Introduction
Background to the Study
Small and Medium Enterprises (SMEs) play a key role in the economic development of nations. According to Hanaysha et al. (2021), a small business is independently owned and commands a small stake in the market. Typically, such businesses have less than 50 employees and only operate locally or regionally (Perkins and Khoo-Lattimore, 2020). They are responsible for the creation of a majority of employment opportunities in these countries and play a significant role in bridging the gap between the activities of large enterprises and small ones. The World Trade Organizations (WTO) says that SMEs account for about 95% of all global businesses and 60% of the total employment opportunities around the world (Assefa, 2021). Their share of GDP varies according to the economic growth stage of a nation because small businesses play a more significant role in contributing to the GDP of developed nations compared to developing ones (Mallett and Wapshott, 2017). Therefore, these enterprises are defined by the scope and scale of operations.
Most major enterprises and multinationals today started as SMEs at one point in their business cycles. For example, Apple, Tesla, and Microsoft are some of the world’s largest Multinational Companies (MNCs), which started as small businesses (Securities Exchange Commission, 2020). Henry Ford, who was the founder of the Ford Motors Group together with other prominent entrepreneurs, such as Larry Page of Google also started their businesses as SMEs and later nurtured them to become some of the world’s most valuable companies (Rahman, Ullah and Thompson, 2018). By relying on the contribution that such entrepreneurs and business leaders have made to the global business space, it is plausible to assume that small businesses have changed the world, as we know it today.
The COVID-19 pandemic has undermined the role played by small businesses in supporting the economic development of nations. It has forced many of them to shut down, while others are merely surviving (Ertel, 2021). The pandemic has exposed the vulnerability of small businesses to economic and social shocks (Beig and Khan, 2020). The decision to focus on small businesses as a distinct segment of enterprises affected by the COVID-19 pandemic lies in their uniqueness in operations, scale, and management. For example, most SMEs are located in traditional economic sectors, such as retail and hospitality industries, which were most affected by the pandemic (Mashenene and Kumburu, 2020). Additionally, compared to MNCs, SMEs have invested a relatively small number of resources in disaster preparedness or Research and Development (R&D) activities (Beig and Khan, 2020). This limitation inhibits their ability to respond effectively to crises.
SMEs are also ill-prepared to manage crises of the order and magnitude of the COVID-19 because of technological limitations. For example, these enterprises have a negligible presence in Hi-Tech spheres of technological adoption – signifying a low impact of technologically supported operations on their development (Liu, 2021). They also have limited resources to come up with new technologies to support their functions (Sa and Chai, 2020). Collectively, these attributes highlight the need to pay attention to this group of enterprises to understand factors that contribute to their resilience to avert future crises. Doing so will help to cushion economies from the adverse effects of sudden economic or social shocks because of the contribution that SMEs play in developing and supporting national economies.
Problem Statement
The COVID-19 crisis caught most businesses unawares, thereby creating significant havoc in their operations. SMEs were among the hardest hit but small businesses were already facing multiple challenges in their development and sustainability (Kumari and Eguruze, 2021). Financial and technological challenges are at the top of the list because they inhibit their ability to compete fairly with MNCs (Jones and Graham, 2018). These problems have been captured in contemporary literature as resource-limitations influencing the performance and competitiveness of SMEs (Evangelidis and Van Osselaer, 2018). Quality challenges and management ineffectiveness are also other issues associated with the daily running of such enterprises (Ertel, 2019). As highlighted above, compared to MNCs, small businesses do not have the resources, technical expertise, or managerial experience to manage large-scale economic challenges, such as those brought by the COVID-19 crisis (Coetzer, Kock and Wallo, 2017). These challenges have ranked SMEs at the lower end of the global industrial chain, thereby exposing them to the extremes of market shocks (Casadei and Lee, 2020). The aim and objectives of the investigation are aimed at understanding how to improve their resilience.
Aim of Study
To understand how small businesses can improve their competitiveness by becoming more resilient to external shocks
Research Objectives
- To investigate why most SMEs were unable to survive the COVID-19 pandemic
- To find out the most appropriate business structure that would improve the competitiveness of SMEs in a post-pandemic world
- To identify a suitable business model that SMEs could use to improve their resilience in a post-pandemic world
- To highlight the most suitable management style that would be appropriate for SMEs to use in navigating a post-pandemic world
Research Questions
- Why were most SMEs unable to survive the COVID-19 pandemic?
- Which business structure would improve the competitiveness of SMEs in a post-pandemic world?
- What type of business model should SMEs use to improve their resilience in a post-pandemic world?
- Which is the most suitable management style that SMEs should use to navigate in a post-pandemic world?
Importance of Study
As highlighted in this document, SMEs play a critical role in the sustenance of economies due to their roles in resource allocation and job creation. The theoretical contribution of this dissertation to the role of SMEs in economic development will be domiciled in the field of small business development. Contributions and lessons drawn from this research will be vital in improving the resilience of these enterprises to exogenous factors affecting their operations (Miklian and Hoelscher, 2021). From a policy perspective, the findings of this study will be instrumental in improving the legal framework and environment surrounding small business operations to enable them to better compete with their international counterparts (Campbell and Grimm, 2019). Therefore, the overall objective of this investigation will be to improve the chances of business survival for SMEs, relative to the market forces impacting their performance. By extension, this improved capability signifies a country’s ability to withstand economic adversity.
From a policy perspective, the findings of this study will be useful in improving decision-making processes because governments can better understand the impact of their decisions on the economy. For example, given that the imposition of lockdowns on communities was a contentious issue in many jurisdictions, policymakers could use the evidence gathered from this study to understand the direction that future policies should take to protect the interests of small business owners and the economy. This information will be useful in creating the case for a balanced policy framework that protects the interests of SMEs and the communities they serve. Overall, the findings of this chapter will be useful in gaining insight into the operations, successes, and challenges of SMEs as regards their future sustainability.
