Business Sustainability Strategies of Small and Medium Enterprise

Section 1: Foundation of the Study

Globally, small and medium-sized enterprises (SMEs) serve as major drivers of

technological advancement and economic growth, but scholars have noted the existence

of limited research on SME sustainability strategies (Bayani & Crisanto, 2017; Omri,

Frikha, & Bouraoui, 2015). In the United States, SMEs account for 99.7% of employer

firms, generate 50% of all private gross domestic product (GDP), and employ half of the

private sector workforce (Zhou, 2016). In South Africa, SMEs form 97.5% of all

businesses, generate 34.8% of the GDP, and employ 54.5% of all formal private sector

employees (Lekhanya & Mason, 2014). According to Amisano and Anthony (2017),

business leaders face challenges sustaining small business performance over the long

term. Gandy (2015) posited that only two-thirds of small businesses survive at least 2

years, and about 50% survive up to 5 years. The purpose of this qualitative multiple case

study was to explore the strategies small and medium-sized business owners use to

sustain their businesses beyond 5 years.

Background of the Problem

Small businesses constitute an essential driving force behind the growth of most

world economies. In the United States, small businesses generated 65% of net new jobs

from 1999 to 2016 (Zhou, 2016). In South Africa, SMEs employ 54.5% of all formal

private sector employees (Lekhanya & Mason, 2014). Researchers have demonstrated

that 50% of the SMEs in Europe fail within the first 5 years (Bilal, Naveed, & Anwar,

2017; Burns, 2016; Petkovic, Jagar, & Sasic., 2016). In South Africa, the failure rate of

SMEs is between 70% and 80% in the first 5 years (Lekhanya, 2015). Hyer and Lussier

(2016) opined that about 50% of all newly established small businesses survive 5 years or

above, and about one-third survive 10 years and above. Akaeze (2016) explained that

small businesses fail within 5 years of operation because business leaders lack the

strategies to sustain their firms.

In the past, researchers have studied the causes of SME business failures, but little

empirical data exist on the strategies that small and medium-sized business owners use to

sustain their businesses (Bayani & Crisanto, 2017; Indounas & Arvaniti, 2015; Omri et

al., 2015). The findings of this study might enhance business practice by providing SME

business owners with information on ways to improve the survival rate of their

businesses. The results of this research might also fill the gap in the existing literature on

SME sustainability strategies.

Problem Statement

SMEs in developing countries are experiencing early-stage business failure due to

lack of business sustainability strategies (Lekhanya, 2015; Garbie, 2016). According to

Fatoki (2014), approximately 440,000 small businesses failed within their 5 years of

operation in South Africa, and 75% of new SMEs created in South Africa fail within 5

years of operation. The total early-stage entrepreneurial (TEA) activity in South Africa

has been on the decrease, from 10.6% in 2013 to 6.9% in 2016, which is significantly

below the average (14%) of efficiency-driven countries (Herrington, Kew, & Kew, 2015;

Herrington, Kew, & Nwanga, 2018). The general business problem was the high failure

rate of SMEs in South Africa, which might lead to low competition and innovativeness in

the SME sector. The specific business problem was that some SME business owners in

South Africa lack business sustainability strategies to stay in business beyond 5 years.

Purpose Statement

The purpose of this qualitative multiple case study was to explore business

sustainability strategies that SME business owners in South Africa use to stay in business

beyond 5 years. The targeted population consisted of six SME business owners from six

industrial sectors in the Gauteng province of South Africa who have achieved substantial

business growth and stability beyond 5 years by implementing business sustainability

strategies. The implications for positive social change of this study are that individuals,

organizations, and communities could benefit from the results of this study by

contributing to improved employment rates, improved health care systems, and

affordable education. The results of this study could contribute to positive social change

by promoting environmental protection, gender equality, social and economic

inclusiveness, increased community volunteering, charitable giving, and increased

responsible investing.

Nature of the Study

The three research methods include qualitative, quantitative, and mixed methods

(McCusker, & Gunaydin, 2015; Zoellner & Harris, 2017). The choice of research method

researchers use depends on three conditions: (a) the type of research question posed, (b)

the extent of control a researcher has over actual behavioral events, and (c) the degree of

focus on contemporary as opposed to entirely historical events (Yin, 2017). I used the

qualitative research method for this study and used open-ended interview questions to

collect data. Researchers use open-ended interview questions in qualitative research to

obtain an in-depth understanding of participants' experiences, perceptions, opinions,

feelings, and knowledge (Rosenthal, 2016). The qualitative method was appropriate for

exploring the lived experiences about the business sustainability strategies that SME

business owners in South Africa use to stay in business beyond 5 years.

Qualitative researchers tend to answer questions about what, how, or why of a

phenomenon rather than how many or how much, which are answered by quantitative

methods (McCusker & Gunaydin, 2015). Because quantitative researchers tend to answer

how many or how much questions (Magruk, 2015), the quantitative research method was

not appropriate for this study. The mixed methods approach is a combination of both

quantitative and qualitative methods. The mixed methods can be time-consuming and

expensive, which may make researchers work under a tight budget or time constraints,

thereby reducing the sample size or interviewing time with participants (Archibald,

2016). I did not use the mixed methods approach because the how many or how much

questions of quantitative research were not relevant in this study. However, the what,

how, or why questions of qualitative research, which is the qualitative component of the

mixed methods research, were most suitable for this study.

Qualitative researchers could use any of the following designs: ethnography,

phenomenology, narrative research, and case study approaches (Gergen, Josselson, &

Freeman, 2015). In this study, I used a case study design to obtain an in-depth

understanding of the phenomenon. Yin (2017) posited that a case study involves an in-

depth study into the case. Qualitative researchers use the case study design when (a) the

main research questions are what, how, and why questions; (b) a researcher has little or

no control over behavioral events; and (c) the focus of the study is a contemporary as

opposed to a historical phenomenon (Yin, 2017). In this study, I used a multiple case

study instead of the single case study. Researchers employ a multiple case study to

collect a broad range of data from different organizations (cases); in contrast, the single

case study is limited to one organization (Yin, 2017). By using the multiple case study,

researchers can analyze the themes from the individual organizations and across

organizations to enhance the research quality (Yin, 2017). The multiple case study was

appropriate for exploring the business sustainability strategies that SME business owners

in South Africa use to stay in business beyond 5 years.

I did not use narrative research, ethnography, or phenomenology for this study.

Narrative researchers present an in-depth description of real-life experiences of events or

phenomena through the stories or personal views of research participants (Shapiro, 2016;

Wang & Geale, 2015). The narrative design was not suitable because I did not intend to

study the life experience of an individual or a group of persons but rather strategies for

improving business sustainability. Ethnography is a design that researchers use to explore

a culture or a part of a culture, groups, neighborhoods, or organizations through the

researcher’s long-term involvement and research in a setting (Bernard, 2016; Yin 2017).

Ethnography was not appropriate because the focus of this study was not on cultural

issues but solutions to the specific business problem.

Researchers use phenomenological design to capture the worldviews and lived

experiences of individuals relevant to phenomena (Letourneau, 2015). Bernard (2016)

described phenomenology as a philosophy of knowledge that emphasizes direct

observation of phenomena. In this study, I did not use the phenomenological design

because I was not studying the meanings of the lived experiences of individuals, but the

sustainability strategies SME business owners use to sustain their businesses beyond 5

years.

Research Question

RQ: What business sustainability strategies do SME business owners in South

Africa use to stay in business beyond 5 years?

Interview Questions

1. What sustainability strategies did you use to remain successful in business

beyond 5 years?

2. How did you determine the success of the strategies?

3. How did you assess the effectiveness of your organization’s strategies for

remaining in business beyond 5 years?

4. What key challenges did you encounter in implementing the strategies?

5. How did you overcome the key challenges?

6. What additional information would you like to share on the strategies you

used to sustain your business beyond 5 years?

Conceptual Framework

The sustainable development theory was the conceptual framework for this study,

which focused on business sustainability strategies for SMEs. Sustainable development

theory has three components: economic, social, and environmental sustainability. The

World Commission on Environment and Development proposed the sustainability

development theory in 1987, which stipulates that sustainable development requires

meeting the basic needs of all stakeholders and extending to all the opportunity to satisfy

stakeholders’ aspirations for a better life.

According to the World Commission on Environment and Development (1987),

the major principal of development is the satisfaction of human needs and aspirations.

