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Perreault, John 0.; And OthersSuccess and Failure Factors in Small Business.Small Business Administration, Washington, D.C.Topic- 1May 6490p.Superintendent of Decuments, U.S. Government PrintingOffice, Washington, D. C. 20402 ($1.25) ; SmallBusiness Administration, Washington, D. C. 20416 (on

loan basis)

MF-$0.65 HC-$3.29*Administrative Personnel; Audiovisual Aids;Bibliographies; *Business Administration; CaseStudies (Education); Course Content; DistributiveEducation; *Educational Programs; *Failure Factors;Industry; Instructional Materials; Lesson Plans;Management Education; Participant Characteristics;Professional Continuing Education; Stimuli; *SuccessFactors; Teaching Guides; University Extension

ABSTRACTThe first in a series of subject presentations in the

field of administrative management for use by educators andbusinessmen who teach management courses is offered. The point is

made that the concept of an educational program in small-businessadministrative management involves the investigation of a series of

topics stemming from basic management functions as opposed to purelyoperational features of the business represented. The Lesson Plan is

an outline of the material covered which may be used as a teachingguide, or as a framework for developing an individualizedpresentation. The Presentation is a carefully prepared subjectpresentation which may be used as written or modified to meet localneeds and conditions. The Visual Aids are photographic copies of theset of visual aids which are available for this topic. These visualsare 8- by 10-inch colored transparencies prepared for use on overheadprojectors. The Supply Department consists of materials which may bereproduced locally for distribution to course participants. Cases inPoint list short actual small-business management cases which may be

used to augment the presentation and to develop discussion. TheIncubator provides ideas for stimulating further thought anddiscussion by the participants. A bibliography is provided, and fieldoffices of the Small Business Administration are listed. (CK)

U S DEPARTMENT OF HEALTHEDUCATION 84 WELFAREOFFICE OF EDUCATION

THIS DOCUMENT HAS BEEN REPRODUCED EXACTLY AS RECEIVED F ROMTHE PERSON OR ORGANIZATION ORIGINATING IT POINTS OF VIEW OR OPINIONS STATED DO NOT NECESSARILYREPRESENT OFFICIAL OFFICE OF EDUCATION POSITION OR POLICY

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ADMINISTRATIVE MANAGEMENT COURSE PROGRAM

Small Business AdministrationWashington, D. C. 20416

2

1964

SMALL BUSINESS ADMINISTRATION

Eugene P. Foley, Administrator

MANAGEMENT ASSISTANCE

James L. Pairis, Deputy AdministratorWilford L. White, Acting Assistant Deputy Administrator

OFFICE OF MANAGEMENT DEVELOPMENT

Wendell 0. Metcalf, Director

COURSES AND CONFERENCES DIVISION

Grant C. Moon, Chief

1

For sale by the Superintendent of Documents, U.S. Government Printing OfficeWashington, D.C., 20102 - Price $1.25

3

FOREWORD

The Administrative Management Course Program was developedby the Small Business Administration in cooperation with educationalinstitutions in 1954 to bring mothIrn management knowledge and tech-niques to the owners and managers of small businesses. Since then,more than 700 American universities, colleges, and local school sys-tems have cosponsored 2, 500 courses with this Agency. Nearly 75, 000owners and managers of small bus ine s ses have attended these courses.

This is an outstanding demonstration of public spirit and ser-vice on the part of these hundreds of educational institutions. Yet,there remain many thousands of communities, particularly those under25,000 in population and whose business establishments are all small,which have never had an administrative management course.

A committee on management education was recently formedconsisting of representatives of the Distributive Education division ofthe American Vocational Association, and the Small Business Admin-istration to study ways of meeting the small-busine s s management ne edsof these small communities. The committee recommended that a seriesof Subject presentations, including lesson plans, lectures, visual aids,case studies, and handout material, be developed to assist in the estab-lishment of administrative management course programs in new loca-tions. Further, it was felt that this material could materially assistexisting management programs, particularly by emphasizing the im-portance of continuing education for small-business owners and man-agers, and by assisting the busy instructor with his preparation.

SBA accepted the responsibility for developing a series of sub-ject presentations in the field of administrative management for useby educators and businessmen who teach these management courses.This booklet is the first in the series. We believe that these presen-tations will be particularly us eful to Distributive Education in the small-er community where library research facilities are limited and equip-ment for the production qf visual aids is not readily available.

I wish to express appreciation to the Richmond Public SchoolsSystem for granting a leave of absence to Mr. John 0. Perreault. Mr.Perreault did the research and preliminary draft of the booklet underthe supervision of Mr. Grant C. Moon, Chief, Management Coursesand Conferences Division. Mr. George C. Willman, Jr. and Mr. JohnW. Clark, Educational Specialists in the Division, have edited and pre-

4

pared the booklet for publication with the assistance of Misses MargaretTorpey and Cynthia Moreau. Artwork and visuals were prepared byMr. Michael J. Fontana and Mr. Milton H. Weber of the GraphicsBranch, Office of Adipinistrative Services.

Eugene P. Foley1Administrator

May 1964

TABLE OF CONTENTS

CHAPTER

1. Foreword

Z. Introduction

PAGE

vii

3. The Lesson Plan 1

4. The Presentation 13

5. Visual Aids 41

6. The Supply Department 45

7. Cases in Point 65

8. The Incubator 73

9. Bibliography 75

IT

7'

f

I.

A WORD ABOUT THIS SESSION

The concept of an educational program in small-business ad-ministrative management involves the investigation of a series of topicsstemming from basic management functions as opposed to purely oper-ational features of the business represented. The operational factorsvary widely, but the principles of sound administrative managementhave quite universal application.

It is anticipated that, through the medium of administrativemanagement courses or institutes, educational institutions will coop-erate with the Small Business Administration and other communityagencies in bringing the specialized knowledge and experience of aseries of management specialists to small-business owners and man-agers participating in the program.

Typically, the "faculty" of a cosponsored management coursemight include:

A lawyer,A banker or financial executive,An advertising executive,A Dun & Bradstreet, Inc. executive or a management

consultant,A trade association executive,An accountant,A Distributive Education coordinator,A school or college faculty member, in specialized busi-

ness administration or merchandising fields,An SBA Management or Financial Specialist, and/orOther businessmen.

This topic, Success and Failure Factors in Small Business,may be handled by a Dun & Bradstreet, Inc. executive or some othermanagement specialist. The U. S. Office of Education publication,Guide for Part-Time Instructors, Distributive Education for Adults,may prove useful to local instructors.

This is one of a series of subject presentations which are avail-able to the local educator. The complete set may be obtained fromthe Small Business Administration. Throughout the series, the term,"management, " includes administrative, _general, or !cm management.

The system of colored divider sheets is used in all booklets inthe series. The color code is:

vii

Grey -- The Lesson Plan. An outline of the material covered whichmay be used as a teaching guide, or as a framework for devel-oping an individualized presentation. The lesson plan containstwo columns: the left-hand column is an outline of the presen-tation; the right is a step-by-step indication of procedure, in-cluding chalk-board suggestions, quotations, discus sion points,and a keyed guide to the visual aids supplied.

Rust -- The Presentation. A carefully prepared subject presentationwhich may be used as written or modified to meet local needsand conditions. It rpay also be used as a source of informationby a person prepar'ng his own lecture.

Buff -- The Visual Aids. Fhotographic copies of the set of visual aidswhich are available for this topic. These visuals are 8- by 10-inch colored transparencies prepared for use on overhead pro-jectors. The subject presentation and lesson plan are keyed tothe visuals. A set of visuals for each subject in this seriesmay be borrowed from the nearest SBA regional office.

Green -- The Supply Department. Materials which may be reproducedlocally for distribution to course participants. Your nearestSBA office can furnish information on current availability ofSBA free publications, including titles published subsequent tothis volume.

Yellow -- Cases in Point. Short actual small-business managementcases which may be used to augment the presentation and todevelop discussion, or as the basis for a second session on thesame topic.

Blue -- The Incubator. Ideas for stimulating further thought and dis-cussion by the participants. This material may be reproducedlocally for distribution to course participants. "Assignments"are designed to aid in retention of the subject matter of thesee s ion.

NOTE: See back cover for index reference to the divider sheets.

viii

55rW0551

Instructing is like selling -

Selling

1. Approach customerPromptnessPut at easeAwaken interest

STIMULATE GROUP BY SERVING

AN INSTRUCTIONAL COCKTAIL

RECIPE

Use The Three B's (Bubbles)

O Base instruction on problems at learnerslevel.

O Blend instruction with job experience.

O Brighten instructions with variety ofillustrations, investigationsand group participation.

FOUR BASIC STEPS OF INSTRUCTION

2. Present merchandise or serviceSelect merchandise to fit needShow one item at a timeDemonstrate selling points

3. Have customer take partGet merchandise into customer's

handsLet customer "try on"

merchandiseAnswer questions and meet

objections

4. Bring sale to closeHelp customers decide; ask:

"which""for whom"when"

Be sure merchandise fitsneed

Summarize points of care anduse

Handle mechanics of salePave way for return visit

732-928 0-64-2 10

Instructing

1. Prepare the groupStart on schedulePut group at easeAwaken interest

2. Present informationGauge material to needsPresent one point at a timeShow, illustrate, question

3. Have group participateGet group to discuss

Have members demonstrateor use ideas

Answer questions and correcterrors

4. Bring meeting to a closeCheck on understanding; ask:

"why" "how""when" "what""where" "who"

Be sure group now can useinformation

Summarize "take away" ideas

Make a definite conclusionPave way for next session

How To Deal With "Difficult Customers"

(Dge

What To DoTHE "MOUTH"wants to do Take the play away from him by asking others to

comment on his remarks.

Deliberately turn to others and ask for their opinions.Avoid looking at him.

Tactfully ask him to give someone else a chance, ortalk to him in private.

all the talking.

THE "ARGUER"constantlytries to catch you up.

Keep cool. You can never "win" an argument.Always make him back it up. Ask for evidence.Avoid getting personal.

Refer the question to the group and then to him.

THE "MOUSE"is in everygroup.

Call him by name and ask him for an opinion. Askhim an easy question he is sure to answer well, thenpraise him. This person is worthy of your attention.

THE "SO-WHATER"--isinterested.

2

;

Point up something he has done as a good exampleof the point being stressed. Ask direct questionsaffecting his work.

11

TOPIC:

OBJECTIVES:

LESSON PLAN

SUCCESS AND FAILURE FACTORS IN SMALL BUSINESS

To create an awareness as to the nature and sourcesof the real problems of small business.

To outline the common pitfalls and how they may beavoided.

To introduce the need for systematized "administrativemanagement" as opposed to mere operations.

SESSION CONTENT

I. MANAGEMENT IS EASIER WHENYOU KNOW WHAT YOU'RE DOING

A. Understanding starts with ananalysis of the problem

Significance of small busi-ness in American economy

Difference between adminis-tration and operation

Some characteristics of smallbusiness that may be a sourceof problems or may developinto problems

1. Problems may result fromcharacteristics of small-business entrepreneur:

a. Independence -- Adesirable trait butone which needs tem-pering with a realisticacceptance of inter-dependence

b. Enterprise -- Adesire to put one'sown ideas or abil-ities to use

TIPS AND APPROACHES

Opening quotation or otherappropriate introduction

Quote Dr. A. M. Woodruff,this manual, page 15

Read aloud from Kelley andLawyer, page 24, or fromthis manual, page 16

Discuss the "my own businessis my Own business" attitude

Refer to SBA-MRS No. 63,April 1962, Small BusinessProblem Studies, "Patternsof Conduct" section

123

Good as long as ideasare valid in terms oflong range effects -- and where abilitiesare varied and suffi-ciently balanced tomeet all demandsupon them

c. Domination as much bypersonal and familyconsideration as byimpersonal profit-making motives

(4)

(5)

Hiring relativesBuying fromfri endsLoating on basisof personal con-venience or mereavailabilityMixed with familyfinanceOther

2. Problems that result fromenvir onmental factors

a. Business operates ina non-staticenvironment

b. Locating in inappro-priate areas

4

Too much competi-tionLack of affini-ties with sur-rounding busine s seaBusiness dried upin a decliningarea or neigh-borhood

Discuss Dun & Bradstreet finding52% didn't want any outsiderinvolved

Cite or have group memberssuggest examples

Discuss idea of "flowingstream" in business affairs

Quote from SBA publicationThe First Two Years, pages42-49, or this manual,pages 18 and 19

J.

'

c. The course of wisdom:-The small business manwho hopes to survivewill:

(1) Recognize thelimits of his ownresources andabilitiesBase businessdecisions onbusiness consi-derationsConstantly studyhis businessenvironment andthe ways he canadapt to it

(2)

(3)

3. Problems that result frominexperience

a. Most failures aremanagement failures

(1)

(2)

Difference betweenoperational andadministraiivemanagement skillsPersistency ofsame failurefactors

b. Over 90% of failuresstem from manage-ment deficiencies

(1)

(2)

Neglect, Fraud,and Disaster aremanagement re-lated factorsSpecific manage-ment failings(a) Inexperience

in line(b) Inexperience

in manage-ment

Experience of World War IIveterans

Dun & Bradstreet reports eachyear the same failure causes

Visual #1

Briefly show visuals '#2, #3, #4.These are management failurestoo, but will be dealt with morefully in subsequent presentations

Visual #5 41111,

ImplicationsVisual #6Implications

ma

14

Cases &

Cases &5

6

(c) Unbalancedexperience

(d) Incompetence

(e) Total 92%

II. OTHER FAILURE FACTORS

A. Recognizing the CommonPitfalls

Underlying factors:

1. Time to perform all themanagerial functions

2. Versatility is demandedby the lack of internalresources and spec-ialized talent

B. Contrasting management out-look of a big and smallbusiness

C. Dun & Bradstreet ReportPerennial Findings:

1. Lack of Sales

2. Competitive Weakness

3. Poor Credit and Collec-tions Policy and Procedure

4. Excessive Fixed Assetsand Top Heavy Operations

5. Inventory Troubles

6, Poor Location

Visual #7 -- Cases &Implications

Visual #8 -- Cases &Implications

Summarize with Visual # 1

Visual

Visual

Visual

# 9 - Cases &Implications#10 - Cases &Implications#11 - Cases &Implications

Visual # 12 & 13 - Cases &Implications

Visual # 14 - Cases &Implications# 15 - Cases &Implications

Visual

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11

III. SUGGESTIONS FO.R SUCCESS

A. "Keep thy shop and thyshop will keep thee."

B. Get some experience inthe line

C. Get yourself a No. 1 Boy

D. Control your inventoryand you control yourbusines s

E. Failures are morefrequently caused bypeople than by eventstrain your people

IV. IMPORTANCE OF GOOD MAN-AGEMENT TO SMALL BUSINESS

A. Underlying differencesbetween large and smallbusine s s

1. Large business hasmanagement in depth

2. Small business reliesmore heavily on "singlelevel" management

3. Individual managementmistakes are seldomfatal to large business

4. Single managementmistakes may close asmall business

Stress and summarize -write on blackboard

ENTERPRISE

EXPERIENCE

DEPTH AND MANAGEMENTSUCCESSION

INVENTORY

HUMAN RELATIONS ANDTRAINING

Cite example - Ford MotorCo. , the Edsel

LB. Big advantages of SmallOperators

Correctly managed, asmall business can makea distinct advantage ofits size

1. Simplicity - Theowner puts on histhinking cap and theboard of directorsis in session

2. Flexibility - On-the-spot decisions

3. Personal Relationship- The owner of smallbusiness has an op-portunity for "firstname" relationshipwith customers, sup-pliers, and employees

V. ONE THING MORE -

"Independence for the sake ofindependence"

Small-business man has manybosses

Small business Patterns ofInstability

VI. MANAGEMENT IS EASIERWHEN YOU KNOW HOW

A. Five underlying functionswhich constitute the foun-dation of a good manage-ment approach

17

Have group cite examples

Quote Paul W. Paustian andJohn Lewis, Jr., SBA-MRSNo. 63, Small Business In-stability and Failure, 1963.This manual, pages 33 and34.