Structure of Paper
This paper is structured into five key chapters: introduction, literature review, methodology, findings and analysis, and conclusion and recommendations. The introduction section provides a background to the study and indicates its present direction and structure. The literature review section will provide a synopsis of the current state of research on the selected topic area with the view to understand gaps in the literature, which will be filled by the current probe. The third chapter of this dissertation highlights techniques that the investigator used to answer the research questions. Their findings will be presented in the fourth chapter and an analysis will ensue thereafter. The final chapter will summarize the main findings and outline a series of recommendations that could be applied to improve the resilience of SMEs in a post-pandemic world.
Literature Review
This section of the study explains the current state of research on SME development and the challenges they have encountered in their growth. This area of research will be juxtaposed with the experiences small business owners have reported in managing the adversities created by the COVID-19 pandemic on their business operations. The goal is to have a broad assessment of what researchers have said about the topic and to identify gaps in the literature that need to be filled with the current probe.
Benefits of Small Businesses
SMEs play a critical role in the development of a nation’s economic and social identity. There are more than 30 million small businesses operating around the world, generating significant academic interest among researchers about the potential of these enterprises to catalyze significant economic and social change around the world (Looze and Desai, 2020). Statistics reported by Looze and Desai (2020) suggest that SMEs are the foundation of most modern economies, including that of the US and the UK. Their contribution to economic development spans from the job opportunities they create for locals and the innovative products and services they avail to the market (Alvord, 2020). In between these roles, they generate several benefits for people, including generating revenue for governments through taxes, spurring innovation, and the development of community pride for owners and their associates.
Promoting Innovation and Growth
Innovation is one of the key competitive factors affecting business performance in the 21st century. SMEs have been on the forefront in promoting the development of innovative products in the market (Lemon and Doll-Myers, 2018). Relative to this observation, some of the goods sold by most major enterprises today are products of small business ingenuity (Lemon and Doll-Myers, 2018). Therefore, it is often common to find SMEs pushing big business ideas, regardless of their relatively smaller size. Innovation is a key competitive advantage for most SMEs because they need to come up with new ideas to remain competitive (De Mooij, 2019). In most cases, some of the best business ideas attributed to major MNCs today started as small ideas born by small business owners. For example, Mark Zuckerberg started Facebook, as a small business idea in his dormitory room. The company came up with a business that would link individuals and groups of people from different parts of the world in real time, thereby facilitating communication and interaction among people at scales never witnessed before. This idea was later nurtured by the company’s founders until it became the giant corporation it is today. This example demonstrates that small businesses act as an incubator for some of the best business ideas developed in the business world thus far.
Job Creation
SMEs play a critical role in expanding opportunities for job creation in various communities. Statistics show that these enterprises have a higher capability of generating jobs compared to large firms (Looze and Desai, 2020). Most of the people who benefit from such opportunities are locals who live in host communities because most small businesses hire employees from around the area they operate (Kim and Zhou, 2021). In this regard, they offer more benefits to local communities compared to large enterprises that could ship experts from around the world to work in their firms. The community focus of small businesses means that they could significantly change the lives of the communities they serve.
Employing locals in SMEs amounts to the enhancement of community welfare because workers would use the income generated from their jobs to make purchases in another shop, thereby boosting local economies in the process. The potential impact of job creation on families and livelihoods also means that SMEs enable communities to retain their capital (Sullivan, Wilson and Militz, 2017). Similarly, some customers prefer to shop in small businesses to keep the money they spend within the community and to support their domestically nurtured entrepreneurs. Taxes paid by SMEs to local authorities also mean that they indirectly create jobs in other sectors, such as education and healthcare, because government agencies use money obtained from such enterprises to fund various social welfare programs (Gottardo and Moisello, 2018). Therefore, SMEs play a direct and indirect role in the development of communities around the world.
Shared Community Identity
Successful businesses bring a sense of pride to the owners and the communities or countries they come from. Those who share in the heritage and success of such enterprises often bask in the glory of the success that businesses bring to them (Looze and Desai, 2020). SMEs act as a source of such pride because they promote a shared identity, especially among people who have seen them grow from infancy (BMI, 2020). Therefore, linked to the effort by members to retain capital in their communities by supporting domestic entrepreneurs, SMEs play a critical role in promoting a sense of community identity.
Some SME owners also take pride in their work and consider the goods or services they produce as being an integral part of the civic and cultural lives of the communities they serve. Most of them have developed interest in spurring the economic development of their towns or communities through their businesses and strive to do so with pride (Gruss, Kim and Abrahams, 2020). Some of them have collaborated with local authorities to educate people about the importance of supporting local businesses as a gateway to economic prosperity and social survival (Looze and Desai, 2020). In this regard, some SMEs play a critical role in influencing the policy direction of governments and authorities as well as contributing to the development of culture and social heritage among communities (Hong and Na, 2018). In this regard, SMEs promote a sense of shared communal identity.
Challenges Affecting SMEs
Low Levels of Customer Retention
Small businesses mostly thrive on promoting two types of business activities. The first one is subcontracting work to other small businesses through business-to-business (B2B) arrangements, and the second one is through long-term business agreements that secure a stable source of funds for a long period (Antcliff, Lupton and Atkinson, 2021). The COVID-19 pandemic distorted this balance by disrupting the business arrangements of SMEs that guaranteed their survival (Harel, 2021). This led to significant losses in revenue, which were attributed to supply chain disruptions and dramatic changes in demand (Abbasi et al., 2019; Gupta, Makhecha and Shaik, 2021; Yamani, Long and Itoh, 2020). Consequently, SMEs suffered significant financial losses in this regard.
