Gill South: Small business: Happy enough to stay that way?

Should smaller businesses be aiming to get bigger at any cost? Maybe not, suggests new research from the University of Waikato.

"My gut feeling is that most small-business owners like their independence, they don't want an IPO," says the author of the research, Kenny Bell. "When you approach a bank or a venture capitalist what you are doing is getting a boss."

In his survey of more than 2000 small to medium-sized enterprises (SMEs) the maths and finance honours student found no evidence that smaller firms faced greater obstacles in obtaining external funds.

Instead, he found that the most important factor in deciding a firm's capital structure was its own desire for financing.

"My findings indicate that we need to change the way SMEs are studied. We need to consider the different intentions and objectives of small firms, and we can't simply assume that all SMEs are looking to grow in order to maximise their financial wealth," says Bell.

"The contribution of SMEs to society is generally measured by the money they make and the people they employ. But contributions to society should encompass all enhancements of wellbeing - happiness and health." A study of Swedish firms showed those putting a big emphasis on growth had potential negative effects on employees.

"An important aspect to remember is the personal distance between manager and employees becomes larger as firms grow, suggesting that the value of the relationships involved may reduce as firms grow," says Bell.

Creativity is another aspect which is personally satisfying to entrepreneurial firms.

Bell's older brother Jeremy started the online rugby management game Blackout Rugby. "Getting the boat/bach is a big motivator but the most satisfying aspect for him thus far has been the creation of the game which thousands of people use. It has created an online community and Jeremy has derived a substantial amount of satisfaction from seeing others enjoy his creation and form these connections."

Bell, who is going on to do a PhD, is working with Waikato professor Ed Vos, who coined the term the "contentment hypothesis" in 2007. Vos argues that if small-business owners have the choice, they choose contentment over money.

"In our view it is wrong to view the SME sector as a sector that is financially frustrated," he says. He believes in organic growth, letting things occur naturally through improving efficiencies.

"Start-ups tend to be too ambitious for growth," he says.

The academic says 90 per cent of SMEs don't wish to grow further than their ability to pay for that growth with internal funds. His research has shown that those who choose to grow at all costs tend to be younger, male and less educated - what he terms the "young dumb male".

The bulk of small businesses don't see the world that way, says Vos. "It is not something to be conquered - it's a means to an end. And in the end the happiness and contentment they find is through networking."

Business coach Mike Ashby, managing director of National Business Coaching and former chief operating officer of Southern Cross Healthcare, agrees that 90 per cent of small businesses are happy with the size they are, but the other 10 per cent want more. He tends to work with that 10 per cent.

If people become too content with their lot, they get stuck in a rut, he warns. And the more successful you are, the deeper the rut.

In his coaching programme, Ashby finds many SME owners believe they will have to compromise lifestyle to grow their business but the coach tells them they can have both with the help of a "detached" adviser.

He says it is about using "scaffolding" to help the business, as Keith McFarland recommends in his book The Breakthrough Company. In other words, SMEs should use outside resources to help them break through from small and medium to large.

"A comfort zone can be an excuse for mediocrity," says Ashby.

Paul Duncan, general manager of business banking at ASB, says: "It's hard to be motivated if you are not wanting to drive your business forward."

The percentage of small-business failure is still very high, says Duncan, and that comes back to a lack of experience in industry.

What you see is people making the widgets and providing the service, but they are not financially astute about making money, he says.

They don't set margins appropriately. What business mentors find is that small-business owners are not getting the appropriate rewards.

"I would suggest that success is important and it's hard to have success if you are only standing still."