Research maps small business sector to unlock Aladdin’s cave
Research from the University of Western Sydney has surveyed the small business sector and discovered five distinct categories separated by growth factors, technology and access to finance.
Small businesses play a crucial role in the Australian economy, accounting for almost half of employment in the private non-financial sector and over a third of production.
Yet employment and turnover metrics categorise small firms as one homogenous group rather than a complex mix of business groups, according to lead author Professor Scott Holmes, Deputy Vice Chancellor (Research and Development).
"Small firms can't be treated as if they were large firms in miniature," says Professor Holmes.
"They are driven by a different mix of problems and aspirations, and this study unpacks and categorises the sector to allow policy makers and other agencies to better tailor their support."
To paint a detailed picture of the sector, Professor Holmes investigated the characteristics and challenges of a thousand Australian small businesses using novel data mapping techniques.
In the study, researchers presented businesses with Factor Analysis Impact Maps (FAIM), which provide unique visualizations to elicit a richer and arguably more nuanced response.
A segmentation analysis revealed five distinct groups:
- Financially Constrained Growth Aspirers (14% of businesses). This category encompasses younger businesses mostly seeking growth but struggling to achieve it, due to access to finance, managing cash flow, costs and overheads.
- Externally Impacted Growth Seekers (23%). This sector seeks growth, but 65% have performed worse than expected in the past year. Factors holding them back include general economic uncertainty, and strong competition, including online and offshore competition.
- Broadly Impacted Stability Seekers (17%). This category has lower growth aspirations, and is only moderately satisfied with performance. Almost half report worse than expected performance, with managing finances and taxation compliance commonly cited as impact factors.
- Stress-Free Stability-Seekers (26%). These businesses are comfortable and seek stability of revenue, with more than 70% satisfied with their ability to meet goals. Not surprisingly, this segment is relatively unconcerned about impacts, with all impact factors receiving below average scores.
- Technology-Oriented Growth-Achievers (20%). These businesses tend to be relatively large, with a far higher proportion performing better than expected. They report the highest level of impacts relating to technology and system change, R & D, and owner and succession planning.
Professor Holmes says this information can foster a new information based discussion, representing a departure from the single issue and anecdotal approaches currently taking place.
"This analysis provides a platform to allow a more developed dialogue with businesses owners at many levels, from advisory services to policy development," says Professor Holmes.
"We must stop paring down issues to single factors, such as access to finance- which, interestingly, at the cross sample level didn't make the top five impact factors."
The study found the top five issues impacting small businesses are:
- Economic uncertainty
- Maintaining and growing revenues
- Managing cash flows, costs and overheads
- Red tape, taxation and compliance
"All of these have remarkably similar impact ratings for small businesses, suggesting that the factors are mixed and interrelated, and no one issue dominates small businesses in Australia," says Professor Holmes.
14 April 2015
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