Therefore, sustainable development is a process of change in which resource exploitation,

the direction of investments, the orientation of technological development, and

institutional change are in harmony and enhance both current and future potential to meet

human needs and aspirations. The World Commission on Environment and

Development’s sustainability theory was applicable in this study because SME business

owners in South Africa could leverage the tenets to explore effective business strategies

that could enable them to remain in business beyond 5 years. By applying strategies that

ensure environmental protection, positive social impact, and achievement of the business

objectives of growth and profitability, SME business owners could sustain their

businesses beyond 5 years. The business sustainability perspectives identified in the

sustainability development theory was the lens for exploring the business sustainability

strategies that SME business owners in South Africa use to stay in business beyond 5

years.

Definition of Terms

Corporate sustainability: Corporate sustainability is the implementation of

management instruments, concepts, and systems that lead to long-term survival, also

known as sustainability management tools (Johnson & Schaltegger, 2016)

Economic line of triple bottom line (TBL) framework: The economic line of TBL

framework refers to the impact of the organization’s business practices on the economic

system (Elkington, 1997).

Environmental line of TBL: Environmental line of TBL refers to engaging in

practices that do not compromise the environmental resources for future generations. It

pertains to the efficient use of energy resources, reducing greenhouse gas emissions, and

minimizing the ecological footprint (Hammer & Pivo, 2016).

Small Business Administration: The U.S. Small Business Administration (SBA) is

an independent agency that is a division of the federal government that provides loans,

counsels small business owners, and protects the interests of small businesses (SBA,

2016).

Small business: A small business is any activity, firm, or trade with fewer than

500 employees (SBA, 2016; Berisha & Pula, 2015).

Social line of TBL: Social line of TBL refers to conducting beneficial and fair

business practices for the labor, human capital, and the community (Elkington, 1997).

Sustainability reporting: Sustainability reporting, sometimes referred to as

corporate responsibility reporting, indicates the process of organizing and disclosing

information relative to a company’s sustainability practices and its performances, along

with the TBL (Elkington, 1997).

Sustainable development: “Sustainable development is the development that

meets the needs of the present generations without compromising the ability of the future

generations to meet their own needs” (World Commission on Environment and

Development, 1987, p. 43)

Triple bottom line (TBL): TBL is a sustainability-related construct that provides a

framework for measuring the performance of the business and the success of the

organization using three lines: economic, social, and environmental (Elkington, 1997;

Hammer & Pivo, 2016).

Assumptions, Limitations, and Delimitations

Assumptions

An assumption is a fact that seems to be true without actual verification and a

supposition that has no proof (Marshall & Rossman, 2016; Smith & McGannon, 2018).

In this study, I assumed that data collection from SMEs should occur promptly. The

second assumption was that I would collect valid, reliable, and measurable data from the

research participants. The third assumption was that the reliability of data and study

findings depended on the level of honesty of participants’ responses. I also assumed that

each participant would provide an accurate reflection of their experience and that all the

members would understand the nature of the study. The final assumption was that a

minimum of six participants from six industrial sectors would provide adequate

information to understand the business sustainability strategies that SME business owners

in South Africa use to maintain their businesses beyond 5 years.

Limitations

Limitations are hindrances that researchers encounter in the course of their

research work (Berg, Witteloostuijn, & Brempt, 2017). The limitations of this study were

elements of the research that represent potential weaknesses that could affect the findings

on the business sustainability strategies that SME business owners use to remain in

business beyond 5 years. South Africa was the focus of the study. The first limitation was

limited access to SME business owners who have lived experiences of the objective of

the study. The second limitation was participants’ reluctance to release sensitive

information about the organizations’ profitability and sustainability position and

strategies. The third limitation was the demographic locations of participants in a

multiple case study and the associated costs of reaching the participants. The fourth

limitation was limiting the number of participants to six SME business owners from six

industrial sectors in South Africa.

Delimitations

Delimitations constitute the borders within which researchers conduct their study

(Pyrczak & Bruce, 2016; Sung, Kim, & Chang, 2015). A researcher determines the

delimitations of the study before commencing the study (Pyrczak & Bruce, 2016). The

reason for determining the delimitations of the study could be for readers and researchers

to interpret the findings within the context of the study boundaries. Therefore, the bounds

of this study constituted SME business owners invited to face-to-face or online interviews

and who have sustained their businesses beyond 5 years. Only SME business owners who

possessed experience with businesses operated within South African geographical space

qualified to participate in this study and respond to the interview questions. The study of

business sustainability strategies among SME business owners whose focus beyond mere

profitability strategies in South Africa is new, which might affect the amount of available

information on the subject.

Significance of the Study

Small businesses are a vital driving force behind most world economies.

According to the SBA (2016), small businesses represent 99.7 % of all employer firms in

the U.S. economy, makeup half of all private sector jobs, and generated 65% of net new

jobs from 1999 to 2016 (Zhou, 2016). In South Africa, SMEs form 97.5% of all

businesses, generate 34.8% of the GDP, and employ 54.5% of all formal private sector

employees (Lekhanya & Mason, 2014). However, in Europe, 50% of the SMEs fail in the

first 5 years (Bilal et al., 2017; Burns, 2016; Petkovic et al., 2016). In South Africa, the

failure rate is between 70% and 80% (Lekhanya, 2015). In this study, I explored

strategies that contribute to small and medium businesses surviving beyond 5 years.

Findings of this study could provide insights for improving the survival rates of new

SME business owners in the Gauteng province and thereby benefiting employees and

their families.

Contribution to Business Practice

The findings from this study may provide strategies to promote business

sustainability in SMEs for managing the TBL framework. In the past, researchers tended

to concentrate on financial and economic sustainability. In this study, I explored the

strategies that SME business owners could use to achieve economic, social, and

environmental sustainability of their businesses; thereby sensitizing them to the

competitive advantage inherent in business sustainability approach to management. Also,

the knowledge gained on the sustainability strategies for small business survival may

enable small business owners to direct their limited resources to those areas critical to the

survival of the business. By growing the value created through the efficient use of

business resources, SME business owners may increase their businesses’ survival rates.

Implications for Social Change

Businesses that are still in operation after 5 years may continue to contribute to

the stability and health of the economy (Lussier & Corman, 2015). The results of this

study might contribute to positive social change by promoting the application of business

sustainability strategies among SME business owners to improve the survival rate of

SMEs. The findings from this study might also contribute to positive social change by

reducing the burden on taxpayers, generating new jobs, reducing unemployment, and

increasing sales tax revenues. Other implications of this study for social change include a

reduction in security threats arising from high unemployment, reduced environmental

health hazards from organic emissions, and promotion of youth empowerment and

women’s empowerment and enablement.

A Review of the Professional and Academic Literature

Scholars have described a literature review as an organized search for existing

knowledge on a particular topic to ensure reliable and credible research with minimal

bias (Booth, Sutton, & Papaioannou, 2016). Machi and McEvoy (2016) stated that the

literature review involves the collection of data from existing literature about a research

study to examine a phenomenon. The purpose of this qualitative case study was to find

the strategies SME business owners use to sustain their businesses beyond 5 years.

Despite that SMEs serve as major drivers of technological advancement and economic

growth, researchers have neglected to study SME sustainability in the past (Bayani &

Crisanto, 2017; Omri et al., 2015). The findings of this research may fill the gap in the

existing literature on SME sustainability strategies.

The organization of this literature review includes a description of the concept of

business sustainability, sustainable development theory, sustainability performance

strategies, SMEs, sustainable transformative business model, SME business performance,

and SME business sustainability strategies. To obtain relevant literature for this study, I

used peer-reviewed journals and dissertations from Walden Library databases such as

ProQuest, ERIC, ABI/INFORM Complete, Scholar works, and Google Scholar. Other

resources of data included relevant books and information from web pages such as the

SBA.

Keywords I used to narrow the search for existing literature included

sustainability theory, small and medium enterprises, small business, entrepreneur, triple-

bottom-line, business strategy, business owners, and corporate social responsibility. I

searched for peer-reviewed articles and articles published within the last 5 years. The

search resulted in 80% peer-reviewed articles, and 89% of articles published within 5

years of the completion date of this study (see Table 1). I used a two-step strategy to

search the literature. First, I entered keywords into the Walden University Library

database. Next, I searched for a mixture of terms, which resulted in the resources, as

indicated in Table 1. This study contained a total of 175 resources, 17 (9.7%) of which

were textbooks, 8 (4.57%) were academic dissertations, 140 (80%) were journals, and 10

(5.7%) were government documents and seminal articles. The contents of the literature

review include: (a) sustainable development theory, (b) sustainable performance

strategies, (c) other theories of business sustainability, (d) SMEs, (e) sustainable

development strategies of SMEs, (f) financial management strategies in SMEs, and (g)

reasons why SMEs fail in the first 5 years.

Table 1

Literature Review Sources of Resources

Reference type

development theory. The study was focused on business sustainability strategies for

SMEs. In 1987, the World Commission on Environment and Development defined

sustainable development as development that meets the needs of the present generation

without compromising the ability of future generations to meet their own needs.

