Academic journal article Entrepreneurial Executive

The Study of Leadership in Small Business Organizations: Impact on Profitability and Organizational Success

Academic journal article Entrepreneurial Executive

The Study of Leadership in Small Business Organizations: Impact on Profitability and Organizational Success

Article excerpt


In the 21st century, both public and private business owners visualized economic growth, but growth slowed when unethical leaders became obsessed with satisfying their personal needs instead of the needs of their customers and their employees. Such unethical practices had an impact on economic growth, which affected unemployment, capital investment for small businesses, the loss of individual pensions, and small business bankruptcy. Economic uncertainty began to surface with the failure of the e-business sector, Enron, and WorldCom (Luthans, Luthans, Hodgetts, & Luthans, 2001). The U.S. economy was in decline before 9/11 because of reduced consumer spending, increasing unemployment, and declining economic growth (Shaw and Shapiro, 2002). The 9/11 attack accelerated the economic decline, brought additional uncertainty to the declining economy, and sounded the alarm for leadership at all levels to concentrate on their organization's success (Luthans et al., 2001, p. 4).

A large component of the U.S. economy stems from successful small businesses. Small business leaders use a variety of resources to position an organization to achieve its goals and objectives (Howard, 2006, pp. 73-88). The U.S. economy enjoyed remarkable economic success from 1996 through 2006, as indicated by the important economic measurement called rate of productivity growth (Acs & Szerb, 2007). Because of improved economic conditions, the demand for small businesses increased in this market (Fuller, 2003).


A small business is independently owned and operated and not dominant in its field of operation (U.S. SBA, Office of Advocacy, 2004). A small business is a single entity that conducts business transactions, such as services or industrial operations (The U.S. Census Bureau, 2005). Over the past 30 years, the United States has witnessed a powerful emergence of small businesses (Kuratko, 2007). America's small businesses generated more than half of the nation's GDP, served as the principal source of new jobs in the U.S. economy, and employed more than 50% of the private workforce, which grew to 51% (Wong, 2002; Howard, 2006). In 2002, small businesses accounted for 75% of total employment growth in the U.S. ("Vital Role," 2002). Small businesses are essential to the growth of the U.S. economy, as demonstrated by the number of organizations increasing 452,640 from 2000 to 2004 (U.S. SBA, Office of Advocacy, 2004). Statistics from the U.S. Census Bureau (2005) on small businesses listed over 13.2 million organizations in 2004. Six hundred seventy two thousand new small businesses were created in 2005, the largest number in U.S. history (Kuratko, 2007). The increase of small businesses aided economic growth and created new employment. Small business growth was associated with target markets, increased sales, profitability, achieving organizational goals, and competition.

Statement of Problem

The failure of small businesses has been a problem creating unemployment, affecting the U.S. gross domestic product (GDP) and slowing economic growth. Nine out of10 small businesses fail in the first three years (Headd, 2003). Small businesses without organizational goals and objectives remain in existence only 2 or 3 years (Beaver, 2003, p. 17). Failure then becomes a concern of both internal and external stakeholders. In 2002, 21,078 small businesses closed because of failure (Knaup, 2005). In 2005, over 32,400 small businesses failed, which represented a 9% increase over 2004 ("The World Slow-Down," 2006). Beaver (2003) researched data from Dun and Bradstreet and found the primary cause of small business failures in the United States was management incompetence as leaders.

Poor Leadership in Small Businesses

According to Perry (2001) and Beaver (2003), poor leadership practices in small businesses are the cause of many small business failures. Gordon and Yukl (2004) advocated more research on leadership skills relevant to turbulent small business environments. …

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