Compared to MNCs, the negative effects of the pandemic were mostly felt by SMEs because they struggle to find new customers. Researchers also mention that these businesses have trouble keeping those that they have (Beckers, Van Doorn and Verhoef, 2018). This problem is highlighted mostly among SMEs that are less than 1 year old with statistics pointing out that 4/5 of such businesses struggle with this problem (Looze and Desai, 2020). Indeed, small business owners have reported challenges keeping the customers they have because 7/10 entrepreneurs have highlighted this issue as a problem affecting their performance (Looze and Desai, 2020). Therefore, these enterprises suffer from uncertain demand, which compounds their inability to respond to disasters.
Poor Access to Financing
Businesses operating in the international market have demonstrated a higher degree of adaptability compared to local or regional enterprises. The latter group of companies has to understand how to navigate the challenging environment of contradicting trade laws and policies governing business operations locally and abroad (Axler, 2019; Chen and Pain, 2019). This problem commonly emerges when looking for ways to finance new operations for most small businesses (Lam, 2017). Indeed, SME owners have mentioned this issue as a challenge affecting their performance (Looze and Desai, 2020). This problem was accentuated during the COVID-19 period as business owners struggled to look for additional funds to maintain their business operations and prevent them from shutting down.
Given that most SMEs are family or independently owned, the state of mind of the business owner is also a significant risk factor for running such firms. In this regard, some researchers have mentioned fear and self-doubt as part of the problem affecting small business development (Looze and Desai, 2020). Overall, Table 1 below highlights the major challenges affecting small business owners, relative to the ages of their businesses.
Table 1. Challenges affecting small business owners (Source: Adapted from Looze and Desai, 2020)
Limited Cash Reserves
Businesses need to dip into their cash reserves to sustain their business operations in the event of a crisis. The amount of cash a business has in the bank is a proven indicator of success or failure of an enterprise. Therefore, the less cash reserves a business is likely to have, the higher its probability of being hard-hit by a pandemic (Yan and Yan, 2017). This statement means that such businesses may not reopen again without external support. However, most SMEs do not enjoy this privilege because of poor reputations and inadequate cash flows (Yan and Yan, 2017). Particularly, small businesses suffer from this problem because of their limited scope and scale of doing business (Vidal et al., 2017). This attribute highlights the discrepancy that exists between small and big businesses.
Researchers have strived to contextualize the challenge of low cash reserves affecting SMEs by investigating how much money most SMEs have in the bank for emergency and contingency expenditures. A study done in the US revealed that most small businesses have less than $10,000 in the bank, which is hardly enough to cover their expenses for more than two weeks (Assefa, 2021). Therefore, if such enterprises were exposed to extraneous factors, they could quickly shut down, never to reopen gain.
SMEs that operate in developing countries have the biggest hurdles to overcome, in terms of financing, because of little or no government-support. This was evidenced from the lack of legislative or government support in the provision of subsidies and financial relief for such enterprises (Yan and Yan, 2017). Those in developed countries enjoyed generous financial packages from their respective governments, such as loan relief, while those that did not operate in the same space did not get the same support (Islam et al., 2021). The World Trade Organization (WTO) says that up to 44 of its member states announced government-backed financial relief measures for SMEs by April 2020 (Assefa, 2021). Some of these measures included state-loan guarantees of financial relief, credit guarantees, and suspension of principal or interest payments in loans. However, these relief measures were not uniformly applied across the board.
In the UK, it was established that businesses, which had a difficult time surviving due to the ravaging effects of the COVID-19, were eligible for a state-supported cash support plan. This help came in the form of a loan offered to them via a British Business Bank. The government also guaranteed up to 80% of loans offered to small businesses to increase their confidence in reaching out to at-risk groups (Assefa, 2021). This difference in government response between developed and developing nations highlights the need to design a business model that caters to a country’s unique interests and circumstances.
Impact of COVID-19 on Businesses
The COVID-19 crisis first started in Wuhan, China, and quickly spread throughout the world to cause one of the world’s worst global pandemic in 100 years. Frantic efforts by governments to control the spread of the pandemic led to the closure of several businesses and a lockdown of several communities around the world. Some businesses used technology to avoid complete shutdowns of their operations, while others whose nature of business could not allow full closure closed temporarily, some never to be reopened again. Most small businesses did not consider the use of technology as an integral part of their business operations, but the crisis forced them to reconsider this idea (Food and Agriculture Organization of the United Nations, 2019). Notably, the use of technology tools, such as Zoom and Skype became important for business partners to stay in touch with one another and to conduct business without necessarily being in the same physical space.
Due to the importance or some businesses to the economic survival of some countries, governments allowed some SMEs to operate during the pandemic period, albeit under strict regulations, such as social distancing and wearing of masks. In developing countries, government support was not far-reaching as was the case in wealthy countries. The latter group gave their businesses monetary and policy support to navigate the crisis, including tax reliefs and subsidies (Assefa, 2021). This action meant that SMEs in developing countries were the hardest hit. However, due to the myriad of challenges affecting small businesses in many developing nations, governments were unable to implement a complete shutdown of operations, as most enterprises were the sole sources of income for owners and their families.
From the measures imposed by governments to control the spread of the COVID-19 virus, it is unfathomable to think how businesses would have survived if current technology tools were not pervasive. Technology has played an important role in influencing the business designs of various enterprises. Some businesses have changed their models entirely to rely on new technology (Liu et al., 2018). For example, some personal training, tutoring, and consultancy businesses have completely shifted to the digital platform to prevent the possibility of another crisis affecting their operations (Brydges and Sjöholm, 2019; OECD, 2020). Some restaurants are pondering the idea of shifting the delivery systems from brick-and-mortar to become fully virtual (Food and Agriculture Organization of the United Nations, 2019). Their motivation is rooted in the ease of using virtual marketing tools to support self-branding strategies (Duffy and Pooley, 2017). These changes are supported by the existence of online meal ordering techniques, which exist to provide logistical support to businesses.
