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Development of any business organization, large or small, tends to follow a predictable pattern that is usually characterized by sequential and progressive stages. While a number of organizational life cycle models have been proposed, the general structuring of each is similar. The starting point is a struggle for autonomy in the creation and development of a viable enterprise. This is followed by expansion and then stability and institutionalization.
Obviously, small firms face different sets of internal and external environmental variables as they move from state to state. And these variables cause problems that must be solved if the momentum of the business is to be maintained. Yet it is apparent from the failure record of small businesses that those problems often are not effectively solved.
Although their exact failure rate is unknown, it has been estimated that about 55 percent of small businesses fail within five years of inception, and 81 percent fail within ten years (Dawitt 1983). Moreover, recent figures show that both measures of business closure normally reported by the U.S. Small Business Administration, i.e., business failures and bankruptcies, are substantial, totaling 49,719, and 62,449, respectively, in 1989 (U.S. Small Business Administration 1990, 17). Clearly, greater knowledge of how small businesses evolve and the major obstacles faced in various life cycle stages is needed to fully understand their developmental process and the types of assistance necessary for their survival and growth. Life cycle stages have been used as a contingency variable to study the changes necessary for the planning and performance of small business (Lindsay and Rue 1980, Robinson, et al. 1984).
Churchill and Lewis (1983) conceptualized the stages of development of the small business life cycle and the major problems faced by management. Unfortunately, no empirical evidence was found relating the major problems encountered in each stage and the overall development of growth of the small business.
Accordingly, this article explores the proposition that the major problems faced by a small business are different among stages in the organizational life cycle. The primary purpose of the study this article is based upon was to identify the major problems common to small business in each life cycle stage. A secondary purpose was to assess the relative importance of each of the major problem...