Citation Lopes, J.M.; Oliveira, J. The

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Citation: Lopes, J.M.; Oliveira, J. The
New Times of Social Media
Marketing in the B2B Framework.
Businesses 2022, 2, 156–167. https://
doi.org/10.3390/businesses2020011
Academic Editor: Lester Johnson
Received: 25 February 2022
Accepted: 6 April 2022
Published: 9 April 2022
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Article
The New Times of Social Media Marketing in the
B2B Framework
João M. Lopes 1,* and José Oliveira 2
1 Miguel Torga Institute of Higher Education & NECE-UBI—
Research Unit in Business Sciences,
University of Beira Interior, Estrada do Sineiro, s/n, 6200-209
Covilha, Portugal
2 Instituto Superior Politécnico Gaya, 4400-103 Vila Nova de
Gaia, Portugal; [email protected]
* Correspondence: [email protected]
Abstract: Nowadays, we live in the age of Marketing 4.0.
Historically, marketing has often depended
on changing consumer habits and needs. Thus, it is necessary to
understand the new habits and needs
of the consumer to make companies more and more effective.
Currently, social media marketing
(SMM) is ubiquitous in organizations, and is seen as a tool to
achieve strategic goals. Therefore,
SMM is important for companies to adapt their approach to

customer relationship management and
advance new marketing competencies to enable customer
satisfaction. To drive customer satisfaction
and improve customer experience, managers are loading social
media applications into their current
customer relationship management (CRM) systems. This study
seeks to understand the feasibility
of implementing SMM in business to business (B2B) companies
and how this affects CRM and
customer knowledge management (CKM). For this study, data
were collected from two Portuguese
micro-companies. The methodology used was exploratory
qualitative in nature through a multiple
case study, wherein semi-structured interviews were applied. It
was found that SMM cannot be used
in the B2B companies under investigation because CRM needs
are much more dependent on CKM
than on the mass interactions and indirect communication with
the customer that can potentially
exist in SMM. In these companies, communication with the
client can be adjusted on a case-by-case
basis through SMM, without the need for mass communication
with all clients. This paper provides
implications for the management of micro-enterprises regarding
social media marketing. It also
contributes to the development of the literature on SMM, CRM
and CKM.
Keywords: customer relationship management (CRM); customer
knowledge management (CKM);
social media marketing (SMM); business to business (B2B)
1. Introduction
We currently live in the Marketing 4.0 era in which online
channels are beginning

to dominate marketing globally. As such, digital marketing goes
beyond the traditional
marketing concept, making its role more strategic and global
[1–3]. Currently, customers
are playing an active role in co-creating the value of a brand of
a company and its co-
innovation [4]. Thus, customer loyalty and maintenance are key
components for any
company, creating a strong need for customer relationship
management (CRM). In addition,
and according to Bakhtieva [1], the growth of ubiquitous and
multichannel marketing
pushes touchpoints to the center of a digital marketing strategy.
As a result, companies need
to reassess the previous understanding of a product or service
portfolio in the company’s
external and internal environment.
A digital marketing strategy requires a clear understanding of a
product, company and
industry-specific factors [5,6]. The arrival of Web 2.0
technologies and related applications,
such as social media (SM) tools, has sharply reshaped
companies’ business landscape and
management processes, allowing more direct and interactive
forms of communication in
which users play an active role [6]. It also allows the creating
and sharing of content related
to brands and products [7].
Businesses 2022, 2, 156–167.
https://doi.org/10.3390/businesses2020011
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Businesses 2022, 2 157
According to Kaplan and Haenlein [8], social media are defined
as internet-based
applications built on the ideological and technological
foundations of Web 2.0 which
enable the creation and exchange of user-created content.
Huotari et al. [9] elaborated
an additional concept, arguing that social media are digital
communication platforms
and services that allow parties to connect, share information,
participate in dialogues
and in which organizations and individuals develop and share
content and messages for
the organization, engaging participants and interacting with
others, thus contributing to
their discussions. In the line of thought of these authors, this
definition emphasizes the
key elements of social media, namely technology and its
applications, online content, the
active role played by users, digital-based social networks and
relationships, as well as
the opportunities for contact and engagement. Social media and

social media marketing
became the expression method for the 21st century, allowing
people to communicate
their choices, thoughts, and ideas in a totally new manner [10].
Social media marketing
(SMM) refers to the actual use of social media applications for
marketing purposes [11].
Several applications can serve as SMM channels to provide and
promote services, including
blogs and social networks, e.g., Facebook; LinkedIn; YouTube;
Twitter; Pinterest; and
Instagram [12].
Nowadays, social media marketing is omnipresent in today’s
organizations as a tool
to achieve strategic objectives; on the other hand, SMM is
important for companies to adapt
their approach to customer relationship management and
advance new marketing compe-
tencies to enable customer satisfaction [13]. To attain and
improve customer experience
and satisfaction, managers are loading social media applications
into their current CRM
systems [14]. Thus, it is important to study SMM and CRM in
B2B companies in different
contexts [6].
This paper seeks to understand the feasibility of implementing
social media marketing
(SMM) in B2B companies and how this affects customer
relationship management (CRM)
and customer knowledge management (CKM). In this follow up,
we formulate the follow-
ing research question (RQ): is it feasible to implement SMM in
B2B companies? For the
study, data were collected from two Portuguese micro-

enterprises. The case study focuses
on three elements, namely customer relationship management,
social media marketing,
and the integration of these two points in B2B companies, to
obtain a holistic view of a
digital marketing strategy in the context of the companies under
analysis.
Studies that address these three themes (SMM, CRM, and CKM)
simultaneously
in micro-enterprises are scarce. New consumer habits and needs
force companies to
incorporate new tools to increase customer engagement. It was
found that SMM cannot
be used in the B2B companies under investigation because CRM
needs are much more
dependent on CKM than on the mass interactions and indirect
communication with the
customer that can potentially exist in SMM.
This article is structured as follows. It begins with an
introduction to the object of
study and research questions. In Section 2, an extensive
literature review is made in which
the concepts of digital marketing, SMM, CRM, and CKM are
explored. Section 3 focuses on
the methodology used in the study and data collection in the
companies. Section 4 presents
the results of the investigation. Section 5 focuses on the
discussion of the results with the
literature. Finally, the conclusions, the limitations of the study,
and future lines of research
are presented.
2. Literature Review
2.1. Digital Marketing in B2B

Today’s digital environment has considerably changed the way
in which organiza-
tions communicate and create relationships with their
customers. The adoption of digital
marketing techniques has transformed traditional
communication channels and created
the possibility to customize marketing, from both B2B and
business to consumer (B2C) [15].
This means that creating content that can influence customers is
now a core activity for dig-
ital marketing. In this new form of marketing, companies are
not pushing their offer onto
customers; instead, they are generating treasured content to
attract, retain and transform
random customers into loyal customers [16,17].
More and more, digital marketing takes on a more strategic and
more aggregative
role, that is, it incorporates various strategies in a holistic and
integrated manner [1]. Any
strategy that incorporates digital marketing requires a clear
understanding of a particular
product, the company in question, and the specific factors that
characterize this industry [5].
For Smith and Chaffey [18] and Hao [19], the web can be
considered as pull-marketing
environment in which companies try to move customers to their
websites, which is possible
thanks to search engine optimization and social media.

