Leadership is one of the important factors for the survival and success of entrepreneurial ventures. During the second half of the 20th century, there were a lot of literatures about leadership emanating from the United States. However, these researches mainly focused on the leadership in large companies and organizations. How relevant is the picture for small and medium business? Does the experience or lessons of large companies and organizations on management adapt to the small and medium business? These questions have attracted more attentions due to the development of the small and medium business.
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The definition of the small business varies in different countries and even in different industries. But the small business holds an important position for the development of domestic economy and even the global economy. Therefore, it is essential for scholars on management to study the leadership in the small business. The purpose of this essay is to analyze the importance of leadership in the small business in order to provide some suggestions for the small business on leadership.
There are six parts in this essay. The first part is a brief introduction consisting of the writing significance, the writing purpose and the structure of this essay. The second part of this essay will introduce the leadership and its functions. The essay will introduce the small business and its features in the third part. The main part of this essay is the fourth part, where the importance of leadership in the small business will be analyzed, including the leadership in small business and the significance of leadership in the small business. And the fifth part will provide some recommendations to leaders in small business for bringing a success to their own companies in the future. And a conclusion will be made in the end.
2. Leadership and Its Functions
This essay will represent some relevant knowledge about leadership and its function in this part.
2.1 The definition of Leadership
Leadership is one of the most important factors for the development of each company and organization. Lots of researchers on entrepreneurship use the terms management and leadership interchangeably. However, the leaders and managers are not necessarily the same (Johnson, 2013). And according to Johnson (2013), the main distinction between leaders and managers are that “the leaders have some followers they can inspire to action, but the managers have some resources that they can allocate”. Therefore, the leadership can be regarded as a process by which the leaders take some measures to influence the thoughts, attitudes and behaviors of others (Mills, 2005).
2.2 The Types of leadership style
Different types of leadership styles exist in the work environments. And each leadership style has the advantages and disadvantages. And the culture and goals of an organization are the two important factors to determine which leadership style is appropriate for the company or organization best (Johnson, 2013). In the following, this essay will introduce the leadership styles in a vague and general way. The leadership styles include the laissez-faire leadership style, the autocratic leadership style, the participative leadership style, the transactional leadership style, the transformational leadership style, etc (Goleman, 2000).
The laissez-faire leaders often allow their employees to work by themselves. And sometimes the managers do not have enough control over their work and their people (Taleghani, Salmani and Taatian, 2010). The laissez-faire leaders will give complete freedom to their employees to do the work. However, in the autocratic leadership style, the leaders have complete power over their employees and the employees have few opportunities to make suggestions (Travis, 2013). In the transactional leadership, the employees will follow their leaders when their leaders distribute tasks to them, and therefore, the transactional leadership focuses on the short-term tasks (Taleghani, Salmani and Taatian, 2010). What’s more, a transformational leader pays more attention to the employees’ higher needs, such as fulfillment or justice (Travis, 2013).
2.3 The functions & Significance of leadership
Since leadership plays an important role on the success of companies and organizations, the functions cannot be belittled. The leadership functions are related with the functions of leaders’ management. The leaders have to set the goals for companies, motivate and inspire their subordinates, make plans for companies for more profits, and this essay will analyze the functions of leadership from these perspectives.
2.3.1 To develop company culture
One of the functions of leadership is to create and develop company culture. The employees may perform as a team or perform as individuals. If the company’s tasks need cooperation between employees, the leaders should implement some measures and adopt relevant policies to make employees to cooperate with each other, under which circumstance, the cooperation will become one key aspect of company culture.
2.3.2 To ensure the effectiveness of group-effort
By management, the leaders should delegate the authority to take measures to make employees to contribute the maximum energy and time to jobs and the achievement of objectives of the companies (HubPages, 2013). Meanwhile, by management, the leaders can ensure the availability of resources and make sure that the resources can be used to the largest extent.
2.3.3 To make plans for the companies
The leaders and employees need to aware of the schedule and their own responsibilities to complete the achievement, and then the leaders make plans for the company to ensure that the company can gain more achievement.
3. Small Business and Its features
This essay has introduced the definition and functions of leadership in the second part. Simultaneously, the previous studies on leadership mainly focus on the large enterprises. Therefore, it is very important for researchers to analyze the leadership in the small business. Before this, this essay will mainly introduce the small business and its features in a vague and general way.
3.1 The definition of small business
In accordance with the United States Small Business Administration Office of Advocacy, more than 99.5% of all U.S. firms are small business (Cooper, 2013). Although the definition varies from industry to industry and is different in different countries, the small business refers to that the firms are with less than 500 employees in general issued by the United States Small Business Administration Office of Advocacy (Cooper, 2013). In Australia, the small businesses always refer to the companies with less than 100 employees (Gray, Densten & Sarros, 2003).
