Key lessons learned from a study of nearly 1,000 small firms.

A study of 200 resilient small businesses has surfaced a path all firms can take to increase their likelihood of success despite intense competitive and economic pressures. According to insights gleaned through a comprehensive study conducted by The Blue Chip Enterprise Initiative, the route to small business success lies in a company's ability to blend three prevalent resource management approaches: human resource management, marketing management and quality management.

Of the companies studied, 86 percent reported that they focused on human resource management (external vendor relationships as well as internal staff management), 75 percent cited marketing and 56 percent cited quality management as solutions to meet a variety of challenges.

After evaluating nearly 1,000 small businesses nationwide and analyzing 200 of the most successful companies, three key points emerged:

Human resource management was directed at managing and motivating both internal and external personnel. Internally, the most successful companies concentrated on training (often cross-training), retaining and motivating employees to reduce turnover and to achieve quality goals. Externally, human resource management extended to vendor and client personnel, with many companies developing programs that created true working specifications and reporting partnerships with these groups.

Marketing management in its most effective application meant understanding and committing the company to meeting customer needs, sometimes becoming a virtual extension of the customer. These marketing solutions included:

• identifying and serving niches

• creatively supplying and pricing products and services to enter new markets and displace competitors - including non-traditional competitors

• creatively developing services and pricing products or services to lower a customer's total cost and add value to help that customer

Quality management looked beyond quality assurance alone as a benchmark. In the most effective cases, quality management meant establishing an operating philosophy that extended the entire length of the production and delivery stream, touching every interface between the company, its vendors and customers, providing goals and tracking success against all parties and responsibilities.

Businesses faced a variety of external challenges and internal pressures. The most prevalent issues that surfaced were external environmental challenges - including the state of the economy, increased competition and changing industry trends; and internal asset management issues such as lack of capital, cash flow issues, accounts receivable and coping with rapid growth.

Additional Keys

In addition to the broad areas of human resource management, marketing management and quality management, the analysis revealed more specific solutions used to overcome challenges:

• providing employee incentives and training

• enhancing product/service quality

• instituting or revitalizing marketing, including advertising and public relations programs

• reorganizing management

• improving existing technology, including office automation

• a new accounting system or specialist

• developing a business plan

• securing more capital

• obtaining customer feedback

• hiring an outside consultant

Emerging Trends

Through the analysis of the 200 success stories, three important small business trends were identified:

Business Planning - In more prosperous times, many small business owners may have been able to operate without a formalized business plan, but increasingly, small business owners are quickly learning the benefits of having a comprehensive business plan that includes marketing, tax planning and succession planning. Many business owners also found that the absence of a business plan was what caused them to face greater challenges. Others were able to overcome adversity because they had a solid plan in place. Of critical note: Without proper succession planning, and as a result of the more regulated banking environment, should something happen to senior management, a company could be forced to liquidate or be shut off from capital.

Technology - Small businesses are beginning to take advantage of existing technology more than ever before. Automation is allowing them to institute new controls while streamlining operations. Key office applications include inventory management and accounts receivable.

Employee Programs - Two areas where small businesses are quickly developing additional expertise include employee benefits programs and employee training. This was cited as a direct need to hire and retain qualified employees from a declining workforce and to realize productivity gains from each employee. ND