Currently, with the presence of a new consumer profile which is
more demanding
and omnipresent, it can be considered that this has become a
key part in the co-creation
of the value of numerous brands in the world [4,20]. As such,
building customer loyalty
has become a central and fundamental element in their
relationship management. New
consumers actively seek different brands that provide engaging
and valuable content
relevant to meeting their needs [1,21]. To assure a constant flow
of products to meet
customer requirements, organizations should have in place a
functional supply chain
management. A supply chain is the flow of goods from the
producer to the warehouse and
from there to the retailers or the final sale [22]. Supply chain
management is a strategic task
that can bring advantages and profit to individual companies or
business groups [23–28].
Content is a fundamental component of pull-marketing
techniques and digital market-
ing in general. To develop an effective and efficient strategy, it
is necessary to understand
that content is essential in marketing and engaging with
customers [1].
2.2. Customer Relationship Manager (CRM)
CRM can be seen as an existing process due to the existing
resulting from the rela-
tionships between companies and their customers such as the
prospection of customers,
the offer of a particular product or service, acceptance by

consumers, or even the con-
sumption generated by them. Concerning the companies under
analysis, both mentioned
that in the markets where they operate, customer relationship
management is a function
of the commercial agent who should manage all the information
and all the activity his-
tory [29–33]. CRM can be defined as technological tools that
help develop the degree of
interaction between consumers and companies. CRM may be the
key to predicting business
success [34–36].
CRM is considered a business strategy of a company whose goal
is to absorb and use
information about its customers to maximize the value and
profitability of the relationship
of that same company with its customers in the long term.
Numerous terms have been
created and introduced in the industry since CRM was first
introduced, among which
are CMR (customer-managed relationships); ERM (enterprise
relationship management);
CEM (customer experience management); and CKM (customer
knowledge management).
These are fundamental for intervening in a company’s business
since they are considered
catalysts for making it more profitable and above all, more
customer-focused [37].
Concerning CRM, authors such as Peppard [36] and Mendoza,
Marius, Pérez and
Grimán [34] argue that CRM can be defined as a technological
tool that improves the
relationship and the degree of interaction between customers
and companies.

2.3. Customer Knowledge Management (CKM)
Being an element of peripheral information, customer
knowledge can be understood
as a significant resource that can be steered towards developing
new products, looking into
emergent market opportunities, and expanding longstanding
customer relationships [38].
CKM can be a path for implementing knowledge management in
companies [39].
To introduce this CKM acronym, it is essential to first
understand its relationship with
the term CRM. According to Stefanou et al. [40], Tzokas and
Saren [41] and Massey et al. [42],
CRM and knowledge management are two distinct management
techniques with different
principles and perspectives. Whilst CRM is looking to customer
knowledge and its prefer-
ences, knowledge management aims to create, shape and build
functional knowledge, thus
improving the organization’s performance [43].
Regarding the definition of CKM, Parirokh et al. [44] and
Dalkir [45] indicated that
it can be stipulated as a process that aims to collect and/or
create, share, acquire and
apply customer knowledge with the ultimate goal of creating
value for companies and
their customers. On the other hand, and according to Blosch

[46], customer knowledge
can be characterized as a combination of different elements
such as values, experiences,
information collections and ideas developed and observed in the
existing relationship
between companies and their customers. An updated definition
of customer knowledge
management by Castagna et al. [47] states that CKM can be
seen as a logical juncture of
customer relationship management and knowledge management.
For Lomas [48], despite the numerous CKM resources available
and the many advan-
tages presented, some leaders, mainly in the B2B sector,
question the strategic purpose of
the technology.
In this context, CKM is a combination of different points such
as the values, type of
information, knowledge, and experience that develops in the
existing processes between
customers and an organization [49–51]. CKM is also defined as
the process of collecting or
creating as well as sharing and applying customer knowledge
[45]. Parirokh, Daneshgar
and Fattahi [44] complemented this definition by saying that
this process is used for the
organization’s value creation and its customers.
3. Methodology
This study aimed to understand the feasibility of implementing
SMM in B2B micro-
enterprises and how this affects CRM and CKM. Studies on the
topics under analysis in
B2B micro-enterprises—including this this study—are relevant

and current.
The employed methodology was of exploratory qualitative
nature through a multiple
case study, whereby two semi-structured interviews were
applied. A multiple case study
must be prepared when investigating contemporary events
[52,53]. A multiple case study is
the most suitable method for this study because it makes it
possible to gather interpretations
through empirical observation [27,28]. A multiple case study is
suitable whenever the
objective is to study a phenomenon in-depth or rare when
information is difficult to access.
This method also makes it possible to understand phenomena
that have not yet been
studied in a given context [54,55], which is the case of the
present multiple case study. A
multiple case study is also indicated to describe a phenomenon
that occurs within real
companies which makes it possible to more easily explore the
particular problems about
which there is not a very robust theoretical framework. Through
this method, it is possible
to explain why the phenomena occur in a certain way and not in
others, which allows,
from this new information, the emergence of new theories
[56,57]. This method is quite
differentiating since it covers several research techniques and
can be complemented by
direct observation and interviews of the potential people
involved, i.e., one can deal with
a wide variety of information and strategies [58,59]. The
qualitative study is the most
suitable for this study because, according to Malhotra et al.
[60], this is defined as an

unstructured, exploratory research technique based on small
samples which provides
insights and understanding of the context of the problem.
For this study, two micro-enterprises in the real estate and
commerce and refrigeration
and heating equipment sectors were selected. The study of these
two companies makes it
possible to study this reality in particular. Thus, it is not
possible to generalize the results
of the present study. Semi-structured interviews were conducted
with the CEOs of the
respective companies. We aimed to understand the three
aforementioned elements (SMM,
CRM, and CKM) and obtain a holistic view of them. Both semi-
structured interviews were
carried out face to face. The interview with company A took
place on 29 November 2019,
at 11:00 a.m. The interview with company B took place on 27
November 2019, at 15:30. The
duration of each semi-structured interview was approximately
one hour.
The two semi-structured scripts were divided into 3 parts,
presenting 7 questions
on engagement strategy; followed by 5 questions on CRM; and
finally 5 questions on
CKM—thus obtaining a total of 17 open-ended questions
(Appendix A). The questions
were adapted from Negm [61]. Before conducting the
interviews, a pre-test was carried out.

