MANAGING SMALL BUSINESSES #business_administration [Video]

Managing in Small Businesses
and Nonprofit Organizations
Small businesses are growing in importance. Hundreds of small businesses open every
month, but the environment for small business today is highly complicated. Chapter 6
provides detailed information about managing in small businesses and entrepreneurial
startups.
One interesting finding is that managers in small businesses tend to emphasize roles
different from those of managers in large corporations. Managers in small companies
often see their most important role as that of spokesperson because they must promote
the small, growing company to the outside world. The entrepreneur role is also critical
in small businesses because managers have to be innovative and help their organizations
develop new ideas to remain competitive. At LivingSocial, for example, founder and CEO
Tim O’Shaughnessy spends a lot of his time promoting the rapidly growing daily-deal site
and talking with department heads about potential new products and services.68 Smallbusiness
managers tend to rate lower on the leader role and on information-processing
roles, compared with their counterparts in large corporations.
Nonprofit organizations also represent a major application of management talent.69
Organizations such as the Salvation Army, Nature Conservancy, Greater Chicago Food
Depository, Girl Scouts, and Cleveland Orchestra all require excellent management. The
functions of planning, organizing, leading, and controlling apply to nonprofits just as they
do to business organizations, and managers in nonprofit organizations use similar skills
and perform similar activities. The primary difference is that managers in businesses direct
their activities toward earning money for the company and its owners, whereas managers
in nonprofits direct their efforts toward generating some kind of social impact. The characteristics
and needs of nonprofit organizations created by this distinction present unique
challenges for managers.70
Financial resources for government and charity nonprofit organizations typically come
from taxes, appropriations, grants, and donations rather than from the sale of products
or services to customers. In businesses,
managers focus on improving the organization’s
products and services to increase
sales revenues. In nonprofits, however,
services are typically provided to nonpaying
clients, and a major problem for many
organizations is securing a steady stream
of funds to continue operating. Nonprofit
managers, committed to serving clients
with limited resources, must focus on
keeping organizational costs as low as possible.
71 Donors generally want their money
to go directly to helping clients rather than
for overhead costs. If nonprofit managers
can’t demonstrate a highly efficient use of
resources, they might have a hard time securing
additional donations or government
appropriations. Although the Sarbanes-
Oxley Act (the 2002 corporate governance
reform law) doesn’t apply to nonprofits,
for example, many are adopting its guidelines,
striving for greater transparency andaccountability to boost credibility with constituents and be more competitive when seeking
funding.72
In addition, some types of nonprofit organizations, such as hospitals and private universities
that obtain revenues from selling services to clients, do have to contend with a bottom
line in the sense of having to generate enough revenues to cover expenses, so managers
often struggle with the question of what constitutes results and effectiveness. It is easy to
measure revenues compared to expenses, but the metrics of success in nonprofits are typically
much more ambiguous. Managers have to measure intangibles such as “improve public
health,” “upgrade the quality of education,” or “increase appreciation for the arts.” This
intangible nature also makes it more difficult to gauge the performance of employees and
managers. An added complication is that managers in some types of nonprofits depend
on volunteers and donors who cannot be supervised and controlled in the same way that a
business manager deals with employees. Many people who move from the corporate world
to a nonprofit are surprised to find that the work hours are often longer and the stress
greater than in their previous management jobs.73
The roles defined by Mintzberg also apply to nonprofit managers, but they may differ
somewhat. We might expect managers in nonprofit organizations to place more emphasis
on the roles of spokesperson (to “sell” the organization to donors and the public), leader
(to build a mission-driven community of employees and volunteers), and resource allocator
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