Barriers to growth in small firms

Abstract: It has been indicated in literature that growth of small firms is essential for job creation, for the national economy and for development as a whole. In order for small firms to realise their growth potential, it is essential that the small firms manage to overcome various barriers to growth along the way. These barriers that hinder the growth of small firms are discussed and analysed in this extended summary. The extended summary pinpoints the general barriers to growth identified in literature and develops further knowledge of dominant barriers to growth in small firms. It is argued in the extended summary that lack of appropriate change of the organisation structure as the firm's size increases, is to be regarded as a dominant barrier to growth. When the small firm has a simple structure it is usually the small business manager that controls most of the activities within the firm, but when the organisation size increases it is important that also control and responsibility are differentiated among various functions. This internal change in the firm demands different and formal ways of co-ordinating the venture. This study indicates that the small business manager does not delegate responsibilities and decision-making to various functions until the number of employees has reached a certain level. This threshold value indicates a distinctive barrier in the simultaneous growth in size and differentiation of a small firm. A small firm encounters a barrier when the organisation size no longer matches its current structure. A small firm may have a very simple and informal structure, but when the number of employees grows, so will the need to differentiate and specialise the way in which work is done. It has also been argued in this extended summary that there is a relationship between firm performance and organisation structure. From this point of view, the small business manager will not only face problems with co-ordination and control as the firm size increases: his/her firm will also perform worse than firms that recognise the importance of structural implications when the number of employees increases.