Theories Explaining Business Survival
There have been several theories developed to explain business survival during periods of crises. Most of them theories share their parentage from the survival theory, which postulates that businesses will seek for new ways of operating when presented with harsh business conditions (Assefa, 2021). In the context of small business development, it has been assumed that firms, which have a net profit that is greater than zero, are likely to survive in harsh operating conditions (Wynn and Jones, 2019). This is the kind of situation presented during the COVID-19 crisis because lockdowns and restrictions on movement of goods and people forced businesses to be operating without significant revenues due to a collapse in demand (Hack-Polay, Igwe and Madichie, 2020). However, their fixed expenses, such as cost of paying rent for business premises were still due.
The survival theory cannot be sustained in a COVID-19 environment because the basic assumption of the theory is that net expenses should be zero, which was not the case for many SMEs. In this regard, the survival theory has a limited application in the context of analyzing business survival in the COVID-19 period (Journé, Laroche and Bieder, 2020). At the same time, it has been established that market and financial cycles are partly responsible for the financial health of small firms during times of crisis (Adoko, 2017). Therefore, the quality of normal business operations is an underlying premise for the application of the survival theory in SME growth.
Given the limitations of the survival theory in the application of business principles for SMEs in a harsh business environment, researchers have come up with alternative theories for application when firms have no revenue and have to pay operating costs, such as staff salaries and rent. They suggest that lockdowns, and the duration that businesses stay under distress play a pivotal role in understanding their future (Assefa, 2021; Ding and Sickles, 2018). Their views rely on a cash fund that should not be less than the total operating cost of a business as well as the impact that the lockdowns would have on business operations.
To explain this principle it is claimed that the ratio of cash reserves and fixed costs should be greater than “1” for a business to survive during periods of harsh economic conditions. However, when the ratio of cash reserves is greater than 1, it means that businesses will have to seek cost-cutting measures, such as firing some employees – a measure which will have a negative impact on the economy and people’s livelihoods (Chapelle, 2019). The proposed theory of survival elevates the importance of seeking government support as opposed to implementing cost-cutting measures as the basis for promoting business revival.
Summary
The findings of this investigation show that most researchers have only focused on highlighting the effects that the COVID-19 pandemic has had on their operations. Consequently, the focus on comparing the experiences of firms that have successfully managed to navigate the crisis and those that have failed to do so is minimal. Additionally, there is scanty literature on the role that business models, structures, and management styles have played in improving SME resilience. Consequently, the current research aims to fill these research gaps.
Methodology
This chapter of the dissertation explains techniques used by the researcher to answer the study questions. To recap, four research questions guided this investigation. They strived to determine why most SMEs were unable to survive the COVID-19 pandemic, identify business structures that would improve the competitiveness of SMEs in a post-pandemic world, highlight the type of business model SMEs should use to improve their resilience in a post-pandemic world, and identify suitable management styles for navigating a post-pandemic world. The techniques used by the research to answer these pertinent questions are explained below.
Research Philosophy
A researcher uses philosophy to explain the world view through which data is collected, analyzed and interpreted. There are two main types of research philosophies in academic research and they include interpretivism and positivism (Morin, Olsson and Atikcan, 2021). The positivism approach views reality as a stable outcome that can be understood using objective means (Morin, Olsson and Atikcan, 2021). Comparatively, the interpretivism research philosophy conceives reality as a subjective construct that researchers should make sense of by evaluating people’s varied views (Patten and Newhart, 2017). This research philosophy underpins the current investigation because it relies on the subjective views of different business owners to make sense of issues or factors that led to the failure or successes of SMEs at the height of the COVID-19 pandemic.
Research Technique
Qualitative and quantitative techniques are commonly adopted in research investigations to characterize the kind of data a researcher should analyze. Qualitative findings refer to subjective elements of data that could be used to understand a research phenomenon (Brannen, 2017). Comparatively, quantitative findings refer to quantifiable evidence used to serve the same purpose (Brothers, 2020). The qualitative inquiry technique was used in the present study because the researcher sought subjective opinions from business owners regarding their experiences with the COVID-19 pandemic.
Research Design
The case study method was used as the fundamental research design for the present study because the focus of the investigation was on comparing the experiences of SMEs, which have succeeded or failed in overcoming the effects of the COVID-19 pandemic. Lessons from successful SMEs were compared and contrasted with the failures of unsuccessful ones to identify opportunities for improving the resilience of these enterprises in the long-run.
Data Collection
Qualitative designs are associated with different methods of data inquiry, including observations, focus group discussions, and interviews. Researchers suggest that the choice for the best approach to take should be informed by the potential to get rich data from the tool selected (Lee et al., 2020). Others suggest that the most appropriate technique should take into consideration the “why” and “how” of addressing a research phenomenon (Morin, Olsson and Atikcan, 2021). Subject to these lenses of review, qualitative investigations are deemed to be subjective assessments of research outcomes, as opposed to objective reviews of the same (Stacey, 2019). The present investigation focuses on understanding the experiences of SMEs surviving the effects of the COVID-19 pandemic on their operations.
It was important to gain first-hand information from small business owners about the research issue to understand the nuances involving their overall experiences, opportunities and challenges managing an SME at the height of the pandemic. The same information was used to understand why some businesses failed and other succeeded when exposed to the same conditions. This information was important in developing a reliable database for understanding how to improve the resilience of such firms in the future.