After collecting the data, they were transcribed into Microsoft
Word, and then we used
content analysis as a data analysis technique of Ruiz
Olabuenaga and Ispizúa [62]. The
content analysis was carried out in 5 steps: (1) Preparation of
information; (2) Unitarization;
(3) Categorization; (4) Description; and (5) Interpretation. This
information was useful in
building the results section.
Companies under Study
Regarding company A, its object of work is the marketing of
equipment for the hotel
and catering industry, refrigeration, laundry, exhaust systems,
and air renewal, as well as air
conditioning and heating systems, working with the most varied
sectors from the catering
and hotel industry to supermarket chains. The company’s values
are integration, trust,
innovation, reliability, and sustainable development. As such,
this company is oriented
towards the trade and services sector. Data regarding this
market show that trade, together
with transport, accommodation, and catering, assume a weight
of 26% in total employment
in 2018, according to data from the news daily. In short,
according to data from the business
newspaper and according to the national statistics institute
(INE), it can be stated that the
turnover index concerning services recorded a year-on-year
increase of 6% in March 2019
and also a year-on-year growth of 4.8% at the end of the first
quarter of this year.
Company B’s object of work is the purchase of real estate for

sale and/or resale. Its
mission is to provide excellent service, maintain a strong and
loyal customer base achieved
through transparency and the quality of services offered, and
the vision is to be a brand
recognized for basing its services on customer needs whilst
maintaining consistent quality.
Additionally, its values are: quality, transparency, and
dedication. In this way, the real
estate market in Portugal was analyzed. According to the CBRE
Group, the data regarding
this market in the year 2018 reveal a 54% growth in real estate
investment compared to the
previous year due to post-economic crisis investments. In short,
it is possible to state that
investments in this market are on the rise, as is the value of the
real estate; however, there
is a lack of interest from customers and consequently a decrease
in the sales and rentals of
properties.
4. Results
The interview script was followed and it was given total
freedom of response to the
interviewees. In this way, the first question was carried out:
“How would you describe your
supply chain? Regarding the “Supply Chain”, we noticed that B
does not have a structured
chain; as for company A, it was revealed that the supplier
delivers the products directly
to the end consumer and that sometimes it is the supplier who
invoices these products in
such a way that, quoting the CEO of company A, “we are agents
of the suppliers”.

The interview was then followed up with the question “What
methods do you use
to manage your clients?” With the answers to this second
question, we verified that client
management in company A was carried out by the commercial
agents, who visit potential
clients to create contacts and use a program called “wonderlist”
to manage existing clients
and keep a record of the history of activity of these clients.
company B presented its sales
process and revealed that it was the only form of client
management that they used: “1st:
Contact by the Client; 2nd: Meeting with the Administrator;
3rd: Demonstration of the
property; 4th: Signing of the Sale or Rental Contract”.
We then asked the interviewees to define Customer Engagement
(How would you
define customer engagement?). Concerning this third question,
both companies revealed
very little knowledge of the area. Still, both understand
engagement as a process that
involves contacting and selecting customers, choosing the right
products, and setting up a
meeting with customers with a budget proposal.
In congruence with the previous question, we asked them how
their involvement
affected customer engagement (“How does your involvement
apply to customer engage-
ment?”). Company A revealed that the only involvement it has
with the customer after the

sale arises when there is any delay or problem with the service;
otherwise, the customer is
only contacted to book the service and the schedule the delivery
of materials.
In the case of company B, greater concern for the customer is
expressed but no initiative
for contact is taken; the CEO said “We wait for the customer to
come to us”.
In the continuity of customer engagement, we asked the
interviewees to reflect on the
barriers to this concept (“What do you believe are barriers to
customer engagement?”). The
CEO of company B showed a lack of knowledge regarding
potential barriers. Company B
revealed that “the customer only gets what is important”,
understanding this as a barrier
but without any opinion on how to overcome it.
When we asked the CEOs of both companies what would be
needed by the marketing
team to create customer engagement (“What do you think is
needed by marketing managers
to engage customers?”), both companies gave similar answers,
quoting the CEO of company
A “... for the size of the company nothing else is needed”.
We then concluded the topic of customer engagement with the
question: “What
strategies do you believe would better improve your
organization’s approach to customer
engagement?”.
Insignificant replies were obtained: company A responded by
saying that “nothing

needs to be improved, what we have is sufficient for the
purpose”, whereas the CEO
of company B revealed the possibility of contacting clients on a
monthly basis to build
loyalty and understand the existence of potential problems with
the properties being rented
or sold.
We then continued the interviews by abording the customer
relationship management
topic and asking the first question: “From your perspective,
what is CRM?”. The CEO of
company B showed total ignorance of this concept. However,
company A described CRM
as “an act of trust”.
After defining the concept of CRM, we asked how it could
affect organizations (“How
does CRM affect organizations?”). The CEO of company B
mentioned that CRM affects
the whole area of activity of the company and that it can boost
sales, whilst the CEO of
company A answered similarly, adding that “It affects all
levels...for better or for worse”.
We then asked respondents about potential barriers to CRM
strategies in the B2B
market (“What do you believe are barriers to CRM strategies in
B2B?”).
Company A stated that it did not have any type of CRM system
in operation and
revealed to us that there were no barriers, that customer
management entirely depended on
commercial agents, and was based on internal management
entirely focused on customer

needs: “I have to have everything as he (the customer) wants
it”. The CEO of company B
preferred not to answer this question.
Following the interview, we asked the interviewees to show us
what do you know
about different CRM practices in your market? Both companies
mentioned that in their
markets, customer relationship management was a function of a
commercial agent who has
to manage all customer information and all their activity
history. Company A mentioned
their knowledge of platforms such as “Salesforce” and that
software of this kind “can make
sense in much larger companies”.
To conclude the customer relationship management topic, we
asked the CEOs about po-
tential CRM strategies regarding their supply chain (“What
strategies do you believe would
better improve your organization’s approach to CRM regarding
your supply chain?”). Due
to the lack of supply chain, the CEO of company B chose to not
answer this question. On
the other hand, the CEO of company A mentioned that using
CRM software might make
sense when the company increases its size, and that it is
impossible to manage all customers
personally.
To conclude the CRM topic, we asked the first question related
to the final topic of
customer knowledge management: “How would you define
Customer Knowledge Man-

agement?” In company B, this concept was defined as the
management of the knowledge
that customers have about the company and the specificity of its
service. The CEO of
company A, on the other hand, was more succinct in his answer,
summing it up in one
word: “trust”. He then gave the same answer as his counterpart
when defining CRM.
The CEOs of companies A and B chose not to answer the two
questions: “How do you
use CKM to interact with customers?” and “How do you believe
CKM strategies have an
effect on improving your organization’s approach to customer
engagement?”.
To conclude this topic, we asked which strategies the companies
would use to improve
their organization’s approach to CKM (“What strategies do you
believe would improve
your organization’s approach to CKM?”). Company A
responded by saying that it would be
necessary to have a long-standing relationship with customers
to understand the patterns
in their knowledge of the company and the market, also stating
that for him, there are
no advantages in managing this knowledge; the CEO added:
“the customer only wants
to know about deadlines and that the products and the service
are made as the customer
wants”.
In company B, the CEO mentioned that there could be greater

communication from
the company in sharing the advantages of its service and the
processes it includes and that
“when a client looks for a property, regardless of the intended
effect of it, he has a good
knowledge of the market and the other offers that exist within
his needs”.
To conclude the interviews, the interviewees were asked
whether they would like to
make any other contribution regarding the topics covered during
the interview (“What
else would you like to share that might contribute to your
experiences regarding CKM
and CRM?”). The CEO of company B ended the interview by
saying that he had nothing
to add to these topics, largely due to a lack of knowledge.
Company A concluded the
interview by stating that relationship and knowledge
management software can be used if
necessary, depending on the company’s size. They also added
after the interviewer added
the possibility of using social networks in these processes that
“a social network would
make sense in the B2B market if this same network only existed
for companies and if it was
a paid platform”, meaning that the existing social networks are
too predictable for the B2B
market.
Generally, the interviews highlighted that although the
interviewed managers of
the companies were aware of SMM, CRM, and CKM concepts,
neither were willing to
implement such tools to improve their businesses, which will be
described and supported