3.2 The history of small business
It is reasonable to gain the conclusion that the small business holds an important position for the development of gross economy from the statistics issued by the United States Small Business Administration Office of Advocacy. And since the definition of small business varies from country to country, and therefore, the history of small business is also different in different countries. For example, the origin of small business can date back to the 17th century in the USA (U.S. Department of State, 2013). And in China, the origin of small business can date back to the 14th-15th century. In one word, the small business has a long history.
3.3 What are the features of small business?
In order to analyze the importance of leadership in the business small business, the researchers should make acquaintance with the features of small business. Firstly, generally, the business owners always are the leaders of the companies or organizations (Vitez, 2013). The business owners have to make plans and set goals for the companies and organizations (Vitez, 2013). Secondly, due to its size and investment capitals, the small business always have limited resources and low-end technology, so it is difficult for the small business to compete with large enterprises and even the medium business. According to Vitez (2013), the operational management is one the most important parts for the small business management and due to the size, the small businesses are easier to operate.
3.4 The current issues on management faced by small business
Small businesses always are confronted with lots of problems related to their size and limited investment technology. This essay will mainly analyze the current issues on management faced by small businesses. Firstly, because the small business owners must be the leaders of companies or organizations, the business owners have to pay more attention to the needs of their company on talents, the establishments of companies’ goals and other works, and due to the limitation of energy, the management of small businesses may be into chaos. Secondly, because of the limited capitals, it is difficult for small business to adopt the newest technology, so they may adopt lower-end management technology. The above-mentioned contents also can illustrate the necessity to update the leadership in the small businesses.
4. The Importance of Leadership in the Small Business
This essay has introduced the functions of leadership and the features and the current management issues of small business. In this part, this essay will analyze the importance of leadership in the small business. And at first, this essay will represent the leadership in the small business, where the features of leadership in the small businesses compared with big and medium size enterprises.
4.1 Leadership in Small Business
Due to its size of small business, the owners of the small business must be the leaders of the companies or organizations and the small business is easier to operate. There are some distinctive features of the leadership in small business. Firstly, the owners of the small business always “provide the mission, values and goals for the small business” (Vitez, 2013). And the owners should run the company and lead other employees to achieve the goals of company. Therefore, the leadership in small business demands the owners of small business to work through employees, not around them (Vitez, 2013).
Secondly, the owners of small business also should attach importance on the human resource needs of their own companies or organizations. The recruitment of employees holds a key position for the development and expansion of every company and organization. Therefore, the leadership in the small business also requires the owners of the small business to lead the employees. Different from the human resource management, the owner of the small business should directly understand the current job market and the salary standard for different job positions (Dalglish, 2003). Meanwhile, the owner also should train new employees directly (Dalglish, 2003). Thirdly, the owners of the small business often are the leaders, and therefore, there are few other leaders in the small business. As a result, unlike the leaders in the large companies or organizations, the leaders in the small business should make decisions on the development and expansion on their own (Dalglish, 2003). What’s more, unlike the large companies or organizations, the owners of the small business should pay attention to the cash flow, paying bills, collecting money from customers. Simultaneously, the owners of the small business should make decision in accordance with the accounting information. All in all, the owners of the small business are also the leaders in the small business. Unlike the leaders of the large companies and organizations, the leaders in the small business should make themselves acquaintance with business knowledge in various fields.
4.2 Significance of leadership in the Small Business
It is reasonable to gain the conclusion that the leadership in the small business is very important and significant from the analysis in the prior parts. In this part, this essay will mainly analyze the significance of leadership in the small business from some perspectives.
4.2.1 To Help the Small Business to Win the Competition in the Market
When researchers analyze the development and survival of the small business, they often attach importance on the entrepreneurial activity as a strategy to offset economic deterioration brought about by globalization. Under the circumstance of globalization, the small businesses are in an increasingly competitive market (Bolden and Terry, 2000). For example, in the study made by Centre for Leadership Studies, all the interviewed small businesses held the opinion that when they operate in the global market, they must gain competitive threats in every direction (2000). However, good leadership can help the small business to win the competition in the market because they the good leadership can make appropriate strategies to develop and attract more talents to work for them. On the contrary, if the leaders in the small businesses make inappropriate or wrong strategies to develop their business, they may fail the competition in the market and even go bankruptcy (Ingram, 2013). For example, the Apple Inc was a small business, and even just a workshop at the beginning and now has become a well-known high-tech company due to the management of Jobs Stevens. In one word, the leadership can enhance the small businesses to win the competition in the market.