Sustainable development theory has three components: economic, social, and

environmental sustainability. Elkington (1997) identified the three pillars of sustainability

as people, profit, and the planet. Wise (2016) posited that the three pillars act as

interdependent and mutually reinforcing pillars that researchers and practitioners could

adapt to various applications.

A sustainability-related construct referred to as the TBL provides a framework for

measuring the performance of the business and the success of the organization using

three types of performance criteria: economic, social, and environmental (Alhaddi, 2015).

Corporate sustainability aims to improve the economic, environmental, and social

performance of companies. Geissodoerfer, Savaget, Bocken, and Hultink (2017)

described sustainability as the balanced and systemic integration of intra- and

intergenerational economic, social, and environmental performance. Rezaee (2016) stated

that sustainable development for organizations is not only providing products and

services that satisfy the customer without jeopardizing the environment but also operating

in a socially responsible manner and presenting reliable and transparent sustainability

reports. Organizations should present sustainability reports to stakeholders.

SMEs should understand the importance of sustainability reporting. Sustainability

reporting is one of the critical sustainability management tools (Johnson & Schaltegger,

2016). According to Rezaee (2016), reliable and transparent sustainability reports are

sustainability reports that met the International Organization for Standardization (ISO)

standards. The ISO standards include all five EGSEE (economic, governance, social,

ethical, and environmental) dimensions of sustainability performance. Many researchers

acknowledge that effective sustainability reporting is an essential element in

communicating corporate performance to stakeholders (Jones, Comfort, & Hillier, 2016).

According to Jones et al. (2016), the world's most widely used sustainability reporting

framework is the sustainability reporting framework by the Global Reporting Initiative

(GRI), with over 9,000 organizations having employed them by the end of 2014.

Business sustainability strategies are vital to keeping companies in business and

minimizing the rate at which businesses fail. Small businesses that have effective

sustainability strategies are likely to survive beyond 5 years.

Sustainability Perfor mance Strategies

Business leaders could adapt the GRI guidelines as useful strategies for reporting

sustainability performance and other organizational contribution to sustainable

development. Jones et al. (2016) posited that the reporting guidelines provided in the GRI

sustainability performance framework included transparency, inclusiveness, auditability,

relevance, clarity, and timelines. Rezaee (2016) suggested that practitioners should derive

sustainability performance measures from internal factors and external factors. The

internal factors include business strategy, risk profile, strengths and weaknesses, and

corporate culture. In contrast, the external factors include reputation, technology,

competition, corporate social responsibility (CSR), globalization, and utilization of

natural resources. CFA Institute (2015) stated that approximately 75% of investment

professionals apply ESG knowledge when making investment decisions. In the following

subsections, I describe the sustainability performance strategies through the concept of

economic performance strategies, governance performance strategies, social performance

strategies, ethical performance strategies, and environmental performance strategies.

Economic performance strategies. Economic sustainability performance reflects

the long-term profitability and financial sustainability of the company as measured in

terms of long-term operational effectiveness, efficiency, productivity, earnings, return on

investment, and market value. Economic performance strategies relate to strategic

financial management practices in firms; they consist of goals, patterns, or alternatives

designed to improve and optimize financial management to achieve corporate results

(Karadag, 2015). Business leaders use financial strategy to achieve and maintain business

competitiveness and position. Some strategies business leaders use to ensure long-term

profitability include short-term and long-term financial planning, funding policy, internal

control system, ethical framework and compliance monitoring, financial reporting

quality, risk management system, and marketing policy (Giannakis & Papadopoulos,

2016; Hasan & Ali, 2015; Martinez-Ferrero, Garcia-Sanchez, & Cuadrado-Ballesteros,

2015). SMEs should understand economic performance strategies to sustain their

businesses beyond 5 years.

Governance performance strategies. Governance performance reflects the

effectiveness of corporate governance measures in managing the company to achieve its

objectives of creating shareholder value and protecting the interests of other stakeholders.

Policymakers, regulators, and corporations establish corporate governance mechanisms to

promote economic stability, public trust, and investor confidence in public financial

information and capital markets. Business leaders could achieve governance performance

through board oversight of management, alignment of management interests with those

of shareholders, directors’ elections, and linking executive compensation schemes and

practices to long-term sustainable performance (Rezaee, 2016). SMEs should understand

governance performance strategies to sustain their businesses beyond 5 years.

Social performance strategies. Business leaders use social performance to

measure how well a company translates its social goals into practice. Social performance

reflects how and to what extent a company fulfills its social responsibility by making its

social mission a reality and aligning it with the interests of the society. Social

performance ranges from focusing on delivering high-quality products and services that

are not detrimental to society to improving employee health and well-being and

becoming a positive contributor to the sustainability of the planet. Social performance

measures corporate activities that contribute to society beyond compliance with

applicable laws, regulations, standards, and common practices. Social performance can

improve corporate image and reputation and may result in sustainable financial

performance in the long term (Rezaee, 2016). Several academic studies indicate that CSR

performance increases the firm value and reduces the cost of capital (Huang & Watson,

2015; Rezaee, 2016). By understanding the social performance strategies, SMEs could

sustain their businesses beyond 5 years.

Ethical performance strategies. Ethical performance reflects a company’s

culture of integrity and competency. The top management set the appropriate tone for

ethical standards which can be considered separately or infused into other dimensions of

sustainability performance. Some attributes of an ethical corporate culture include (a)

codes of conduct for directors, senior executives, and employees; (b) accountability; (c)

honesty; (d) mutual respect; (e) fairness; (f) transparency; and (g) freedom to raise

concerns. By implementing appropriate ethical policies and procedures in the workplace,

business leaders could improve the integrity and quality of financial reporting and thus

the economic sustainability of the company in the long term (Rezaee, 2016). SMEs

should understand ethical performance strategies to sustain their businesses beyond 5

years.

Environmental performance strategies. Environmental performance reflects

how effectively a company addresses its environmental challenges in leaving a better

environment for future generations. Environmental disasters such as the Union Carbide,

Exxon, and BP Deepwater Horizon incidents have created a bad reputation for businesses

in some industries (chemicals and oil sectors) and require them to pay more attention to

their environmental initiatives. Environmental performance can affect economic

performance by reducing the likelihood of environmental law violations, which may have

detrimental financial consequences. Environmental performance is measured in terms of

reduction in carbon footprint, creation of a better work environment, and improvement in

the air and water quality of the property and the surrounding community (Rezaee, 2016).

The adoption of environmental performance strategies in sustainability reporting could

assist SMEs to develop an integrated analysis of factors including environmental

disclosure and environmental performance, which could promote good economic

performance.

The accounting and auditing standards, as well as reporting and assurance of

financial information, have been well-established and uniformly applied. However, the

development of standards and their uniform applications for nonfinancial ESG

sustainability information is evolving and are not consistently and vigorously required

(Rezaee, 2016). Financial and nonfinancial sustainability performance are interrelated

and should be integrated to achieve cost-effectiveness, generate revenue, and manage

sustainability risks (Rezaee, 2016). The cost-effective measures include cleaner and

cheaper energy; organic, safe, and high-quality products; recycling; and waste reduction.

The company could generate revenue from customer sales and premiums for socially and

environmentally friendly products and services.

Sustainability risk management strategies. Researchers have found that in

recent years, risk-taking by firms and investment banks has become contagious in the

sense that executives are motivated to take an excessive risk; as evidenced by outrageous

risk at Enron, WorldCom, and banks issuing subprime mortgages (Rezaee, 2016). Global

business is continually changing and becoming more volatile, unpredictable, and

complex. In this challenging business environment, enterprise risk management (ERM) is

vital in turning challenges into opportunities. Brockett and Rezaee (2012) and Rezaee

(2015) presented six risks that are relevant to sustainability performance. The six risks are

strategic, operations, compliance, financial, security, and reputation. Adequate

consideration and proper assessment and management of the six risks are becoming

increasingly essential and play an essential role in achieving EGSEE sustainability

performance.

Strategic risk. There are several strategic risks related to business sustainability

performance, reporting, and assurance. Some strategic risks include the risk of ineffectual

corporate governance measures, uncertainty in a marketing position, volatility in stock

price, abnormal changes in consumer demand, and portfolio risks related to strategic

investments, stakeholder communications, and investor relations. The strategic risks

could create opportunities for improvements in operating, investing, and financing

activities and proper communication with all stakeholders. Rezaee (2016) advised

business leaders to implement related control activities to minimize adverse effects and

maximize potential opportunities by addressing strategic risks. Business leaders should

identify, assess, and manage strategic risks.