in the next section.
5. Discussion of Results
The results exhibit validity, as they were presented by both
companies’ top manage-
ment (CEO), despite the aforementioned lack of knowledge.
Both interviewed companies revealed that there was no formal
supply chain man-
agement to which they did not attribute importance, as always
justified by the size of the
company.
Concerning customer engagement and according to Giannakis-
Bompolis and Bout-
souki [63], the shift from a product-focused strategy to a
consumer-focused strategy has
been the subject of debate and research in the literature for
more than a decade. According
to Gallup [64], and to complement the aforementioned author,
only 29% of customers in
B2B are “engaged” and the remaining 71% are described as
indifferent or “disengaged”
customers.
This may be applicable to the case of these two companies
under study, since in the
case of company A, there is only contact with the customer if
there is any problem or delay
in the service provided and in the case of company B, the very
top entity of the company
states that they expect the customer to come to them. However,
research indicates that
“engaged consumers” show greater brand loyalty [4,65].

In this study, both companies state that for their sector, size,
and objectives, enough is
done concerning customer engagement; according to company
A, only what is important
should reach the customer, which is something that can be seen
as a barrier to customer en-
gagement; as such, it is obvious that the conditions to
implement SMM in these companies
do not exist.
With regard to CRM, according to Wali, Wright, and Uduma
[37], customer relation-
ship management is everything in a business since this
management is a catalyst for an
organization to be responsible, profitable, and customer
focused. However, to contrast the
opinion given by the author and according to the primary data
obtained by the conducted
interviews, it is possible to evidence that while the CEO of
company B presented total
ignorance of this concept, the CEO of company A alleged that
the management of the
relationship with their customers was based on trust.
In relation to CRM, after analyzing the data, it is possible to
understand that both com-
panies were aware that this concept can affect their companies
at all levels, both positively
and negatively. The CEO of company A also stated that
customer relationship management
is based on internal management focused solely on fully

meeting their customers’ needs.
It is clear that both managers knew the CRM concept and were
aware of its importance
in organizations; however, neither were motivated to accept the
concept as a valid tool
that could improve their businesses. This is contrary to two of
the most important topics
to implement a CRM: company culture and managerial support.
In the companies under
study, this may lead to a lack of managerial maturity.
When analyzing the questions asked in the interview, we
understand that given the
lack of knowledge on the part of the interviewees on this theme,
we obtained answers that
were not very well grounded, but the CEO of company B stated
that it would be a process
of managing the knowledge that the customer has of the
company and the way it operates,
which is consistent with the definition of Chen and Su [49], at
the point where CKM is
perceived in the processes between the company and customers.
The CEO of company
A once again mentioned that CKM was based on trust, a view
that can be supported
by scientific knowledge through Parirokh, Daneshgar, and
Fattahi [44], who argued that
the process is based on creating value for the company and the
customer. Additionally,
concerning CKM, Kaoud [66] mentioned that CKM techniques
can be used in the creation of
listings (data mining) that can easily analyze customer
purchasing processes and improve
CRM because it allows the analysis of similarity patterns among
consumers. Although we
did not obtain answers from the interviewees, it is important to

mention the uses of CKM
in interaction with customers.
Kaoud [66] explained that CKM can be applied, for example, in
customer service,
through the reasons for complaints so that there is better
management of the interaction
with the customer and a record of how these complaints were
resolved. This will increase
customer satisfaction. In the case of company A, knowledge
management was not necessary
and would not bring advantages to the company. However, the
CEO of company B
mentioned having a stronger interaction with the customer so
that they know the company’s
operating format and the fact that there is a record of the
interaction can be an asset in
CRM.
Creating a link between CRM and customer knowledge can
substantially improve
the effectiveness of CRM [67–70]. This knowledge covers
numerous topics ranging from
case resolution with customers to the customer’s knowledge of
the company’s products
or services or organizational procedures. The knowledge should
serve as a reference for
employees to be more effective in solving processes that require
this same knowledge. The
CEO of company A reflected on this same subject by
understanding the advantages that
the link between CKM and CRM could bring to a company, but
always contesting that it
would have to be at least a medium-sized company. The CEO
complements this by saying
that these processes could be facilitated by social networks in

B2B companies but not in
existing social networks. However, if a new social network was
created that was paid and
that only worked for companies, then this could work. The way
that managers behave
regarding CKM is in line with CRM implementation, which is
considered a valuable tool to
increase effectiveness but does not apply to the size of their
companies.
6. Conclusions
The main objective of this case study is to understand the
feasibility of implementing
SMM in B2B companies and how this affects CRM and CKM.
Initially, the following RQ
was formulated: is it feasible to implement SMM in B2B
companies?
At a general level, observing the analysis and the discussion of
the data, it can be seen
that the analyzed companies are considered micro-companies
with a low market share
and that the top entities of both companies, when presenting the
results, revealed some
lack of academic knowledge in the topics addressed, including
supply chain, customer
engagement, CRM, and CKM.
Regarding the feasibility of SMM implementation in B2B
companies, it was understood
that such SMM cannot be used in B2B companies, which is not

possible in the actual format
because CRM requirements are much more dependent on CKM
and its management than
the mass interactions and indirect communication with the
customer that existing in SMM,
as was very clear in the statements from both managers.
When looking at how SMM affects CRM from the analysis and
discussion of primary
data compared to secondary data, it appeared that neither of
these companies needed
a customer management strategy. The main reason was their
size, which allowed the
mental management of the total customer portfolio through
acquired data as well as
communication with the customers which can be personal in all
cases thus preventing the
need for mass communication to customers.
Through the work process of both companies, it was realized
that their size did
not justify a CRM and consequently the use of SMM. Despite
the size of the companies,
there is an equality of processes in companies of the same
sector, whether these are small,
medium, or large. Therefore, it can be concluded that an SMM
does not apply to B2B
companies in their respective sectors or as a strategy for CRM.
It appears, however, that
it may be applicable in other sectors. Looking at the company
sizes of our sample, it is
clear that none of the management is willing to implement
SMM, CRM, and CKM tools in
their companies; nonetheless, it was also clear that a CRM
culture was not available and
nor was any managerial support, which may lead part of our

conclusions to managerial
maturity. Another aspect to be considered relates to supply
chain management: although
these managers were fully aware of the technicality and
specificity of business, the human
orientation should be considered [71].
The use of CRM in any B2B company that is large enough to
require customer man-
agement is a clear advantage. However, it is understood that, at
present, the use of SMM in
B2B companies does not present competitive advantages. The
possibility of the existence of
a social network just for companies can generate enormous
changes in this topic and bring
positive results, both from a general perspective and in CRM in
B2B companies.
It is important to understand that in this case study seeking to
understand the potential
use of SMM for CRM in B2B companies, the companies used to
obtain primary data
(Companies A and B) were of very small size. Although these
companies have a size that
represents the size of most Portuguese companies, it can be seen
that as they are small
companies, the use of CRM is scarce.
The size of the companies is a limitation of this case study.
Furthermore, only two
market sectors were analyzed for this study: real estate, where
company B operates, and
the heating and cooling systems trade sector, where company A
operates. As such, it was
only possible to form an opinion about these two sectors,
omitting a multitude of sectors in