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4.2.2 To Manage Changes
Because continuous organizational change is essential to guarantee the development and survival of the small businesses (Bolden and Terry, 2000), if there is no change happening to the small businesses, they may go backwards. Simultaneously, the organizational culture of change can be considered as one of the most important factors to the development and survival of the small businesses (Abbas and Asghar, 2010). As a result, the main task for the leaders is to develop an organizational culture of change within the organization. What’s more, if the leaders do not have the ability to develop the culture of change within the organizations and companies, the small businesses cannot adapt to the changeable environment. Due to the development of the globalization, there are more changes happening to the market for the small businesses, for example, the introduction of technologies, the competition from the international companies and the increase of comprehensive talents, etc. Therefore, the leadership is very important for the small businesses to manage changes within the organizations and outside the organizations.
4.2.3 To Overcome the Current Restriction, Barriers and Weaknesses
According to the study made by the Centre for Leadership Studies (2000), “the increasing level of legislation and regulation are the main barriers to growth and competitiveness by the leaders in the small businesses, especially the leaders in the manufacturing industry (p.14)”. Due to the increase of the small businesses in the market, the governments issued some policies and regulations to specify the development of the small businesses, which can be regarded as one of the main current restrictions. Meanwhile, due to its size and scale, there are some their own defects for the small businesses. For example, the location of the small businesses may be more distant from the markets compared to the large companies or organizations, and the small businesses cannot attract more talents like the large enterprises because the small businesses may have better reputations. Therefore, the leaders in the small businesses should take some measures to overcome the current restrictions, barriers and weaknesses.
4.2.4 To Deal with the Potential Threats and Challenges
There is a wide agreement that the small businesses are confronted with some potential threats and challenges, such as that it is difficult for the small businesses to acquire more advanced technologies and more qualified staffs to work for them (Chen, 2006). Meanwhile, because the small businesses may not have better reputations and cannot provide higher salaries to the employees, the small businesses can not retain existing employees (Bolden and Terry, 2000). Meanwhile, the financial factor is also one of the main threats and challenges for the small businesses due to the shortage of cash flow and the threats of bad debtors (Gartenstein, 2013).
What’s more, due to the limitation of capitals and staffs, the small businesses may have no money and energy to spend on innovation, which may cause them to fail the competition in the market. As a result, one of the main tasks for the leaders in the small businesses is to deal with the potential threats and challenges. Thus, the good entrepreneurial activities can help the small businesses to transfer the potential challenges as the strengths for the small businesses.
4.2.5 To Strengthen Company Advantages
Although there are some limitations and challenges of the small businesses, the small businesses also have some advantages, such as that the small businesses are easier to operate (Vitez, 2013). Moreover, the owners of the small businesses attach importance on the relationships between customers and make every effort to understand the supply and demands in the market. The other perceived strengths of the small businesses include that the small businesses is flexible to response the change in the market and have the ability to make their own decisions. What’s more, the staffs in the small businesses can interact with the senior directors and managers directly (Bolden and Terry, 2000). Simultaneously, all the employees in the small businesses know one another, which makes it easier to cooperate with each other. All of the above-mentioned contents are the advantages of the small businesses, and therefore, the good entrepreneurial activities can strengthen the company advantages.
4.2.6 To make correct development strategies and the ways forward
Nearly all the companies and organizations should make development strategies and plans aiming at company growth. And most of the companies always achieve the growth of companies through building the company and increasing the profitability (Williams, 2013). As a result, the companies should implement some measures to build the company and increase the profitability. Under this circumstance, the leaders in the small businesses should make correct development strategies and the ways forward. However, some small companies do not have any correct development strategies. For example, in the study made by the Centre for Leadership Studies (2000), among the 12 interviewed companies, the leaders in the company 9 stated that this company did not have a documented strategy although they would like to become the most profitable company in the UK. Therefore, if the company wants to grow, it should maintain correct development strategies. On the contrary, the company 2 took a conscious decision on the commercial side and then gained more markets in the competition from other small businesses (Bolden and Terry, 2000).
This essay has introduced that there are some challenges faced by the small businesses in the part 4.2.4. Some small businesses make strategies to deal with the challenges, such as that a number of companies make every effort to keep up-to-date technology (Taleghani, Salmani and Taatian, 2010). For example, the famous high-tech company in the USA, Apple Inc, was a small company at the beginning and now its products have been used all of the world due to the correct development strategies made by Jobs Stevens. Therefore, the leadership can enhance the small business to own correct development strategies and ways forward.
