The Importance Of Small Firms In The Economy Commerce Essay

Published: Last Edited:

This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.

From the very beginning of the human race years in earth, humans always had a way dealing with the supply and demand of their needs. There were always small business, from the very first times were trade was the biggest form of business to nowadays were money replace cows and corps. But what exactly is a small firm; according to David Strokes and Nicholas Wilson a small firm has three essential characteristics: it is managed by it's owner in a personal way, it has a relatively small share in the market in economic terms and finally it is independent in the way that it is not part of large enterprise and it's ownership is entirely in it's owners hands. (Bolton(1971) in Srokes&Wilson, 2002)

Small firms are the "life" of the economy, without them all the big firms we know today would not exist. In the UK,almost 90% of all business are small firms because they offer large employment. Finally, Graham Beaver quotes "Small firms are and will continue to be the main providers of new jobs". (Storey, (1994) in Beaver, (2002), page 1)

In 1987, Scott Miler formed a private firm called Apogee Software, Ltd.After his first game sold many copies and established in the game industry, George Broussard joined in 1991 as a co-owner, forming a parterneship with Miler. A partnership is a form of business in which two or more people operate for the common goal of making profit. Each partner has total and unlimited personal liability of the debts incurred by the partnership. After 3D gaming became more popular in the game industry, the partners decided to change their name into 3D Realms. It had no more than 30 employees and it's location of operations was Garland, Texas, in the United States. It is best known for as the creator of franchise on the PC, Duke Nukem. (, Date of access: 23/02/10)

Reason for collapse:

Because of their Duke Nukem success in the previous years, Take-Two, a major videogame developer, founded a project to 3D realms to make a sequel of Duke Nukem 3D. It was announced in 1997, and as of May 6, 2009, its development has halted due to the development team being let go. George Broussard tried to explain to Take-Two why the project is shutting down with the following e-mail:"Take-Two never paid 3DR advances or any signing bonus or any other funds related to DNF, up until July 2008, at which time they paid $US2.5m in connection with another agreement for an unannounced game. This is the sum total Take-Two has paid 3DR in connection with DNF. Take-Two claims that they paid $US12m to GT Interactive/Infogrames to acquire the publishing rights for the DNF game. To be clear, 3DR was not a party to that transaction and did not receive any money from it". (Stephen Totilo,, Date of access:23/02/10).

After hearing 3D's chief statement, Take-Two tried to negotiate to keep the project up and running; but they failed. George Broussard said that Take-Two is trying to "fire sale" their franchise; it is a cheap tactic to take over the ownership of their franchise. As a result of this Take-Two proceeded with a lawsuit and demanded a full refund. (, Date of access: 23/02/10)

Case study 2: FreshXpress

Business Failure

The logo of FreshXpress

(, Date of access: 24/02/10)


FreshXpress was a short-lived discount supermarket chain in the United Kingdom. It was originally formed in 2007, from the remainings of the Kwik Save chain, by Irish retail entrepreneur Brendan Murtagh. It existed in its original form between July 2007 and March 2008, culminating in it going into administration. By administration, we mean when a business is unable to pay its debts, the court may bring an administrator to make some changes inside the firm so that it could carry on trading (Wall, 2009). It was resurrected in a smaller form, however during 2009 the resurrected company also went into administration, and close.

(, Date of access: 24/02/10)

Reason for collapse:

The company that emerged out of the Kwik Save failure, FreshXpress, went into administration in March. The company re-emerge as FX Holdings with only nine stores operating. National Officer Joanne McGuinness said "The staff who have been made redundant at FreshXpress face exactly the same position as their Kwik Save counterparts, this means they will only be paid the statutory minimum in terms of redundancy pay because the company has gone into administration. Any entitlement to enhanced contractual payments which they may have transferred to the new company from Kwik Save has therefore been lost". (, Date of access: 24/02/10)

Despite the hard work of Andrew King, a former executive at Costcutter, FX Holdings was placed into administration in April 2009.The remaining stores were sold to Tesco, Co-op and Sainsbury's.


Business Failure

The logo of Joe's (, Date of access:24/02/10)


Joe's began in 1952 when Edward M. Orkney purchased army sleeping bags and set up a tent in Portland, to sell them to the public. Orkney sold out the sleeping bags and then started selling other army surplus merchandise in a bigger store in 1956.After 23 years in the business, Orkney died and his son, David Orkney, took over the business. Joe's opened their eighth store, located in Eugene, Oregon, in 1983.

Reason for collapse:

The company had very high revenue for the sales in 2008. That December sales dropped off by 10% due to winter snowstorms in the state that paralyzed major cities. Joe's then fell into violation of several loan. Despite some efforts by the owners to put capital into the company, the lenders declined to restructure the loans and loan more money to Joe's. On March 2009, the chain filed for Chapter 11 bankruptcy of the United States Code. "When a business is unable to service its debt or pay its creditors, the business or its creditors can file with a federal bankruptcy court for protection under either Chapter 7 or Chapter 11. In Chapter 11, in most instances the debtor remains in control of its business operations as a debtor in possession, and is subject to the oversight and jurisdiction of the court".

