Academic journal article Journal of Business and Entrepreneurship

Small Business Critical Success Factors and the Legal Form of the Firm

Academic journal article Journal of Business and Entrepreneurship

Small Business Critical Success Factors and the Legal Form of the Firm

Article excerpt


This study supports the concept that the legal form of small businesses may be a valuable addition to the commonly used measures of age and size as estimators of a firm's stage in its life cycle (the measure of maturity of a small business). A survey of 400 small business owners drawn from a mid-sized Texas city measured owners' perceptions of critical success factors relevant to them. Suggestions for future research are provided for additional confirmation of the incorporation step milestone in a life cycle as a determinant of a firm's perceptions of critical success factors.


The significance of small business is typically supported by its contributions to job creation and its share of the GNP. Small businesses accounted for 60% to 80% of job growth annually over the last decade (SBA, 2006) and maintained their share of the economy during this period, in spite of a declining share trend established during the 1960s and 1970s. Indeed, the role of small business may be even greater than the figures commonly cited by agencies and other research institutions. In a national survey utilizing a large random omnibus sampling of the entire population, small business entries were estimated at over 4.5 million annually (Dennis, 1997). The strength of this survey was its design to actively capture small business information, rather than rely on business owner self-reporting through sales tax registrations and phone listings, for example. In fact, "small businesses make up 99.7 percent of all United States' employers" (McDowell, 2006, p. 1).

Moreover, an SBA (2005) white paper proposed that small business makes indispensable contributions to the innovation and market renewal process and has a unique role in providing access to the economic and social mainstream for millions of women, minorities, and immigrants. Indeed, small businesses represent about half of the U.S. economy's output Also, small business experience has a community-building role that deserves attention. Besser and Miller (2004), in a study of 715 small business owners and managers in communities across the United States, posit that communities promote and support business development, asserting that "when businesses prosper, the quality of life in the community will be better" (p. 400). A majority of these small businesses indicated that "strengthening the community was important or very important to their business success" (p. 409).

While successful new enterprises have provided valuable contributions to the economy and society in general, their volatility and failure rate exact a cost to both. The failure rate of small business is estimated at 9% to 12% annually (SBA, 2004). Gilmore, Carson, and O'Donnell (2004) and Bates and Nucci (1989) found that similar figures were biased by the high failure rate of very small firms and their disproportionate share of the small business community. A study by Dennis (1997) indicated that the smallest new firms may be more common than previously thought. It appears fruitful to separate the vulnerability of small business firms from the rest. Indeed, the SBA (2005) reported as many openings as closings in 2004.

This study explores new ways to measure the maturity of small business emerging companies. Critical success factors (CSFs) are used to contrast the critical tasks faced by small business unincorporated business forms (UBFs) from those faced by incorporated business forms (IBFs).


Common business problems, critical success factors, business life cycles, and legal form of business have all been used in previous research to explain the maturation process of small businesses. The next section presents these issues.

Common Business Problem Areas

The study of CSFs is derived from prior studies of common business problems. Dodge and Robbins (1992) identified these problem areas to be marketing, management competence, and financing. …

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