Large multinational organizations will typically follow standard guidelines on how to grow and expand their business. General requirements such as extensive employee training, adherence to environmental standards and a thriving corporate culture are among the top requirements for a large business to succeed. However, the formula which is often used to ensure the success of a Wal-Mart, do not always apply to a small business. (For more, check out 6 Reasons To Be Excited About The Small Business Job Act.)

IN PICTURES: 8 Tips For Starting Your Own Business

One of the fundamental differences between a multibillion dollar corporation and a "ma and pa" style shop is that a Wal-Mart can enter a new market and remain unprofitable for years as earnings from prosperous locations support those that are not performing well. Large businesses have more and often unlimited resources to market their products and services, and are for the most part able to replicate a proven business strategy in a wide range of environment. The owners of large organizations are usually not involved with the basic day-to-day operations of the firm. Small businesses do not have such luxuries.

Although there is no proven formula for a profitable small business - otherwise we would all be rich entrepreneurs - there are several important traits that are common to most small businesses.

Cater to a Niche Market
A small grocery store simply cannot compete with a Wal-Mart, just as an independent toy maker cannot drive a Toys-R-Us out of business. Therefore, small businesses must cater to a particular niche market, either selling foods that are specific to a particular ethnic community for example, or building toys that are not easily accessible through major retailers. Targeting a small group of people who have specific demands is an ideal way to attract an initial customer base. (Don't miss Starting A Business? Consider This First.)

Get Cozy With Customers
Once a small client base has been established, it is vital to maintain good relationships with your customers. Unlike major chains which can advertise to the whole community, small businesses often rely on word of mouth recommendations. Whether you are an independent accountant or a fisherman, the most effective and cheapest way to attract more business is through referrals.

IN PICTURES: 8 Ways To Survive A Market Downturn

Be Flexible
Businesses that experience success in their initial endeavors should be able to expand to other markets while retaining the initial customer base. For example, a Russian grocery store can start to import Ukrainian and Polish food in order to attract more business. Such measures ensure business growth outside of the initial market while maintaining the original customer base that made the business successful.

Focus on Skills
Large businesses have the flexibility to move beyond their initial services simply by hiring experts in those fields. Small businesses, on the other hand, are not able to do so. Entrepreneurs who find success will usually focus on what they know.

A Canadian with an accounting background may not have the necessary skills set to open a Russian store. Likewise, someone who recently came over from Russia may not have the expertise to start an independent accounting practice. (To learn more, see Build Your Small Business During Downswings.)

Get Lucky
No matter how well planned out the business model, some businesses seem to catch on and others fail. Some small businesses even begin to expand, opening new locations and targeting broader range of consumers, yet others remain true to the owner's original idea. While hard work, location and a thought-out strategy can undoubtedly improve business activity, sometimes luck can be the most important driving force.

The Bottom Line
Successful small business entrepreneurs will seek out information on where an unfulfilled demand in their community exists and cater to fulfill that gap. However, there are certain fundamental differences between the operations of a large corporation and a small shop. Successful business owners will capitalize on these differences to implement a strategy that works in their favor.

For the latest financial news, check out Water Cooler Finance: The End Of The Recession.

Related Articles
  1. Active Trading Fundamentals

    The 4 Biggest Private Equity Firms in London

    Discover information about the largest private equity firms that are headquartered in London, ranked by total assets under management.
  2. Retirement

    Retirement Planning for Entrepreneurs and Small Businesses

    If your business has receiveables, here's a smart way to leverage them to build up your retirement fund fast.
  3. Investing

    The 8 Best Business and Finance T.V. Shows

    With so many talking heads to choose from, which is the right show for your business and money matter needs? We review the best shows on now.
  4. Active Trading Fundamentals

    The Biggest Private Equity Firms in San Francisco

    Learn about some of the larger private equity firms with a presence in San Francisco, including KKR, the Blackstone Group and Warburg Pincus.
  5. Active Trading Fundamentals

    The Companies of Peter Theil's Founders Fund

    Learn about the major public companies that Peter Thiel has invested in and companies that are on the verge of going public at multibillion-dollar valuations.
  6. Active Trading Fundamentals

    The Biggest Private Equity Firms in Los Angeles

    Learn why Los Angeles is a thriving market for private equity, and identify the five largest private equity firms operating in the city.
  7. Entrepreneurship

    What Does Bootstrap Mean?

    The term bootstrap refers to launching and building a business with little capital and no funding from outside sources.
  8. Professionals

    Small RIAs: How to Level the Playing Field

    In order to compete with larger firms, small RIAs have to get a little creative. Here are a few ways to kickstart growth.
  9. Entrepreneurship

    Top 5 Startups That Emerged in Denver

    Learn why Denver is one of the hottest markets in America for startups, and identify five of the top startups that are emerging from the Denver market.
  10. Entrepreneurship

    How Does ClassPass Work and Make Money?

    Find out how ClassPass makes money, how the company aims to help both businesses and consumers, and why it has been so successful.
RELATED TERMS
  1. Corporate Culture

    The beliefs and behaviors that determine how a company's employees ...
  2. Venture Capitalist

    An investor who either provides capital to startup ventures or ...
  3. Organizational Behavior - OB

    Organizational Behavior (OB) is the study of the way people interact ...
  4. Holacracy

    A holacracy is a system of governance where members of a team ...
  5. Enterprise Investment Scheme (EIS)

    A UK program that helps smaller, riskier companies to raise capital ...
  6. Per Transaction Fees

    An expense a business must pay each time it processes a customer’s ...
RELATED FAQS
  1. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  2. Can I buy insurance to reduce unlimited liability in a partnership?

    Partnership insurance is actually quite common. Most of the time, partners buy insurance to safeguard against the possibility ... Read Full Answer >>
  3. What are the benefits of financial sampling?

    Financial sampling allows auditors to approximate the rate of error within financial statements. For accounting purposes, ... Read Full Answer >>
  4. What are the benefits of prorating expenses?

    When a person prorates expenses between personal and business expenses, he is able to capture the maximum amount of tax benefits ... Read Full Answer >>
  5. What are the responsibilities of the principal in a company?

    Principals have different roles depending on the nature of an individual business, but the universal responsibility of a ... Read Full Answer >>
  6. What do hard and soft goods in the retail sector refer to?

    Hard goods and soft goods, also referred to as hardline and softline, designate different types of goods a retailer offers. ... Read Full Answer >>

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!