Study identifies issues faced as small businesses increase employee base

Stark differences occur in what matters most to small business owners as their companies evolve from very small entities with fewer than 10 employees to sizeable enterprises approaching 100 employees that resemble larger corporations, according to a new report from The Guardian Life Small Business Research Institute.

Among the compelling findings are that "personal freedom" and "maintaining work-life balance" – often key reasons why an entrepreneur starts a company – decline as small businesses grow larger. On the other hand, "creating opportunities for others" – an unexpected pleasure of running a growing business – increases. The Institute's analysis is based on a comprehensive and methodologically innovative new study, The Guardian Life Index: What Matters Most to America's Small Business Owners.

Maintaining productivity becomes increasingly difficult for small business owners as the size of their company grows. Businesses of two to nine employees tend to revolve around the owner and typically generate far higher revenues per employee than ones with 50-99 employees – between 100 percent and 400 percent higher on average, according to The Guardian Life Index. At the same time, expanding the business becomes a more dominant focus of small business owners at larger firms. Among owners of companies with 50 to 99 employees, 53 percent say they are planning to expand their business. However, at the other end of the spectrum, 58 percent of owners of companies with fewer than ten employees say they are just trying to maintain business as usual.

"Growth unleashes immense opportunities and challenges for small business owners," explained Mark D. Wolf, director of The Guardian Life Small Business Research Institute. "As companies move beyond a small, tight-knit team and become larger, more complex organizations, they increasingly look beyond their own expertise for information, operational support and professional guidance."

According to The Guardian Life Index, the following trends emerge as small businesses grow larger:

• The importance of the management team and employees rises, including the need to adopt effective practices for finding, motivating and retaining good employees.
• Professional services advisors, such as accountants, lawyers, financial advisors and insurance agents, increase in value.
• There is a growing focus on the disciplines of professional management, with an intensifying interest in improving productivity and stimulating business innovation.
• The business increasingly begins to shift its focus externally, rather than looking inward. In particular, the small business owner places greater value on membership in – and information from – professional associations, and the value and importance of the company's Web site rises.

In analyzing the shifting focus, needs and priorities of small business owners, The Institute segmented and defined four types of small businesses based on the number of employees:

• 2-9 employees – The smallest business entity, often consisting of the principal and a small, dedicated support staff. The focus is on "the principal."
• 10-24 employees – At this small business growth stage, an organizational structure exists but is informal, collaborative and collegial. The focus is on "the business."
• 25-49 employees – The enterprise is beginning to look like a formal corporation but lacks the resources for rigid departmentalization. The focus is on "the team."
• 50-99 employees – The business has grown to a size that resembles a larger corporate entity but with fewer resources. The focus is on "the organization."

"These categories provide a much richer way of understanding what matters most to small business owners at different stages of business development," said John Krubski, the researcher who designed the methodology and conducted the study underpinning The Guardian Life Index. Added Krubski, a former Yankelovich Research executive and futurist, "Regardless of the type of industry, a clear progression takes place – as employee base increases – across a wide spectrum of management and professional development issues."