Paths to Profitability in Owner-Operated Firms: The Role of Entrepreneurial Marketing

Abstract

ABSTRACT This study examines the diverse strategies small to medium-sized enterprises (SMEs) employ to seek profitability. Three distinct profitability strategies are identified, and these strategies are compared across firms in terms of the geographical scope of operations and industry. Profitability strategies are also correlated with the entrepreneurial marketing dimensions that firms employ to implement them. INTRODUCTION Growth, profitability, cash flow for short-term survival-while all these may at times be critical performance goals for organizations, the drive for profitability may be most important in smaller owner-operated firms. Unlike larger organizations, in these smaller firms small strategic changes can have enormous impact on profitability and survival. The struggle to survive often overwhelms SME ventures, with 1 out of every 10 companies going out of business according to the most recent U.S. Census Bureau data. Moreover, there are many paths to profitability. This study examines the paths to profitability reported by a survey of owner-operated firms. In addition, the use of entrepreneurial marketing actions to support differing profitability strategies will be examined. Paths to Profitability in SMEs All journeys begin with a first step. For the SME seeking profitability, this step must involve defining its arena of operations or game. Beyond this first step, however, SME actions are likely to diverge, since staying on the path to profitability requires firms to adapt their capabilities and practices to the particular selected (Miller & Floricel, 2004). By their very nature, entrepreneurial ventures often leave the usually crowded, beaten path. The motivations and decisions that direct a firm to a different yet particularly well suited path are proactive adaptations and fundamental entrepreneurial behavior (Dess, Lumpkin, & Covin, 1997). Essential to success are the adaptations the SME employs in selecting that path and determining how it is traveled. Such adaptations create a better with a dynamic, challenging environment. Entrepreneurial success results from the union of a market opportunity and a well-crafted business concept, with the fit between the two determining the degree of success. There may be false starts and missteps by SMEs seeking a successful path, with fit not always present from the beginning. However, more adaptive firms that redirect their steps have also been found to be more profitable (Schindehutte & Morris, 2001). Faced with changing market conditions, firms may select a path of innovating with new product/service mixes, of targeting new markets, or of restructuring and reengineering to maintain profits (Mullins & Forlani, 2005; Dickson, 1992, Carpentar & Nakamoto, 1989; Hammer & Champy, 1993). In the SME, the competitive game and profitability path selected are closely linked to the owner/operator who influences the firm directly, rather than through layers of management. The culture and consequent actions of the firm greatly depend upon the attitudes and perceptions of the owner/operator (Miller & Friesen, 1982; Carson & Gilmore, 2000). From the framework of those attitudes and perceptions, the entrepreneur shapes key adaptations, deciding on what opportunity to pursue and how the firm will go about that pursuit. Perceptions influence the choice of opportunity, with entrepreneurs often seeing opportunity where others see little potential (Palich & Bagby, 1995). What may appear to be risk-seeking behavior in a high-risk new venture may actually be a carefully calculated entrepreneurial choice, with entrepreneurs viewing risk taking as part of their job (Mullins & Forlani, 2005). On the selected path, SMEs often encounter resource constraints, challenges that might render the path treacherous and untenable. Adaptations in response to resource constraints can become instead an additional opportunity source, whether from fast and flexible processes to innovative partnerships that leverage available resources (Carson & Gilmore, 2000; Schindehutte & Morris, 2001; Wiklund & Shepherd, 2005). …

Cite this work

No public copy is stored for this record, so only the metadata is cited.

Stored only when both papers are in the corpus — 25 citations exist upstream.