Why do 53% of small businesses fail? Because of poor people management.

The Financial Times has recently reported that the number of new businesses being registered in the UK is surprisingly on the increase. An average of 47,500 small businesses have set up new bank accounts each month of this year so far – compared to an average of 43,800 in 2008. Presumably these statistics are being fuelled by the recession, as more people create the jobs and work they want and need by starting up a business themselves. 

Sadly, over half of these businesses (53%) will fail within five years.

An illuminating article in Management Today firmly attributes such failures to the oversight of small businesses in addressing the plethora of small and tricky people issues that are essential for the success of a commercial venture.

According to Management Today:

Obviously in one-man-bands and very small businesses you can resolve these issues easily through common sense conversations, and taking individual views into account when making key decisions. At the other end of the scale, larger businesses of anything more than 100 people require HR professionals who create policies by which decisions are made. It’s more impersonal and people grumble, but they usually accept that the policies were created for the common good of the business, even if they don’t always agree with the outcomes. It’s the small to medium-sized businesses that feel the crunch: they're torn between accommodating everyone’s views, and trying to reach decisions that are right for the business and the individuals - all of whom of course you know personally almost as friends.

The small, everyday issues that quickly become so difficult are things like policies for extended leave, sabbaticals, more flexible working arrangements, status needs (job titles!) and personal behaviour. 

The small, everyday issues that quickly become so difficult are things like policies for extended leave, sabbaticals, more flexible working arrangements, status needs (job titles!) and personal behaviour. 

In managing the people stuff in medium-sized businesses, we have to walk a tightrope between impersonal policy and personal preferences, between consultation and leadership, and between the business and individual needs. 

MT Expert - People: Most SMEs fail because of people stuff

• In a small business where there is no specific individual responsible for HR issues, who should be accountable for people issues?
• Does it make sense for small businesses to outsource certain aspects of HR to a third party? If so, which aspects?
• Do even small family-owned businesses need formal HR policies?