The interview method emerged as the most appropriate technique to use in gathering useful data from the participants. This data collection method was adopted in the current investigation because it gave the researcher an opportunity to harness rich data from the experiences of the informants. This statement is consistent with that of Kingsley and Robertson (2020), which says qualitative investigations should not only account for what was said in a study but also the manner in which it was said. Therefore, the interview process provided the researcher with an opportunity to not only interrogate findings but also observe how the informants answered the questions. This approach to data collection provides a contextual understanding of the views presented by the respondents.
Participants Selection Criterion
The inclusion criterion for selecting the participants was guided by the period under which their businesses have been in existence and their experiences through the COVID-19 pandemic – whether positive or negative. In sum, the researcher requested the business owners of 20 companies to participate in the study and all of them obliged. Ten of the cases were of successful business owners who managed to steer their businesses out of the crisis, while the other half was made up of owners who failed in this regard.
The researcher contacted SME owners via email bit interviewed them using two video conferencing platforms – Zoom and Skype. The purpose of using these digital communication tools was to comply with government directives on COVID-19 prevention, which advocates for minimal physical contact of persons. The information provided by the respondents was also expected to contain numerical data relating to the performance of their respective businesses. Particularly, the researcher was concerned with information relating to the financial performance of the businesses in the year 2020. The business owners were required to furnish the researcher with this information for analysis.
Sampling Method
The small business owners were recruited using the purposeful sampling method, which allows a researcher to obtain information from respondents who share similar characteristics. The sampling technique was important for the current investigation because it allowed the researcher to identify business owners who were more knowledgeable about the daily operations of such businesses, compared to other cadres of employees (Lise and Elisabeth, 2019). Indeed, most small businesses are operating as private enterprises with one owner or a group of owners who have hands-on experiences on the daily running of such businesses. Unlike MNCs, which have vast scopes of operations overseen by many employees, SMEs are mostly managed by one person. This individual was selected for the current review because of their extensive knowledge on the functions and performance of their businesses.
Research Instruments
The researcher obtained data from respondents using the qualitative semi-structured interview process. The questions posed to the respondents were detailed in an interview protocol. This protocol contained indicative questions that helped the researcher to ask relevant questions relating to their SME experiences. The questions were open-ended to allow the informants the liberty to answer them as they wished. Consequently, the possibility of researcher bias was minimized in this regard (Conway, 2020). Nonetheless, the interview process was structured into three parts. The first one provided general company information relating to the respective SMEs managed by the informants.
The second section outlined key success stories realized by businesses that managed to navigate the challenges of the COVID-19 crisis. The last part was associated with mistakes made by business owners that led to the failure of some firms to recover from the pandemic. Consequently, there were two groups of participants recruited in the study. The first one comprised of those who owned businesses that successfully recovered from the crisis and the second category was be made up of business owners who made mistakes during the crisis and were unable to recover. The dual approach to data collection was informed by the need to understand the experiences of successful and unsuccessful business owners through the crisis.
Data Analysis
The information obtained from the research was analyzed using the thematic and coding method. The technique is linked to the analysis of qualitative data because it helps researchers to identify themes emerging from an interview, which are useful in detecting patterns of responses that were important in formulating the research findings (Neuendorf, 2017). The thematic and coding process was undertaken by completing six steps. The first one was familiarization of data, where the researcher read interview transcripts to understand the general essence of what the informants said. The second stage involved coding the data into various themes that represented the roles of business models, structures, and management styles in the running of SMEs.
The third stage was characterized by the generation of themes, which emerged from the analysis of recurring patterns of information exchange from the responses. The fourth stage involved a review of the themes to allow the researcher to define and name them for ease of data analysis and comparison. The last stage of the data analysis process involved the final write-up of the research project. It entailed merging the different pieces of information highlighted above to form a coherent narrative that was instrumental in helping the researcher to meet the aim of the research.
Ethical Implications of Study
Given that the present study used primary data from human subjects, it is important to highlight the ethical implications of following this strategy. The ethical implications of a study refer to the conduct of a researcher in treating respondents and the data collected from them (Saxena, 2019). From this background, three ethical considerations emerged from the investigation and they included informed consent, treatment of data, and presentation of findings.
Informed Consent: The informants who chose to participate in the study were required to sign an informed consent form stipulating the terms and conditions for their participation. This form provided them with sufficient information about the research study, including its purpose, goals, and terms of engagement. Stokes (2017) argues that such information is useful to respondents who seek clarification of various issues relating to a research project. Additional details provided included the objectives of the study, contacts of who to call in case of any questions, and the name of the researcher’s institution where the findings would be published.
At the same time, the respondents chose to voluntarily participate in the investigation without being coerced or rewarded to do so. In other words, they were not given financial compensation or forced to give their views on the subject matter. This strategy is consistent with the views of Woodfield (2017), which links it to the generation of objective research findings. Subject to the same objective, the respondents were also free to withdraw from the study at any point during the investigation without any repercussions. The goal was to make them comfortable enough to provide honest views about their business processes without worrying about whether they would suffer any consequences for expressing their opinions.
Presentation of Findings: The researcher did not disclose the names and identities of the business owners who took part in the investigation. This strategy was adopted to protect their identity from unnecessary scrutiny and to allow them to comfortably give information about the running of their businesses without worrying about the consequences of disclosing such information. This ethical principle has been highlighted in several research investigations, which have used human subjects to obtain research data (Waring, 2021; Stokes, 2017). The anonymous presentation of findings also gave the informants confidence to be truthful about their business experiences during the COVID-19 period.
Treatment of Data: The researcher stored the information obtained from the respondents in interview transcripts and saved them in a computer. The computer was secured with a password to prevent unauthorized access. This strategy is consistent with the views of Isaak and Hanna (2018), which highlight the importance of proper data storage for research findings. At the end of the investigation, the findings obtained from the investigation that were stored on the device would be destroyed to prevent future distortion of findings or the disclosure of the identity of the participants.