which B2B companies operate. It is also relevant to explai n that
only one company from
each studied sector was analyzed, thus not forming a
representative sample of each sector,
and therefore considered another limitation.
To continue the study of the use of SMM in CRM to B2B
companies, more companies
within the studied sectors should be analyzed in addition to
other market sectors to have a
more complete and informed view of the topic. We did not
include any particular theory
in this study. Thus, future studies can be carried out to include
theories to analyze the
problem under study through other prisms. Furthermore, it
would also be important to
understand whether creating a new social network, one which is
only for companies and
of a paid and informative nature, would be viable and
advantageous in CRM.
Author Contributions: Conceptualization, J.M.L. and J.O.;
methodology, J.M.L.; validation, J.M.L.;
formal analysis, J.O.; investigation, J.M.L.; resources, J.M.L.;
data curation, J.O.; writing—original
draft preparation, J.M.L. and J.O.; writing—review and editing,
J.M.L. and J.O.; visualization, J.M.L.
All authors have read and agreed to the published version of the
manuscript.
Funding: This research received no external funding.

Institutional Review Board Statement: Not applicable.
Informed Consent Statement: Not applicable.
Data Availability Statement: Not applicable.
Acknowledgments: NECE-UBI, Research Centre for Business
Sciences, Research Centre and this
work are funded by FCT—Fundação para a Ciência e a
Tecnologia, IP, project UIDB/04630/2020.
Conflicts of Interest: The authors declare no conflict of interest.
Appendix A. Interview Guide
Appendix A.1. Engagement Strategy
1. How would you describe your supply chain?
2. What methods do you use to manage your clients?
3. How would you define customer engagement?
4. How does your involvement apply to customer engagement?
5. What do you believe are barriers to customer engagement?
6. What do you think is needed by marketing managers to
engage customers?
7. What strategies do you believe would better improve your
organization’s approach
to customer engagement?
Appendix A.2. Customer Relationship Management
8. From your own perspective, what is CRM?
9. How does CRM affect organizations?
10. What do you believe are barriers to CRM strategies in B2B?
11. What do you know about different CRM practices in your

market?
to CRM regarding your supply chain?
Appendix A.3. Customer Knowledge Management
13. How would you define CKM?
14. How you use CKM to interact with customers?
15. How do you believe CKM strategies have an effect on
improving your organization’s
approach to customer engagement?
to CKM?
17. What else would you like to share that might contribute to
your experiences regarding
CKM and CRM?
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Introduction Literature Review Digital Marketing in B2B
Customer Relationship Manager (CRM) Customer Knowledge
Management (CKM) Methodology Results Discussion of Results
Conclusions Appendix AEngagement Strategy Customer
Relationship Management Customer Knowledge Management
References
Saylor URL: http://www.saylor.org/books Saylor.org
1
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2
Preface
Imagine a text that your students might actually read. Imagine a
book that is the core of your course
without the bloat. Imagine a book that uses customer value,
digital technology, and cash flow as key
themes rather than afterthought add-ins. Imagine a text that
contains extensive ancillary materials—
PowerPoints, websites, videos, podcasts, and guides to
software—all geared to enhancing the educational
experience. Sound good? Small Business Management in the
21st Century is your text.
This text offers a unique perspective and set of capabilities for
instructors. It is a text that believes “less
can be more” and that small business management should not be
treated as an abstract theoretical concept
but as a practical human activity. It emphasizes clear
illustrations and real-world examples.
The text has a format and structure that will be familiar to those

who use other books on small business
management, yet it brings a fresh perspective by incorporating
three distinctive and unique themes that
are embedded throughout the entire text. These themes ensure
that students see the material in an
integrated context rather than a stream of separate and distinct
topics.
First, we incorporate the use of technology and e-business as a
way to gain competitive advantage
over larger rivals. Technology is omnipresent in today’s
business world. Small business must use it to its
advantage. We provide practical discussions and examples of
how a small business can use these
technologies without having extensive expertise or
expenditures.
Second, we explicitly acknowledge the constant need to
examine how decisions affect cash flow by
incorporating cash flow impact content in several chapters. As
the life blood of all organizations, cash
flow implications must be a factor in all business decision
making.
Third, we recognize the need to clearly identify sources of
customer valueand bring that
understanding to every decision. Decisions that do not add to
customer value should be seriously
reconsidered.
Another unique element of this text is the use of Disaster Watch
scenarios. Few texts cover, in any
detail, some of the major hazards that small business managers
face. Disaster Watch scenarios, included
in most chapters, cover topics that include financing, bankers,
creditors, employees, economic downturns,

and marketing challenges.
3
Chapter 1
Foundations for Small Business
The Twenty-First-Century Small-Business Owner
Source: Used with permission from Frank C. Trotta III.
Frank Trotta III is a recent college graduate, class of 2009, and
an excellent example of the
twenty-first-century small business owner. At 23, he is already
running his own business and
planning to open a second. This may be second nature because
Frank III is a third-generation
small business owner. His grandfather, Frank Trotta Sr., opened
a supermarket in 1945. His son,
Frank C. Trotta Jr., began his career by working in the
supermarket. Soon he had his own
hardware department within the store and was beginning to

understand what it takes to be a
4
successful grocer. He observed his dad interacting with his
customers and providing value
through customer service.
Frank Jr. now owns and operates one of Long Island’s most
successful travel companies: the
Prime Time Travel Club. The experience Frank Jr. garnered
from his father in customer service
became the tenet of his business philosophy: give customers
value through personal attention
and service. At an early age, Frank III worked in his dad’s
office when he was not busy with
school activities. He had a strong entrepreneurial leaning and
became very interested in the
travel industry. In high school, Frank III worked for his dad and
learned different facets of the
travel business. While attending a Connecticut university, Frank
III reached out to other
students on campus and started his own side business: booking

spring break trips. The same
people are now repeat customers who call him to book their
vacations, honeymoons, and family
trips.
In his junior year, Frank III created a travel site of his own:
Cruisetoanywhere.com. He is
involved with every aspect of the site: he takes all calls from
the customer service number,
produces all the marketing campaigns, and works on contracts
with both major and smaller
cruise lines. Although the site is still young, it has been very
successful. Frank III is learning how
larger competitors do business and from their successes and
mistakes. Customer service and
attention are his first priority. Frank III believes his competitive
business edge comes from what
he learned from his father’s company and business skills such
as planning and managing cash
flow from his professors. In addition to his cruise website,
Frank III plans to launch another site,
Tourstoanywhere.com. He exemplifies the skill set that will
characterize the twenty-first-century
small business owner: a clear focus on creating value for his
customers, a willingness to exploit