1

1. Planning - Policies andprocedures

a. Handling change andcompetition

b. Projecting the futureoperation on the basisof past history, rec-ords, etc.

c. Check planning withwhy, who, when, whatwhere, and how

2. Organizing - Duties,positions, staffing

a. Setting up organiza-tional structure

b. Determining jobs tobe done, lines to becarried, services tobe rendered

c. Prepare job analysesfor each phase ofoperation and eachkey position

d. Establish operationaland control policies

e. Select, train, andallocate personnel

3. Directing - Leading,motivating, delegating

a. Assignment of duties,listing responsibilities

b. Varying emphasis byspecial assignment

9

. 18

c. Giving orders: verbalfor emergencies orsimple orders; writtenfor detailed, longorders

d. Good directing foundedon good organizationwhich provides

(1) Unity of command-- one boss

(2) Span of control --no more than oneman can handle

(3) Homogeneousassignment --similar functionsin one job (depart-mentalization)

(4) Delegation of au-thority -- if a manhas responsibility,he also needs au-thority to carry itout

4. Coordinating - Accomplish-ing group objectives

a. Interpret plans,policies, regulations

b. Train in groups andindividually

c. Contact coordinategroups and persons

d. Follow-up in confer-ences and meetings

5. Controlling - Measuringand correcting

10

Cite examples

Cite examples

Cite importance in smallpartnership situationsCite examples

Cite examples

Cite examples

Cite examples

Cite examples

II a. Set up required Cite examples

ii

El

controls

b. Determine standards

c. Check results

d. Correct - retrain

e. Appraise and controlcost - quality -production and sales

VII. PREREQUISITES FOR SUCCESS

Existence of a real businessopportunityManagement ability and back-groundAdequate capital and creditModern methodsInsurance against measurablerisksManagement philosophy

YOU CAN LEARN - WHAT ANDHOW

A. Are You Qualified To Learn

One learns by:a. Personal experienceb. Experience of othersc. Trade associations

and pressd. SBA - DE co-

sponsored manage-ment courses

B. Close Session

20f-!*

Relate story of Epictetus(Ep'-ick-teef-tus) or otherappropriate introduction

Discuss pros and cons

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SUCCESS AND FAILURE FACTORS IN SMALL BUSINESS

MANAGEMENT IS EASIER WHEN YOU KNOW WHAT YOU'RE DOING

Did you ever hear someone make a statement like this ? "Don'tbother me with the details, I've already made up my mind." For somebusinessmen it represents an attitude that is all too common. Small-business failures have been reported so often and sometimes so dra-matically that many people believe that the small-business operatordoesn't have a chance in the highly competitive economy of today'smarket place. They make conclusions on the bases of generalizations.

"The big fellows control this or that area of business. "

"There's no room for the little independent guy. "

"The man with an idea or a dream might just as wellforget it, put on a grey flannel suit, buy himself a brief-case, a pair of sunglasses, and become an organiza-tional man in a large corporation. "

Thus many a potential independent operator is dissuaded fromentering the field of small business, and many managers give up aftera brief trial. Too often, as the "slogan" suggests, we find that wehave already made up our minds before we have examined the specificdetails of the problem.

However, it can be easily established that the vast majority ofsmall-bus iness failures are the result of mi smanagement or uninformedmanagement rather than relative size or competition. This presenta-tion will stress management hazards and cite the high percentage ofindependent businesses that fall by the wayside because they fail torecognize their problem until it is too late. Each year on the nationalscale we witness about 440, 000 "starts" and about 400, 000 "closures"or discontinuances of small operations. This leaves us a net gain ofjust 40, 000 or about a 9 percent growth factor over starts. (This rep-resents les s than a I percent increase in the total number of busines se s. )

Not only does this constitute a lot of individual problems orheadaches for the 400, 000 "closures, " it is also the source of a bigcollective headache in our national economy. Many people, includingmany of those engaged in independent business, regard the contributionof the small firm to our national economic life as being insignificantand unimportant. Nothing could be further from the truth. It has beenreported that:

732-928 0-64-3

22

13

95% of all businesses in America are "small" bus ines se s;

40% of our total business volume is done by small firms;

40% of our working force is employed in small enter-prises.

These figures, properly understood, bring home a truth thatis most significant to every American. Small-business hazards andclosures are more than statistical quotations. They are more than theunforeseen or unrecognized problems of a few victims of their ownshort-sightedness or inexperience. They are lost jobs and lost growthin our national productivity; they are unfired weapons in the cold war;they are American men and women and their families who are forcedto live below our national economic standard of living.

All this, we sigul see, is not due to a lack of technical know-how in the various fields of business endeavor. Only rarely does onetrace a failure of an iadependent electronic enterpriser purely to alack of knowledge of the field of electronics, of a food distributor toinadequate understanding of the food trade, or of a contractor to in-experience in the building trades. Where these conditions existat all,one will generally find them combined with the "great failure of beingunable to recognize the problem. " This is another way of saying theyare lacking in "management know-how." Consequently, this and sub-sequent presentations will make a distinction between "administrativemanagement" and "operational know-how. " When I use the term, "man-agement, " I shall mean administrative, general, or toR management.

Operations are diverse and frequently individualized, especiallyin srnaller concerns. We cannot and do not pretend to bring you, oreven to know, the intricacies of the myriad of complex operational fac-tors involved in the varied fields represented in this group. But theprinciples of good administration are universal. Administrative man-agement is the bigger problem. If you have an operational problem,you may actually find that it is "a problem within a problem. " By at-tacking the larger management problem first, you may be reducing oreliminating many of your other headaches. We. propose; therefore, tohit and hit hard at the various management failure factors that havepopped up with such a persistency that they could almost be codified asan index of, or a road map to, foreclosure. We do not expect any ofyou to take that road. That is why we shall post the warning signs withsuch prominence that some of you might get the feeling they are almostblatant. If we "rattle the coffin, " so to speak, it will be because wedon't like and can't afford funerals in our economic life.

14

Business consultants, educators, and Small Business Adminis-tration financialand management personnel all agree that the problemswhich the small-business man brings to themare usually not the basicproblem; they are frequently the superficial irritations that are indic7ative of an underlying malady or weakness.. For example, .a small-busine Ss man sees his problem as the new competitor across the streetwhile in reality his business is sick because his expenses are too highas a result of not controlling his business adequately. We shall try toprobe deeply enough to uncover the real rather than the surface prob-lems involved.

PROBLEMS CAN RESULT FROM PERSONAL CHARACTERISTICS

Part of the difficulty independent bus iness men have in recogniz-ing their real problem is the fact that they are frequently so close to it,so wrapped up in it, so to speak, that they feel its effects without know-ing it exists. There's an old wall motto which every small-businessman would dowell to place on his desk or wall. It poses this question,"ARE YOU CONTRIBUTING A SOLUTION--OR ARE YOU PART OFTHE PROBLEM?"

The small-business manager who is honest with himself will,if given adequate time for reflection and self-appraisal, come to theconclusion that he is indeed a part of his own problem.

In a discussion of "Causes of Failure" presented to the member-ship of the conference on "The Problems of Training Small BusinessExecutives" conducted at the University of Colorado, Dr. A. M. Wood-ruff, Dean of the School of Government, Business, and International Af-fairs, George Washington University, Washington, D. C. , made thefollowing statement:

"The management of small business is (frequently) inthe hands of men who are the unreconstructed rebels ofthe business world. They are free from the prefabri-cated inhibitions which are impres s ed by the giant stamp-ing mills that turn out the junior executives of largecorporations, and I could name them, all of whose juniorexecutives of a certain level look alike, dress alike,walk alike, and think alike. This is not true of smallbusinesses. These fellows are rugged individuals. Al-ways remember this, gentlemen, when dealing with themand trying to educate them because you've got to deal

15

with them on this basis."

This statement tends to glorify the small-business man as theinheritor of a beloved American tradition, and as perhaps the vestigeof a vanishing type in our society. But it also poses something of aproblem. Pearce C. Kelley and Kenneth Lawyer in their book, Howto Organize and Operate a Small Business, list three characteristicsof small operators which may throw some light on the situationwe aretrying to bring into focus.

1. He has a highly developed sense of independenceorat least a strong desire to be independent of outsidecontrol.

2. He has a strong sense of enterprise--or a desire toput his own ideas and abilities to effective use.

3. He maybe as much dominated by personal and familyconsiderations as he is by impersonal profit-making 'motives, both in launching and in conducting his ownbusiness.

Oddly enough, this very independence and enterprise of the smallentrepreneur can be, and frequently is, as much an "Achilles' heel" asit is a bulwark. Harry M. Meacham, a former Dun & Bradstreet, Inc.executive (now retired), and a.strong advocate of administrative man-agement training as opposed to mere operations, was untiring in hisadmonitions to the small-business man. In a TV presentation in Hag-erstown, Maryland, he stated:

16

the character or

"What of the casualties ? Which arethe failure-prone marketers today--her e in this areaperhaps withinrange of my voice?

"Thousands of small businesses,which today are flourishing, havewithin them the seeds of destruc-tion. This may be a fatal flaw in

mental equipment of the owner . . .

Prominent among the likely casualties is the know-it-all.

"Dun & Bradstreet is always making surveys and feelingthe business pulse. Not long ago we asked a cross sec-tion of small-business men if they would accept outside

25

assistance or advice. A majority (52 percent) said theydidn't want advice from anybody. Outsiders, they said,are long on theory and short on practice. (By outsidersthey meant their banker, their accountant, their govern-ment and their suppliers. ) No, they'd make their ownmistakes.

"And they will--no doubt about that. It has been reportedthat 75 percent of these small-business men overpaytheir taxes--because they won't accept advice.

"Rugged individualism is fine--up to a point. We admirethe marketer who refuses to accept a crutch or cushion.But we criticize him for refusing to accept a light to guidehis steps. Yes, Mr. Hardhead is a candidate for thebankruptcy courts. "*

*Underscoring added.

Closely associated with the small-business man's independenceis his sense of enterprise. Some don't have enough of this commoditywhile others, it would seem, have too much. Both extremes constitutean element of danger. Risk-taking and adverturing are necessary el-ements in the make-up of an enterpriser, but there is a wide gap betweenrisk-taking and gambling. The biggest risk-takers in the world are in-surance companies -- but insurance companies don't gamble. Theycarefully examine all the facts, compare these facts with scientific-ally developed mortality tables, and then project a line of action whichinsures a return on their investment. The gambler, on the other hand,relies on chance. The small-business man who tries to do everythingby himself, or who operates "by the seat of his pants" is inviting dis-aster. At best he can generally expect to barely scrape along. Atworst, he can lose his business, his shirt, and, perhaps, his self-re-spect.

Kelley and Lawyer point out a third characteristic of small op-erators that may contain another seed of destruction.

"In many small concerns," they say, "personal factors, usuallynon-financial, dominate the impersonal profit-seeking motive. " Theseinclude community-and family ties, the age, health, and general outlookof the would-be managers.

17

26

Larger businesses tend to base decisions purely on businessconsiderations, while the small operator may be so involved in theseper s onal factor s that he puts them above purely busines s considerations .

Case histories abound of businesses that have been ruined by the com-plications of a manager's family life. There's the brother-in-law whois a bum and an incorripetent, but it's cheaper to bring him intothe bus-iness than it is to support him. There's the "big order" that goes notto the best qualified supplier, but is shunted over to Cousin Harry whohas been having a rough time keeping his raccoon coat operation goingever since the "Stein Song"went off the Hit Parade. There's the fam-ily budget that never seems elastic enough to stretch from Monday toSaturday, making it necessary to "draw" a few bucks out of the busines s .

We are not saying that any of these situations should be ignored,but we are certainly on solid ground in pointing out that the businessman who regularly follows such a line of conduct is in training to be-come a business mortality statistic.

PROBLEMS CAN RESULT FROM ENVIRONMENTAL FACTORS

An old Greek, of about 2500 years ago, is credited with devel-oping, what we might call, the theory of "tides" in human affairs.Everything flows, he suggested, so that it is impossible to swim inthesame stream twice. Shakespeare extends this thought with his famousquote, "There is a tide in the affairs of men, which, takenat the flood,leads on to fortune. "

The stream the small-business man must swim in, and tideswhich carry him to success or failure, are the variety of geographic,economic, and personal factors which constitute the environment inwhich the business is trying to operate.

A most readable and informative book has recently been pub-lished by SBA which focuses new light on these and other small-bus-iness factors through the device of case histories of 81 small retailand service firms over a two-year period. The book is called, TheFirst Two Years: Problems of Small Firm Growthand Survival. Morewill be said about this book later in this presentation and in subsequentsessions, but for the moment we would like to give you just one quote:

18

"The choice of location (geographic - social - econom-ic patterns) was frequently based on such reasons asvacancy of premises, nearness to home, familiarity

27

with the neighborhood, and availability of a businessfor sale. Too often these reasons appeared to the own-ers as good and sufficient; they did not bother to makeany objective evaluations of the locationst potentials asbusiness sites. Failing to do so, some overlooked thefact that the area was declining, that is, losing popu-lation or being by-passed because of new highway con-struction, or that it was unsuited for the type of goodsor services offered. In some instances, the businesswas too specialized, and in others, the same goods orservices were already adequately supplied by differentfirms."

The report goes on to indicate that within two years, 40 of these8 1 firms had closed their doors while other s were "marginal closures";that is, they should have been closed by all rules of economics and logicbut were being held together by a combination of bailing wire, tenacity,and stamina. Geography and other environmental forces were not theonly, or even the dominant, factors in these failures or "still births,"but they certainly played a part in the cases studied. It might be saidthat some of these "merchants" were trying to navigate a tide that wastoo full or too turbulent for their delicate crafts, while others were try-ing to swim in a stream that had already dried up.

Borrowing another idea from Harry Meacham, we can sum upthese observations with a little story from Greek mythology:

In an apocryphal debate between Homer and Hesiod regardingthe identity of the wisest man in the world, Hesiod asked the blind Hom-er, "What is the mark of wisdom among men ?" and Homer replied, "Tounderstand the present and to plan for the future."

The small entrepreneur who hope s to survive and prosper must:

(1) Recognize his own assets - and his liabilities orshort-comings and seek and accept outside helpwhen it is needed or dictated by common sense.

(2) Base business decisions on business consider-ations.

1

) Understand his business and the factors workingin and around it.

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19

PROBLEMS CAN RESULT FROM INEXPERIENCE

Today the order is change-- adapt orperish. Change and adaption require skilland technical know-how. We know that rapidbusiness changes and fluctuations result inincreased business mortality which is theusual effect of unskilled, misinformed, inex-perienced or otherwise incapable manage-ment.

1

At this point, it might be well for us to indicate a rather fun-damental distinction that is all too frequently overlooked or ignored bysmall-business men. There is a difference between technical or oper-ational know-how and managerial skill. After World War II, thousandsof ex-GI's who had received the finest technical training in such areasas electronics, construction, logistics, and distribution, and who foundready financing via the GI Bill, decided to "become their own bosses"and ventured into an independent operation. Some of these businessesblossomed and are now bulwarks of their communities. Others unfor-tunately folded with heavy los se s . The basic difference between the twogroups was the perennial problem between operating and managing.

Going back to Dun& Bradstreet's analysis of business failures,one may observe an eternal persistency of the same failure facto,rsyear after year after year. Dun & Bradstreet has reported and ana-lyzed hundreds of thousands of business failures over the years. Thesame basic reasons cause these failures.

MANAGEMENT FAILURES

Inexperience in line 9%Inexperience in management 18%Unbalanced experience 20%Incompetence 45%

92%

These four management causes of failure will be further elab-orated upon in a moment, but at this point we merely want to show thehigh percentage of failures that are the result of poorly prepared,poorly informed, or poorly organized (or disorganized) management.

Although itemized separately, the other 8 percent of failurefactors can, in most cases, be traced either directly or indirectly to

20

S.

poor management. These include:

CAUSES OF BUSINESS FAILURES 3% Neglect (which is really a neglect bymanagement)

I Neglect of Business 2% Fraud (which may be a fraud in whichFraud management is involved or at least

failed to guard against)j Disaster

1% Disaster (which management did not--I Other secure itself against by insurance,

protection, etc.)POOR MANAGEMENT I

Three hundred years ago, John Donne, the Elizabethan poet,said, "Any man's death diminishes me, because I am involved inman-kind. " So every business failure diminishes the total business andeconomic structure of the community.

Failures resulting in loss to creditor s (and so directly effectingmembers of the community other than the bankrupt businessman andhis family) totaled 14, 374 in 1963. This was a national failure rate. of56.3 per 10,000 starts. This is not a significant figure in terms of theeconomy of the nation as a whole, but it is highly significant to the 14,374businessmen involved, to their families, their employees, their cred-itors, and their customers.

Moreover, when it is realized that this figure included onlythose business closures which resulted in loss to creditors or wereotherwise "forced" by circumstances or the bankruptcy court, the fig-ure picks up new importance. For every such business that closeswith los ses to outsiders, there are undoubtedly many additional businessfailures where the losses are withstood quietly by the owner and hisfamily.

Why do some 14, 000 businesses fail annually? Why do theydie ? What can we learn from their autopsy? Let's look at some sta-tistics.