Reliability and Validity of Findings
The researcher used the member-check technique to improve the reliability and validity of findings. This method works by allowing participants to validate their responses by reviewing the findings before publication (Yilmaz, 2017). In this process, they had the liberty to point out areas of discrepancies or inconsistencies that needed correction before the publication of the findings. Zhao and Min (2019) have hailed the use of the member-check technique in academic research studies because it enhances the trustworthiness of research findings based on the honest feedback generated between respondents and researchers. Pursuant to the application of this technique in the study, none of the participants requested to change details relating to their responses in the final write-up. Therefore, it could be assumed that they were satisfied with the manner the researcher presented in their views in the study.
Findings and Analysis
This chapter presents the findings derived from implementing the research techniques highlighted in chapter three above. To recap, the views of 20 respondents were sampled in the study to understand lessons about small business survival during the COVID-19 pandemic. Data was gathered using interviews and the findings analyzed using the thematic and coding method. According to the interview protocol, the business owners were required to give a background of their businesses and the findings are presented below.
Background of the Small Businesses
As highlighted in the third chapter of this paper, the first line of questioning in the interview process was aimed at understanding the background of the businesses sampled in the study. This question was posed to all the business owners and most of them admitted that their firms were initially family-owned and they took the helm of leadership after a family member quit or died. Two of the respondents said they started their businesses without any support from friends and family and they believed they had made an impact on the local communities they served. The link between small businesses and family ownership was noticeable from the responses gathered because researchers say most SMEs are independent or family-owned (Hack-Polay, Igwe and Madichie, 2020). Therefore, it comes as no surprise that most of the firm owners who took part in this investigation acquired their businesses in this manner.
Reasons for the Failure of Small Businesses
The second line of questioning relating to discussions aimed at understanding why small businesses failed during the COVID-19 period. To answer this question, 17 out of the 20 respondents remarked that the lack of funds was the main reason for this outcome. They believed that many small enterprises suffer from poor cash flow and given that they did not know how long the pandemic would last, they exhausted their cash reserves quickly. This action rendered them incapable of sustaining their businesses throughout the pandemic period. Relative to this assertion, one of the respondents said,
“I had cash in the bank that could sustain my operations for only three months. However… think about it…. what was I supposed to achieve in three months? I was running a restaurant with almost 70% capacity at least six out seven days in a week. When the pandemic hit, this demand was reduced to zero. I could not keep my employees or pay for my overheads without any business revenue. Even the cash in the bank could not help, so I closed shop.”
The lack of sufficient funds, as the main reason for small business collapse, is consistent with the findings of the literature review analysis, which mentioned it as one of the top reason for small business failure (Looze and Desai, 2020). This problem marred the activities of small business owners even before the pandemic happened. It has made them vulnerable to economic shocks and uncertainties in demand, thereby forcing some of them to close business when hit by adversity. Therefore, few enterprises could survive the protracted nature of the COVID-19 crisis.
Reasons for the Success of SMEs
Another line of questioning posed to the respondents related to their understanding of the reasons for the success of some SMES. Twelve out of twenty respondents claimed that government support was the sole reason for the sustenance of such businesses during crisis. Four of the participants who formed this group of business owners admitted to receiving government support and mentioned it as one of the reasons for their ability to withstand the crisis. Another group of respondents comprising of five business owners believed that the nature of business SMEs were engaged in was responsible for their success or failure. Two of them gave the example of businesses that provided essential services that were allowed to operate when everyone else was closed. This privilege was highlighted as part of a government-led strategy to support certain businesses at the expense of others. Respondents who believed so argued that this uneven policy response was responsible for the failure of most businesses.
One of the respondents believed that small businesses were resilient than their established counterparts due to the power of community support they enjoyed. He said,
“The difference between small businesses and MNCs is that they are firmly integrated into local economies, thereby generating community support. Most of our customers understand that supporting our local enterprises is supporting the community. They understand that the money we generate in our businesses is used to pay employee salaries in their communities… probably a family member. This person, in turn, spends their money on another local shop, which does the same, thereby creating a sustainable ecosystem of community support that can be leveraged during times of crisis. I doubt if large enterprises can match such support.”
Broadly, the responses provided by the informants suggested that external factors – outside of the business owner’s control – were responsible for the success of some SMEs. This external support came in the form of government or community support – both of which helped businesses with the goodwill to operate in adversity. Collectively, these insights suggest that the government subsidies and support given to business owners by community groups played a key role in helping them to overcome the worst of the crisis.
Business Structures
Another line of probe posed to the informants related to the types of business structures prevalent in SMEs and their role in helping such organizations to overcome adversity. This area of investigation was informed by research studies, which pointed out the important role played by leadership in helping organizations to be successful. Coupled with management, it was critical to understand how firms would navigate the challenge posed by the COVID-19 pandemic to overcome uncertainty. The informants mentioned two types of business structures as underpinning their core structures – sole proprietorship and partnerships. Sixteen out of the 20 informants sampled in the study highlighted sole proprietorship as their main business structure, while the rest said their enterprises were partnerships.
Six of these informants ran successful businesses that overcame the crisis but the rest did not. A sole proprietorship is a business format whereby one person owns and manages the daily running of a business (Yilmaz, 2017). It was associated with the successful management of SMEs because of the ability of the business owner to be hands-on in the management of the firm’s affairs. Partnerships emerged as a slower form of management structure because of the need to consult all partners before making a decision (Hack-Polay, Igwe and Madichie, 2020). Therefore, the sole proprietorship model emerged as the most preferred business structure to navigate the crisis.