the benefits of digital technology and e-commerce, and the
ability to apply basic business skills
to the effective operation of the firm.
1.1 Small Business in the US Economy
5
L E A R N I N G O B J E C T I V E S
1. Explain the significance of small business in American
history and the US economy.
2. Define small business.
3. Explain how small business contributes to the overall
economy.
4. Explain how small business impacts US employment.
It’s an exciting time to be in small business. This is certainly
not anything new, but you might not know it.
Scan any issue of the popular business press, and in all
probability, you will find a cover story on one of
America’s or the world’s major corporations or a spotlight on
their CEOs. Newspapers, talk radio, and
television seem to have an unlimited supply of pundits and

politicians eager to pontificate on firms that
have been labeled as “too big to fail.” Listen to any broadcast of
a weekday’s evening news program, and
there will be a segment that highlights the ups and downs of the
Dow Jones Industrial Average and the
Standard and Poor’s (S&P) 500. These market measures provide
an insight into what is going on in Wall
Street. However, they are clearly biased to not only large firms
but also huge firms. This creates the false
notion that “real” business is only about big business. It fails to
recognize that small businesses are the
overwhelming majority of all businesses in America; not only
are the majority of jobs in small businesses,
but small businesses have also been the major driving force in
new job creation and innovation. Small
business is the dynamo of innovation in our economy. In 2006,
Thomas M. Sullivan, the chief counsel for
advocacy of the Small Business Administration (SBA), said,
“Small business is a major part of our
economy,…small businesses innovate and create new jobs at a
faster rate than their larger competitors.
They are nimble, creative, and a vital part of every community
across the country.” [1]
This text is devoted to small business, not entrepreneurship.
There has always been a challenge to
distinguish—correctly—between the small business owner and
the entrepreneur. Some argue that there is
no difference between the two terms. The word entrepreneur is
derived from a French word for “to
undertake,” which might indicate that entrepreneurs should be
identified as those who start
businesses. [2] However, this interpretation is too broad and is
pointless as a means of distinguishing
between the two. Some have tried to find differences based on
background, education, or age.[3] Often one

finds the argument that entrepreneurs have a different
orientation toward risk than small business
owners. The standard line is that entrepreneurs are willing to
take great risks in starting an enterprise
and/or willing to start again after a business failure. [4] Others
try to make the distinction based on the
issue of innovation or the degree of innovation. Given this
focus, entrepreneurs need not even work for
small business because they can come up with innovative
products, services, production, or marketing
processes in large organizations. [5] Perhaps the most common
interpretation of the entrepreneur is an
individual involved in a high-tech start-up who becomes a
billionaire. That is not the focus of this text. It
centers on the true driving force of America’s economy—the
small business.
This chapter gives a brief history of small business in the
United States, the critical importance of small
business to the American economy, the challenges facing small
business owners as they struggle to survive
and prosper, the requisite skills to be an effective small
business owner, the critical importance of ethical
behavior, and how these businesses may evolve over time. In
addition, three critical success factors for the
twenty-first-century small business are threaded through the
text: (1) identifying and providing customer
value, (2) being able to exploit digital technologies with an
emphasis on e-business and e-commerce, and
(3) properly managing your cash flow. These three threads are
essential to the successful decision
making of any contemporary small business and should be
considered of paramount importance. They are
everyday considerations.
A Brief History of Small Business

Throughout American history, from colonial times until today,
most businesses were small businesses,
and they have played a vital role in America’s economic success
and are a forge to our national identity. It
would not be an exaggeration to say that the small
businessperson has always held an important—even
exalted—position in American life. Americans in the early
republic were as suspicious of large economic
6
enterprises as threats to their liberty as they were of large
government. The historian James L. Houston
discussed American suspicion of large economic enterprises:
“Americans believed that if property was
concentrated in the hands of a few in the republic, those few
would use their wealth to control other
citizens, seize political power, and warp the republic into an
oligopoly.” [6] In fact, much of the impetus
behind the Boston Tea Party was the fear on the part of local
merchants and tradesmen that the East India
Company, at that time the world’s largest corporation, was
dumping low-priced tea in the colonies, which
would have driven local business to ruin. [7] Jefferson’s
promotion of the yeoman farmer, which included
small merchants, as the bulwark of democracy stemmed from
his fear of large moneyed interests: “The
end of democracy and the defeat of the American Revolution
will occur when government falls into the
hands of lending institutions and moneyed incorporations.” [8]

So great was the fear of the large
aggregation of wealth that the colonies and the early republic
placed severe restrictions on the creation of
corporate forms. In the first decades of the nineteenth century,
state governments restricted the corporate
form by limiting its duration, geographic scope, size, and even
profits. [9] This was done because of the
concern that corporations had the potential of becoming
monopolies that would drive entrepreneurs out
of business.
Eventually, however, some businesses grew in size and power.
Their growth and size necessitated the
development of a professional management class that was
distinct from entrepreneurs who started and
ran their own businesses. However, not until the post–Civil War
period did America see the true
explosion in big businesses. This was brought about by several
factors: the development of the mass
market (facilitated by the railroads); increased capital
requirement for mass production; and the 1886
Supreme Court case of Santa Clara County v. Southern Pacific
Railroad, which granted corporations
“personhood” by giving them protection under the Fourteenth
Amendment.
The growth of corporations evoked several responses that were
designed to protect small businesses from
their larger competitors. The Interstate Commerce Act (1887)
was a federal law designed to regulate the
rates charged by railroads to protect small farmers and
businesses. Other federal laws—the Sherman Act
(1890) and the Clayton Act (1914)—were passed with the initial
intent of restricting the unfair trading
practices of trusts. In the early years, however, the Sherman Act
was used more frequently against small

business alliances and unions than against large businesses.
Congress continued to support small
businesses through the passage of legislation. The Robinson-
Patman Act of 1936 and the Miller-Tydings
Act of 1937 were designed to protect small retailers from large
chain retailers. [10]
The Depression and the post–World War II environments posed
special challenges to small business
operations. The Hoover and Roosevelt administrations created
organizations (the Reconstruction Finance
Corporation in 1932 and the Small War Plants Corporation in
1942) to assist small firms. The functions of
several government agencies were subsumed into the Small
Business Administration in 1953. The
designated purpose of the SBA was to “aid, counsel, assist and
protect, insofar as is possible, the interests
of small business concerns.” [11] The SBA functions to ensure
that small businesses have a fair chance at
securing government contracts. It also has the responsibility of
defining what constitutes a small business.
If anything is to be learned from the passage of all this
legislation, it is that, as Conte (2006) eloquently
put it, “Americans continued to revere small businesspeople for
their self-reliance and independence.” [12]
Definition of Small Business
The SBA definition of a small business has evolved over time
and is dependent on the particular industry.
In the 1950s, the SBA defined asmall business firm as
“independently owned and operated…and not
dominant in its field of operation.” [13] This is still part of their
definition. At that time, the SBA classified a
small firm as being limited to 250 employees for industrial

organizations. Currently, this definition
depends on the North American Industry Classification System
(NAICS) for a business. The SBA
recognizes that there are significant differences, across
industries, with respect to competitiveness, entry
and exit costs, distribution by size, growth rates, and
technological change. Although the SBA defines 500
employees as the limit for the majority of industrial firms and
receipts of $7 million for the majority of
service, retail, and construction firms, there are different values
for some industries. Table 1.1 "Examples
of Size Limits for Small Businesses by the SBA" presents a
selection of different industries and their size
limits.
7
Table 1.1 Examples of Size Limits for Small Businesses by the
SBA
NAICS
Code NAICS US Industry Title
Size Standards
(Millions of $)
Size Standards (Number
of Employees)
111333 Strawberry farming 0.75