NEGLECT

About 3 out of every 100 failures result from neglect. Neglectstems from bad habits, poor health, marital difficulties, complacency,or laziness. Most of these failures could be avoided.

All too often one sees a young man start a business with everyexpectation of success: training, location, capital, a desire to excel.There seems to be every reason to assume that here is security and

21

NEGLECT

crumble before it has hadinscription.

a

stability for a family, education forchildren, and the chance to perpetuatea vision and a name.

Then the owner becomes com-placent. He begins to spend too muchtime "entertaining customers" on thegolf course, or looking for new pros-pects at the seashore. He begins todrink too much, develops a "wanderingeye" . . . and his monument begins to

chance to be inscribed with the "And Son"

Neglect is worse than poor management -- it is no managementat all. Eternalvigilence is the price of survival. Three hundred yearsago George Chapman said, "Keep thy shop and thy shopwill keep thee. "The admonition is valid today.

Since the matters of Fraud and Disaster will be covered morefully in a later presentation of this series, we merely indicate themat this point for statistical purposes. (Visuals 3 and 4)

LACK OF EXPERIENCE IN THE LINE

LACK OF

EXPERIENCE IN THE LINE

You may draw on the recordsas well as numerous personal obser-vations to develop a host of convenientillustrations to dramatize this point.Time, however, limits us to a singlecase history. You can undoubtedlysuggest others from your own obser-vation or community history.

This case points up the factthat a man can be a great success in one .line of business endeavor, andan utter hazard to himself and others in another line in which he hashad little or no prior experience.

Our case involves a merchant who had made a substantial for-tune in the wholesale food business. In fact, he was so successful thathe was able to retire at 50, an age at which the average businessmanis just beginning to mature businesswise, and -- so to speak -- get hissecond wind. In a magnanimous mood and in recognition of the sharehis employees had had in making him the success he was, he gave the

22

31

enterprise -- lock, stock, and barrel -- to his long-time associates.

After several years he became restless and bored with his self-enforced leisure and decided to get back into the business whirl.

But did he go into the food business which he knew from A to Z?No Indeed, that was "old hat" to him, and he was so full of vigor thathe wanted the challenge of the unknown -- so he went into a manufac-turing line where he lost every cent he had in the world and ended upclerking in the wholesale food warehouse he had founded.

He had forgotten the long years of apprenticeship he had servedas a delivery boy, clerk, and salesman. He thought that success inone line was his assurance of success in any line. He was wrong.

LACK OF MANAGEMENT EXPERIENCE

A. manufacturer in North Carolina had built up a very nice busi-ness, netting over $100,000 a year. After his son had finished collegeand done his Army stint, he came into the shop. He was "trained" forabout three months, whereupon "Pop" turned the operation over to Jun-ior, and headed for Europe. For a year or so thereafter Pop traveled,dabbled in politics, and lived the life of "Riley" attending fraternal con-ventions and nocturnal wing-dings. He never had so much fun -- or sohe thought -- in his entire life. But about this time he dropped aroundto talcc a look at the operation. It was row losing $100,000 a year.Mor, than that, competition had caught up with him. And so, in histwilight years when he should have been taking it easy, he's doing whathe should have done years z,go he's trying to make a manager of hisson.

This case points up two impnrtant lessons:

1. Management training -- or the lackof it -- can be of paramount impor-tance.

2. Failure to bring young people alongin the business -- which is actuallyfailure to prepare for a continti-tion of knowledgeable management

is.one of the fundamental rea-sons why some firms remain small-- or disappear.

LACK OF

MANAGEMENT EXPERIENCE

23

PRODUCTION

UNBALANCED EXPERIENCE

SALES

FINANCE

UNBALANCED EXPERIENCE

Almost 20 out of 100 man-agement failures stem from lack ofwell-rounded experience in buying,selling, financing, controlling, andproduction.

Suppose a man's personal in-terest and experience lie in produc-tion. He spends the bulk of his timein the shop -- overproducing. In themeantime, inventory piles up; andselling, recordkeeping, and cost con-

trol are left to chance, while he keeps producing -- at a loss.

We'll see later that large corporations have a key man -- ormen -- for every key job. On the other hands the small marketer mustwear all the hats -- and some of them don't fit any too well.

So here's a tip for survival -- develop your versatility.

SUCCESS AND FAILURE FACTORS

A small-business manager faces two problems that are the pe-culiar characteristics of small business.

The first is the problem of time -- time to perform effectivelyall of the management things that management should be doing. Thesecond is a problem of ready access to and use of authoritative infor-mation rather than managing by the crystal-gazing process of "byguess and by golly:"

We introduced the idea of versatility a moment ago. Do youknow that, as a small-business manager, you have to be much moreversatile than the manager of a large organization?

Large business has almost unlimited internal resources andspecialized talent available for every conceivable situation, emergency,or exigency.

24

a

LARGE BUSINESS HAS MANAGEMENT IN DEPTH

There is:

The Chairman of the Board,The President,The Administrative Assistant

to the President,The Vice President for

Financial Affairs,The Vice President for

Legal Affairs,The Vice President in

charge of Personnel,The Vice President for

Operational Affairs,The Assistants to the Vice

Presidents,Etc. ,

Etc.,

1.

In small business, on the other hand, there are generally verylimited internal resources, and one man wears all the managementhats,

He is:

Boss,Office Manager,Production Manager,Sales Manager,Treasurer,"Sea Lawyer,"Financial Analyst,"Head Worrier, "Etc. ,

Etc.

It is no wonder that some small-business managers are occa-sionally accused of crystal-gazing.

It might be fruitful if we compare the day-to-day, crisis-to-crisis, hand-to-mouth thinking of many small operators with the man-

25

agement attitude of the larger firms around them. At this point it issafe to state that perhaps the reason some businesses have gotten bigis because they have habitually done most things right.

INCOMPETENCE

INCOMPETENCE

The dictionary defines "an in-competent" as "one incapable of man-aging his (own) affairs. " Almost halfof the businessmen classified as fail-ures should never have engaged inprivate business at all, because theyare incapable of "managing affairs"-- or in blunter terms -- are incOrn-petent.

This is bad, but one quick curea controlled economy-- would not only kill the givenpatient, it would

also cause the demise of our free, competitive economy, in which aman is free to enter business, is free to succeed, free to fail, if needbe, and even free to try again.

BIG AND SMALL BUSINESSES HAVE CONTRASTING OUTLOOK

The little fellow says, "Let tomorrow take care of tomorrow.I have my hands full today."

The big fellow budgets and otherwise plans ahead a minimumof three to four years.

The small owner-manager says, "Why should I teach anybodywhat I know, and create a possible threat, when I'm running the busi-ness and making a few bucks?"

The large businesses are keenly aware of the need to operatea management development program. The hiring of young people asmanagement-trainees, in actuality, constitutes collecting a pool ofpotential management talent that may be used to meet future needs.

We're not confining these examples to the industrial giants likeU. S. Steel or General Motors. There are businesses all around youwith three to ten employees -- and not one of their employees trainedto take over in an emergency, or to relieve the manager so that he can

26

attend a trade meeting or a management course such as this one.

Here are some of the contributory causes of the managementfailures just reviewed. These strongly indicate that the small-busines sman must develop specialized assistants if he hopes to grow, or evento stay in business. In big business, mistakes that are not caught byone or the other of the levels of management are at least absorbed,and the shock is so distributed that it has only temporary effect on busi-nevi. In the case of the smaller operator, a single mistake might bethe one that calls in the undertaker or mortality statistician.

LACK OF SALES

Lack of balance between salesand other phases of the business meansthat someone is asleep on the job.There is a lack of coordination.

14kSales, of course, go much 4PA

deeper than mere point of sales con-tact. N. H. Ringstrom, head of theMarketing Department at OklahomaState University, may have been re-ferring to a particular trade in thefollowing quote from his SBA Management Research Summary, SmallBusiness Success and Failure Cases, but the implications are therefor all small businesses to draw on:

(-757-onL E

rhogY009000 Q 004010o 90900101.g 0 000010000000

INADEQUATE SALES

"In addition to areas already discussed, the successfuldealer . . . is skilled in (1) proper use of advertisingand other types of sales promotion; (2) selection ofmerchandise his customers like; (3) the pricing of thismerchandise, not only at profitable levels, but also atfigures customers are willing to pay; (4) provision forgood customer service; (5) proper selection of storelocation and good use of store layout; and (6) the insti-tution and use of internal controls, including cost ac-counting. "

Of course, Dr. Ringstrom's points overlapwith other activities;but they are all sales-connected functions which have a direct bearingon point-of-sale success or failure. These functions, incidently, willbe more thoroughly discussed in later presentations-of this series.

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16t

COMPETITIVE WEAKNESS

You can't expect to operate ahamburger stand next to the WaldorfAstoria and charge its price for yourblue-plate special. Too many bus ine s s-me n try to deal with competitor s by cut-ting prices. Generally they end up bycutting quality or service, and even-tually eliminating profit.

COMPETITIVE WEAKNESS Almost half the management fail-ures, traceable to competitive weak-

nesses, occur because owners were unable to overcome the increasedcosts resulting from competitive action. In the long run, competitiontends to reduce costs by bringing about increased efficiency among thesurvivors. Businessmen say that the best way to solve this problemis by:

1. Reducing expenses.2. Increasing sales.

There are many ways to reduce expenses but some, such ascutting quality below an acceptable standard, elimination of trainingprograms, and the hiring of "cheap" help, may prove costly in the end.

Reduction in expense without substantially cutting into qualityor service is only possible when a more efficient production and a bet-ter selling job is done. Both of these desirable ends are the directobjectives of training. Trained people reduce supervisory cost, sellhigher-profit items; upgrade sales, reduce the number of lost orders,hold down credit losses, and contribute to the prestige of the businessin a way that cannot be duplicated.

We shall have additional comments on salesmanship and salestraining during subsequent sessions of this series. At the moment,however, weld like to point out that sales training can be custom-tai-lored to your kind of business through various programs of adminis-trative and operative management offered by Distributive Education,trade organizations, and local schools, universities, and colleges.

Before we leave this subject of selling, we should point out thatsurveys show that within a ten-year period, the average small businessloses 80 out of every 100 customers it serves. Customers leave for

28

IL

a variety of reasons (many of which could be avoided):

Poor service,Indifference,Failure to settle grievances,Lower prices elsewhere,Influenced to trade elsewhere,Moved or died.

We can't do much about the last classification, but you mightbe shocked to learn that nearly 70 percent of customer losses are di-rectly traceable to indifference or poor service on the part of business.Obviously customer retention, replacement, and acquisition is a majorpart of management's job. It is generally conceded that the manufac-turing industry is decades ahead of retailing and service businesses inthe scientific approach to this important management responsibility.

CREDIT AND COLLECTIONS

Business is dependent upona constant flow of capital. Stock ispurchased and sold. If a business isto pay its own bills regularly and makea profit, it must in turn receive promptpayment for the goods it sells or theservices it renders. Many small busi-nesses get into "hot water" becausemanagement is so eager to make salesand build customer satisfaction thatcollections become a slow and painfulprocess of "wishful waiting. " All of the sales in the world won't keepa business afloat if payment is not forth-coming. It is easier to main-tain customer satisfaction with a reasonable system of prompt collec-tions, than it is to extend unwarranted credit.

ONUS MICIMS

POOR COUKTIONS

732-928 0-64-4

About 10 percent of failurescan be located in the credit depart-ment. The road to failure throughreceivables difficulties is clearlymarked. Just read the signs:

s::38

1. Lack of a clear-cut credit"policy, "

29

2. Haphazard collection procedures, and

3. Loss of your own discount because you can't meetcontract terms for lack of cash on hand.

EXCESSIVE FIXED ASSETS AND TOP-HEAVY OPERATIONALEXPENSES

EXCESSIVE FIXED ASSETS

Excessive fixed assets or toomuch building, equipment, and landinvestment, combined with top-heavyoperational expenses (payroll, sup-,plies, and, transportation), put a smallbusines s in a most hazardous position.As an example, transportation maybe an essential expense, but trans-portation to the golf course might bea one-way ticket to the bankrupta..ycourt. Almost 7 percent of small

businesses fold up because their money gets all tied up in equipment.A recent business obituary revealed that a young man started out underthe most favorable conditions:

Adequate training,Sufficient capital,Good location, and aCompetitive product.

Yet he failedwithin six monthsbecause he spent too much on flashyfixtures, a high-priced car, and a ma-hogany-paneled office -- all of thisfor a variety store in a small town.It could have been a most profitableenterprise, but this is a shirt sleeve kindoperated by a man in a tuxedo from.behindany desk.

30

TOP HEAVY EXPENSES

of business that cannot bea six-foot polished making-

rt:t 39

INVENTORY TROUBLE

Have you ever been temptedto heavily overstock a particular item-- just because somebody is anxiousto make you a "deal"? Be alert toopportunity, but remember that behindevery bargain there is some kind ofstory. Eight out of 100 failures arethe result of poor judgment in buying.Many small businesses fail to makefull use of their service wholesaler.Watch out for quantity purchases whichyoucannot sell or usewithin a reasonable p

INVENTORY TROUBLE

eriod. You may not realizeit because you don't actually see the cash going out, but it is costingyou money just to hold such nonmoving items in stock. If you were toprorate your rent cost according to stock lines, you would get a truepicture of what kind of a bargain you got when someone unloaded thatslow-moving merchandise on you.

LOCATION

POOR LOCATION

We have already alluded to thefact that all too frequently in smallbusiness the matter of location is de-termined to a large degree by non-business considerations. This some-times results in the business beingoriginally located or remaining in anarea from which a substantial portionof its market has departed. About 2percent of failures, year after year_,result from "location problems. " In

a somewhat exaggerated example, Joe has a haberdashery in the desert- - but a shopping center full of haberdasheries might be aneven worselocation. If you are starting a new enterprise -- or opening a branch- - study locations and relate them to your enterprise. Certain busi-nesses have "affinities" for each other; that is, they act like magnetsby draming in mutually profitable "traffic." Restaurants, theaters,and supermarkets, for example, draw people who stay a while andshop a whole area. Service stations, wholesalers, and constructionfirms tend, on the other hand, to bring only touch-and-go traffic. Studyaffinities.

31.

40

IMPORTANCE OF GOOD MANAGEMENT TO SMALL BUSINESS

Having pointed out the more common hazards of business and,we hope, having convinced you that failures are caused by people ratherthan events, we would like now to move on to a more positive aspectof the picture.

We have to some extent outlined the differences in managementapproaches and management problems between big and small business.It might be well to restate four basic points:

1. Large business has management-in-depth.

2. Small business relies more heavily on single-levelmanagement.

3. Individual management mistakes are seldom fatalto large businesses.

4. A single mistake on the part of a small-businessman may result in closure of the firm.

But let us not get the impression that big business has all theadvantages. Increased size may improve efficiency up to a certainpoint, but beyond that point, size can become a disadvantage. Bigbusiness can become ponderous and slow-moving, while small busi-ness, competently managed, can make a distinct advantage out of small-ness. Factors on the plus side for properly controlled small businessare:

32

Simplicity -

Flexibility

The owner puts on his thinking cap, and theboard of directors is in session.

- He can make on-the-spot decisions in thetime it takes a supervisor in the large firmto get an appointment with his own boss.

Personal Relationship - The owner of the small bus ines scan get to know the first names of his cus-tomers, what they are buying, and whatthey are thinking.

These factors can only be developed into positive business as-

41

Ii

sets by management that is aware of the management function as op-posed to the operational function, and which is prepared to use theprinciples of scientific management in combination with flexibility,simplicity, and personal touch.

ONE MORE THING

We must honestly face the fact that the operation of an inde-pendent enterprise is probably the toughest line of endeavor an indi-vidual can undertake. The fellow who merely desires "independencefor the sake of independence, " or whose sole reason for going intobusiness is to be his own boss, might be sorely disappointed. Theindependent entrepreneur probably has more bosses than he realizes.These are:

1. The local, State, and Federal regulatory bodies,

2. The resource agencies or suppliers who controlmaterial flow, and sometimes storage, credit, andsales policy,

3. The financial backer and creditors,

4. The customers,

5. The demands and cycles of the market itself, and

6. The demands on the manageris personal life.

All of these call for a mature, balanced personality and an ag-gressive, diplomatic character. Independent business is not the placefor the weakling or the person determined to take it easy. Paul W.Faustian, Professor of Economics, and John E. Lewis, Jr. , ResearchAssociate, University of Alabama, in an SBA Management ResearchReport, Small Business Instability and Failure, list certain "Patternsof Instability" which include these characteristics of weakness:

Failure of operator to keep his head in a crisis,Personality deficiencies of the owner,Tendency toward short-run maximization,Inability to adapt to changing conditions,"Hibernation" rather than failure,Laziness of operator or owner,

.42

33

Unjustified cash drain in the form of salary,Imprudent extension of credit, andOperation of the business as a sideline.