(,_Title_11,_United_States_Code' Date of access 22/02/10)

Although the company had hoped "that some portion of the business could survive", but insufficient sources of capital meant that the company had to accept a bid from a liquidator, Gordon Brothers. Liquidation means when a firm has closed down, usually because it can not pay its debts. Then, the assets of the firm will be sold for what they are worth and maybe a creditor will bring a case to the court asking for a compulsory liquidation in an attempt to pay the depts. (Wall,2009)

The company began liquidation sales on April 2009 and all stores were closed by the end of May. (, Date of access:24/02/10)

Evaluation of case study-Failures

In this paragraph I will try and give some advices that the above firms should have done in order to stay on business. In the first case study (3D Realms), the firm was just a victim in the fangs of its competitors. Although small firms do not get financial support easily, Take-Two found the opportunity to make a "hostile takeover". However, in the videogame industry is its seen many times that firms work together to satisfy the needs of gamers, and most of times it worked. What 3D Realms should do was try and do more research if Take-Two was the right firm to give the rights of such a big hit franchise, and in the end this misunderstating could have been avoided. As for the second case study (FreshXpress), it had a good start in the very competitive food market, but in the end it collapse before the competition. What FreshXpress should have done was not be so overconfident, especialy in this industry when the slightest mistake can evaporate the firm. In addition, they could also try to diversify, like Tesco, but in a smaller scale at first, for example start selling insurances. Finally, in the third case study (Joe's) they failed because they rush their diversification and for overconfidence. They had a very high income when they sold army merchandise, but when the company's head changed, the fall of the firm started. Most small private companies owners are family members and sometimes the leadership of the new manager may not fit in the firm, resulting to the closure of the firm. What could Joe's could have done was to expand their firm internationally and to focus on a specific product and market, in this case in army merchandise.

CASE STUDY 4: Tatto Media

Business Success

The logo of Tatto Media ( Date of access:23/02/10)


Tatoo Media is a performance advertising network based in Boston. This small firm was founded in 2005, by a group of four students in Boston Collage. The idea behind this advertising company was to change the way that advertisers pay for display advertising. Now, Lin Miao and his colleges celebrate their business success

Reason of success:

According to Andrew Bachman, president of Tatto Media, the reason why they are so successful is because the founders are all students. (Joel Holland,, Date of access: 23/02/10)

Moreover, this company was named by Business Week as one of the top 25th entrepreneurial business of 2007.

CASE STUDY 5: PopCap Games

Business Success

The logo of PopCap Games (, Date of access: 22/02/10)


PopCap Games is an American videogame developer and producer, founded in Seattle in 2000 by John Vechey, Brian Fiete and Jason Kapalka.It is based in Washington, United States. They wanted to create simple games that people of all ages can enjoy, and they achieved it with their greatest hit Bejeweled.

Reason for success:

PopCap's mission was to try and create a game that everyone can enjoy; with the right research and skills John Vechey, Brian Fiete and Jason Kapalka are now trying to make more games and enjoy the glory of a successful videogame developer and designer. "We cancelled a title that was in development for three years, it all goes back to 'Is it fun?' Every game has got to be a great game. If it's not, we'd rather cancel it", said John Vechey in respond to why they are so successful.( Gwen Moran,, Date of access:22/02/10).

Evaluation of case study-Success

In this paragraph I will analyze and evaluate in more depth why this two small firms were so successful. In the first occasion, (Tatto Media) as I mention earlier, the president of the company refers to his colleges as the reason of their success. With the right partners and a democratic leadership style everything is possible. Democratic managers, in this case Lin Miao, like to involve their co-workers in to decisions. They tend to listen their ideas and ensure that they contribute in the decision. Lin Miao believes that without trust then everything will fall apart in the end of the day. "When growing pains occur," he says, "you need partners you can trust to make decisions for the team, and not just for themselves".

( Joel Holland,, Date of access: 23/02/10)

Finally, in the last case study (PopCap Games), with a simple business plan they successfully achieved their main objective. Business plans are mostly written because the Entrepreneurs want financial support from the banks, but it is also used as a guide and a "forecasting" tool so that the partners know what they will except and act accordingly; which brings me back to the final case study. PopCap Games partners came up with a simple and a reasonable plan and they now at the top of their game. Moreover, they have establish a good relationship with major companies, for example Microsoft and Valve's Steam, so they advertising throughout this companies, leading to reputation of the firm to go up. John Vechey came up with a very good motto for his company: "Make of that what you will" (Gwen Moran,, Date of access:22/02/10).