Operations risk. Operations risks affect all five EGSEE dimensions of

sustainability performance. Rezaee (2016) noted that operating risks align with both

conventional (financial) and nonconventional (nonfinancial) key performance indicators

(KPIs). Examples of financial KPIs include earnings, return on investment, and stock

prices while nonfinancial KPIs are social, ethical, governance, and environmental

performance, which business leaders should assess and manage.

Compliance risk. Corporations must comply with sets of national and

international laws, rules, regulations, standards, and best practices. Many companies face

the challenges of complying with numerous regulatory measures. The noncompliance to

regulatory requirements could expose firms to a significant risk of enforcement actions

and penalties as well as an interruption and or discontinuation of the business. To achieve

the corporate objective on compliance risk, many companies have created either the

board compliance committee or an executive position of compliance and risk officer

(Rezaee, 2016). SME business owners should assess and manage compliance risks to

minimize their adverse impacts.

Reputation risk. The significant challenges for many businesses are maintaining

an excellent business reputation and meeting expectations of the stakeholders from

investors to creditors, suppliers, customers, employees, the environment, and society.

Business leaders link the five EGSEE dimensions of sustainability performance to the

business reputation, customer satisfaction, and ethical workplace. Rezaee (2016) advised

business leaders and managers to evaluate the company’s reputation and its related risk

on an on-going basis, and minimize any damages to reputation. SME business owners

should evaluate the reputation risks to minimize damages to corporate reputation.

Financial risks. The financial risk of issuing materially misstated financial

reports is detrimental to the sustainability of corporations. Financial risk has caused the

demise of many high-profile corporations such as Enron and WorldCom. Financial risks

are failures of financial reporting and internal control systems to prevent, detect, and

correct material misstatements caused by errors, irregularities, and fraud (Rezaee, 2016).

To mitigate financial risk, SOX (2002) requires that the management (CEOs and CFOs)

of public companies should certify the company’s financial statements and internal

controls, and use independent auditors to review the accuracy of corporate financial

statements.

Security risk. Cyber hacking and security breaches of information systems are a

harsh reality for many businesses (e.g. Sony, Target, Morgan Chase). The reports of risk

assessment and controls indicate significant increases in information technology (IT)

investment and commitment by companies wishing to prevent security risks. Cyber-crime

and related attacks are chronic and enterprise-wide risks that pose significant threats to

public companies’ existence and reputations. The potential costs to a company of security

and cyber-attack risks include service and business interruptions, loss of intellectual

property, loss of brand value, breach of customer data privacy, response costs, and

damage to physical infrastructure.

The critical intellectual property, business data, and physical assets must be

identified and protected (Rezaee, 2016). At a minimum, companies should maximize

protection against security breaches and cyber-risk exposures and utilize the security

guidelines recommended in the new Committee of Sponsoring Organizations of the

Treadway Commission report (COSO, 2015). Furthermore, management should establish

adequate and effective business continuity plans and implement procedures to recover

data from a backup source quickly. SMEs should identify and protect critical intellectual

property, business data, and physical assets.

The move toward sustainability reporting underscores the importance of adequate

ERM in improving the effectiveness of all five EGSEE dimensions of sustainability

performance. ERM is a risk-based approach to managing an enterprise, integrating

concepts of strategic planning, operations management, sustainability, and internal

controls. The goal of implementing ERM is to manage overall risks by identifying and

reducing the possibility of events which create operational surprises and losses. By

developing sustainable programs with proper risk management, businesses could

reposition from reacting to social and government pressures to proactively moving

beyond economic performance and toward EGSEE sustainability performance and risk

management (Rezaee, 2016).

Other Theories of Business Sustainability

Other theories of business sustainability include shareholder theory, legitimacy

theory, stakeholder theory, institutional theory, disclosure/signaling theory, and

stewardship theory. Agency/shareholder theory focuses on risk-sharing and agency

problems between shareholders and management and the related three agency costs

(monitoring, bonding, and residual) that are assumed by shareholders (Rezaee, 2016).

The implications of shareholder theory for sustainability performance are that

management incentives and activities often focus on short-term earnings targets, which

are typically linked to executive compensation and detract business leaders from

achieving sustainable and long-term performance for shareholders. Agency/shareholder

theory addresses a narrow and parochial aspect of business sustainability by primarily

focusing on financial, economic sustainability performance information and disclosure of

such information mainly for shareholder purposes.

Institutional theory by Meyer and Rowan (1977) presents a firm as an

institutional form of diverse stakeholders pursuing common goals. The institutional

theory is relevant to business sustainability because it focuses on the social aspects of

decision-making, the conditions for making investment decisions on CSR or

environmental initiatives, and their possible impacts on the environment and society

(Rezaee, 2016). A typical example of a social aspect of decision-making is the decision to

invest in CSR expenditures.

Institutional theory suggests that institutional environment, internal corporate

governance mechanisms, and corporate culture can be more effective than external

measures (i.e., laws and regulations) and external corporate governance mechanisms in

achieving all five EGSEE dimensions of sustainability performance. A more pragmatic

institutional theory promotes business sustainability by viewing a firm as an institution to

serve human needs and protect all relevant interests. However, the institutional theory

fails to address the potential tensions in achieving potentially conflicting dimensions of

sustainability performance. A firm as an institution is sustainable as long as it creates

value for all stakeholders, including shareholders and promotes synergies among all

stakeholders.

Legitimacy theory suggests that social and environmental sustainability initiatives

and related performance are desirable by all stakeholders, including customers, society,

and the environment. The theory stipulates that noncompliance with social norms and

environmental requirements can be detrimental to organizational legitimacy and its

financial sustainability. Thus, organizations use environmental and social disclosures to

satisfy society’s demands. Legitimacy theory is relevant and vital to the achievement of

EGSEE sustainability performance because it solidifies the company’s reputation and its

products and services must be desirable and beneficial to all stakeholders rather than

harm the environment and society. However, the legitimacy theory fails to provide any

solutions for shared value creations among diverging stakeholders (Rezaee, 2015).

Signaling theory refers to the ability to communicate with all stakeholders the

achievement of all five EGSEE dimensions of sustainability performance. Signaling

theory helps explain management incentives for achieving both financial-economic and

non-financial CSR/ESG sustainability information. Thus, the signaling theory is most

relevant to sustainability disclosure rather than sustainability performance. Freeman’s

(1984) stakeholder theory and Jensen’s (2001) enlightened value maximization theory

recognize that maximizing a firm’s performance and the long-term value of the firm are

the criteria for balancing interests of all stakeholders.

Stakeholder theory indicates that sustainability activities and performance

enhance the long-term value of the firm by fulfilling the firms’ social responsibilities,

meeting their environmental obligations, and improving their reputation. Hernandez’s

(2008) stewardship theory views management as considering the long-term interests of a

variety of stakeholders rather than its own self-serving and short-term opportunistic

behavior under an agency theory. Hernandez (2012) defined stewardship, as the extent to

which an individual [management] willingly subjugates his or her interests to act in

protection of others’ [stakeholders] long-term welfare, which is very applicable to the

emerging corporate sustainability. Two aspects of stewardship definition, long-term

orientation and protection of interests of all stakeholders, are the main drivers of

corporate sustainability.

Stewardship theory applies to corporate sustainability because it considers

management’s strategic decisions and actions as stewardship behaviors that serve a

shared valued end, which provides social benefits to collective interests over the long

term (Hernandez, 2012). The stewardship theory requires management to exercise due

diligence and be accountable for improving financial and nonfinancial KPIs in protecting

the interests of all stakeholders. However, the stewardship theory does not offer any

suggestions as to how managers should manage potentially conflicting EGSEE

sustainability performance dimensions (Rezaee, 2016). In this study, I used the

sustainability development theory to explore the sustainability strategies SME business

owners use to stay in business beyond 5 years.

Small and Medium-Sized Enterprises

SMEs belong to the group of businesses that do not fall into the group of large

enterprises. The other variants of businesses in this category are small businesses; small

and medium firms; and micro, small and medium enterprises (MSMEs). The names vary

from one country to the other but are interchangeable in concept. Although scholars

universally adjudge this class of businesses as the backbone of the economy, researchers

are yet to find a universal definition for it. Berisha and Pula (2015) cited a study of the

International Labor Organization, which identified 50 definitions of small businesses in

75 countries with remarkable ambiguity in terminology used. Table 2 describes the

European Commission definition of SME.

Table 2

Definition of Small and Medium Enterprises with European Union Standards

Enterprise

category

Table 4.

Distribution of Firms by Number of Employees in Different Countries

Countries

Table 5.

