Topic 5: Small firms


This topic examines the small business sector and the differences that exist between entrepreneurs and small business owner-managers. The entrepreneurial growth cycle of small firms is examined along with their need to establish collaborative support networks. The need for small business entrepreneurs to develop strategic thinking skills is highlighted along with the need for them to learn how to balance strategy, structure and resources.

Small firms are a major source of employment and economic growth throughout the world and provide a management environment that is very different from that found in large organisations. A problem in understanding the small business sector is the lack of agreed definitions as to what a small to medium enterprise (SME) actually is.

Most SMEs lack the resources of large firms and are dependent on one or two key owner-managers for their long-term survival. Small firms are typically less formal that their large counterparts and are run more for lifestyle than growth by their owners. Entrepreneurs can own a small business, but not all small business owners are entrepreneurs. Most small business owners are oriented toward lifestyle and task management rather than risk taking, innovation and growth. Small businesses are often undercapitalised and their owners lack management skills.

There is relatively little theory relating to the small firm. However attention needs to be given to understanding the interplay between the firm’s task environment, organisational configuration and managerial characteristics. As a management challenge the small firm is unique due to the limited resources and lack of systems and many small firms fail due to problems in these areas.

Growth within a small business requires not only an entrepreneurial owner but also a strong level of innovation, good networking and a product-market growth strategy. The owner-manager will then need to match their resources, strategy and structure to what is required for success.

Yet growth is only one strategic option available to the small firm. Other options include exit and stasis, both of which are more common and require active management. For the small firm that seeks growth attention needs to be given to the entrepreneurial leadership of its senior management team, its ability to innovate and develop strategic networks, and the success with which it identifies a growth vector in developing suitable product/market strategies. The ongoing challenge for the small business owner is their ability to balance the three key elements of strategy, structure and resources.

Textbooks and readings


Mazzarol, T., and Reboud, S. (2017) Entrepreneurship and Innovation 3rd edn, Melbourne, Tilde University Press, ISBN: 978-0-7346-1225-0. Chapter 5.


Mazzarol, T., and Reboud, S. (2017) Entrepreneurship and Innovation Workbook, Melbourne, Tilde University Press, ISBN 978-0--7346-1227-4.


Mazzarol, T. (2011) Entrepreneurship and Innovation: Readings and Cases 2nd Edition, Tilde University Press, Melbourne, chapter 5.

Recommended readings:

ASBFEO (2017). Small Business Counts: Small Business in the Australian Economy. Australian Government, Canberra, Australian Small Business and Family Enterprise Ombudsman (ASBFEO).

Carland, J. W., Hoy, R., Boulton, W.R., & Carland, J.C. (1984). "Differentiating Entrepreneurs from Small Business Owners: A Conceptualization." Academy of Management Review 9(2): 354-359.

Freel, M. (2000). "External linkages and product innovation in small manufacturing firms." Entrepreneurship and Regional Development 12(3): 245-266.

Gibb, A., and Davies, L. (1992). "Methodological Problems in the Development of a Growth Model of Business Enterprise." The Journal of Entrepreneurship 1(1): 3-35.

Gibb, A., and Scott, M. (1985). "Strategic Awareness, Personal Commitment and the Process of Planning in the Small Business." The Journal of Management Studies 22(6): 597-632.

Jennings, P., and Beaver, G. (1997). "The performance and competitive advantage of small firms: A management perspective." International Small Business Journal 15(2): 63-75.

Khan, A. M., and Manopichetwattana, V. (1989). "Innovative and Non-Innovative Small Firms: Types and Characteristics." Management Science 35(5): 597-606.

Mazzarol, T., Volery, T., Doss, D., Thein, V. (2001). "Forces Motivating Small Business Start Up Among Nascent Entrepreneurs." Small Enterprise Research: The Journal of SEAANZ 9(1): 3-18.

Mazzarol, T. (2005). "A Proposed Framework for the Strategic Management of Small Entrepreneurial Firms." Small Enterprise Research: The Journal of SEAANZ 13(1): 37-53.

Lecture notes

Topic 5: Small firms lecture slides.