113310 Timber tract operations 7.00
114112 Shellfish fishing 4.00
212210 Iron ore mining
500
236115 New single family housing construction 33.50
311230 Breakfast cereal manufacturer
1,000
315991 Hat, cap, and millenary manufacturing
500
443111 Household appliance store 9.00
454311 Heating oil dealers
50
483111 Deep sea freight transportation

500
484110 General freight trucking, local 25.50
511130 Book publishers
500
512230 Music publishers
500
541214 Payroll services 8.50
541362
Geophysical surveying and mapping
services 4.50
541712
Research and development in physical,
500
8

NAICS
Code NAICS US Industry Title
Size Standards
(Millions of $)
Size Standards (Number
of Employees)
engineering, and life sciences
Except aircraft
1,500
722110 Full-service restaurants 7.00
722310 Food service contractors 20.50
811111 General automotive repair 7.00
812320 Dry cleaning and laundry services 4.50
813910 Business associations 7.00
Source: “Table of Small Business Size Standards Matched to
North American Industry Classification
System Codes,” US Small Business Administration, August 22,

2008, accessed June 1,
2012,http://www.sba.gov/content/small-business-size-standards.
The SBA definition of what constitutes a small business has
practical significance. Small businesses have
access to an extensive support network provided by the SBA. It
runs the SCORE program, which has more
than 12,000 volunteers who assist small firms with counseling
and training. The SBA also operates Small
Business Development Centers, Export Assistance Centers, and
Women’s Business Centers. These centers
provide comprehensive assistance to small firms. There can be
significant economic support for small
firms from the SBA. It offers a variety of guaranteed loan
programs to start-ups and small firms. It assists
small firms in acquiring access to nearly half a trillion dollars
in federal contracts. In fact, legislation
attempts to target 23 percent of this value for small firms. The
SBA can also assist with financial aid
following a disaster.
Small Business in the American Economy
In 1958, small business contributed 57 percent of the nation’s
gross domestic product (GDP). This value
dropped to 50 percent by 1980. What is remarkable is that this
50 percent figure has essentially held
steady for the last thirty years. [14] It is interesting to note that
the contribution of small businesses to the
GDP can vary considerably based on particular industries.Table
1.2 "Small Businesses’ Component of
Industry Contribution to GDP"presents data for selected
industries for the period 1998–2004. It can be
seen that in some industries—construction and real estate—80
percent or more of that industry’s
contribution to the GDP comes from small businesses, while in

the information industry that number is
20 percent or less.
Few people realize that the overwhelming majority of
businesses in the United States are small businesses
with fewer than five hundred employees. The SBA puts the
number of small businesses at 99.7 percent of
the total number of businesses in the United States. However,
most of the businesses are nonemployee
businesses (i.e., no paid employees) and are home based.
Table 1.2 Small Businesses’ Component of Industry
Contribution to GDP
9
Year
Construction
(%)
Real Estate and
Leasing (%)
Wholesale
Trade (%)
Transportation and
Warehousing (%)
Information
(%)

1998 88.0 80.4 59.1 39.1 26.4
1999 87.2 80.0 57.5 39.4 25.4
2000 85.4 79.8 56.8 39.0 22.7
2001 85.1 80.3 55.3 41.1 19.7
2002 84.6 79.4 56.3 41.0 20.3
2003 85.4 79.5 54.6 39.1 20.3
2004 85.6 79.6 55.4 38.6 18.0
Source: Katherine Kobe, “Small Business Share of GDP
(Contract No. SBAHQ-05-M-0413),” SBA Office of
Advocacy, April 2007, accessed October 7, 2011,
http://archive.sba.gov/advo/research/rs299tot.pdf.
One area where the public has a better understanding of the
strength of small business is in the area of
innovation. Evidence dating back to the 1970s indicates that
small businesses disproportionately produce
innovations. [15] It has been estimated that 40 percent of
America’s scientific and engineering talent is
employed by small businesses. The same study found that small
businesses that pursue patents produce
thirteen to fourteen times as many patents per employee as their
larger counterparts. Further, it has been
found that these patents are twice as likely to be in the top 1
percent of highest impact patents. [16]
It is possible that small size might pose an advantage with
respect to being more innovative. The reasons
for this have been attributed to several factors:

• Passion. Small-business owners are interested in making
businesses successful and are
more open to new concepts and ideas to achieve that end.
• Customer connection. Being small, these firms better know
their customers’ needs
and therefore are better positioned to meet them.
• Agility. Being small, these firms can adapt more readily to
changing environment.
• Willingness to experiment. Small-business owners are willing
to risk failure on some
experiments.
• Resource limitation. Having fewer resources, small businesses
become adept at doing
more with less.
10
• Information sharing. Smaller size may mean that there is a
tighter social network for
sharing ideas. [17]
Regardless of the reasons, small businesses, particularly in
high-tech industries, play a critical role in
preserving American global competitiveness.
Small Business and National Employment

The majority—approximately 50.2 percent in 2006—of private
sector employees work for small
businesses. A breakdown of the percentage of private sector
employees by firm size for the period 1988 to
2006 is provided in Table 1.3 "Percentage of Private Sector
Employees by Firm Size". For 2006, slightly
more than 18 percent of the entire private sector workforce was
employed by firms with fewer than twenty
employees. It is interesting to note that there can be significant
difference in the percentage of
employment by small business across states. Although the
national average was 50.2 percent in 2006, the
state with the lowest percentage working for small businesses
was Florida with 44.0 percent, while the
state with the highest percentage was Montana with a
remarkable 69.8 percent. [18]
Table 1.3 Percentage of Private Sector Employees by Firm Size
Year
0–4
Employees
5–9
Employees
10–19
Employees
20–99
Employees
100–499
Employees

500+
Employees
1988 5.70% 6.90%% 8.26% 19.16% 14.53% 45.45%
1991 5.58% 6.69% 8.00% 18.58% 14.24% 46.91%
1994 5.50% 6.55% 7.80% 18.29% 14.60% 47.26%
1997 5.20% 4.95% 6.36% 16.23% 13.73% 53.54%
2000 4.90% 5.88% 7.26% 17.78% 14.26% 49.92%
2003 5.09% 5.94% 7.35% 17.80% 14.49% 49.34%
2006 4.97% 5.82% 7.24% 17.58% 14.62% 49.78%
Source: US Census Bureau, “Statistics of U.S. Business,”
accessed October 7,
2011, http://www.census.gov/econ/susb.
Small business is the great generator of jobs. Recent data
indicate that small businesses produced 64
percent of the net new jobs from 1993 to the third quarter of
2008. [19] This is not a recent phenomenon.
Thirty years of research studies have consistently indicated that
the driving force in fostering new job
creation is the birth of new companies and the net additions
coming from small businesses. In the 1990s,
firms with fewer than twenty employees produced far more net
jobs proportionally to their size, and two
to three times as many jobs were created through new business
formation than through job expansion in
small businesses. [20] The US Census Bureau’s Business
Dynamics Statistics data confirm that the greatest