Business Models
The business models used by small businesses to operate refer to the design of the business plan that allows them to make a profit. Typically, business models define the target market, identifies products and services to sell, and any projected costs of undertaking such ventures (Pashna, Esfidani and Bagher, 2019). Therefore, there are fundamental financial and marketing objectives to be achieved from the implementation of a company’s business model (Abid and Harrigan, 2020). In some literatures, business models serve a more expanded scope of functions, including providing plans of how to attract investments, recruit talents, and retain them (Cotter et al., 2021). There are many types of business models applied by small business owners today but the respondents mentioned direct sales, brick-and-mortar stores, and online businesses.
All business owners that practiced the virtual business model managed firms that succeeded during the COVID-19 crisis period. Alternatively, business owners that relied on the Brick-and-mortar business model were some of the worst affected. Those who professed to use the brick-and mortar business model argued that they would have to transfer some of their functions online to fit a virtual business framework. One of them indicated that they would transfer all their business functions online to minimize the possibility that another pandemic would affect their core operations. The preference for virtual business models as the new framework for managing SMEs stems from a growing body of research, which has highlighted the importance of technology in supporting business functions (Pääkkönen, Laaksonen and Jauho, 2020).Therefore, business models that have been hinged on technological showmanship have the highest probability of success.
Management Structures
The management structures adopted by SMEs were critical points of discussion in the study because of their role in directing organizational resources. There are different types of management structures employed by small business owners, but the democratic and authoritarian styles were most mentioned. These two management styles are the opposite of each other because the democratic management style is all-inclusive by recognizing the contributions of all players in the organization towards the sustenance of a business (Pashna, Esfidani and Bagher, 2019). Comparatively, the authoritarian leadership style is focused on implementing the wishes of the business owner with little input or consideration of the views of other employees (Pääkkönen, Laaksonen and Jauho, 2020). The authoritarian management style was the most mentioned because 11 out of the 20 business owners admitted to practicing it most of the time.
The authoritarian management style is commonly associated with small businesses success because of the lack of a diverse team of managers to oversee their operations. These enterprises mostly rely on the implementation of individually developed ideas, unlike large MNCs, which have a broader accountability plan (Pääkkönen, Laaksonen and Jauho, 2020). Therefore, authoritarianism could have emerged as a natural consequence of the ownership structure of these firms. Business owners who implemented a democratic leadership style said they believed it was the best management style to adopt in the current business environment. Most of them argued that the nature of their businesses did not allow the application of any other management style. Most of these owners were in service sectors and heavily reliant on employee input to succeed. They believed that the application of any other management style would have negative consequences on their performance.
When asked to state which management style would be more suited to an SME in a post-pandemic world, the informants argued for the establishment of a flexible management style that would be more responsive to current business challenges. This response meant that most of the respondents believed there were times to apply an authoritarian form of management and instances to implement a democratic management style. This statement is consistent with existing research literature, which shows that businesses, which are more adaptable to their environment, are likely to survive during harsh economic conditions (Bol et al., 2020). These findings reveal that the use of only one management style was detrimental to the longevity of SMEs because it lacked the flexibility needed to adapt a business’s strategy to environmental factors.
In the context of the responses provided by the business owners, managers who adopted the democratic leadership style formed the majority of business owners who failed to succeed during the crisis. This statement means that most of the firm owners who adopted the authoritarian leadership style succeeded in keeping their businesses operational during the crisis. Overall, based on the responses sampled from the informants, key lessons drawn from the collapse and success of SMEs are highlighted below.
Lessons from the Collapse of Small Businesses
The lack of adequate cash reserves emerged as a core theme in the study. Seven out of the ten business owners whose enterprises failed to reopen mentioned it. The views expressed by the informants support the findings of researchers such as Assefa (2021) who predicted that 44% of SMEs would fail in the first month of lockdowns. Therefore, the restrictions imposed on the operations of small businesses rendered them ineffective in adapting to their business environments to survive. Research investigations done to understand the future of SMEs in a post-pandemic society also indicates that SMEs may take up to three years before fully resuming the scope and scale of businesses they undertook before the pandemic (Pääkkönen, Laaksonen and Jauho, 2020). However, with the uncertain nature of the pandemic, it is still yet to be known when businesses can fully embark on this plan and consider COVID-19 a gone crisis.
Part of the problem associated with the management and functions of SMEs is their lack of experience in responding to disasters in the order and magnitude of the COVID-19 pandemic. Established organizations, including large MNCs, have prepared for such a crisis and have the resources to protect their core activities from any adversities. Relative to this assertion, researchers indicate that small businesses have a lower capacity of handling the costs associated with weathering a pandemic (Pääkkönen, Laaksonen and Jauho, 2020). This statement was made after comparing the capabilities of SMEs and MNCs in managing the effects of the pandemic (Blankson, Cowan and Darley, 2018). Consequently, MNCs and SMEs have unique characteristics that enable them to overcome exogenous forces in their business environment with more advantages linked with large enterprises due to their capacity and resources to manage the effects of a crisis.
Lessons from Successful SMEs
The insights drawn from business owners who ran successful SMEs highlight the importance of developing good relationships between employers and employees. This fact is highlighted by Dele-Ijagbulu, Moos and Eresia-Eke (2020) when they declared that SMEs are not the only about making money but also about the relationships they support among all the stakeholders involved. Relative to this statement, one of the respondents said,
“Post COVID-19 employees are going to be more wary about the economic and policy direction that business owners take. It is not going to be easy to fool or take advantage of them because I suspect that they are going to know whether you are using them for selfish or constructive reasons. Therefore, the relationships that will be nurtured between employees and employers will be critical in the sustenance of future SMEs.”
Another respondent supported this view by saying that many small businesses today survive because of the contributions they make to society. Particularly, the emphasis was on fostering business relationships between employees and employers where leaders put the interests of employees before those of an organization.
