Even though small businesses aspire to grow, many remain modest in size despite these ambitions. While numerous factors contribute to a company’s size, one key reason small businesses often stay small is their lower rate of initiative adoption compared to larger businesses. This article will explore why starting fewer initiatives is a significant factor keeping small businesses from growing and how this challenge can be addressed.
The Impact of Initiative Completion on Business Growth
Initiatives are strategic actions designed to drive growth, enhance operational efficiency, and capture new market opportunities. Initiatives might include launching new products, expanding into new markets, adopting new technologies, optimizing internal processes, or anything that improves the enterprise’s competitive position or profitability. Successful execution of these initiatives often results in increased revenue, market share, and overall business expansion.
A key difference between small and large businesses is the number and scale of initiatives they undertake and complete. According to a recent report by McKinsey & Company, large businesses, on average, complete 12-15 major initiatives annually, each with budgets ranging from $1 million to over $10 million. In contrast, small businesses typically complete only 2-3 initiatives of a much smaller scale, often with budgets under $100,000. This disparity in both the number and magnitude of initiatives is a crucial factor in why small businesses struggle to grow at the same rate as larger enterprises.
Resource Constraints and Prioritization Challenges
One of the primary reasons small businesses complete fewer initiatives is resource constraints. Small businesses often operate with tight budgets, limited staff, and restricted access to external funding.ccording to the Small Business Administration (SBA), the average small business in the U.S. operates with an annual budget of less than $1 million, while the average large business has access to budgets exceeding $10 million. This significant gap in financial resources means that small businesses may lack the necessary capital to fund large-scale initiatives, forcing them to prioritize smaller, less impactful projects.
Plus, the ability to manage multiple projects simultaneously is a significant advantage for large businesses. A study by the Project Management Institute (PMI) found that large companies, on average, run 8-10 projects concurrently, compared to just 1-2 for small businesses. This capacity allows large businesses to maintain momentum on multiple fronts. In contrast, small businesses often face the challenge of allocating limited resources across various needs, leading to delays or the abandonment of initiatives.
Risk Aversion and Fear of Failure
I’m going to discuss the conventional wisdom regarding small business and risk aversion and/or fear of failure; then I will discuss what I believe to be the real impediment.
Small businesses are often more risk-averse than their larger counterparts, primarily due to their limited financial cushion. For a small business, a failed initiative can have a more significant impact, potentially jeopardizing the entire operation. A survey by CB Insights found that 42% of small business owners cited fear of failure as a key reason for not pursuing larger initiatives. In contrast, large businesses can afford to take calculated risks, knowing that even if one initiative fails, they have other revenue streams and projects that can sustain the business.
This risk aversion leads small businesses to focus on smaller, less risky projects, further limiting their growth potential. For instance, while a large company might invest $5 million in a new product line with the potential for high returns, a small business might only allocate $50,000 to a modest marketing campaign, limiting the scope and impact of their growth efforts.
The More-Likely Culprit
I have coached hundreds of business owners in over 11,000 coaching sessions, and I think the conventional wisdom is wrong. Business owners are wired to take risks.
However, they also have dozens of priorities and fires tugging at them daily. This magnetic pull of daily firefighting eventually turns entrepreneurs into break-fixers. The problem with that is that a break-fixer is not moving the business forward; they are a daily operator/caretaker of the business.
If the business is profitable, a business owner can fall into the habit of showing up and doing the work that comes at them. They make a good living and don’t need to take on initiatives.
However, over time, this can be dangerous to the business. No initiatives, no real progress. No initiatives, you will lose competitive advantage. No initiatives or technology trends could destroy your business.
Lack of Expertise and External Support
Another factor contributing to the lower rate of initiative completion in small businesses is the lack of specialized expertise. Large businesses often have access to a wide range of in-house experts or can afford to hire consultants to guide their initiatives. According to Deloitte’s 2023 Global Human Capital Trends report, large businesses are twice as likely as small businesses to have dedicated experts for project management, digital transformation, and market expansion. Without this expertise, small businesses may struggle to navigate complex projects, leading to stalled or failed initiatives.
Furthermore, large businesses benefit from established networks of external partners, including suppliers, distributors, and financial institutions, that can support the execution of initiatives. In contrast, small businesses can lack these connections, making it harder to secure the resources or support needed to complete a project. The SBA reports that small businesses are 30% less likely than large businesses to secure favorable terms from suppliers and financial institutions, further hindering their ability to execute significant initiatives.
Addressing the Challenge: Strategies for Small Businesses
It’s always challenging running an SMB, but the challengers are not insurmountable. Here are some strategies small businesses can adopt to improve their initiative completion rate and, in turn, drive growth:
- Focus on Core Competencies: Small businesses should prioritize initiatives that align with their core competencies and strengths. By focusing on areas where they already excel, they can increase the likelihood of successful execution.
- Leverage Technology: Technology can help small businesses streamline operations and complete initiatives more efficiently. Tools for project management, customer relationship management (CRM), and automation can free up resources and allow businesses to focus on strategic growth.
- Outsource and Partner: Small businesses can overcome resource and expertise limitations by outsourcing certain tasks or partnering with other businesses. For example, partnering with a marketing or sales outsourcing firm can help a small business execute a successful product launch without stretching its internal team too thin.
- Build a Risk-Tolerant Culture: Encouraging a culture that embraces calculated risks can help small businesses overcome the fear of failure. By learning from failures and iterating on initiatives, small businesses can develop a more resilient approach to growth.
- Create New Funding Sources: While it can be challenging, securing external funding through loans, grants, investors, or vendor financing can provide the financial resources needed to complete larger initiatives. This funding can be pivotal in taking on projects that would otherwise be out of reach.
The size of a business is often directly related to its ability to complete strategic initiatives consistently and in a timely fashion. While large businesses have the resources and expertise to execute multiple initiatives simultaneously, small businesses frequently struggle with resource constraints, risk aversion, and lack of expertise, leading to fewer completed projects and slower growth. However, by adopting targeted strategies to improve initiative completion, small businesses can break through these barriers and achieve their growth aspirations.
