One of the first questions that is worth asking is why it is more common for small businesses to fail than larger businesses. Dun and Bradstreet Corporation (1996) looked into this by studying thousands of successful and unsuccessful businesses. They found several major reasons for failure amongst small businesses. The most common cause was incompetence, which meant that business owners did not have the skills to run

The skills that are lacking most often are economics and financial skills. There are several major reasons for this. The first is that economics is one area that a new business owner is least likely to have experience in. In large companies, economics is completed by specialists in this area and these skills are rarely utilized by the majority of employees. In addition, economics is often considered a top-level area that is the concern of executives and CEOs, rather than lower level employees. This means that many business owners are unaware of the role that economic decisions have played in the success of the business. Instead, they are more likely to accept other areas as leading to success such as customer service and marketing plans. Overall, it is simply that the majority of employees lack awareness of the role that economics plays in business. Without this awareness, they do not develop skills themselves or become aware that it is important to base business decisions on economic factors. The second reason is that these skills are often considered too complex for an average business owner to understand. In addition, economics is often thought of as theory, while small business owners consider it more important to focus on practical matters. Small business owners also rarely seek outside help from economics advisors. This is another result of not being aware of the role that economics plays in business and how it can help a business to survive.

An understanding of supply and demand is also crucial to making pricing decisions. The supply and demand curve shows that as prices go up, demand goes down. The same occurs vice versa, with demand going up as prices go down. Small businesses have the task of setting prices for their goods. However, this is often done in a way that does not take into account all of the factors. A small business might set the price based on being lower than competitors. This is not an effective strategy if it means that the company does not make a reasonable profit. A company might also set the price based on the profit that it needs to generate. This might not be an effective strategy if the price is too high for demand to be strong enough. In other cases, a small business might determine prices based on what it thinks its services are worth or what it thinks customers will pay. The major problem with all of these approaches is that they do not come close to recognizing the complexity of the issue. For example, in the marketplace there are going to be a range of product selections with a range of prices. At what point do customers consider the gap to be small enough that a higher quality product is worth the extra cost? There are also different groups of consumers. How does one group of consumers differ from another? Should prices be set differently for different groups of customers? Will the company achieve more profit by setting a high price and having few sales or setting a low price and having many sales? How will the actions of competitors affect pricing decisions? Another factor is that high demand often also leads to high supply. For example, schools and colleges have a high demand for computers. This suggests that prices should be high. However, many companies will be likely to want to supply this strong demand. This leads to high supply, which drives prices down. In the end, a market with low demand and low competition may actually be a better market for a small

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Approximate Word count = 2334
Approximate Pages = 9 (250 words per page double spaced)