Critical Success Factors from an Organizational Life Cycle Perspective: Perceptions of Small Business Owners from Different Business Environments

ABSTRACT The purpose of this paper is to identify Critical Success Factors faced by today's small business owner. Once identified, the relative importance of these factors is assessed as they relate to distinct business task environments (retailing and manufacturing/construction) and a firm's place in the organizational life cycle (years in business). The study finds that owner experience and industry trend are more critical to success of a manufacturing/construction firm in the early stages of the life cycle. Comparing retail firms to manufacturing/construction firms at the same life cycle stage, differences were found in the importance of owner experience, market knowledge, industry trend, location issues, and purchasing/inventory control. INTRODUCTION The small business sector is robust, rapidly changing and very important to die overall U.S. economy. Small businesses have continued to grow in numbers to 21.4 million in 1993. Small business dominated industries added more than one million new jobs during 1993 while large business dominated industry segments suffered a net loss of more Chan 200,000 jobs (U.S. SBA, 1994). Witii these advances small business now accounts for about 54% of the private workforce, contributes 52% of all sales and is responsible for 50% of the private sector product (U.S. SBA, 1994). Despite these success stories, small business remains a very volatile and risky arena. During 1993 small business failures declined by 11.4%, but overall failure remained relatively high at more than 85,000 failures (U.S. SBA, 1994). Exact failure rates are elusive but it has been estimated tinat 55% of small businesses fail in the first five years of operation and 81% fail within 10 years (Dawitt, 1983). Increased competitive pressure will result as the number of small businesses grow, and this pressure will be felt by both new entrants and existing businesses. When coupled with the pressures that botin new start-ups and maturing businesses feel at their respective place in the organizational life cycle, increased competitive pressure could contribute to higher failure rates in the future. Accordingly, this article seeks to identify critical success factors. Once identified the relative importance of these factors will be assessed in the context of different business types or task environments and current stage in the organizational life cycle. REVIEW OF LITERATURE Critical Success Factors (CSFs) may be referred to as few things that must go well to insure the success of an organization (Boynton & Zmund, 1984). CSFs once identified then should be accorded special or priority attention because they drive high organizational performance (Drucker, 1973). Small business performance has been studied from several perspectives focusing on causes of business failure as well as reasons for business success and small business problems. While this study is not focused on causes of small business failure, it is important to recognize the relationship of these factors to those of success. Previously, reasons for failure have been found to be due to managerial inadequacy (Haswell & Holmes, 1989), failure to plan, poor working capital management, competitive environment, overgrowth and overexpansion (Gaskill, VanAuken, & Manning, 1993), failure to seek professional advice and human resource problems (Lussier, 1995). Many studies of small business failure also have identified key personal entrepreneurial characteristics such as not possessing higher education, minority status, and not having parents who also owned a small business as important determinants of failure (Lussier, 1995). Studies of small business success consistentiy have found similar factors to tiiose found in the study of business failure. These factors include management skills, environment factors, entrepreneur characteristics, interpersonal skills, and strategic or financial planning (Ibrahim & Goodwin, 1986; Hofer & Sandberg, 1987; Lumpkin & Ireland, 1988; Lussier, 1995; Montagno. …