Why some firms don't grow
Updated: Jul 2
Does businesses always grow?
Some businesses grow, some don't. Businesses that do not grow may not be failures. These businesses could have;
A small market
Limited capital
New technology (reducing capital)
Owner's decision
A Small Market
Some firms produce specialized products or services that are only needed by a small group of consumers. For example, a firm that produces a white cane (a cane used by the blind) will not be able to sell all their produce if they produce a large amount, as the number of people who are visually impaired are not many (a small market size). As such, these firms have no need to grow, as it only needs to produce limited output to meet the demands and needs of all its customers.
Limited Capital
Some businesses have difficulty raising funds because they are unable to get a loan. This usually happens to sole traders, hence the size of their businesses are small.
Technology
As technology advances, the cost of producing some products and services, such as microchips, continue to reduce. This enables automation to be cheaper, as more computers are built at a lower cost, reducing its price. As such, more businesses can be started with a small capital, increasing the amount of small firms to compete in the market.
Owner's Decision
Some business owners like their businesses small, as they like full control on how they operate their businesses. It is their personal preference.
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RELATED CONCEPT
Economies of Scale
Market Size
Sources of Finance
Perfect Competition
How are related concepts relevant to why some firms don't grow? Ask a question by leaving a comment.