Also included in any listing of advantages and disadvantages,or large versus small contrasts, are the following not insurmountablefactors affecting the small-business man:

1. Independents can't get quantity discounts and otherbuying economies -- unless they join buying groups.

2. Independents are limited financially in meeting chaincompetition in such areas as advertising and salespromotion -- unless they form cooperative promo-tional groups or are in effect franchised dealersrelying on supplier promotion.

3. Independents are limited in taeir opportunity to ex-periment with products, services, or techniques...ince they can't spread the risk as thinly as largerorganizations.

4. Independents frequently are limited by size to theprocesses, techniques, and equipment they may useor can afford to use.

A careful consideration of all pertinent factors is dictated bothby the very nature of small enterprises and by common sense.

MANAGEMENT IS EASIER WHEN YOU KNOW HOW

This entire series of presentations is intended to provide achannel for the exploration of the various aspects of management know-how. At the moment, we will content ourselves with five underlyingfunctions which constitute the foundation of a good management ap-proach. These' are planning, organizing, directing, coordinating, andcontrolling; and, briefly outlined, they should cover:

34

A. Planning - Policies and Procedures - HandlingChange, Competition, Decision-Making

1. Projecting the future operation on the basisof past history, records, and experience in

1

the existing market.

2. Check the planning process with:

Why?When?Who?

What ?Where ?How ?

B. Organizing - Duties, Positions, Staffing

1. Setting up an organizationstructure.

L731±1 2. Determine jobs to be done,

lines to be carried, serv-ices to be rendered.

3. Prepare job analyses foreach phase of operationand each key position.

4. Establish operational and control policiesto effectively and profitably accomplish theobjectives of the business.

5. Select, train, allocate personnel.

C. Directing - Leading, Motivating, Delegating

1. Assignment of duties, list,ing responsibilities.

2. Varying emphasis by spe-cial arrangement.

3. Giving current orders.Verbal for emergenciesor simple orders. Writ-ten for detailed, long or-ders.

4. Good directing is founded on good organiza-tion which provides:

a. Unity of command - one boss.

35

44

b. Span of control - no more than a mancan handle.

c. Homogeneous assignment - similarfunctions in one job or department.

d. Delegation of authority - if a man hasa responsibility, he also needs au-thority to carry it out.

D. Coordinating - Accomplishing Group Objectives

1. Interpret plans, policies, regulations.

2. Train in groups and individually.

3. Contact coordinate groups and persons.

4. Hold follow-up conferences and group meet-ings.

E. Controlling - Measuring and Correcting

1. Set up required controls on such items asoperational expenses, lines carried, pro-motional efforts, customer services, andso forth.

2. Determine standards.

3. Check results, evaluate.

4. Correct - retrain.

5. Constantly appraise and control -

a. Cost

b. Quality

c. Production and sales

36

PREREQUISITES FOR SUCCESS IN BUSINESS

Having considered the cause of failure, it is now possible toformulate certain of the prerequisites for success.

Existence of Busirv-ss Opportunity

The first prerequisite for business success is the existence ofa real, not merely an apparent, business opportunity.

This means that the firm must sell goods or services neededand desired by the public.

Obviously, a small entrepreneur must first check the public needfor his goods and services. Second, he must examine the availablemarket as to sales potentials at various prices.

The elasticity of demand and the possibility of expanding saleswith advertising must also be estimated.

Management Ability and Background

The second prerequisite for success in both a large.and a smallbusiness is real management ability on the part of its managementteam or manager.

Concretely, this means skill in handling men, money, and in-ventories, along with ability to formulate wise policies, select propermethods, merchandise aggressively, and create good relationshipswith employees, customers, and the general public.

A minimum of three year& experience in the given line, or aclosely related line, is recommended. Preferably some time shouldhave been spent in a management capacity.

Now why is all of this experience needed? It makes it possiblefor the small entrepreneur, Ls well as for the big business executive,to know the tax angles, insurance needs, relationships to regulatoryagencies of government, and the labor laws currently in force that areapplicable to his business.

37

06

It acquaints him with operating and office methods and pro-cedures, the need for adequate records and reporting systems, themeaning and the proper use of various controls afforded byaccountingand statistics, and the importance of participation in civic affairs.

Adequate Capital and Credit

Another requirement for suc-cess is adequacy of capital and credit,together with a knowledge of how touse both properly in financing opera-tions.

It is recommended that equity(ownership) capital be as large a partas possible of total capital invested.

Working capital, at the incep-tion of operat:ons, should be sufficient to assure operations for a min-imum of six months, but preferably for twelve months.

Modern Methods

Another prerequisite for business success, closely related tothat of management ability, is the use of modern methods, research,and a scientific approach to solution of the problems of the business.

Insurance for Measurable Risks

A final prerequisite for busi-ness succe so is to identify all possiblebusiness risks and to make provisionfor those that are insurable by takingout appropriate insurance policies.This topic will be fully covered in asubsequent sesqion.

38

MANAGEMENT PHILOSOPHY AND BUSINESS SUCCESS

There are those in business who would scorn the notion that themanagerial philosophy of those operating a business can make a con-tribution to business success. However, successful management hasa philosophy which can be stated as follows:

1. Be readily adaptable to new methods and new prod-ucts.

2. Adhere to the theory and practice of mass produc-tion for mass distribution, if feasible. For firmscatering to special markets -- such as specialtygrocers who sell imported delicacies only -- thisis not practicable.

3. Play fair with labor, recognizing the worker as apartner in the enterprise.

4. Exercise a well-developed sense of civic responsi-bility.

YOU CAN LEARN WHAT AND HOW

Perhaps a number of youare back "in school" now for the firsttime in a number of years. It might be well, therefore, to recall astory about Epictetus (Ep'-ick-tece-tus), a teacher-philosopher of 2000years ago. One day one of his students asked him, "Master, why isit you never address any of your remarks to me?" And Epictetus re-plied, "Are you qualified to learn?" To borrow a term, one must beready, willing and able to learn.

In this age of exploding technological and social change, spe-cialized training is essential. One recognizes the need h.: appren-ticeship or internship in nearly all trades or professions. Why is itthat so many think they can start and conduct a business in our highlycompetitive economy, without study, experience, or training?

Increasing automation in the shop and office, nuclear power,agricultural and commodity production which threatens to overrun us-- how are we to learn to cope with these complex techniques exceptthrough continuous education?

48

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3

You can, of course, learn much by your own experience -- butthe School of Experience is one of the most expensive ways of securinga business education. The money that is lost daily in the trial-and-error classroom would stagger the imagination if it could be recordedand compared with other educational costs.

You can learn from the experience of others. But this too istime-consuming and haphazard.

You can learn from your_ supplier, your trade association, andthe other resource people who stand ready and available to share theirbusiness and professional know-how if you only go to them with will-ingness, openness, and confidence.

You can, perhaps, learn best by doing what you are now doing --sitting down to a series of practical give-and-take conferences on theproblems and potentials of effective management.

Your Distributive Education Service is a function of your localschools and your State Board of Education. The Small Business Ad-ministration is an agency of your Federal Government that has as itsspecific function the fostering and protection of small business. To-gether both agencies stand ready to help you.

Finally, one parting shot. Don't let the future tome to you asan unwelcome guest. Don't let it be the past again, entered throughanother gate.

If you are receptive to new ideas and new techniques, if youagree that all you have learned in your lifetime has not been an ed-ucation, but the beginning of an education, if in short, you beLieve withH. G. Wells that: "Human history becomes more and more a race be-tween education and catastrophe." and if you act accordingly -- thefuture is yours -- wrap it upi

40

\

!

.

USE OF VISUAL AIDS

WHAT TO USE WHEN AND HOW TO USE

Chalkboard

(....

Posters, Charts, andDiagrams

Hand-Ont Materials

Films and Film Strips

Samples, Forms, andExhibits

Pedenal Chart

732-928 0-64-5

Study and plan before a meeting what to puton the board and where to put it. Use it topresent sketches, diagrams, outlines, defini-tions, key words, directions, record of classcontributions, and summaries.Suit material to board space.Write plainly and quickly.Keep wording simple.Stand at one side of board while referring to

Talk to the group, not to the board.Erase material no longer needed.

To arouse interest and attract attention ; toshow relationships and trends ; to inspiregroup.Use device large enough to be seen.Post where everyone can see.Present at right time.Discuss information illustrated.

To present information uniform in characterand as a guide to material covered; emphasizekey points; arouse interest and discussion; re-view or summarize discussions; and serve aspermanent reference.Select to serve a definite purpose.Introduce at right time.Distribute in manner to convey its importance.Direct members how to use.

Present an overall view; introduce a new sub-ject; emphasize specific aspects of a subject;arouse interest; summarize.Select carefully to relate to the discussion andplan presentation. Arrange room and equip-ment for showing. Alert the audience for theshowing or what will be seen. Run the film.Discuss the subject matter and summarize.

Keep subject matter practical; show develop-ment of a process; increase understanding.Select only enough to illustrate, not confuse.Pass around if necessary.Take time to present clearly.Comment when presenting.

A pad of newsprint sheets or similar paper maybe used for the same purposes as the chalk-board. Material recorded with chalk orcrayon may be saved for future reference bythe group or by the instructor.

51

OVERHEAD PROJECTUALS1

1 7,r 7971,

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WHY BUSINESSES FAIL

Underlying Causes of Business Failure

Figures are rouncled out since percentages vary little fromyear to year. If desired, current figures may be obtained from anyDun & Bradstreet, Inc. office.

Underlying Factors

NeglectFraud

1% DisasterUnknown

Total

Management Failures

9% Lack of experience in line18% Lack of management experience20% Unbalanced experience45% Incompetence

Total 92%

The above four management weaknesses resulted in failurethrough:

/32-928 0-64-6

48% Inadequate sales9% Top-heavy expenses

10% Poor collectionsInventory troublesExcessive fixed assetsLocation problems

21% Competitive weaknessOther

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SMALL BUSINESS

ADMINISTRATION

9nanagementResearch Summary No. 9

Washington 25, D. C. January 1961

PROBLEMS OF SMALL RETAILERSBy I. b. McKeever, University of Wyoming, Laramie, Wyoming.

HIGHLIGHTS

The extension of credit, with slow pay-ment by customers, was the financial problemmost frequendy mentioned by the businessmencooperating in the study summarzed here. Abuild-up of accounts receivable to the detrimentof cash balances inevitably leads to a shortageof capital for the financing of other basic busi-ness functions.

Very few of the employers surveyed com-plained of high wages; most complaints con-cerning labor dealt with competence, initiative,attitudes, and productivity of employees.

Many employers do not recognize the factthat added costs resulting from high labor turn-over are a major problem.

Financial ratio analysis is essential tothe understanding of business operations. Itreveals weak spots and provides a basis forremedial action.

Planning, forecasting, and control shouldnot be looked upon as functions of large firmsonly. No matter what the kind or size of busi-ness, a prime requisite to success is the main-tenance of proper sales. Inventory and priceratios in relation to pre, ging economic con-ditions.

The purpose of tht project reported here insummary form was to determine and define the ad-ministrative and managerial problems faced byWyoming's independent retailers. Personal inter-views and mail questionnaires were used during thesummer of 1959 to gather data from 487 businesses.The businesses may be classified as follows:

Typo Numbfo Percent

Service Stations 52 10.8Liquor, Beer, Bars 39 8.0Grocery Stores 52 10.8Drug Stores 28 5.7Reetaurants, Cafes 56 11.6Dry Goods, Department,

Mercantile Stores 20 4.1Candy, Confectionery,

Retail Bakery Stores 11 2.2Florists and Nurseries 14 2.8Flour, Feed, Grain

Fertilizer, etc. 10 2.0Furniture, Appliance Music

Stores 45 9.3Apparel Stores 41 8.8Jewelry Stores 16 3.5Hardware &Sports Stores 26 5.1Variety Stores 9 1.8New Car, Auto Accessories,

Farm Equipment 66 13.5

Total 467 100.0

JNO

From the responses to the questionnaire used inthe study, a pattern emerged that can be consideredas defining the major problem areas of small retail-ers in Wyoming.

LABOR PROBLEMSOf the 487 businesses studied, 439, or 9) percent

hired employees either part time or full time. Twohundred and seventy-nine of the 439, or 64 percent,mentioned the procurement of competent, qualifiedemployees as a major problem. Many felt that therewas a general shortage of labor, but the problem wasmost acute where technical training or experiencewas needed for efficient performance on the job.

This seems to point to the conclusion that smallbusiness management faces the necessity of trainingits own employees. However, responses to questionsregarding training practices indicated that very fewtraining programs exist. In those that do exist, the

AVAILABILITY OF THE FULL REPORT

Copies of the full report, titled "A Study of the Problems of Small Retailers in Wyoming," may be ob-tained free upon request, from the Division of Business and Economic Research, College of Commerce andIndustry, University of Wyoming, Box 3275, Laramie, Wyoming.

This report was prepared under a grant program of the Small Business Administration. It may be re-viewed at any SBA field office or at certain depository libraries whose addresses may be obtained from theSBA field offices or from the Small Business Administration, Washington 25, D.C.

5949

2

training is very informal and limited. There were afew instances where franchised dealers such asthose selling new cars and farm equipment senttheir mechanics and sales personnel to companyschools.

Another problem mentioned frequently was that ofkeeping competent employees once they were hiredand trained. Analysis of financial data relating tolabor turnover indicates that the added costs resultingfrom high labor turnover are a major financial problemthat is quite often not recognized by the employer.

Strangely enough, very few employers complainedof high wages. Most complaints concerning labordealt with competency, initial ive, attitude, and pro-ductivity of employees.

COMPETITIONThe various aspects of competition were consider-

ed major problems by a large number of retailers.Specifically, remarks centered about such competitivefactors as (I) excessive number of businesses in onearea, (2) chain store competition, (3) competitorsoffering special discounts to attract customers, and(4) price cutting. A large number indicated that theircompetitors had a better advertising program, wereable to buy at lower prices, had stronger financialpositions, had better locations, or were older, moreestablished firms.

Some of the methods utilized to meet competitionwere price cutting, offering better service, provisionof better parking facilities, offering better qualityproducts, and extension of credit.

MERCHANDISINGAs might be expected, these retail businesses

considered the problem of merchandising one of theirgreatest challenges. How to increase customer trafficand, hence, sales volume was the major problem inthis area.

The dilemma of advertisingto whom, where,when, and howalso posed difficulties, although ingeneral, the retailers seemed to feel that advertisingwas an effective means for increasing sales volume.Two hundred and fifty-one respondents, or 52 percent,indicated that no attempt was made to measure theeffectiveness of the various media.

To many retailers catering to the tourist trade,seasonal fluctuations presented another major merchan-dising problem. The seasonal aspect,in turn, createdother business problems such as financing, and re-tention of qualified labor during the slack periods.

BUYINGThe major buying problems were (1) lack of

sources of supply, and (2) the where, what, andwhen problems.

A possible cause of the source-of-supply problemis the large land area and sparse population ofWyoming, as well as its distance from more heavilypopulated areas. These factors may combine to re-duce the competition among suppliers to the disad-vantage of Wyoming merchants. A possible, or at

50

leut partial, solution might be some type of mer-chants' cooperative. A possible solution to theproblems of what to buy, and when and where tobuy it, might be a more extensive and intensiveanalysis of markets by the retailer.

PLANNING AND FORECASTINGTwo hundred and twenty merchants reported that

they did not attempt to forecast sales, costs, orbusiness conditions. Four hundred and twenty sixor 87 percent, indicated that they did not budgetcash outlays and income, nor make any attempt tobudget othcr expenditures.

Two hundred and thirty-four merchants said theyhad never determined the amount of sales needed tocover total costs and expenses of doing business.In other words, almost 50 percent of the businessescooperating in this study had no concept of theirbreakeven point, a factor so crucial in proper plan-ning and control of expenditures.

Planning, forecasting, and control are often look-ed upon as functions only of large manufacturers andnot applicable to retail units. Actually, no matterwhat the kind or size of business, a prime requisiteto success is the maintenance of proper sales, in-ventory, and price ratios in relation to prevailingeconomic conditions. At the present time, manybusinesses are succeeding because of the prevail-ing favorable economic conditions. The questionthe retailer must constantly answer is, "Could Isurvive a recessionary period or a major readjust-ment of prices?"

