Why some firms don't grow

Does businesses always grow?

Some businesses grow, some don't. Businesses that do not grow may not be failures. These businesses could have;

1. A small market

2. Limited capital

3. New technology (reducing capital)

4. Owner's decision

A Small Market

Some firms produce specialized products or services that are only needed by a small group of consumers. For example, a firm that produces a white cane (a cane used by the blind) will not be able to sell all their produce if they produce a large amount, as the number of people who are visually impaired are not many (a small market size). As such, these firms have no need to grow, as it only needs to produce limited output to meet the demands and needs of all its customers.

Limited Capital

Some businesses have difficulty raising funds because they are unable to get a loan. This usually happens to sole traders, hence the size of their businesses are small.

Technology

As technology advances, the cost of producing some products and services, such as microchips, continue to reduce. This enables automation to be cheaper, as more computers are built at a lower cost, reducing its price. As such, more businesses can be started with a small capital, increasing the amount of small firms to compete in the market.

Owner's Decision

Some business owners like their businesses small, as they like full control on how they operate their businesses. It is their personal preference.

RELATED POST

1. Why should a business grow

2. How to measure the size of the business

3. How does a firm grow

PAST YEAR QUESTIONS

1. Identify two possible reasons why a business has remained small (2 marks) May/June 2018/11

2. Do you think it is a good idea for a business to have only one customer? Justify your answer. (6 marks) Oct/Nov 2021/12

3. Identify two possible reasons why an owner might want their business to remain small. (2 marks) May/June 2022/13

4. Outline two possible problems for LXA if the business grows. (4 marks) May/June 2020/13

5. Identify and explain two disadvantages to STC of business growth. (4 marks) Feb/Mar 2018/12

6. Outline two possible problems for LXA if the business grows. (4 marks) May/June 2020/13

RELATED CONCEPT

1. Economies of Scale

2. Market Size

3. Sources of Finance

4. Perfect Competition

How are related concepts relevant to why some firms don't grow? Ask a question by leaving a comment.