4.2.7 To make appropriate HRM policies to attract more talents
Almost all the companies considered that the staff as one of the most important resource although the small business generally employ less than a hundred people (BusinessBlogs, 2010). The number of employees in the small businesses is not insignificant but the appropriate human resources management policies and activities can help in streamlining the function of human resource of the small businesses (BusinessBlogs, 2010). Human resource can be the vital assets of each company. Therefore, human resource management can benefit every small business. Generally speaking, a company in the small business mainly consists of less than 1000 employees, and the operation of the small business should obey the rules and regulations established by the authorities. The appropriate human resource management policies may grant equal rights to employees (Buzzle, 2013). Simultaneously, the appropriate human resource management policies also can help in recruitment and motivation of best talents in the industry (Buzzle, 2013). What’s more, the appropriate human resource management policies can act as a guide for the small businesses to establish professional relationships with employees (Buzzle, 2013).
On the contrary, the inappropriate human resource management policies may make employees disappointed. For example, a Chinese small company, Ganzhou JB Magneto-Electricity Limited Liability Company has attached importance on the establishment of human resource management policies, for example, the leaders of this company adopts the “differentiation salary incentive mechanism” to attract more talents (Yang, 2008). Therefore, the leadership is very important because the leaders can make appropriate HRM policies to attract more talents and employees.
5. Recommendations to leaders in the Small Business
The prior part of this essay has introduced the significance of the leadership in the small businesses, and therefore it is essential for the leaders to improve the management strategies. Under this circumstance, in this part, this essay will provide some recommendations to leaders in the small businesses.
5.1 To Communicate with Employees
The leaders in the small businesses should communicate with employees in order to implement leadership. The leaders should communicate exactly what they are doing and what they will do in the future (Wictor, 2012). The leaders can take email and written announcement to notice the employees. Meanwhile, the leaders in the small business can prepare and hold some meetings to make clear agenda items and clear next steps to employees. For example, the Zappos Company always provides open letters to staffs. What’s more, the leaders should explain to staff about company’s tasks and business and the people should not be managed without notice.
5.2 To Believe in the Employees
However, before communicating with employees, the leaders in the small businesses should believe in the employees because the employees in the small business should be noticed about the goals of companies. What’s more, if the leaders believe in the employees, the employees will have the opinions that they are serving for themselves. If the leaders believe in the employees, the employees will actively understand and fulfill the specific roles of their own (Smith, 2013).
5.3 To Promote Innovation
During the current society, the technology is very important for the development and survival of the small businesses, and therefore, the leaders in the small businesses should promote innovation. Firstly, the leaders in the small businesses should hire people smarter than themselves (Smith, 2013). Secondly, the leaders should spend more time, energy and money promoting innovation. For example, the leaders can learn about the advanced technologies from large enterprises and even go aboard to introduce higher technologies into their own companies and organizations.
5.4 To Try to Predict the Obstacles
Nowadays, due to the development of the small businesses and the appearance of more small businesses, some authorities have issued some regulations and laws to slow the development of the small businesses. Meanwhile, the small businesses have some limitations and deficiencies, and therefore, the small businesses are confronted with some challenges and threats. Under this circumstance, the leaders should try to predict the obstacles and then to deal with these threats and challenges.
5.5 To Make Plans
The leaders should make plans through taking time for a regular evaluation and analyzing the general and exact situation inside and outside the small businesses. The leaders should be good in crises so that they should not sit around to let crises develop (Dowell, 2013). The leaders should involve identifying potential problems and solving them before the crises develop further and deep (McQuerrey, 2013). Meanwhile, the good leaders should analyze the plans and adapt the plans to new circumstances and opportunities (Dowell, 2013).
The small businesses have different definitions in different countries and industries but in general, the small businesses have less than 500 employees in the USA. The small business has a long history and plays an important role in the development of domestic and international economy. However, the small business has some deficiencies and due to its size and investment capitals, the small business always have limited resources and low-end technology, so it is difficult for the small business to compete with large enterprises and even the medium business.
And leadership is one of the most important factors in the survival and success of entrepreneurial ventures. Thus, if the small business wants to achieve development, the leaders should pay more attention to the establish leadership and take more and better entrepreneurial activities because the leadership can enhance the small companies and organizations to win the competition in the market, to overcome the deficiencies, to strengthen the advantages and even help small businesses to make correct strategies. In conclusion, the leaders in the small business should believe in the employees and communicate with them in order to establish leadership in the small businesses.
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