FINANCIAL PROBLEMSFinancial aspects of the business posed a major

problem to the Wyoming businessmen. The extensionof credit with slow payment by customers was thefinancial problem most frequently mentioned. Ex-tension of credit was practiced widely 346 busi-nesses extended credit to all customers and only64 did not extend credit at al!. (Seventy-sevenbusinessesrestaurants, bars, and concerns of asimilar natureextended credit on a selective basis.)

Another major financial problem was lack ofworking capital. This, of course, has a direct re-lationship to the problems of credit extension andslow payment. A build-up of accounts receivableto the detriment of cash balances inevitably leadsto a shortage of capital to finance other basic andnecessary business functions. Two hundred andeight businesses-43 percentindicated either thatthey did not have sufficient cash with which to payweekly expenses and suppliers, or that they wereoccasionally pinched.

Lack of financial analysis is known to be arather common problem among small business manage-men throughout the nation. It is also a problem forthe small businesses taking part in this study. Forexample, 294 businessmen indicated that they werenot familiar with financial ratio analysis, and another40 stated that they had some knowledge of-such

60

1

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IT

ratios but did not use them in their businesses. Onehundred and fifty-three said that they were familiarwith and did use financial ratios in analyzing oper-ations of their businesses. The use of financialratios by this latter group, however, was generallylimited to a net sales-cost-profit relationship andomitted many ratios necessary to good analysis.

Three hundred and sixty-seven, or 75 percent, ofthe cooperating retailers felt that a better financialanalysis of their business could be made. Responsesto another question revealed, however, that 224 busi-nessmen, or 46 percent of the total, did not have theeducation or experience necessary to make a rationalanalysis of their financial statements.

FINANCIAL RATIO ANALYSISFinancial ratio analysis is r ot a panacea, but

it is essential to the understanding of operations.It reveals weak spots and provides a basic for re-medial action.

A considerable amount of financial data was re-quested from the firms included in the survey. Inturn, each participant was promised a financialanalysis of his own firm and a comparison of hisbusiness ratios with those of the group cooperatingin the study and with the national averages. Seven-teen ratios were computed for each firm and the

3

averages for each classification (shoe stores, hard-ware stores, drug stores, etc.) were computed.

Of the 17, five key ratios are shown in the ac-companying table. The five, chosen because theyare frequently used in financial ratio analysis, areexplained below.

Inventory Turnover Based on Cost of GoodsSold. This ratio was computed by dividing the annualcost of goods sold by the average inventory at cost.The result indicates the number of times the retailerturns the dollar volume of his stock annually. Theratio is subject to some criticism because so manyretail businesses make a physical inventory onlyduring the last week in December. The ratio wouldbe more meaningful if the retailer inventoried month-ly and computed a 12- month average inventory.

Among the Wyoming retailers studied, inventoryturnover was less in 17 of the business classifi-cations than the national average for those classifi-cations. This probably indicates that attentionshould be given to improving methods of inventorycontrol and to increasing sales in order to make theWyoming ratios more favorable.

Average Collection Period. Two computationsarenecessary to arrive at an average collectionperiod in days. The first is to divide the totalannual credit sales by 365 days. (Credit sales are

SELECTED FINANCIAL RATIOS OF RETAILER GROUPSU

InventoryTurnoveron Cost of

Goods Sold

Aver090Collection

Period (Days) Current Ratio

Cost of GoodsSold to

Net Sales(Percent)

TotalExpense toNet Sales(Percent)

Wyoming National Wyoming National21 Wyoming Notional Wyoming National Wyoming National

Service Stations 23.8 21.3 37 7.1 jj 74 77 17 22New Car Dealers 5.4 8.! 136 3.4 1.9 84 86 13 13Auto Accessory 5.5 5.2 112 3.5 1.7 80 67 26 30Farm Equipment 3.7 3.7 70 2.9 2.2 79 81 15 16Furniture Stores 3.1 3.1 167 7.3 2.7 89 66 23 32HousS..old Appli-ances, Radio,Music 3.4 4.4 135 5.8 2.0 67 73 28 28

Shoe Stores 1.6 2.1 88 5.0 2.5 65 64 20 AGeneral Clothing 1.7 2.9 - 13.9 2.8 87 66 23 32Ladies Wear 3.7 4.3 81 8.3 2.5 86 64 21 34Mons Wear 1.5 2.3 156 8.1 2.4 68 63 24 34General and Mercan-

tile Stores 7.6 3.5 58 15.9 2.8 713 70 17 27Dry Goods, Depart-

ment Stores 2.4 3.5 - 11.9 2.9 75 67 23 31Jewelry Stores 1.3 1.3 235 5.7 2.3 51 57 29 41Variety Stores 1.9 2.9 124 18.5 63 61 30 38Candy, Confection-

eries, Retail Bak-eries 9.7 11.8 59 8.5

2 j

21 54 84 26 35Florists, Nurser's.. 5.8 7.4 34 4.3 1.4 44 57 41 41Flour, Feed, Seed 7.8 8.9 86 3.2 3.1 79 79 18 19Wine, Liquor, Beer 8.0 8.2 - 11.7 1.7 81 83 26 14Groceries 15.1 19.1 59 9.2 1.5 83 84 II 15Drugs 3.4 4.3 90 7.2 2.5 88 71 21 S'7

Restaurants, Drive-ins 51.5 22.4 19 3.6 .9 49 47 42 50

Hardware 2.5 2.8 99 8.7 2.9 87 71 25 28Sporting Goods 5.0 3.1 319 7.9 2.5 78 73 18 25

jj National-average figures are taken from published information contained in Statement Studies (Robert Morris Associates)and Operating Ratios for Forty-one Lines of Retail Trade (Dun and Bradstreet).Not available

1 5 1

4

account sales exclusive of installmenusales.) Theresulting figure represents average daily creditsales. The second computation is to divide theoutstanding accounts receivable at the end of theaccounting period by the average daily credit salesdetermined in the first computation. The resultingfigure represents the number of days of credit salesin accounts receivable.

The unusually high average collection periodfound in several of the retail classifications may bedue to one or both of the following reasons:

1. A substantial number of account sales aremade during the last few weeks of the accountingperiod, i.e., during the Christmas season.

2. Collections of accounts receivable are veryslow.

If the assumption is made that most firms extend30-day credit, the data indicate that practically allthe retailer groups have permitted control of accountsto get out of hand.

Current Ratio. The current ratio is computedby dividing current assets by current liabilities.The resulting ratio is usually expressed as the re-lation of dollars of current assets to one dollar ofcurrent liabilities; i.e., the first current ratio inthe table, 7.1, should be read as $7.10 of currenta:%sets for each $1 of current liabilities.

The data shown here on current ratios indicatea generally favorable pattern among the firms inthe survey.

Cost of Goods Sold to Net Sales. The cost

of goods sold includes the purchase price of in-ven,ory plus f..eight and less discounts. The ratiois determined by dividing this cost by net sales.The resulting figure is the percentage of the net-sales dollar devoted to costs of goods. The differ-ence between the cost-of-goods-sold percentagefigure and 100 percent represents the percent of thesales dollar available for operating costs and pro-fits.

For the Wyoming retailers surveyed the cost-of-goods-sold percentages as shown in the table arealmost equally dtvided as to favorable or unfavor-able when compared to national percentages.

Total Operating Expense to Net Sales. Thiscomputation is made by dividing total operatingexpenses by net sales. The resulting figure isusually expressed as a percentage. The figurewhen subtracted from the gross profit percentagerepresents the net profit in percent, before incometaxes, owner's salaries, and other income and ex-penses. For control purposes, the ratio is an ex-cellent one to indicate trends in operating expenses.

The percentages for the Wyoming firms comparevery favorably with the national averages. It ap-pears, therefore, that operating expenses amongWyoming firms included in the survey are ipmerallyless than for the nation as a whole. Since labornormally represents a substantial part of operatingexpenses, further analysis would probably revealthat the lower operating costs of the firms surveyedresult from lower labor cost.

Copies of this Summary are available free from field offices and Waphington headquarters of the Small Business Administration.However, the Summary and the report on which it is based represent the findings of the grantee and not the official position ofthe Small Business Administration. In reviews and referdnces, recognition to the grantee and to SBA ay the sponsoring agencywill be appreciated. Use of official mailing indicia to avoid postage is prohibited by law. Use of funds for printing this publi-cation approved by the Director, Bureau of the Budget, November 7, 1 961.

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1

SMALL BUSINESS

ADMINISTRATION

U. S. Gnvernment Agency

JOHN E. HORNE,

Administ.otor

9negnagentantrAluaft'

-irt.11)It

Washington, D.C., March 1962

Research Summary

Small Business Success and Failure CasesPrepared for the State of Oklahoma Department of Commerce and Industry

By N. H. Ringstrom,* Professor and Head, Department of MarketthgOklahoma Stott, University, Stillwater, Oklahoma

HIGHLIGHTS

Studies of contracting firms in theconstruction industry and of home fur-niture and appliance retailers broughtout these points:

The successful contractor (1) pre-pares detailed cost estimates beforesubmitting a bid; (2) knows his capabil-ities and those of his firm and operateswithin them; (3) keeps close track ofhis costs on each contract and the re-lation of these costs to those budgetedin the original estimate and bid; (4)recognizes his limitations and seeksprofessional help when he needs it.

The successful home furniture andappliance dealer (1) starts his firmonly when it can be properly and ade-quately financed; (2) is careful ingranting credit; (3) gives careful atten-tion to the selection, training, andsupervision of his employees; (4) under-stands all phases of merchandising.

Some business firms succeed and othersfail in the same types of business activityand under similar circumstances of timeand area of operations. Why? Can the

reasons for success or failure be dis-covered?

The study summarized here undertakesto establish some markers on the roads tobusiness success or failure for two typesof small businesscontractors in the con-struction industry and home furniture andappliance retailers. These markers weredetermined on the basis of personal inter-views with businessmen, bankers, lawyers,accountants, and others whose experiencequalified them to express informed andunbiased judgments on the success orfailure of the business firms under study.

CONSTRUCTION INDUSTRYCONTRACTORS

Most contractors in the construction in-dustry are small businessmen. Some largefirms operate in this field, but usuallymajor construction tasks are accomplishedby assembling through subcontracting theresources of a number of small firms. Theconclusions that follow are based on a studyof a number of such contracting firms inOklahoma.

AVAILABILITY OF THE FULL REPORT

1Ip

Copies of the full report, titled "Case Studies in Business Success and Failure," maybe purchased for $2.50 from the College of Business, Oklahoma State University, Stillwater,Oklahoma. Make checks payable to College of Business, Oklahoma State university.

This report was prepared under the 1959 Small Business Management Research GrantProgram of SBA. It may be reviewed at any SBA field office or at certain depositorylibraries whose addresses may be obtained from the SBA field offices or from the SmallBusiness Administration, Washington 25, D.C.

*Project Supervisor; otha members of the research group are listed on page 4 under "About the Study."

53

63

The successful contractor carefullyprepares detailed c ost estimates beforesubmitting a bid.Among the firms studied, without excep-

tion the successful contractors literally"built the job on paper" before arrivingat a bid figure. Preparing a bid properlyrequires time, effort, and attention todetail. Bidding, regardless of the size ofthe job, is extremely competitive.

The procedures involved in producingthe accurate, detailed cost estimates neededin the preparation of a sound bid arefairly simple and are well known in theindustry. Yet, in virtually every case offailure analyzed in this study, the differencebetween profit and loss, or between successand failure, could be traced to the use ofsubstandard bidding practices and the sub-mission of bids that were fundamentallyunsound and unprofitable.

The successful contractor knows hiscapabilities and those of his firm, andoperates within them.Overexpansion can be a problem to the

small contractor. First, the loss resultingfrom only one significant mistake on a largecontract can wipe out the existing equityof a small contracting firm.

Second, losses resulting from severalsimultaneous contracts, even when the.y arenot large individually, may be sufEicientlydamaging collectively to put a small firmout of business.

All the successful contractors, on theother hand, recognized the necessity offollowing each job very closely. They alsorecognized the need for experienced, high-quality supervisory assistance. The suc-cessful contractors did not accept morework than they and their supervisory staffscould handle adequately.

The successful contractor keepsclose track of his costs and the relationof these costs to those budgeted in theoriginal estimate and bid.Tha successful firms in the study care-

fully allocated expenses to particular jobsand made sure that each cost was clearlyidentified. Every item of expense wastraced to its proper destination. Further-more, all the successful contractors madesystematic use of trail information. A com-parison of actual costs an3 cost estimatesin the bid enabled the succesdful managersto detect trouble spots immediately and totake appropriate action.

54

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The unsuccessful firms showed a verydifferent pattern in this respect. In someof the failures studied, effec t iverecordkeeping was practically nonexistent.In others, records were kert very care-fully, but the information was not trans-mitted to, or used by, the management.

The successful contractor recognizeshis limitations and seeks professionaladvice when he needs it.Observations of interviewed, success-

ful as well as unsuccessful contractorssuggest that many contractors with goodtechnical backgrounds developed on the job,lack business or management experience.Bankers, lawyers, accountants, bonding-company representatives and others pointedout that some of the major difficulties ofunsuccessful contractors are due to failureto recognize the need for outside pro-fessional or technical assistance. This isespecially true of the beginning contractorwho is trying to expand his operations ina hurry.

The use of professional advice is particu-larly important in connection with contracts.Failure to understand the legal consequencesof clauses inserted by customers may bea source of serious loss to a contractor.

HOME FURNITURE AND APPLIANCERETAILERS

The home furniture and appliance fieldis fairly typical of retailing generally.Cases of bankruptcies are concentratedheavily among relatively young firms, withmajor shortcomings. The typical owner-operator succeeds in making a living,though he does not accumulate great wealth.He takes pride in his independence, whichhe pays for with long working hours and themany problems he could avoid by workingfor a firm other than his own.

The successful dealer starts hie firmonly when it can be properly and ade-quately financed.The study revealed that the unsuccesful

home appliance and furniture dealers hadstarted their operations with insufficientcapital. This lack of initial funds continuedto hamper operations throughout the lifeof the firm.

The nature of the home furniture andappliance field is such that a large, well-assorted inventory is very costly. Manyof the items handled are expensive. Thefinancially weak dealer must find assistanceoutside his own firm in order to maintaineven a comparatively small inven-tory.

It was found that the unsuccessful dealer e,in attempts to increase sales volume throughincreased inventories, went heavily intodebt to suppliers. At times, the suppliersowned every item in stock, including thoseon the sales floor. (Floor-plan renewalscarry a high financing rate.)

The successful dealer, on the other hand,starts his firm only when he can make aninitial cash purchase of an adequate inven-tory of merchandise for display and sale.His inventory may not be large; but atleast he can, in most cases, meet therequirements of his customers. He con-tinues to make cash purchases of merchan-dise in the operation of his firm. Thus heis in a financial position to take advantageof all discounts from suppliers.

Successful retailers in this field takecash discounts and other discounts fromsuppliers at every opportunity. Owners inthe cases studied reported that this prac-tice resulted in major contributions toprofits.

Financing of customer accounts is anotherarea in which inadequate capital contributesto failure of the firm. Many major appli-ances and items of furniture are purchasedby retail customers through installmentcredit. The dealer who is not financiallyable to grant this credit on his own mustmake other arrangements. Typically, besells his accounts receivable at a discountto banks and finance companies. Sucharrangements are easily made, but thecost to the firm is high.

In contrast to this practice, the suc-cessful dealers interviewed all agreed onthe desirability of financing their owncustomers. This requires considerablefinancial strength, but the profit potentialis high. The interest and other financingcharges paid by the customer over a periodof perhaps 18 to 24 months were found ina number of the cases analyzed to equal orexceed the dealer profit realized on theitem of merchandise sold.

These firms reported that they found afurther advantage of self-financing in thecontinuing relation with credit customers.A significant number of "add on" and repeatsales result from this prolonged con-tact.

The successful dealer is careful ingranting credit. He investigates eachprospective account thoroughly. Cus-

tomer credit is looked upon as a priv-i ege, not a right.Many of the dealers who did not survive

had granted credit indiscriminately in theirefforts to build sales. Bad accounts andrepossessions had led to losses for virtuallyevery one of the failure firms analyzed inthis study.

Credit sales may be financed by agenciesoutside the firm, but bad accoonts ultimatelyresult in deductions from the "reserves"required by the financing agencies. In somecases, retailers are forced to buy backfrom financing agencies accounts that haveproved uncollectible.

If there is enough collateral, loans maybe secured from banks to supplement in-adequate operating capital. However, manyof the bankers interviewed in connectionwith the study expre s ed reluctance to makeloans to firms with poor credit management.Also, borrowing money for this purposeis expensive. When loans become exces-sively large, the interest charges are aserious drain on the company's operation.

