A LevelBusinessEdexcelRevision Notes3. Business Decisions & Strategy3.2 Business GrowthReasons for Staying Small

Reasons for Staying Small (Edexcel A Level Business)

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Steve Vorster

Small Business Survival in Competitive Markets

  • Many firms start small & will grow into large companies or even multi-national corporations (Amazon started in a garage)

  • While many firms grow, others do not or they intentionally choose to remain small

Reasons Why Small Firms Exist

  • They offer a more personalised service and focus on building relationships with their customers (excellent customer service)

  • They are unable to access finance for expansion

  • They provide a product that is in a niche market - smaller market size but can be very profitable

  • By remaining small, there is a high ability to respond quickly to changing customer needs/preferences

  • Rapid growth can cause diseconomies of scale which can be difficult to deal with and so many owners choose to avoid these

  • Owners goal is not profit maximisation but rather an acceptable quality of life (satisficing)

  • Many changes in technology favour large scale operations but others can work to the advantage of small firms

  • The Internet offers low cost access to market for many firms

  • With effective use of technology to cater for the precise needs of small market niches, small firms can thrive

  • This is especially true where technology reduces the cost differential between the mass produced and the niche product

  • Thus modern technology can work in favour of the small-scale and personalised rather than the mass produced and impersonal

  • Niche markets can be targeted profitably by small firms that have relatively small overheads and do not need to achieve the volume of sales required by larger competitors

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    Steve Vorster

    Author: Steve Vorster

    Expertise: Economics & Business Subject Lead

    Steve has taught A Level, GCSE, IGCSE Business and Economics - as well as IBDP Economics and Business Management. He is an IBDP Examiner and IGCSE textbook author. His students regularly achieve 90-100% in their final exams. Steve has been the Assistant Head of Sixth Form for a school in Devon, and Head of Economics at the world's largest International school in Singapore. He loves to create resources which speed up student learning and are easily accessible by all.

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