Schedule of Size Standards for the Definition of Small and Medium-Sized Enterpirse in

South Africa

Size of

enterprise

generally more established than very small firms and exhibit more complex business

practices. The maximum number of employees for medium enterprise is 100 or 200 for

the mining, electricity, manufacturing and construction sectors. The schedule of business

sectors specified in the Act includes agriculture; mining and quarrying; manufacturing;

electricity, gas and water; construction; retail and motor trade and repair service; and

wholesale trade, commercial agents and allied services. Other business sectors contained

in the Act include catering, accommodation and other trade; transport, storage and

communications; finance and business services; and community, social and personal

services

Sustainable Development Strategies of Small and Medium-Sized Enterprises

SMEs generally have characteristics and competencies different from larger

companies which might explain the rationale for SMEs’ perception that sustainability is

an essential component of their processes and procedures (Jansson, Nilsson, Modiq, &

HedVall, 2017). Some processes of SMEs include overall management philosophy,

strategic product decisions, competitiveness, and strategic planning. Sustainable

entrepreneurs focus on a business idea that balances the social, economic, and

environmental impacts of their activities by engaging strategically in sustainable practices

in the search for competitiveness and efficiency in the three areas of sustainability

(Iyigün, 2015). SME business owners should adopt sustainability strategies that balance

the social, economic, and environmental impacts to sustain their businesses beyond 5

years.

Practitioners and scholars should view business sustainability from the

perspective of the TBL dimensions of economic, environmental, and societal. Economic

sustainability is the preliminary step of a company’s survival and sustainability, which is

the ability to manage its capital, stock, and funds. Environmental sustainability ensures

that companies operate without harming the ecosystem and creating over-dose emission.

Societal sustainability implies that companies have to manage their business operations

according to the stakeholders’ needs, which should be per the value system of the

company (Iyigün, 2015). By understanding the TBL, SME business owners could

implement sustainable business strategies to sustain their businesses beyond 5 years.

The TBL serves as a useful tool that companies, non-profit organizations, and

government agencies use to measure sustainability performance under the headings of

environmental quality, social justice, and economic prosperity (Iyigün, 2015).

Researchers could view the need for commitment of SME business owners to

sustainability practices from the perspective of marketing orientation (MO) and

entrepreneurial orientation (EO). MO is one of the foundations of modern marketing

theory, which generally refers to the implementation of the marketing concept. A market-

oriented company is one that (a) is customer focused, (b) coordinates and plans with

marketing as a function of the entire organization, and (c) is externally focused (Jansson

et al., 2017). Customer focus is the extent to which the organization sees the purpose of

its business as creating satisfied customers and the degree to which the organization puts

the customer first. According to MO literature, without a focus on the organization’s

customers, any strategy will eventually fail in a competitive environment. Thus, a crucial

goal of the organization must be to satisfy its present and future customers.

Researchers have shown that EO, through the components of innovativeness,

proactiveness, and risk-taking, can lead to increased commitment towards sustainability.

Jansson et al. (2017) stated that businesses could achieve a higher level of EO through

flexibility, foresightedness, and ability to think in new ways. This approach represents a

resource that may allow companies to see opportunities and work with sustainability

issues on a strategic level. Jansson et al. (2017) posited that review of the literature

indicates that many SME owners and managers hold positive attitudes toward the

environment. According to Jansson et al.(2017), a survey by Revell et al. (2010) of 220

SMEs in the UK showed that 82% agreed that environmental issues should have very

high management priority while 70% disagreed with the statement that the public should

not expect business owners to solve social issues.

Developing eco-innovations and sustainable products, recycling programs,

environmental labeling, and environmental management systems may, beside the

immediate environmental gain, also trigger a more long-term proactive stance towards

environmental issues. Applying the contingency theory, Tsai and Liao (2017) argued that

the impacts of sustainability strategy on eco-innovation depend on market demand,

innovation intensity, and government subsidy.

Although SMEs positively contribute to economies and societies in various ways,

such as the provision of millions of jobs and securing a high level of economic stability in

many countries, they also generate negative impacts from conducting business.

Researchers have estimated that SMEs contribute up to 70% of global pollution

collectively (Johnson & Schaltegger, 2016). To check the adverse effects of the business,

researchers have designed sustainability management tools which enable business

managers to implement sustainability-oriented strategies and to coordinate the activities

throughout an enterprise. Sustainability management tools are instruments and tools

business leaders use to measure, manage, and communicate sustainability issues

effectively. Business owners and managers use sustainability management tools to reduce

negative environmental and social impacts of business, exploit and manage positive

impacts, and simultaneously stay competitive and economically successful (Johnson &

Schaltegger, 2016). SME business owners should use sustainability management tools to

sustain their businesses beyond 5 years.

The designs of existing sustainability management tools support large firms, but

business leaders could adapt the tools to suit its application in small and medium

enterprises (Johnson & Schaltegger, 2016). Kuhndt (2004) grouped sustainability

management tools into three categories: (a) tools for analysis and evaluation, e.g. life

cycle assessment, (b) tools for action, e.g. environmental management system, and (c)

tools for communication, e.g. sustainability reporting. Researchers have identified 26

sustainability management tools dedicated to SMEs which include life cycle assessment

(LCA), environmental management system (EMS), public-private partnership (PPP), and

sustainability evaluation and reporting system (SERS) (Johnson & Schaltegger, 2016).

Johnson and Schaltegger asserted that in Africa, the most applied sustainability

management tool in SMEs is the EMS.

Business strategies involve the use of aggressive and defensive actions to gain a

position for the firm to realize a significant return on investment. Researchers have

identified four generic business strategies: (a) differentiation, (b) cost, (c) focus, and (d)

hybrid strategy (Ibrahim, 2015). The business strategy sets a pattern of objectives,

purposes, and goals for the business. To develop a sustainable strategy, business leaders

must have a culture of sustainability in the value chain of the organization. The

sustainability culture should begin with a mission statement that balances the financial

and social performance, and also seeks to achieve high performance in terms of both of

these areas (Galpin et al., 2015).

Small businesses are vital to the achievement of sustainable development (SD)

through integrating various resources, uniting stakeholders for a common goal, and

striving to work efficiently in a competitive environment (Li & Nguyen, 2017). Small

business owners and managers can achieve SD through the collaboration of information

and innovation to gain competitive advantage, economies of scale, and higher

profitability that may enhance their business sustainability. Virakul (2015) examined SD

to identify the relationships and implications for business organizations to ensure the

integration of community and stakeholder concerns into economic and ecological

paradigms. Small business leaders should integrate SD strategy elements into the

decision-making process to improve performance and provide long-term benefits to

current and future stakeholders (Shields & Shelleman, 2015). SME business owners

should integrate sustainable development strategy to sustain their businesses beyond 5

years

Bell et al. (2015) advised business leaders to adopt a systemic approach to

sustainability that supports the development and implementation of sustainability

strategies to enhance the long-term survival of their firms. Bell et al. implored firms’

leaders to set the process that fosters sustainable decisions and behaviors at all levels of

the organization by establishing sustainable business practices. According to Bell et al.,

sustainable business practices encompass incorporating sustainability into the firm’s

strategic management process, instituting performance benefits, and setting more explicit

directions. Other aspects of sustainable business practices include establishing a sharper

focus on what is important, developing an improved understanding of the rapid changes

in the environment, and collaboration of information and innovation. SMEs generally

have characteristics and competencies different from those of larger companies, and the

differences might explain why SMEs relate to sustainability differently than larger

companies.

Business leaders should see a commitment to sustainability as a vital component

of the processes and procedures of SMEs, such as overall management philosophy,

strategic product decisions, competitiveness, and strategic planning (Jansson et al., 2017).

Business strategy is the pursuit of a clearly defined path systematically identified in

advance through carefully chosen sets of activities (Collins, 2016). Business strategy is

the instrument of competition in a competitive market (de Santos, de Melo Melo,

Claudino, & Medeiros, 2017). Kachouie, Mavondo, & Sands (2018) posited that small

business strategy consists of the interrelated activities and ploys for outwitting

competitors. Gauthier (2017) opined that small business owners and leaders should adopt

business strategies to achieve the goal of sustaining their businesses in the competitive

market. SME business owners could benefit from competitive strategies to sustain their

businesses beyond 5 years.

The application of competitive strategies is vital to small business’ sustainability

(Bapat & Mazumdar, 2015). Small business leaders’ choice of the type of strategy

depends on the nature of the business, the competition, and the owner and manager’s goal

(Bayani & Crisanto, 2017). Researchers could view the need for commitment of SME

business owners to sustainability practices from the perspective of MO and EO. Kuhndt

(2004) grouped sustainability management tools into three categories: tools for analysis

and evaluation (e.g. LCA), tools for action (e.g. environmental management system), and

tools for communication (e.g. sustainability reporting). Chau et al. (2017) defined LCA as

an objective process for evaluating the environmental burdens associated with a product,

process, or activity by identifying and quantifying the energy and material uses and

releases to the environment. Chau et al. claimed that LCA is also used to evaluate and

implement opportunities affecting environmental improvements. Business leaders

conduct the assessment throughout the entire life cycle of the product, process or activity,

encompassing extracting and processing materials; manufacturing, transportation and

distribution; use, reuse, and maintenance; recycling and final disposal (Chau et al., 2017).

