Small to medium sized enterprises (SME) have long been noted as important economic engines of many countries and account for approximately half of GDP in the United States, yet this sector has continued to have mixed success and failure with such businesses having less than 50% chance of surviving five years! Despite this challenge most efforts to identify what leads to small firm success has been personal opinions or conjecture.
To gain a deeper real world understanding of what successful small businesses do to succeed I interviewed 29 owners and senior leaders of profitable and growing small firms that had been in business at least five years. I examined the interrelatedness of the firm’s cultural traits with its entrepreneurial style, if any, and found some amazing themes. We found that while many SME manifest entrepreneurial style of leadership, it is often other cultural traits such as employee empowerment, playfulness, and situated learning that contribute to innovation and firm performance.
What we conclude is that regardless of the entrepreneurial mindset of the owner or others in the organization, those closest to the action ought to make decisions on behalf of the firm rather than thrusting most or all pivotal choices to the owner or senior most leadership. Further, studies have shown that playfulness generates more creativity which then leads to innovations and improved firm performance thus small to medium sized firms ought to be conscious of the work environment and allow for a more relaxing and fun atmosphere versus one rigidly controlled or one that limits inter office idea development.
Small firm owners must also encourage learning. The more employees know about the business, products, markets and overall organizational goals the better they will be able to make choices and design creative products or services that meet the stated goals of the business.
The implication of this study is broad and deep for the small to medium sized firm.
First the owner or senior most leaders must understand that regardless of their own ability to be entrepreneurial or innovative they need contributions from their employees to be successful, especially as they grow larger as it becomes impractical to make all decisions and come up with all the ideas beyond a certain level.
Second, it is important to recognize the psychological impact that play and empowerment can have on firm performance – when people know they are trusted they will perform better versus simply being told what to do. And in most cases when the organization shares information, feedback and collaboration ensue which can result in better decision making.
Finally, organizational learning can lead to improved interfirm communication, feedback and loyalty thus smaller firm leaders must consider their approach to creating a learning environment in order to promote collaborations, idea sharing and executing on stated business objectives. A brief summary of each finding follows.
Small to medium-sized enterprise leaders empower their people
Nearly all interviewees discussed forms of empowering their staff by granting autonomy and authority to their teams and allowing people to have flexibility, experiment with ideas, and do their jobs as they best saw fit. Encouraging co-workers to engage each other, trusting them to do the right thing and even allow staff to represent the firm just like an owner was a growth step for the employee and way for the firm to be competitive. Twenty-one of the interviewees specifically stated “you have to allow people to do their jobs” while over half used the exact words “empower people” and almost all used nuances of that term such as allowing flexibility or trusting their staff to do the right thing.
Small to medium-sized enterprise leaders create a playful work culture
Whether it is treating others with respect or getting rid of employees who do not fit, SME sought employees who shared their values and those of fellow workers. Not only is there a belief that people form a huge asset, but you convey that by treating people like they were part of the business purpose.
Ultimately people will want to work at places where they are treated better, and they will work harder in that environment. Over half our respondents used terms like “having fun at work” or “having fun together” and many used references to family, even though only three were actually family businesses. These SME spoke often about ‘family’ culture. After all, the employee population was small, usually in a single location and the core team had worked together for many years. However, we also found that fun played a larger role in promoting not just a family like culture but also one where people enjoyed being at work. The camaraderie that was created through the process allowed for flexibility and accountability that eventually leads to innovation and positive firm performance.
Small to medium-sized enterprise leaders promote knowledge sharing
Nearly all interviewees spoke how employees shared knowledge and learned constantly. Leaders promoted the concept of regular feedback and collaborating and spoke to numerous ways in which objectives and goal attainment were communicated throughout the organization.
It was not enough for just the owners to know things; rather, it was believed that information must be shared and that all employees must learn. It might be one thing to collaborate intentionally and provide employee recognition when such praise is earned but respondents also believed that listening to and even seeking feedback was critical. Many participants sought feedback while others made it a point of emphasis to listen more and talk less. A few interviewees noted that they liked it when employees bring solutions to them versus just the problem while others stated that people will seek ways to improve the firm when they know they are listened to.
Our subjects were clear that feedback was important. But it was equally important as when to time the feedback. On-the-spot feedback was deemed critical, but being consistent and regular with feedback even more so. And as alluded to by over half the participants, make sure to follow up on commitments and be specific. Thus the impact of listening, feedback, collaborations and defining objectives all lead to knowledge that inspires innovation that leads to better firm performance.
So even if you “THINK” you are entrepreneurial or REALLY are – culture development, specifically empowering others, creating a playful atmosphere and ensuring knowledge is shred will lead you to innovation and sustainable success.