The informants insisted that this relationships was the foundational basis for developing successful and resilient organizations because all parties were willing to work together to overcome adversity. Therefore, the importance of building connections emerged in the review because it was believed that businesses are not only about making money but also about fostering relationships among the people involved. Tse and Tsang (2018) also highlight the importance of creating such connections but argue their case from a cultural standpoint. In other words, they believe that future businesses should look beyond the cultural turn created by the use of technological tools to boost business performance.
A critical analysis of the views presented by the informants shows that many businesses, which have demonstrated longevity in the market have successfully managed to convince their customers that their success is not only about business but also about relationships. For example, Starbuck’s success is partly pegged on this fact because its mantra is not only about celebrating coffee but also about nurturing a connection between the people and the business, as well as the people among themselves (Liu, Zhang and Keh, 2019). Some of the core values demonstrated in the company’s website, which states, “Creating a culture of warmth and belonging, where everyone is welcome” (Ertel, 2021, p. 10), support this statement. It describes the state of affairs for most successful businesses operating today because maintaining a connection among the people involved is as important as generating profits for shareholders.
The need for human connection was accentuated by the views of the informants who ran successful SMEs through the pandemic. They demonstrated that the positive relationships they shared with their employees and the connection they had nurtured with their customers was enough to create sufficient goodwill to withstand the crisis. Ding and Lu (2017) also highlights the importance of developing such personal connections by saying it is the key to implementing successful online business models. Their findings were developed after evaluating the relationship between people’s travel behavior and online purchasing activities.
Summary
The findings derived from this investigation reveal that there were multiple reasons for the success or failure of SMEs during the COVID-19 period. The difference in outcome was attributed to the nature of business that the firms engaged in and the type of management structures and business models adopted by the owners. Collectively, these attributes were responsible for the success or failure of these enterprises.
Conclusion and Recommendations
Conclusion
From the onset of this study, four research questions guided the investigation and they were focused on understanding reasons for the success or failure of SMEs during the COVID-19 period. Evidence was gathered from 20 business owners who had varying experiences managing businesses during the pandemic period. Broadly, it could be assumed that all companies that were operating during the period experienced significant challenges sustaining their enterprises due to a loss in demand and revenues. Most of them tried to remain operational but their overheads and the lack of external financial support made this outcome impossible to realize.
Those that successfully managed to remain operational during and after the crisis did so through external support. Government and community assistance emerged as the most cited aid given to these businesses. The nature of business operations that the SMEs were engaged in also played a key role in determining whether they would be successful, or not. Businesses that provided essential services were mentioned as having suffered the least effects of the crisis because they remained operational while others were shut. This means that they enjoyed a near monopoly of operations due to the nature of their business. The kind of business structure and management style adopted or implemented by business owners also played a key role in determining their fate.
Sole proprietorships and partnerships were the major forms of business structures prevalent in the sampled firms. This finding is consistent with extant literature, which highlights them as the main business structures that are prevalent in SMEs. However, these structures made it difficult for them to seek external support during the crisis period because private-run businesses are individually owned. Therefore, the losses and profits reported by these businesses are individually felt. This type of business structure explains why some of the enterprises failed. MNCs do not have this type of management structure because boards and teams of professionals who have the expertise and knowledge to run organizations during periods of adversity often lead them. Furthermore, some of the losses reported by these businesses are not shouldered by the enterprise but rather by insurance companies and other third parties. Therefore, these companies have a more sophisticated risk management plan that protects them from such adversities.
The management styles adopted by the business owners also played a key role in determining the future of their firms with authoritarian and democratic styles emerging as the most prevalent. The choice of management style was significantly informed by the nature of business that the owners engaged in. Those in the service-oriented sectors practiced the democratic leadership approach, while those that provided goods or products practiced the authoritarian leadership style. None of these two styles were mentioned as being suitable for SMEs in a post-pandemic world. Instead, a more balanced or flexible management style was preferred to achieve this objective.
Overall, the findings of this study show that the management style, business structure, and business model of SMEs were responsible for their success or failure. The role of the nature of the business on its outcomes should also be factored when understanding reasons for the success or failure of these enterprises. Therefore, it is important to understand the role that a business’s internal and external factors play in supporting or sabotaging its success. Based on the insights and challenges experienced by these enterprises, relative to the performance of MNCs, demand that some changes be instituted in small business management to make them more resilient. These changes are captured in the recommendations provided below.
Recommendations
The use of open innovation tools will play a significant role in the sustenance of businesses operations in the 21st century. It is supported by the quest for effective innovation that exists in various markets around the world. Businesses that use this strategy to remain competitive have demonstrated enviable success in dominating their markets and capturing the imagination of their customers. Apple, Facebook, Google, and the likes are a few MNEs that have successfully adopted this strategy. SMEs need to adopt a similar plan of investing more resources in research and innovation to improve their resilience and attraction to the market.
The focus should be on the development of new technological tools that would allow such businesses to operate even during crises. Companies that think this way have reaped the benefits by domineering in markets that provide equipment or technical support to enterprises that intend to work remotely. For example, CISCO, and Amazon have benefitted from increases in share prices during the pandemic period because of the perception that they provide core support services and goods to businesses that need them to survive in a post-pandemic world (Li and Burns, 2017). Concisely, CISCO provides networking services to a host of companies, thereby increasing their value to such organizations as they plan to improve their resilience. This value has been significantly increased by the heightened importance of remote working, due to restrictions on the physical movement of goods and services. Therefore, providing networking services to SMEs will play a critical role in improving SME competitiveness.
Despite innovation being one of the solutions for improving SME resilience, it is important to create a supportive culture to improve its sustenance as an idea worth consideration. This suggestion is informed by the recommendations of researchers, such as Harel (2021) who argue that companies, which have adopted an innovation strategy with a supportive culture, were the most successful in the industry. The innovative culture should act as insurance for the implementation of the proposed strategy. Therefore, anticipating challenges through innovation will improve the resilience of SMEs in a post-pandemic world.
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