The four major phases of LCA are goal and scope definition, inventory analysis,

impact assessment, and interpretation. The EMS is an environmental management-

oriented tool that management used to respond to stakeholder pressures or the necessary

impulse to enhance firm resources and capabilities (corporate environmental values,

sustainable innovations, or green image) (Martin-de Castro et al., 2016). EMS is a set of

organizational management practices focused on the identification, measurement, and

control of a firm’s environmental impacts (Martin-de Castro et al. (2016). Business

leaders use EMS management processes to reduce the firm’s impact on the natural

environment continually. EMS involves the following processes: assessing the

environmental impacts, establishing goals, implementing environmental goals,

monitoring goal attainment, and undergoing management review.

The third sustainability management tool which researchers have recommended is

sustainability reporting. Siew (2015) stated that the increasing demand of stakeholders for

more disclosures not just on economic performance but also on a corporation's

environmental and social practices gave rise to the development of sustainability

reporting tools (SRTs). Sustainability reporting is also known as CSR reporting, SD

reporting, TBL reporting, non-financial reporting, and ESG reporting (Siew, 2015). SME

business owners should understand the concept of sustainability reporting to sustain their

businesses beyond 5 years.

The primary objective of sustainability reporting is to disclose to stakeholders the

performance of the firm in terms of the TBL dimensions of economic, environmental,

and social performance. The TBL emphasizes on capturing a broad spectrum of values

and measures a firm's performance across the three main pillars of sustainability;

economy, social, and the environment. SRTs are a vital tool for decision making and

comparative performance across firms. SRTs make it possible for owner and managers to

demonstrate results by measuring progress and clarify consistency between activities,

outputs, outcomes, and goals.

According to the GRI guidelines, a typical report should address the following

areas: vision and strategy; corporation profile; governance structure and management

systems; GRI content index; and performance criteria such as economic, social, and

environmental (Siew, 2015). Most sustainability literature tends to emphasize more on

environmental and social sustainability and neglecting the economic dimension.

Economic sustainability is the preliminary step of a company’s survival and

sustainability, which is the ability to manage its capital, stock, and funds (Iyigün, 2015).

Financial Management Strategies in Small and Medium-Sized Enterpr ises

Karadag (2015) described strategic financial management (SFM) as financial

management theories involved with the proper conduct of financing; fund sourcing,

utilization, and effective management; reinvestment decisions; and profit distribution in

the most reasonable manner. Karadag (2015) noted that the concept of SFM practices in

enterprises started to gain popularity among researchers after studies revealed that the

leading causes of business failure are related to financial concerns. Some of the financial

factors affecting business success include the lack of financial planning, limited access to

funding, lack of capital, unplanned growth, low strategic and financial projection,

excessive fixed-asset investment, and capital mismanagement.

The broad categorizations of financing options of a firm are debt and equity. Debt

comprises of short and long-term borrowings by a firm on which the firm pays the

interest. At the same time, equity represents the risk capital that owners and external

investors contribute to the business (Fatoki, 2015). Fatoki identified bootstrapping as

another source of finance for SMEs and described bootstrapping as a highly creative way

of obtaining the use of resources without raising debt or equity financing from traditional

sources. Enterprises require different financial strategies at different stages of the firm’s

growth cycle. SME business owners should understand the financial strategies

appropriate for each stage of growth to sustain their businesses beyond 5 years.

Fraser, Bhaumik, and Wright (2015) posited that start-ups traditionally rely on

insider finance, trade credit, angel finance, and more recently, crowdfunding, and

accelerators as sources of funding. However, as the firm grows and gains a track record,

it is more likely to become ready to access external finance such as bank debt, venture

capital, and public debt/equity. Fraser et al. (2015) asserted that at early stages, growing

firms are likely to need the expertise to sharpen the focus of opportunities and to help

build commercial skills of the entrepreneurial team. In contrast, established growing

firms are more likely to need board capability that includes both monitoring skills of

financiers and expertise to enable new growth directions such as through acquisition and

internationalization (Fraser et al., 2015). Block, Colombo, Cumming, and Vismara (2018)

posited that aside from venture capital and business angels, several new players have

emerged such as family offices, the crowd, and venture debt funds. Some of the new

players value not only financial goals but are also interested in non-financial goals. Some

non-financial goals include social goals in social venture funds, strategic and

technological goals in corporate venture capital firms, political goals in case of

government-sponsored funds, and product-oriented and community-building goals in

case of reward-based crowdfunding (Block et al., 2018).

Personal financing and bootstrapping: Van Aukey and Neeley (1996) defined

bootstrapping financing as capital acquired from sources other than traditional providers

of capital. It includes sources of capital that entrepreneurs use after exhausting personal

savings and loans from banks. Traditional sources of start-up capital include personal

savings and debt from financial institutions. Windburg and Landstrom (2001) defined

bootstrapping as a collection of methods business owners use to minimize the amount of

external debt and equity financing needed from banks and investors. Bootstrapping is a

combination of methods that reduce the overall capital requirements, improve cash flow,

and take advantage of private sources of financing. Winborg (2015) agreed with the

definition of bootstrapping and opined that a critical dimension of a bootstrapping

approach is the ability to secure needed resources at relatively low or no cost. Winborg

noted that the bootstrapper has the skill to identify and use resources that others

underutilize or undervalue.

Bootstrapping methods include: buying used instead of new equipment; leasing

equipment instead of buying; obtaining payments in advance from customers; delaying

payments to creditors; minimizing personal expenses; taking advantage of discount

outlets or online auctions in purchases; sharing office space or employees with other

businesses (Winborg, 2015; Miao, Rutherford, & Pollack, 2017; Harrison, & Baldock,

2015). Mac, Bhaird, and Lynn (2015) opined that bootstrapping is usually used by small

firm founders who often make optimal use of minimal resources in starting and

developing their businesses. Mac et al. investigated resource acquisition strategies of

independently held start-ups in the computer software sector and argued that product

bootstrapping techniques have changed in response to technological innovation. Mac et

al. concluded that cloud computing is a typical bootstrapping technique, which enables

firms to develop and launch products with minimal resources, reducing barriers to entry,

with consequent increased competition.

Personal financing, on the other hand, is defined as internal equity funds obtained

from current owner-manager(s), family, and friends or the retained earnings within the

firm (Abdulsaleh & Worthington, 2013). Van Auken and Neeley (1996) added that

entrepreneurs sometimes use loans from friends and relatives, cash value of life insurance

and home equity to supplement initial financing sources. By understanding the personal

financing and bootstrapping strategies, SME business owners could sustain their

businesses beyond 5 years.

Equity financing and venture capital: Van Auken and Neeley (1996) defined

equity financing as exchanging ownership in a firm. Equity financing is usually in the

form of stock for funding and includes angel investors, venture capital, private

placement, and initial public offer (IPO) (Baker, Kumar, & Rao, 2020). Equity funding is

not a loan because the receiver does not pay back the money that was received. Instead,

equity investors become partial owners of the firm and receive a return on their

investment through dividend payments on their stock (Abbasi, Wang, & Abbasi, 2017).

Venture capital is money that is invested by venture capital firms in start-ups and

small businesses with exceptional growth potential. Venture capital firms are limited

partnerships of money managers who raise money in funds to invest in start-ups and

growing firms. Some sources of funds or pools of money include wealthy individuals,

pension plans, university endowments, foreign investors, and similar sources (Abbasi et

al. 2017).

Angel investors (business angels): Business angels are individuals who invest

their private capital directly in start-ups. Pekmezovic and Walker (2016) defined business

angels as private individuals who use their own money to invest in an unlisted company

in which they have no family connections. Mason and Harrison (2014) defined business

angels as high net worth individuals who invest their own money directly on unquoted

businesses in which they do not have a family connection. Researchers have shown that

business angels are the primary nonfamily source of equity finance for businesses at their

start-up and early growth stages (Mason & Harrison, 2014).

Pekmezovic and Walker (2016) claimed that there is limited information on the

market place for angel finance because business angels are difficult to find; they keep a

low profile and prefer to remain anonymous. Pekmezovic and Walker opined that

business angel networks have emerged to allow entrepreneurs to connect with angels. An

advantage of angel financing is that it can fill the small equity gap because the absence of

interest costs and the fixed repayment obligations is attractive for young startup firms

(Pekmezovic & Walker, 2016). A distinct difference between angel investors and venture

capital firms is that angels tend to invest earlier in the life of the company, whereas

venture capitalists come in later.