The succes sful retailer of appliance sand home furnishings gives carefulattention to the selection, training, andsupervision of his employees.Personnel costs in retailing typically

constitute the largest expense item on theoperating statement. The successful dealersinterviewed were aware of this fact and madeevery effort to realize the best possiblereturns from this investment.

The firms that had failed either did notunderstand the importance of this factoror did not know what to do about it. Selec-tion of personnel was haphazard. Littletraining was offered. Turnover was high.

Supervision in the unsuccessful firms,too, was inadequate. The owner-managerusually dealt with the more obvious prob-lems as they came up, but he failed tocheck systematically on the performanceof his employees. All the less successfuldealers in the study lacked experienceand training in the organization and manage-ment of people.

The successful home furniture andaliance dealer understands, not justSelling, but all phases of a merchan-dising operation.In addition to areas already discussed,

the successful dealer in home furniture andappliances is skilled in (1) proper use ofadvertising and other types of sales pro-motion; (2) selection of merchandise hiscustomers like; (3) the pricing of this

55

merchandise, not only at profitable levels,but also at figures customers are willingto pay; (4) provision of good customerservice, especia Ily repair service;(5) proper selection of store location andgood use of store layout; and (6) theinstitution and use of internal controls,including cost accounting.

The successful owner-manager workshard, uses good judgment in selecting keypeople, and depends on other qualified in-dividuals to accomplish specialized func-tions.

ABOUT THE STUDYThe conclusions reported in this summary

are based on a detailed investigation ofmore than 40 firms, including both success-ful and unsuccessful firms.Interviews wereheld, not only with members of the firmsunder study, but with credit-rating organi-zations, bankers, suppliers, competitors,customers, and others whohadhadbusinesscontacts with the cooperating firms.

To qualify as a "failure" case, a firmhad to be formally declared bankruptbetween January 1, 1954, and January 1,

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1959. To qualify as a "success" case, afirm had to be at least 5 years old andhad to be considered successful by thosewho knew enough about it to judge objec-tively.

Successful firms were matched as faras possible with unsuccessful ones as totime covered, business environment, size,background, line of business, and type ofoperation.

The full report includes detailed casestudies of 11 oi the firms studied.

The following members of the staff ofOklahoma State University were asso-ciated with Dr. Ringstrom in the study:E. B. Austin, Associate Professor of Ac-counting; J. I . Garner, Assistant Professorof Office A.iministration; D. L. James,Instructor in Marketing; F. J. McDonald,Assistant Proft s sor of Business Law;R. T. Morgan, Assistant Professor of Busi-ness Law; C. Roman, Professor and head,Department of Management; R. W. Trenton,Professor of Economics; J. S. Wagle,Profe ssor and Head, Department of GeneralBusiness; P. A. Weinstein, Instructor inEconomics.

Copies of this Summary are avai!-ible free from field offices and Washington headgucuters of the Small Business Administration.However, the Summary and the report on which it is based represent the findings of the grantee and not the official position ofthe Small Business Administration. In eviews and references, recognition to the grantee and to SBA as the sponsoring agencywill be appreciated. Use of official mallem indicia to avoid postage is prohibited by law. Use of hind* for printing this publi-cation approved by the Director, Bureau ol the Budget, November 7, 1944.

SMALL BUSINESS

ADMINISTRATION

U. 8. Oovernment Agency

JOHN E. HORNE,

Adm Wolverton

Washington, D.C., April1962

SMALL BUSINESS PROBLEM STUDIESBy John B. Kline and John T. Douu, Bureau of Business Research

University of Colorado, Boulder, Colorado

ABOUT THE STUDY

The research reported in this Sum-mary consists of case studies of smallmanufacturing companies and small re-tail, wholesale and service establish-ments in the Rocky Mountain area. Thecases were selected to represent across-section of the small businesscommunity in that area.

Each case is presented in a narrativestyle and depicts a particular problemor problems confronting the owner-manager or management group. Thenarratives in many cases are docu-mented by various exhibits whichsupport the situation: for example,organization charts, cost schedules,sales records and charts, personnelschedules, maps, job descriptions, bal-ance sheets and income statements,inventory records.

Material for the case studies was ob-tained by depth interviews with the topmanagers of each firm studied.

The 26 cases which make upthe researchdescribed in the following pages represent asystematic effort to collect examples ofsmall business operations in the RockyMountain area over a broad range of ac-tivity. The full study is divided into twomajor areas, the first dealing with manufac -

turing enterprises, and the second with re-tailing, wholesaling, and service establish-ments.

The cases are designed primarily foreducational purposes and are deemed tohave sufficient detail and dimension to lendthemselves to analysis and a statement ofrecommendations. At the same time, theyoften illustrate a problem situation and anacceptable solution as experienced by asmall businessman in a specific business.The preface of the full report states thatthey will be of value tothose concerned withteaching small business subjects as wellasthose whose livelihood depends on the suc-cessful operation of a small business enter-prise.

In the management area, special effortwas made to approach each case from apolicy level. Many companies interviewedthought they had specific problems that oughtto be worked out immediately. In one situa-tion, concern with the existing organizationalarrangements was expressed. But analysisof the company suggested that a far morebasic problem had to do with company ob-jectives and future goals.

The management group in still anothercase was concerned over the profitability ofits warehouse operations. However, inter-views revealed that a power struggle withinthe management group was in progress. The

AVAILABILITY OF THE FULL REPORT

Copies of the full report, titled "Case Problems of Small Business in the Rocky MountainWest," may be purchased for $2.50 from the Bureau of Business Research, University ofColorado, Boulder, Colorado. Make checks payable to the Bureau of Business Research.

This report was prepared under the 1959 Small Business Management Research GrantProgram of SBA. It may be reviewed at any SBA field office or at certain depositorylibraries whose addresses may be obtained from the SBA field offices or from the SmallBusiness Administration, Washington, D.C.

F7 57

basic problem was that the absentee ownerhad failed to indicate proper business ob-jectives and appropriate methods for as-suring their attainment.

If it is the function of top management toset proper goals and assure their attain-rnent, the report points out, it is noless thefunction of middle management to be con-cerned with effective solutions of day-to-dayproblems. Therefore, some of the cases,particularly those in retailing, wholesaling,and service fields, were selected to point outthe problems of the smallbusinessman who,as the top-level decision maker in his opera-tion, finds himself carrying out his ideas andimplementing his goals with little or no aidexcept for a clerk or occasional advice fromhis accountant. In these cases, typical ofmany small businesses, the line between topand middle management is not clearly drawnor does not seem to exist at all.

SMALL BUSINESSMAN PROFILE

In the preface to the full report, theauthors present what they describe as aprofile of the "typical smallbusinessman inthe Rocky Mountain area," based on theircase studies. Typically, he is middle-agedand has been engaged in some type of smallbusiness most of his working life. In manyinstances, he was associated with somesmall business during the depression yearsof the 1930's. He has established his busi-ness by capitalizing on an economic needfor his particular services or products aswell as by adjusting ingeniously, if notalways logically, to his environment.

Outside Information Sources. This "typi-cal" small businessman belongs to theChamber of Commerce but, as a rule, hedoes not work very actively in its progr am s.He reads some business and trade publica-tions but makes limited use of informationand late which require alteration or inter-pretation for his own use. He is constantlysearching for specific answers to his par-ticular problems, which are often his per-sonal attitudes.

Attitudes. The general attitude of the"typical" small business executive is thatof continual apprehension toward personsand forces he views as a threat to hisposition. He may feel that some conditionsimposed by legislation or by the size of hisoperation are the most serious and objec-tionable features of his business. Quiteoften, these are not things a consultant oradvisor would deem paramount but, becauseof the personality of the individual, theyassume unwarranted pr oportions . He is con-

58

servative in his viewpoint and resists politi-cal and economic changes as bringing aboutconditions requiring adjustment that he isreluctant to tackle.

This "typical" small businessman canalso be described as a persistent andtenacious "free enterpriser." He tends toview his job as one where he must struggleconstantly to resist the narrowing aspects ofGovernment regulation, the fickleness of thecustomer, and the seemingly unwarranteddemands of his employees. He may tend toregard human relations skills as ineffectiveand unrealistic.

His attitudes are shared by his customersand by his business colleagues, so that heis not imposing on them conditions whichare unknown or unexpected. His employeesaccept readily his direct approach andconsider that they too may someday run theirwn businesses with a firm hand. Viewed byhis business associates, he is friendly, con-siderate, and willing to go out of his way tohelp his customer s and even his competitor son occasion

Based on these observations, the "typic al"small businessman in the Rocky Mountainarea who can adjust socially and economi-cally to the community in whichhe operatesshould be able to do well.

PATTERN OF CONDUCT

The authors also point out that the follow-ing four points were observed frequentlyenough in the case studies to warrant themas generalizations about the pattern of con-duct of small business exeoutives in theRocky Mountain area:

1. Considerable skepticism is evident inthe minds of many of these businessmenregarding ac ademic knhAvledge and training.They are also unwilling to accept advice andcounsel from educators to the extent thatthe executives of large business do.

2. Many business problems are met in a"head-on" fashion without careful consider-ation being given to the long-range effects.Hiring, firing, disciplinary action, productincrease, retaliatory action all are apart ofthe day-to-day job of the small entr. e-preneur .

3. There is a definite lack of long-rangeplanning. Many managers get around tomaking policy or administrative decisionsonly under conditions of duress or by default.Decisions of this type are avoided until direnecessity requires action.

4. Little training and consultation are de-voted to the average employee, Frequently,

68

e mplo ye e s are left without much ideaas to their responsibilities and whotheir supervisors and/or subordinates are.The manager may occasionally take issuewith an employee, assume or reject juris-diction over a given matter, or perhapsreprimand an employee rather severely.These are probably thought desirable andcertainly justified as a management pre-rogative.

Two conclusions are drawn from thesegeneralizations: (a) Many conditions of thepast on which ambitious businessmen builtan empire have been squeezed farther andfarther from the industrial and commercialcomplexes that characterize the Americanscene. (b) The area where these features arestill dominant is the small business--par-ticularly, such businesses as might be foundin the Rocky Mountain area.

RESUME OF CASE STUDIES

A manufacturer of women's specialtywear. In this case, a small manufacturerwas attempting to obtain national distribu-tion. Problems of sales management and ofproduction contra are presented in a de-tailed and comprehensive fashion.

A manufacturer of specialized sportingequipment. here, a small manufacturerdescribes something of the marketing char-acteristics of his niche in a large industry.Problems of organization ancl productioncharacteristic of many small businesses arepresented. The case closes with an interest-ing statement by the managing partner as tohis philosophy regarding small business andits place in our economy.

A small, franchised implement dealer lo-cated in a rural area. In this case, the ownerdescribes some of the difficulties of survivalin the farm implement business. The casepresents a sharp picture of how the changingfarm situation is affecting the small imple-ment deal er . Numerou s financial statistic sare presented which trace in specific fashionthe dealer's declining profit margin.-A small manufacturer grows and thendiversifies. In this case, a small rnanufac-turer who made his name and fortune on arather narrow product line finds himselfin a financial position that will enable himto diversify. The case traces the variousavenue s he pur sue s in his attempt at productdiver sifi cation.

A "penny stock" uranium company. Inthis case, a man combines an idea and limit-

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less energy to make a spectacular successstory. Beginning as a speculative venture,the enterprise develops into a profitable andstable business organization.

A partnership manufacturing safetyequipment and metal tools. This case illus-trates the ups and downs of a businessoriginally bascd on a narrow product line.

A steel fabricating firm apecializing inconstruction equipment and parts and con-;:rete batching equipment. In this case,nonowner management tells of its day-to-day operating problems and the difficultiesof establishing long-range goals for thecompany. It findo its areas of authorityclouded and its responsibilities varying anduncertain.

A concern specializing in fabricated steelparts in which engineering plays an im-portant part. In this case, the owner-oper ator tells how he intends to find a marketniche by specializing in the selling of hisengineering talent, rather than a simple lineof steel fabricated parts.

A small one-man business engaged inthecutting, polishing, and mounting of semi-precious stones into jewelry. This casedescribes a business which, conducted as itis, has reached its maximum growth.

A small town furniture store dealing in acomplete line of furniture, floor coverings,and appliances. One of the problems of thisretail establishment is caused by its uniquepremises--a main store, an annex, and awar ehouse.

A rootbeer drive-in located at the edge ofa small but good business town. This caseillustrates the operations of 6-months-a-year business and the factors which areparticularly important for its success.

A liquified petroleum gas sales and serv-ice organization serving two communitiesseparated by about 45 miles. The problemof the owners of this business is the possi-bility of a cheaper substitute for its product.

A small, hardware business in a farmingarea where much row-crop farming is done.The business has stiff competition fromchain operations, but tends to do well infringe items, particularly shopping and giftitems bought by women.

A chain of family furniture stores engagedin full-line selling. The business in this case

5 9

has problems of organization, expansion,and stock control because of growth anddesire to become bigger.

A small specialty packer who processestcznatoes into canned tomatoes, ketchup andpuree. This case describes the oper.tionsof a competent operator who has compet:tiveadvantages on which he capitalizes.

A small, recently established manufac-turer of pickup coaches and trailers. Theproblem facing the owners of the companyin this case study is whether they shouldexpand and, if so, in what direction and bywhat method.

A small savings and loan organizationwhich has shown a rapid and substantialgrowth. This case is a good example of thetype of organization that smallbusinessmenmight form to aid their own needs forproperty loans.

A laundry and dry-cleaning establishmentwhich covers a wide territory and developsbusiness by knocking on doors. This caseillustrates the success of an aggressive butaccommodating individual despite geo-graphical disadvantages.

A tire-sales, service and recapping oper-ation operating under a franchised arrange-ment. The policy of the absentee owner inthis case is to enable his salaried managerto take over the ownership of the businesseventually.MRS-63

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A small-town restaurant catering to highschool, college, loc al population, and touristtrade. This case illustrates the need for theowner-manager's personal attention to allfacets of his business.

An automotive tool manufacturer. Thissuccessful corporation has initiated anemployee profit-sharing plan.

A retail lumber yard. The success of thisfirm is due to: (1) high volume of salesachieved per employee; (2) efficient utiliza-tion of its space and buildings.

A manufacturer of specialty fertilizer.Production problems and inability to meetcompetitive terms caused the company inthis case to cease operation.

An equipment company dealing in mate-rials-handling items. Marketing is the prob-lem of the company in this case. Thebusiness has become very competitive;sales quotas of manufacturers are increas-ingly difficult to meet; customer trade-inand service costs are creating a profitsqueeze,

An independent drugstore in a shoppingarea in a rapidly expanding community. Theowner is faced with making two decisions:(1) how to meet newly established competi-tion; (2) whether to expand his premises and,if so, in what fashion.

Copies of this Swnmary are available free from field offices and Washington headquarters of the Small Business Administration.However, the Summary and the report on which it is based represent the findings of the grantee and nut the official position ofthe Small Business Administration. In reviews and references, recognition to the grantee and to SBA as the sponsoring agencywill be appreciated. U. of funds for printing this publication approved by the Director, Bureau ©i the Budget, November 7, 1961.

SMALL BUSINEU ADMINISTRATIONWASHINGTON 2$, D. C.

OFFICIAL BUSINESS

6 0

70

Postage and Foos PaidSmell Business Administration

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Washington, D.C.,1963

SMALL BUSINESS

ADMINISTRATION

u. S. Govsrnment Agency

JOHN E. HORNE,Administrator

anagement

Research Summary

1111.

SMALL BUSINESS INSTABILITY AND FAILUREBy Paul if. Paustian, Professor of Economics, and John E. Lewis, Jr., Research Associate

The University of Alabama, University, Alabama

HIGHLIGHTS

General economic conditions, per-sonality problems, and poor judgmentin starting the firm were the reasonsfound for about half the business fail-ures studied.

The likelihood of failure was greaterin industrial groups where a large pro-portion of the firms are small than inindustry groups with a large proportionof big firms.

Some of the business failures couldhave been prevented only by not start-ing the business. More opportunity forprofessional counseling is needed byprospective as well as active smallbusiness operators.

The report summarized here takes issuewith the conclusion reached by many studiesof business failure that poor managementis the primary cause in 9 out of 10 fail-ures. Findings of the study on which thereport is based indicate that this was nottrue of the Alabama firms studied unlessthe term "management" is used verybroadly. General economic conditions, per-sonality problems, and poor judgment instarting the firm accounted for about halfthe failures.

Management problems undoubtedly doexist in most failure cases. But the causes

of failure in about one-third of the firmsstudied had deep roots in social and eco-nomic conditions outside the business.

One firm, for examplea farm-equip-rnent dealer-- was located in a county whererow crops were rapidly giving way to tim-ber and cattle. New and fewer types ofmachinery were required. Furthermore,the county had been losing population byout-migration. The market for all goodswas declining.

