more likely than not to take advantage of opportunities if they possess useful information about SMEs gained from previous employment. This information lowers the costs associated with exploitation. Summary: Previous experience will help you to cope better with new responsibilities. It can also reduce the stress and uncertainty associated with starting a new company, like finding the necessary capital for the business. Previous experience can help SMEs gain knowledge they can transfer to new businesses.
In this exploratory work, we used a qualitative method to examine the reasons for failure of mature companies as well as their experience in learning from such failure. A qualitative analysis of this kind is necessary, given the fact that business failures play a significant role in the dynamics of contemporary economies. Researchers found that entrepreneurs attributed their failure to both internal as well as external factors. In terms of external factors, the SMEs mentioned that economic conditions and government policies were changing, as well as unlucky circumstances. The integrative approach predicts that SMEs will attribute failure primarily to internal factors and external ones (Zacharakis et.al. 2009). Failures resulting from co-partner relationships are a notable cause that can be viewed as a context factor. It is possible to attribute this finding to traditional conflict situations between partners’ families and problems with institutionalism. The Turkish culture’s high-power distance, and the high avoidance of uncertainty can be seen as contributing to this finding.
The findings indicate that entrepreneurial failure has a significant impact on SMEs’ learning. This is based on a comprehensive literature review. Participants identified unfavorable relationships as the main cause of their learning experiences. This can be linked with a lack of trust. It is important to have interpersonal trust in order to run a successful business. SMEs’ entrepreneurial experiences have shown that they are not learning to gain trust, but instead losing it. The experiences that they shared could damage their efforts to create partnerships, cooperate and collaborate in the business. You should also consider their limitations. The study has more qualitative than quantitative measurements. In the future researchers will include quantitative measures in their research for generalizability.