Crowdfunding: According to the International Organization of Securities

Commission (IOSCO), crowdfunding is an umbrella term describing the use of money,

from individuals or organizations to fund a project, a business or personal loan, and other

needs through an online web-based platform. Cumming and Vismara (2017) supported

the definition by arguing that crowdfunding involves raising funds from a large pool of

backers (crowd) collected online through a web platform. Pekmezovic and Walker (2016)

opined that crowdfunding is derived from the term, crowdsourcing, which they defined as

the practice of obtaining needed services, ideas, or content by soliciting contributions

from a large group of people, especially from the online community. Crowdfunding

enables entrepreneurs who traditionally face financing constraints to obtain capital from

anyone in the world via the Internet.

Boger et al. (2017) stated that in crowdfunding, proponents of innovative projects

and entrepreneurial ideas ask for financial support to the crowd of the internet users (i.e.

the backers) by posting their projects and ideas on dedicated websites (i.e. the

crowdfunding platforms). In so doing, the proponents not only receive money, but they

also collect suggestions and perform an early market test (Colombo, Franzoni, & Rossi-

Lamastra, 2015). Crowdfunding is a form of crowdsourcing designed to facilitate raising

capital.

Pekmezovic and Walker listed and described four crowdfunding models, namely,

the all-and-nothing or threshold pledge model, the club model, the crowdlending model,

and the equity or investment model. In the threshold pledge model, organizer set a

funding target and encourage the crowdfunding intermediary funders to donate or pledge

or to make advance purchases of items. On reaching the target, the organizers would

release the funds less administrative fees payable to the crowdfunding intermediary. If

the target were not achievable, the crowdfunding intermediary would return the

contributions to the funders. The club model represents crowdfunding platforms which

only target members of a closed circle of potential investors. The club model function in

a similar vein to investment clubs or angel investor groups, e.g. in the United States, the

government restricts Circle Up and Funders Club to accredited investors.

In the crowdlending model, funders offer capital in the form of a loan, expecting

to receive a return on the capital invested. The funders can also invest based on

philanthropic goals such as wanting to promote a specific social good or objective. Peer-

to-Peer Finance is an example of crowdlending or debt crowdfunding, where borrowers

seek capital and lenders provide capital via websites. In equity crowdfunding, the

organizers treat the funders as investors who receive equity stakes or similar

consideration in exchange for funding a project or product. The equity crowdfunding may

serve as a substitute for traditional forms of formal venture financing. An essential

requirement for the success of crowdfunding as a source of SME funding is a strong

crowdfunding campaign.

Debt financing: Debt financing is getting a loan. Sources of debt financing

include loans from commercial banks and small business administration (SBA)

guaranteed loans (Alexandra, 2020). To keep full ownership and control of their

businesses, SMEs owners and managers may prefer to seek debt financing rather than

external equity. Unlike managers of large firms who usually have the choice of a broader

range of debt financing resources, SMEs tend to be more attached to commercial lenders,

especially institutional lenders (Abdulsalam & Worthington, 2013). SMEs prefer debt

financing as a source of short-term debt financing, which they can renew for long-term

debt.

The three classes of debt financing are short-term (repayable within one year),

medium-term (repayable within 5 years), and long-term (available for 5 years or longer)

(Akinsulire, 2005). The short-term sources of the fund include bank credit (bank

overdraft) and trade credits. The medium-term sources include bank term loan and hire

purchase. Bank term loan is similar to bank overdraft except that it is available for a more

extended period and carries a higher interest charge. In contrast, the hire purchase is an

arrangement under which the firm (hirer) in return for the use of an asset undertakes to

make periodic payments to the owner of the asset. The firm should assume ownership of

the asset after the payment of the last installment to the owner. The primary sources of

long-term funds are equity capital, preference share capital, and debenture stock capital.

Winborg described further sources of SME finance as creative sources. They

include: leasing, grant programs, and strategic partners (Abbasi et al. 2017). A lease is a

written agreement wherein the owner of a piece of property (lessor) allows an individual

or business (lessee) to use the property for a specific period in exchange for periodic

payments, called rentals (Akinsulire, 2005). The main advantage of leasing is that it

enables a company to acquire the use of assets with very little or no down payment.

Entrepreneurial ventures most commonly use leases for facilities and equipment (Abbasi

et al. 2017). Grant programs are programs which provide cash grants to entrepreneurs

who are working on projects in specific areas. The Small Business Innovation Research

(SBIR) and the Small Business Technology Transfer (STTR) programs are two crucial

early-stage funding for technology firms in the U.S.A. The main difference between the

SBIR and the STTR programs is that the STTR program requires the participation of

researchers working at universities or other research institutions. Other grant programs

include those owned by federal, state or local governments, private foundations, and

philanthropic organizations which post-grant announcement on their websites.

Strategic partners are another source of capital for new ventures. A strategic

partnership (also referred to as a strategic alliance) is a relationship between two

commercial enterprises, usually formalized by one or more business contracts.

Carayannis, Kassicieh, and Radosevich (2000) defined strategic alliance as a

collaborative relationship between an established and an early-stage technology-based

firm which is seeking seed capital to grow its business. The established firm invests seed

capital in the early-stage firm, usually through one of the established firm’s operating

divisions, corporate functions, or functional units. Strategic partners often play a critical

role in helping young firms fund their operations and round out their business models

(Abbasi et al. 2017).

Reasons Why Small and Medium-Sized Enterprises Fail in the First 5 Years?

Researchers have indicated that starting a business is a risky venture and warned

about the low chances of small business owners, making it past the five-year mark

(Opara, 2007). SMEs operating in Africa face many challenges that restrict their growth

and longtime survival (Nikolić, Dhamo, Schulte, Mihajlović, & Kume, 2015; Muriithi,

2017). Small business owners should develop both long-term and short-term strategies to

guard against failure. According to Muriithi, a study in 2014 showed that firm mortality

rate among African countries was very high with five out of seven new businesses failing

in their first year. In Uganda, one-third of new business start-ups did not survive beyond

one year while in South Africa, the failure rate was between 50% and 95% depending on

the industry.

A study by Yeboah (2015) also revealed that 75% of SMEs in South Africa do not

become established businesses, making the country to have the highest failure rate in the

world. Researchers have reported that Chad has a business start-up failure rate of 65%

and is one of the most challenging countries to do business because of the unfavorable

regulatory frameworks (World Bank, 2012). Although the African continent has shown

significant improvement in the business environment in the last 10 years, despite

attracting numerous global businesses, World Bank still rank the continent as the most

challenging region to do business for SMEs (Muriithi, 2017). Muriithi argued that SMEs

in many African countries find it difficult to do business because of the unfavorable

business environment. The adverse business environment could arise from hostile legal

requirements, high taxes, inflation, fluctuating and unreliable exchange rates, which make

it difficult for SMEs to make significant profits to survive their business beyond 5 years.

In the next subsections, I will discuss the significant challenges facing African SMEs.

Access to financing. The growth of SMEs in Africa requires an adequate supply

of financial capital but lack of access to finance or credit is a universally recognized

problem facing SMEs. In Africa, researchers have demonstrated that the inability to

access finances remains a critical hindrance to SMEs survival and growth (Muriithi,

2017). Kambwale, Chisoro, and Karodia (2015) argued that access to and the cost of

credit are the main challenges facing the SME sector. The findings of the Enterprise

Surveys of the World Bank administered to over 100 countries in 10 years found that

access to finance is a significant constraint hindering operations and growth of SMEs in

Africa (Beck & Cull, 2014). Access to capital ranked the second (18%) problem facing

African SMEs. According to Beck and Cull, Africa’s financial systems are not only

small, shallow, and costly, but have minimal outreach, thereby, only reaching a small

percentage of the total population. Because of the intricate financial system, most African

SMEs resort to self-financing or depend on colleagues and friends to provide capital for

their businesses.

Electricity supply. A power supply is central to SMEs operations and cost-

efficiency. Lack of electricity or adequate power supply means that the businesses cannot

operate in full capacity or it is costly to operate. A study by the World Bank Enterprise

Survey (2010) ranked the problem of electricity as the greatest (25%) hindrance facing

African SMEs. Compared to other world regions, Africa is the only continent where

electricity remains a significant hindrance to business growth (Fjose et al., 2010).

Poor management. A significant challenge facing businesses from different parts

of the world is poor management. Good management encompasses planning, organizing,

leading, and controlling, functions that are critical to SMEs proper functioning, survival,

sustainability, and growth (Muriithi, 2017). The process of management will not be

complete unless business leaders employ competent and qualified staffs in the right place.