Some of the firms were never seriouscontenders for inclusion in the ranks ofestablished businesses. Some started with-out enough capital to ride out even the firstfew difficult months that almost any newfirm must face. Others were purchased assemi-going concerns and failed because ofabsolute lack of demand for the type ofgoods or service they offered.

These and other cases of poor preopera-tive judgment made up a large part of thefirst-year failures. This can lead to over-statement of the seriousness of poor man-agement in small firms- -which, the reportcomments, does not need overstating.

PATTERNS OF INSTABILITY

A statistical study was made of instabil-ity among all Alabama firms from 1939

AVAILABILITY OF THE FULL REPORT

Copies of the full report, titled "Small Business Instability and Failure in Alabama," maybe purchased for $1.00 from the Bureau of Business Research, P.O. Box KK, University,Alabama.

This report was prepared under the Small Business Management Research GrantProgram of SBA. It may be reviewed at any SBA field office or at certain depositorylibraries whose addresses may be obtained from the SBA field offices or from the SmallBusiness Administration, Washington 25, D.C.

732-928 0-64-7 716 1

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to 1960. The likelihood of failure was foundto be greater in industry groups where alarge proportion of the firms are smallthan in industry groups with a large pro-portion of big firms (see table). The low-est rates of instability were found incounties where there had been little in-dustrial development.

Mining FirmsThe two industries showing the greatest

instability over the 21-year period weresawmills and mines. Mechanization oflarger mines and the substitution of otherfuels for coal help to explain the reductionin the number of mining rirms.

Also, in many parts of Alabama, minersreleased by the large, modern mines sup-plying the power and steel industries maybe out of work for some time. When thishappens, the number of "wagon mines,"as they are called in the trade, increases.

The workers, however, turn to urban in-dustrial jobs when possible. Thus, thebusiness cycle contributes to the instabilityof the mining industry.

SawmillsSawmills in Alabama have been, interms

of numbe rs, prima rily of the portablevarietyin recent years. Hardwood in the State waslargely cut over in the twenties, and op-?ortunities for profitable large-scale oper-ations have diminished since that time.

About three-fourths of the sawmill opera-tions in the State at the present time areportable mills operated ns seasonal activ-ities by farmers. The statement of a SouthAlabama farmer currently out of the saw-mill business is typical of most sawmilloperators in the State.

"My mill's out in the shed," he said. "Ifprices get better or I get a little sparetime, I may set up again. There are 5 or 6mills within 10 miles of here in the samecondition. If the lumber business picks upa little, most of them will probably go backin the business."

It is apparent that the rates of instability inthe coal mining and sawmill busi- sses arenot representative of business ch re in thepo,nular sense. Many sawmills and smallcoa.. mines are simply dormant. They arewaiting for economic conditions in those orother industries to shift to the point wheretheir operations will again be profitable.

There are other exits- -a wide range ofthem- -between economic failure and sellingout at a profit. Only by investigation of the

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individual firm is it possible to knowthrough which exit a firm hasleft the arena.

SOME CASE STUDIESIn order to study aspects of business

failure 'that do not come to light in reportscovering only financial factors, a numberof individual nonbankrupt business failureswere examined. For the purposes of thispart of the study, business failure was de-fined as the disposal of a business to avoidfinancial loss.

The following outline lists the primarycauses (shown with asterisk) and other con-tributing factor s found in the failures of thefirms studied. (names have been changedto avoid identification.)Doss Manufacturing Company

*Conditions beyond control of the operatorToo rapid expansion, resulting in lowcash position

Failure of operator to keep his head ina crisis

Lee Service Station*Personality of the ownerShort-run profit maximization

Jones Farm Equipment*Economic conditions beyond the control

of the operatorDeclining role of the business to whichmost of the sales were made

Inability to adapt to changing conditionsShort Sawmill

*End of short-run economic advantage"Hibernation" rather than failure

Ray Service Station*Laziness of operator

Btaine:s Instability in dlabanus by Industry Group, 1939 to June 1960

Industry GroupTotal Firmsin Business*1939 to 1960

Firms inBusiness

June 1960

Total FirmaDiscontinuA1939 to 1960

Number Percent

A griculture 272 185 87 32Mining 644 339 305 47Construction 5,247 3,137 2,110 40Manufacturing less sawmills 2,997 2,069 928 31

Sawmills 3,025 1,527 1,498 SO

Transportation, communications,and utilities 1,340 943 397 30

Wholesale trade 3,264 2,547 717 22Retail trade 11,990 7,568 4,422 37Finance, Insurance, sad real

estate 1,927 1,417 510 26Setvice trades 3,631 2,382 1,249 .14

Professional services 1,408 1,027 381 27Unclassified 10 3 7 70

All groups 35,755 23,144 12,611 35

*Includes finis Ir business in 1939 and firms enterint business between 1939and I9bli

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Bean Automotive*Poor location leading to poor sales

Lack of capital to improve locationRoy Drug

*Poor locationInability to adjust to changing characterof customers

Personality clashes with suppliersDavis Service Station

*Unfavorable lease based on productionExpansion into an area where the op-erator lacked experience

Imprudent extension of creditEconomic conditions- - cutthroat com-petition

White' s Grocery*Chainstore competitionOperation of the business as a sidelineInattention to credit

Glass Dry Cleaning*J-ligh- cost operationsUnsatisfactory used equipmentUnjustified cash drain in the form of

salaryHarris Gasoline

*Shortage of equity capitalFundamental inability of the business toearn a "living" for two owners

Imprudent extension of credit

VInce (cement block manufacturer)*End of a short-run economic advantageOperation of the business as a sideline

Cora's Novelties*Unsatisfactory lease- -poor health of the

operator brought on by the conditionof the building

Scale of enterprise--too small to permiteven one employee

Loss of free parking when parkingmeters were installed

Rise Enterprises*Low sales volumeInsufficient demand

White's Hardware*Low sales volumeCompetition with established storeImprudent extension of credit

The first of these cases is presentedmore fully below. All are discussed in de-tail in the full report.

3

A CASE OF TOO RAPID EXPANSIONThe Doss Manufacturing Company (ma-

chine tools) failed after 10 years of opera-tion under Mr. Doss. The owner had ahigh-school education, about 10 years' ex-perience as a tool and die maker, andseveral years' experience as supervisor ofthe business before he bought out theprevious owner.

His assistant was a graduate engineerwith several years' experience in generalcontracting work. Most major policy deci-sions were made by Mr. Doss after con-sultation with the engineer.

The Trouble BeginsDuring the 10 years that Mr. Doss di-

rected the business, sales increased abouttenfold and earnings rose rapidly, althoughthey did not keep pace with the increase insales. The business grew faster than couldbe supported by earnings. Additionalcredit,both from suppliers and from local banks,was injected into the business.

At the time of failure, suppliers weredeeply involved in the debt structure, andthe firm was more than $200,000 in debt toa bank. The company was engaged in fillinga large order for a national concern in aneighbo ring State.

The CollapseThe immediate cause of failure was the

calling of the $200,000 loan by the bank.Mr. Doss could not pay his bills, and theplant closed. His bonding company shiftedthe project to another company.

Mr. Doss claimed that the action of thebank in calling his loan was in violation ofhis loan agreement. He further maintainedthat if the bank had complied with its origi-nal agreement with him, the business wouldnot have failed.

He felt certain that his debts, althoughout of proportion to his net worth, wouldhave been retired in the ordinary course ofbusiness. As a matter of fact, the bondingcompany later sued the bank for unneces-sarily causing the surety to perform, andcollected a part of its loss.

An AnalysisMr. Doss's compan y was undercapital-

ized. As in many such cases, the situationhad developed gradually as the businessexpanded. The owner estimated, however,that the net worth of the business im-mediately before the last contract wasnegotiated was about half a million dollars.

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In view of this, it appears that the actionof the bank must be given top billing inthis failure.

A contributing factor was the behaviorof Mr. Doss in his financial crisis. Someobservers believed that if he had appliedhimself with vigor to the financial problemat the time of the bank's action, completefailure of the business could have beenavoided. Whether the firm could have con-tinued to survive with such a degree ofundercapitalization is a matter of conjec-ture. But Mr. Doss was known to havebeen making plans designee to improve hisfinancial position.

The Outcome

Mr. Doss lost neither his business repu-tation nor his entire personal property.The firm was incorporated, but he hadsigned as an individual on the bond. Still,almost all his substantial personal prop-erty was left after the final settlement.

It was generally thought that he could re-enter the toolmaking business if he wished,and that he would be able to obtain capitalfrom outsi e sources. Within a year, hebecame gen ral superintendent for a largemanufacturi g firm.

RECOMMENDATIONS

The following recommendations weredeveloped from the findings of the study.

MRS 1051 2.6 3

The public should be aware of the risksas well as the rewards of private enter-prise, especially in small business.

A professional counseling program forboth active and prospective small businessoperators is needed. It was the opinion ofthe researchers that some of the failurescould have been avoided only bynot startingthe business. Preoperative counseling mighthave dissuaded most of these failure-bound individuals from entering business.

The collection of both statistical and de-scriptive data on small business failureshould be encouraged. State And local organ-izations especially should be urged to gatherthis information- -including statements frombusinessmen who have failed. A compre-hensive study would then be porsible.

°Psychological and social research intothe impact of business failure on personaland social relations should be encouraged.

ABOUT THE STUDYOne section of the report presents sta-

tistical tables, with analysis, concerningvarious aspects of business instability andfailure in Alabama from 1939 to 1960.

A second part of the study was an in-vestigation of individual failures. The prin-cipals were interviewed whenever possible.In addition, their suppliers, competitors,bankers, landlords, r.nd friends were askedfor comments on the circumstances sur-rounding the business operation, particu-larly just before the failure,

LCopies of this Summary art available free from field offices and Washington headquarters of the Small Business Administration.However, the Sununary and the report on which it is based represent the findings of the grantee and not the official position ofthe smell Bushmen Administration. In reviews and references, recognition to the grantee and to SBA us the sponsoring agencywill be appreciated. Use of official mailing indicia to avoid postage is prohibited by law. Use of funds for printing this publi-cation approved by the Diractor, Bureau of the Budget, September 28, 1982.

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THE CASE METHOD OF STUDY

What is the case method? The case method is a teaching devicethat helps the student learn through exercising the reasoning and de-cision-making processes. This can be contrasted with other popularteaching techniques which place stress on learning (or memorizing) anaccumulation of past kncwledge on a given subject. The case methodstresses thinking rather than memorizing; it is a dynamic or activemethod rather than a passive one.

What is a case ? A case is a description of an actual or true-to-life business situation. It is a statement of facts, opinions, andjudgen-ients -- in short, it is a problem.

The case method is particularly useful in teaching businessmenbecause it utilizes real, practical problems rather than abstract con-cepts. Properly used, it provides a realistic environment that causesthe participant to become involved and holds his interest. It providesexperience in pexf.orming essential parts of the administrative taskswithout incurring the penalties of a wrong decision on the job. It devel-ops within the individual the process of making decisions, and forteshim to think analytically and constructively.

The stildent also learns the value of group discussion and anal-ysis. Each member of the case discussion group contributes from hisunique experience, and each gains from the others. The group know-ledge and experience will exceed that of any individual participant - - in-cluding the instructor.

The following check-list is suggested as an outline procedurefor conducfing case study and analysis:

Suggestions for Case Study

1. Read the case carefully for general content.

2. Arrange the facts of the case in order of importance.

3. Recognize and define the major problem(s) that needsolution.

4. Analyze the problems and their relative importance.

5. Search for and establish alternative solutions.

732-928 0 - 84 - 8

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6. Select the most desirable of the appropriate solutions.

7. Analyze your probable solutions -- set up the pros andcons of solutions, giv:,ng value to each.

8. State your choice, decision, or final conclusion -- beprepared to defend it.

9. Stipulate the plan or plans for implementing the decision.

77

SPORTY CARPET COMPANY

Background

History

In 1942 Mr. John Liberal purchased a carpet business in a met-ropolitan city in Oklahoma. Mr. Liberal operated this business as asole proprietorship until 1946 when it was incorporated as the SportyCarpet Company, Inc. The primary purpose of the incorporation wasto obtain additional funds with which to expand the business. The firmentered the wholesale carpet field, in addition to the retail field, in1948 with the funds obtained from the incorporation. The organizationcontinued to sell carpet both at wholesale and at retail until its failure.

Location

The business was located on a main street leading to the down-town area, about 25 blocks from central downtown. Numerous furni-ture, appliance, and .carpet stores were located within a few blocksof the business. Most of the houses in the surrounding residential areawere in the $8,000 to $15,000 range. The building which housed thebusiness is quite large for a carpet outlet, is constructed of red brick,is in very good repair, and is attractive. The store frontage encom-passes almost one-half block, and the store is 50 feet deep. However,only about one-half of the building front contains plate-glass windows.

Another Outlet and Its Failure

A few years after the company was incorporated, Mr. Liberalinvested a part of the corporation's money in a retail carpet store inanother metropolitan city in Oklahoma. Most of the capital stock, how-ever, was owned by individuals located in the second city. Poor man-agement control by the salaried management reportedly caused thefailure of this outlet a few years after it was established. Althoughthe. investors lost heavily, they did not go through the bankruptcy court.

1This case was taken from Case Studies in Business Success and Fail-ures prepared by Oklahoma State University under the Small BusinessAdministration research grant program. It maybe reproduced locally.If material is reprinted, credit to Oklahoma State University and tothe Small Business Administration would be appreciated.

67

!;.0178$ .

In the four years preceding the failure of the Sporty CarpetCompany, the business was about evenly divided between wholesaleand retail sales. Reportedly, the retail division netted more than twiceas much profit as the wholesale division. The incorporators, however,believed that it was wise to continue the wholesale operation becauseof the contacts made that helped the retail operation and because of asense of obligation to some of the firms which they supplied. So eventhough profit-wise the wholesale operation was not as lucrative as theretail operation, it was continued. As a matter of fact, in most yearsthe wholesale division did well just to break even.

Recession and Failure

Industry-wide, 1951 and 1952 were poor years. Retail storesthroughout the nation were reportedly overstocked with inventory. Dur-ing these years people did not seem to be interested in carpeting. Theresult was lower sales, high inventories, and slow turnover. Priorto this time Sporty Carpet Company's financial position, although notstrong, was such that it continued to operate profitably. This industry-wide recession put the business in an embarrassing financial positionfrom which it never fully recovered.

The failure of the other business, the recession, and the with-drawal by Mr. Liberal of a large amount of money from the firm in1954 put such a strain on the business that it succumbed in mid-1955.The firm's three principal unsecured merchandise creditors filed apetition for involuntary bankruptcy. Amounts owed to these three firmswas about one-half-of the outstanding liabilities of the Sporty CarpetCompany. At the time of bankruptcy the firm's balance sheet showedassets of $130,000 and liabilities of $200,000. Liabilities of $147,000were unsecured. At the same time, Liberal took personal bankruptcywith assets of $10,500, of which the sum of $8,500 was claimed asexempt, and liabilities of $225,000, of which the sum of $190,000 wasunsecured.

Organization

General Structure

The business was organized as a corporation and operated asa combination wholesale-retail carpet firm during most of its existence.Four individuals invested money in the corporation. They were theofficers; namely, Mr. Liberal, the president; Mr. R. L. Joker, thevice-president; Mr. L. G. Conservative, the secretary-treasurer; andMr. J. D. Robin, the director.68

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79

Key Personnel

John Liberalwas born in Oklahoma in 1905. He completed highschool and worked for a time in Oklahoma. At the age of 23 he movedto Kansas City, where he was employed by a furniture manufacturingconcern for 15 years. A benefactor then sold him a retail furniturestore at a token price. Liberal operated the business as a proprietor-ship for four years. This period of time was spent primarily in learn-ing the carpet business. Liberal took advantage of every opportunityto learn about carpets from manufacturers and distributors. He wasable to make enough profit to live conservatively and to keep the busi-ness on its feet.

During the time Liberal was sole owner, he was very conserva-tive. With the incorporation of the business, however, he began grad-ually to improve his standard of living. He became a great sports en-thusiast and actively supported the local university's sports program.As a member of the Quarterback Club, he helped to support some ofthe football players by hiring them to work in the business. An avidgolfer, he spent many hours a week on the local golf course playingwith bankers, professional men, and other successful men of the city.He developed a large circle of friends. Liberal frequently left. the busi-ness for extended periods of time to attend various golf tournamentsthroughout the country as a spectator.