Poor management arises from the fact that most SMEs operators or their managers lack

managerial expertise. Because many business owners lack appropriate training and

experience to operate their businesses, their management style is basically on trial and

error and driven by performance and short-term gains with little attention to strategic

planning (Hill, 1987). Some entrepreneurs may have workable ideas and are competent in

their specific fields, but they lack any managerial skills or knowledge of how to run a

business. The consequence of the lack of managerial skills is poor management and

performance of SMEs.

The problem of poor management dominates both developed and developing

countries. Several studies highlight several elements of management as responsible for

business failures. Some causes of business failures include SMEs inability to manage

finance, deficiency in accounting knowledge, credit management, inventory management,

cash flow management, marketing management, and human resource management. The

scarcity of competent managers remains a severe constraint to the success of SMEs.

Therefore, practitioners should pay special attention to the competency of the manager to

ensure the survival of SMEs.

As part of management incompetence, Kambwale et al. (2015) argued that poor

crime management and poor business location are other significant causes of SME

failures. Failure due to poor crime management could result from theft from professional

criminals, customers, suppliers, and employees. The criminals succeed in perpetuating

fraud because of the following factors:

• Ηιρινγ περσοννελ ωιτηουτ α χαρεφυλ βαχκγρουνδ χηεχκ ορ εµ πλοψµ εντ

ρεφερενχεσ;

• Φαιλυρε το ενφορχε στριχτ ανδ υνιφορµ ρυλεσ φορ εϖεν µ ινορ ινφραχτιονσ;

• Φαιλυρε το εσταβλιση α χλιµ ατε οφ τρυστ, χονφιδενχε, ανδ ρεσπεχτ φορ τηε

ωορκφορχε;

• Φαιλινγ το προϖιδε εµ πλοψεεσ ωιτη ινχεντιϖεσ φορ ουτστανδινγ ανδ ηονεστ

περφορµ ανχε;

• Φαιλυρε το αππλψ τεχηνιθυεσ τηατ ωιλλ πρεϖεντ οππορτυνιτιεσ φορ εµ πλοψεε τηεφτ;

ανδ

• Φαιλυρε το αππλψ χοστ−χυττινγ µ εασυρεσ.

Φαιλυρε δυε το ποορ βυσινεσσ λοχατιον χουλδ ρεσυλτ φροµ αππλψινγ σεντιµ εντσ το τηε

χηοιχε οφ α βυσινεσσ λοχατιον. Καµ βωαλε ετ αλ. (2015) αργυεδ τηατ ονε οφ τηε ρεασονσ ωηψ

σµ αλλ βυσινεσσεσ φαιλ ισ βεχαυσε τηεψ σελεχτ α σιτε φορ τηειρ βυσινεσσ ωιτηουτ φιρστ µ ακινγ α

τηορουγη αναλψσισ οφ τηε οϖεραλλ λοχατιονσ ποτεντιαλ φορ τηε βυσινεσσσ συρϖιϖαλ ανδ

γροωτη. Καµ βωαλε ετ αλ. (2015) αδδεδ τηατ σοµ ε σµ αλλ βυσινεσσ οωνερσ λοχατε τηειρ

βυσινεσσεσ βασεδ ον χονϖενιενχε ανδ χοστ. Μανψ ΣΜΕ βυσινεσσ οωνερσ µ αψ χηοοσε α

λοχατιον βεχαυσε οφ τηε αϖαιλαβιλιτψ οφ α ϖαχαντ βυιλδινγ, προξιµ ιτψ το τηε οωνερσ

ρεσιδενχε ορ λοω ρεντ, ωιτηουτ χονσιδερατιον οφ τηε βυσινεσσ συρϖιϖαλ ανδ γροωτη ποτεντιαλ

ατ συχη λοχατιονσ.

Competency and capability. A significant challenge facing many SMEs is their

lack of managerial competency. The managerial competency denotes business owner and

managers’ knowledge, skills, and experience. Business managers and owners could

develop competency from a managerial ability by combining both tangible and intangible

resources to improve capabilities (Muriithi, 2015). SMEs with appropriate skills and

educated workforce perform efficiently. Numerous studies have recognized low human

resource capabilities and competencies as significant challenges facing SMEs in most

developing countries, including Africa (Bouazza, Ardjouman, & Abada, 2015). The

competency problem is significant at the top management level, and lack of core

competencies and capabilities remain a significant challenge for SMEs in Africa and

other parts of the world.

Negative perception. Another challenge facing SMEs is a negative perception

from potential customers. Some customers could perceive that SMEs would not provide

the required quality products and services compared to large businesses. To change the

negative perception, SMEs must work very hard to excel in their services and product

quality. SME business owners and managers must develop well-elaborated strategies to

enable them to withstand the pressure from existing competitions and win loyal

customers. Customer satisfaction is one of the most critical issues facing contemporary

managers. Researchers have demonstrated that customer satisfaction is vital for a firm's

success in today's competitive marketplace and is treated as a strategic goal for most

firms (Haverila & Fehr, 2016; Michna, 2018). By understanding the negative perception

of customers, SME business owners could develop strategies to sustain their businesses

beyond 5 years.

Access to reliable information. Another challenge that SMEs in Africa face is

the lack of adequate business information from both governments and service providers.

The problem involves low information environment resulting from underdeveloped

technological and communication infrastructures and inadequate business support

systems (Kamunge et al., 2014).

Government support. The role of the government in facilitating and supporting

SMEs remain critical worldwide. A significant role of the government is to create the

right or undesirable environment for businesses growth. When the government pays little

attention to SMEs, the sector is prone to suffer, leading to the inability of many

businesses to survive. A government that does not support SMEs does not only hurt the

sector but experiences negative growth in its economic development. The success or

failure for SMEs depends on the business environment, which is subject to government

activities in terms of wages framework, taxation, licensing, opportunities, technological

support, and infrastructure.

Corruption. Many researchers have been defined corruption in different ways to

mean the abuse of entrusted power for private gain; an inducement to show favor; and the

pervasive destruction of integrity in the discharge of public duties by bribery or favor

(Kanu, 2015). Corruption refers to the use or existence of corrupt practices, primarily in a

state or public corporation. At the same time, bribery is defined as the payment in money

or kind, given or taken, in a corrupt relationship (Kanu, 2015). However, the World Bank

(2000) defines corruption as the abuse of public office for private gain. A major

challenge facing businesses in Africa is corruption. The illegal practice forces SMEs to

divert their well-intended finances to nonbusiness activities.

The corrupt practices have become a norm in many countries and government

officials, especially perpetuate the act before rendering services. Business practitioners

have reported incidences of constant harassment and intimidation by legal authorities

who often confiscate business merchandise in the name of unpaid licenses and other

penalties. Sometimes, government agents would illegally disconnect the supply of

national utilities such as electricity, water, and telephone, to receive gratification for

reconnection. The implication of corrupt government officials to SMEs owners is the

spending of extra-money outside their budget or cutting their budget to pay for

unwarranted activities which could reduce their revenue and affect business performance

(Muriithi, 2015). Muriithi cited a World Bank report (2005), stating that 70% of SMEs

lamented that corruption is a significant hindrance to their operations. Opara (2015)

supported the assertion that corruption hindered business success and argued that

corruption acts as a monetary limitation on SMEs and increases the cost of doing

business.

Transition and Summary

The topics discussed in Section 1 of this doctoral study include the background of

the problem, problem statement, purpose statement, the nature of the study, the research

question, the conceptual framework, and extensive review of the professional and

academic literature. Section 1 also contains information on the operational definition of

terms; assumptions, limitations, and delimitations; and the significance of the study.

Section 1 concludes with the narrative on the transition statement and summary.

In Section 2, I will restate the purpose statement, describe the role of the

researcher, and discuss the research methods and designs, ethical research, participants,

population and sampling, data collection instruments and technique, and data

organization technique and analysis. Section 2 will conclude with a narrative on

reliability and validity. In Section 3, I will present the findings and results of the study

and discuss the application to professional business practice, implications for social

change, and recommendations for action and further study. Section 3 concludes with a

reflection on the doctoral study and summary and study conclusion.

Section 2: The Project

In Section 2 of this study, I provide information on the business sustainability

strategies SMEs use to remain in existence beyond 5 years. I restate the purpose

statement of the study. I provide a detailed description of the research project covering

areas that include the role of the researcher, the study participants, research method and

design, and the study population and sampling. Other areas I discuss in Section 2 include

the ethical issues researchers must observe in a research study, procedures for data

collection instruments and technique, data organization techniques, analysis of the data,

and the reliability and validity of the research.