Liberal is an easy-going type of individual from outward ap-pearance, but he is very aggressive. He became friendly with manyof the executives of local oil companies and succeeded in getting sev-eral large contracts for carpet installation from them. The consensusof opinion of those interviewed is that Liberal probably knows moreabout carpets and their, installation than any other individual in the city.He is thought to be an extremely honest and straight-forward individual.

L. G. Conservative, the secretary-treasurer of the corporation,had a background in retail furniture and carpet sales. Conservativebegan working for Liberal shortly after he opened the retail store. Heworked as a salesman until the time of incorporation when he borrowedmoney to invest in the stock of the business. He had just succeeded inpaying off this loan a few months prior to the failure of the business.According to knowledgeable individuals interviewed, Conservative wasmore attentive to the business than Liberal. Conservative said he wassecretary-treasurer of the organization in name only, and his primaryresponsibility was for sales. He said he did not know the firm wasnear bankruptcy until a petition was filed by the major creditors.

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Operation

Financial Difficulties

The following figurt s wereand 1952 financial statements ofavailable the average ratios forThese averages are based on thelications for 195 1.

derived from an analysis of the 1951the Sporty Carpet Company. Wherebusinesses of this type are shown.Retail Merchant's Association pub-

Current RatioInventory to Working CapitalStock TurnoverNet Sales to InventoryAverage Collection PeriodTotal Liabilities to Net WorthNet Profits to Net Sales

(after taxes)Net Profit to Net WorthWorking Capital

RMA12-31-51

SPORTY12-31- 51

SPORTY12-31-52

1.

8.

74-1.

9-1. 0

1. 6%11%

00 1, 29- 1.224%4. 4

5. 8-1. 054 days

169%

. 6%3%

$80, 700

00 1. 34-1. 00187%2. 7

3. 7-1. 092 days

172%

1. 2%5%

$101, 600

The inventory-to-working-capital percentage is especially im-portant. Conservative bankers are reluctant to loan money to this typeof business when inventory exceeds working capital by more than 75percent. Also, the excess of total liabilities over net worth is an in-dication of under-capitalization. When these facts were made knownto the bank management which was loaning money to the Sporty CarpetCompany, it immediately decided to grant the business only securedloans thereafter. Accounts receivable were pledged to the bank as partsecurity. Sales contracts represented the other portion of the security.In 1955 the bank, whichwas the major source of financing for the com-pany, sent a man out to audit the Sporty Carpet Company books. Thisdecision was somewhat unusual in that this was the first audit made,even though the bank had been doing business with the Sporty CarpetCompany for a number of years. The audit showed fewer accountsreceivables on the *aooks than had been pledged to the bank. Imme-diately the bank demanded additional collateral for their loans. Whenthis information became known to the principal merchandise creditors,they almost immediately filed a petition for involuntary bankruptcy.The monthly balance of loans outstanding to the bank frequently exceeded$100, 000.

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Most of the merchandise obtained by the company was purchasedon open account. At the time of bankruptcy, the unsecured credit ofthe firm was three times as large as the secured credit. The relianceupon short-term loans caused some difficulty to the firm in meetingits obligations promptly. Much of the money was tied up in inventoryin order to perform the wholesaling function. The large inventory input a strain on the working capital, causing the business to be con-stantly short of operating funds.

Advertising

Newspaper advertising by the firm represented less than onethird of the total advertising expenditure. The major expense was forTV advertising. Liberal had a golfing buddy who was a sportscasterfor a local television station. Despite protests from the TV stationpersonnel, Liberal decided to sponsor a five-minute evening programof sports news. Television representatives told Liberal this wouldnot be effective advertising, and a period of time proved that it resultedin few additional sales. According to studies, women are more likelyto initiate action that results in carpet sales than men. Few womenwatch sports new2 programs so that the appeal was directed to thewrong audience. Liberal was never convinced of the misdirection ofthe advertising appeal and continued to spend money almost uselesslysponsoring this program.

Misuse of Working Capital

During the year prior to the bankruptcy, Liberalwithdrew about$26,000 from the business other than his regular drawing account.Marital difficulty, which ended in a divorce, brought about the with-drawal. This money was paid as a part settlement brought about bydivorce proceedings. Shortly after his divorce, Liberal remarried.The withdrawal of $26,000 from the firm, which was already short ofworking capital, was disastrous.

The firm had to support four families; namely, those of theofficers of the corporation. In addition, all salesmen were paid on astraight salary. The business maintained its own carpet workroom,and this operation proved to be much more expensive than it shouldhave been. Altering of carpet pieces consumed too much time andoften had to be redone because of faulty workmanship. The supervisorof the workroom was incapable and hired workmen who were highlyoverpaid in terms of their proficiency. The loss incurred on work-room operations cut heavily into profits.

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Causes of Failure

Undoubtedly one of the first mistakes made by the firm was itsentry into the wholesale field. None of the officers had any experiencein this area. Competition is often particularly severe because manycarpet manufacturers circumvent and sell directly to retailers. Be-cause of this practice the margin of profit available to wholesalers isfrequently extremely small. As a result, many carpet wholesalersare forced to rely on large volume in order to make operations pro-fitable. Lack of wholesaling experience brought about the maintenanceof an excessive inventory that tied up funds badly needed for workingcapital. To obtain funds for continued operations, the firm was forcedto borrow against the inventory. The interest paid on such borrowedfunds naturally decreased profits.

Liberal's insistence upon sponsoring the local sports news TVprogram proved to be sheer foolishness. Had he viewed this problemlogically, he would have undoubtedly realized the futility of such ad-vertising effort. Though sponsorship of the program was evidence ofLiberal's belief that friends should aid one another, it was an extremelyexpensive undertaking; and the benefits to the firm were few.

The idea of paying salesmen on a straight salary basis is notwell accepted by progressive firms. To insure adequate productionby salesmen, it is generally agreed that some form of commissionpayment is desirable. Conservative was emphatic in stating that sev-eral of the employees of the business were highly overpaid. One ortwo salesmen accounted for most of the sales. Others received thesame salary whether or not they sold anything.

If Liberal had continued to operate the corporation in much thesame manner as he had operated the proprietorship, the firm wouldprobably be in operation today. Liberal left too many major decisionsto other officers and employees. He spent entirely too muchtime andmoney attending various sports events. Thus, lack of attention to thebus ine s s and the withdrawal of funds from the business were the majorstumbling blocks to success.

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SUGGESTED INCUBATION ASSIGNMENT

I. Visit your local library or branch or regional SBA office and fa-miliarize yourself with its publications on management, marketing,and retailing and service trades. Check those having a specificapplication to small business.

Secure and study the following SBA publications:

Problems of Small Retailers, SBA-MRS No. 9Small Business Success and Failure Cases, SBA-MRS No. 58Essential Personal Qualities for Small Store Mana ers, SBA-

Small Marketers Aid No. 46

IL List several advantages (business or personal) which you believeyou enjoy as a small independent, but which you might not have asa manager of a syndicate or chain outlet.

List several disadvantages (business or personal) which you facein meeting competition from larger organizations.

Can any of these limitations be overcome by cooperative effort orother kinds of action?

Draw up a list for your own edification containing the followingite ms:

A. The hours you spend per week in your business.B. The factors, both personal and impersonal, which

you feel are necessary for success in your businessline.

C. A rough indication of the time which you spend ina week on business functions -- Example: 15% sell-ing to customers; 25% supervising staff; 10% plan-ning advertising; and so forth.

Check those elements in (C) that you would classi-fy as:

1. Doin.g the job2. Managing the job

D. Which of these two elements claims the greatestportion of your time and attention?

E. What should you do and/or can you do about it?

732-028 U - 54 -73

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1.

Ii

II

II

BIBLIOGRAPHY

Topic - Success and Failure Factors in Small Business

This selected bibliography is composed of books, articles, andscripts that are considered useful in a study of the success and failurefactors of small business. Many of the cited publications may be ob-tained in libraries, bookstores, and from the publishers. Others, al-though not widely available, were considered to be of such value thatthey were included in the list. The free SBA leaflets listedmay ordi-narily be obtained from the nearest SBA office. Where book pricesare known, they are noted in parentheses. An asterisk indicates ac-knowledgment to the authors and publishers for material that was ofsubstantial value in preparing this volume.

*The Failure Record Through 1962. New York: Dun and Bradstreet,Inc., 1963.

Fil ley, Alan C. Management Of A Small Retail Business.Instructional Guide. Madison: University of Wisconsin, 1963.

Guide For Part-Time Instructors. Distributive Education SeriesNo. 21. U. S. Department of Health, Education, and Welfare,Office of Education. Washington: Government 7?rinting Office,1960. ($.25).

*How To Organize And Operate A Small Business. InstructionalOutline. Sacramento: California State Department of Education,1955.

*Kelley, Pearce C. and Kenneth Lawyer. How To Organize AndIi Operate A Small Business. Third Edition. Englewood Cliffs,

New Jersey:. Prentice-Hall, Inc. , 1961. ($10.60).

Ii

Chapter 1 - "Small Business: Free Enterprise"

Chapter 2 - "Characteristics and Problems of Small Business"with special emphasis on "Problems of SmallBusiness, " pp. 26-43.

Chapter 3 - "Factors in Business Success" with specialemphasis on "Success versus Failures,"pp. 57-63.

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Chapter 9 - "Management and Leadership" with specialemphasis on "Management Functions," pp. 160-163.

Kline, John B. and John T. Doutt. Small Business Probleme Studies.Management Research Summary No.. 63. Small BusinessAdministration. Washington: Government Printing Office,April, 1962.

Lasser, J. K. How To Run A Small Business. Third Edition.New York: McGraw-Hill, 1963. ($7. 95)

Chapter I - "How To Investigate Business Opportunities" withspecial emphasis on "Learn From The FailuresOf Others," pp. 8-9.

*Mayer, Kurt B. and Sidney Goldstein. The First Two Years:Problems Of Small Firm Growth And Survival. Small BusinessAdministration. Washington: Government Printing Office,1961. ($1.00).

McKeever, J. L. Problems Of Small Retailers. ManagementResearch Summary No. 9. Small Business Administration.Washington: Government Printing Office, January, 1961.

Meacham, Harry M. The Role Of Management In Small Business.Television Script. Hagerstown, Maryland: Small BusinessAdministration, Administrative Management Institute, 1961.

Paustian, Paul W. and John E. Lewis. Small Business instabilityAnd Failure. Management .lesearch Summary No. 105.Small Business Administration. Washington: GovernmentPrinting Office, 1963.

*Perreault, John 0. Establishing And Operating A Small Business.Instructional Outline. Richmond: Virginia State Departmentof Education, 1957

*Perreault, John 0. Mind Your Own Business. Television Script.Richmond: Virginia Educational Television Corporation, 1960.

Principles And Functions Of Management with emphasis onSection IV, "Introducing Principles." Coordinator's Kit,Part III, No. 1. Small Business Administration. pp. 10-21.

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Ringstrom, N. H. Small Business Success And Failure Cases.Management Research Summary No. 58. Small BusinessAdministration. Washington: Government Printing Office,March, 1962.

*So You're Going Into Business? Washington: Chamber ofCommerce of the United States, 1956.

U.S. GOVERNMENT PRINTING MICE : 1944 0-732-121

77

SMALL BUSINESS ADMINISTRATION

LISTING OF FIELD OFFICE ADDRESSES

Boston, Massachusetts 02210

Sheraton Building470 Atlantic Avenue

Augusta, Maine 04330114 Western Ave.

Concord, New Hampshire 0330118 Sthool Street

Montpelier, Vermont, 0560179 Main Street

Providence, Rhode Island 02903611 Smith Building57 Eddy Street

*New York New York 10004

42 Broadway

A Buffalo, Now York 14203448 Ellicott Sq. Bldg.295 Main St.

Hartford, Connecticut 06103Federal Office Bldg.450 Main St.

Santurce, Puerto Rico 00908San Alberto Condominio Bldg.1200 Ponce de Leon Avenue

Syracuse, New York 13202Chimes Building500 So. Salina Street

A St. Thomas, U. S. Virgin Islands 00802P. 0. Box 806

°Philadelphia, Pennsylvania 191:17

Jefferson Building1015 Chestnut Street

Newark, New Jersey 0710210 Commerce Court

Pittsburgh, Pennsylvania 15222Fulton Building107 6th Street

Richmond Virainia 23226

P. 0. Box 85651904 Byrd Ave.

Baltimore, Maryland 21202521 Calvert I3uildingFayette 61 St. Paul Streets

Charleston, West Virginia 253013000 U. S. Court House 61 Fed..BIdg.500 Quarrier Street

Charlotte, North Carolina 28202Cutter Building201 S. Tryon Street

Clarksburg, West Virginia 26301Old Post Office Building227 West Pike Street

Columbia, South Carolina 292011601 Assembly Street

Washington, D.C. 204171325 K Street, N. W.

Atlanta. Georala 3030390 Fairlie St, W.

Birmingham, Alabama 35203New 1st Fed. Savings 61 Loan Bldg.2030 18t Avenue North

Jackson, Mississippi 39201322 U. S. Post Office &Courthouse Bldg.Capital & West Sts.

Jacksonville, Florida 3220241 West Forsyth

Knoxville, Tennessee 37902233 West Cumberland Bldg.301 West Cumberland Ave.

Miarni, Florida 331 30912 Federal.Office Bldg.51 S. W. 1st. Ave.

Nashville, Tennessee 37219Security Federal Savings 61 Loan Bldg.500 Union Street

*Cleveland. Ohio 44113Standard Building1370 Ontario Street

Columbus, Ohio 43215Beacon Building50 West Gay Street

Louisville, Kentucky 402021900 Commonwealth BuildingFourth and Broadway

*Chicago, Illinois 60603

430 Bankers Buildlng105 West Adams Street

Des Moines, Iowa 50309850 Insurance Exchange Bldg.Fifth and Grand Avenue

Indianapolis, Indiana 46204721 Farm Bureau Insurance Building130 East Washington Street

Madison, Wisconsin 53703Commercial State Bank Building114 North Carroll Street

*Minneapolis, Minnesota 55402

Lewis Building603 Second Ave. South

Fargo, North Dakota 58102300 American Life Bldg.207 North Fifth Street

Sioux Falls, South Dakota 57102Leaders Building1091A North Main Avenue

*Kansas City Missouri 64106

911 Walnut Street

Omaha, Nebraska 681027425 Federal Building215 North 17th Street

St. Louis, Missouri 631032469 Federal Building1520 Market Street

Wichita, Kansas 67202215 Board of Trade Building120 South Market street

*Dallas Texas 75202Unitad Fidelity Life Bldg.1025 Elm Street

Houston, Texas 77002802 Federal Office Bldg.201 Fannin St.

Little Rock, Arkansas 72201377 Post office and Courthouse Bldg.600 W. Capital Avenue

Lubbock, Texas 79401204 Federal Office Building1616 19th Street

Marshall, Texas 75670Marshall National Bank101 East Austin Street

New Orleans, Loulsana 70130729 Federal Office Bldg. (South)610 South Street

Oklahorna City,Oklahoma 73102807 U. S. Post Office Bldg.3rd dhd Robinson

89

San Antonio, Texas 78204412 Kallison Building434 So. Main Avenue

*Denver Colorado 80202

Railway Exchange Building909 17th Street

Albuquerque, New Mexico 87101102 U. S. CourthouseFifth and Gold Streets, S. W.

Casper, Wyoming 82601310281 OE tS 2Bnlad

gS.treet

Salt Lake City, Utah 84101520 Kearns Building136 South Main Street

*San Francisco, California 94105

525 Market Street

Agana, Guam 96910P. 0. Box 927

Honolulu, Hawall 9681 3402 Bethel-Pauthl Bldg.1149 Bethel St.

*Seattle, Washington 98104

1206 Smith Tower506 Second Avenue

Anchorage, Alaska 99501Loussac-Soqcn Bldg.5th and D Ste. P.O. Box 999

Boise, Idaho 83702Idaho Bldg.216 N. 8th St.

Helena, Montana 59601P. 0. Box 1690205 Power BlockCornerMain 61 6th Avenue

Portland, Oregon 97205330 Pittock Block921 S. W. Washington St.

Spokane, Washington 99201300 American Legion Bldg.North 108 Washington Street

*Los Angeles, California 90013

312 W. 5th Street

Phoenix, Arizona 85004Central Towers Building2..17 No. Central Avenue

San Diego, California 921043969 Ohio St.

Detroit, Michigan 48226

232 West Grand River Avenue

Marquette, Michigan 49855Northern Michigan CollegeP. 0. Box 912Public Service Center Bldg.

* Regional OfficesBranch Offices

A Post of Duty Stations

4 GREY The Lesson Plan

RUST The Presentation

4 BUFF The Visual Aids

GREEN The Supply Department

YELLOW Cases in Point

BLUE The Incubator

90