11
number of new jobs comes from the creation of new businesses.
One can get a sense of the extent of net
job change by business size in Table 1.4 "Job Creation by Firm
Size".
An additional point needs to be made about job creation and
loss by small businesses in the context of
overall economic conditions. Government data show that of the
“net 1.5 million jobs lost in 2008, 64
percent were from small firms.” [21] However, the same study
had some interesting results from the past
two recessions. In the 2001 recession, small businesses with
fewer than 20 employees experienced 7
percent of the total reduction in jobs, firms with between 20 and
500 employees were responsible for 43
percent of the job losses, and the rest of the job losses came
from large firms. As the economy recovered in
the following year, firms with fewer than 20 employees created
jobs, while the other two groups continued
to shed jobs. Following the 1991 recession, it was firms with 20
to 500 employees that were responsible
for more than 56 percent of the jobs that were added.
Table 1.4 Job Creation by Firm Size
Years 1–4 5–9 10–19 20–99 100–499 500+
2002–2003 1,106,977 307,690 158,795 304,162 112,702
(994,667)

2003–2004 1,087,128 336,236 201,247 199,298 66,209
(214,233)
2004–2005 897,296 141,057 (11,959) (131,095) 83,803 262,326
2005–2006 1,001,960 295,521 292,065 590,139 345,925
1,072,710
Source: “Small Business Profile,” SBA Office of Advocacy,
2009,http://archive.sba.gov/advo/research/data.html.
One last area concerning the small business contribution to
American employment is its role with respect
to minority ownership and employment. During the last decade,
there has been a remarkable increase in
the number of self-employed individuals. From 2000 to 2007,
the number of women who were self-
employed increased by 9.7 percent. The number of African
Americans who were self-employed increased
by 36.6 percent for the same time range. However, the most
remarkable number was an increase of nearly
110 percent for Hispanics. It is clear that small business has
become an increasingly attractive option for
minority groups. [22] Women and Hispanics are also employed
by small businesses at a higher rate than
the national average.
K E Y T A K E A W A Y S
• Small businesses have always played a key role in the US
economy.
• Small businesses are responsible for more than half the
employment in the United States.

12
• Small businesses have a prominent role in innovation and
minority employment.
E X E R C I S E S
1. Throughout this text, you will be given several assignments.
It
would be useful if these assignments had some degree of
consistency. Select a type of business that interests you and
plan on using it throughout some of the chapter assignments.
After selecting your business, go
to www.sba.gov/content/table-small-business-size-
standards and determine the size of the business.
2. In the United States, 50 percent of those employed are
working for small businesses. There are considerable
differences across states. Go
to www.census.gov/econ/susb/ and compute the percentage
for your state. What factors might account for the differences
across states?

13
[1] “Small Business by the Numbers,” National Small Business
Administration, accessed October 7,
2011, www.nsba.biz/docs/bythenumbers.pdf.
[2] “A Definition of Entrepreneurship,” QuickMBA.com,
accessed October 7,
2011,www.quickmba.com/entre/definition.
[3] Nick Leiber, “The Anatomy of an Entrepreneur,” Bloomberg
BusinessWeek, July 8, 2009, accessed October 7,
2011, www.BusinessWeek.com/smallbiz/running_small
_business/archives/2009/07/anatomy_of_an_e.html.
[4] “Entrepreneur vs. Small Business Owner: What’s the
Difference?,” Mills Communication Group, July 22, 2009,
accessed October 7,
2011,www.millscommgroup.com/blog/2009/06/entrepreneur-vs-
small-business-owner-whats-
the-difference.
[5] Dale Beermann, “Entrepreneur or Small Business Owner?
Does It Matter?,”Brazen Careerist, January 30, 2009,
accessed October 7,
2011,www.brazencareerist.com/2009/01/29/entrepreneur-or-
small-business-owner-does-it-
matter.
[6] Jack Beatty, The Age of Betrayal: The Triumph of Money in
America 1865–1900 (New York: Alfred A. Knopf, 2007),
11.
[7] Ted Nace, The Gangs of America: The Rise of Corporate
Power and the Disabling of Democracy (San Francisco: Berrett-
Koehler Publishers, 2003), 44.

[8] Bob Higgins, “Like Lincoln, Jefferson, Madison—
Americans Fear Corporate Control of Public Policy,” TPMCafe,
February 17, 2011, accessed October 23,
2011,tpmcafe.talkingpointsmemo.com/talk/blogs/r/l/rlh974/2010
/02/like-
lincoln-jefferson -madison.php.
[9] Ted Nace, The Gangs of America: The Rise of Corporate
Power and the Disabling of Democracy (San Francisco, Berrett-
Koehler Publishers, 2003), 44.
[10] Mansel Blackford, The History of Small Business in
America, 2nd ed. (Chapel Hill, NC: University of North
Carolina Press, 2003), 4.
[11] “What We Do,” Small Business Administration, accessed
October 7, 2011,www.sba.gov/about-sba-services/what-
we-do.
[12] Christopher Conte, “Small Business in U.S. History,”
America.gov, January 3, 2006, accessed October 7,
2011, www.america.gov/st/business-
english/2008/July/20080814215602XJyrreP0.6187664.html.
[13] Mansel Blackford, The History of Small Business in
America, 2nd ed. (Chapel Hill, NC: University of North
Carolina Press, 2003), 4.
[14] Katherine Kobe, “The Small Business Share of GDP, 1998–
2004,” Small Business Research Summary, April 2007,
accessed October 7,
2011,http://archive.sba.gov/advo/research/rs299tot.pdf.
[15] Zoltan J. Acs and David B. Audretsch. “Innovation in
Large and Small Firms: An Empirical

Analysis,” American Economic Review 78, no. 4 (1988): 678–
90.
[17] Jeff Cornwall, “Innovation in Small Business,” The
Entrepreneurial Mind, March 16, 2009, accessed June 1,
2012,http://www.drjeffcornwall.com/2009/03/16/innovation
_in_small_business/.
14
[19] “Statistics of U.S. Businesses,” US Census Bureau, April
13, 2010, accessed October 7,
2011, www.census.gov/econ/susb.
[20] William J Dennis Jr., Bruce D. Phillips, and Edward Starr,
“Small Business Job Creation: The Findings and
Their Critics”, Business Economics 29, no. 3 (1994): 23–30.
[21] Brian Headd, “An Analysis of Small Business and Jobs,”
Small Business Administration, March 2010, accessed
October 7, 2011,www.sba.gov/advo/research/rs359tot.pdf (p.
10).

[22] “Statistics of U.S. Businesses,” US Census Bureau, April
13, 2010, accessed October 7,
2011, www.census.gov/econ/susb.
1.2 Success and Failure in Small Businesses
L E A R N I N G O B J E C T I V E S
1. Be able to explain what is meant by business success.
2. Be able to describe the different components of business
failure.
3. Understand that statistics on business failure can be
confusing and contradictory.
4. Understand that small business failure can be traced to
managerial inadequacy, financial issues, and
the external environment.
5. Understand that small business owners need to be able to
formally plan and understand the
accounting and finance needs of their firms.
There are no easy answers to questions about success and
failure in a small business. The
different points of view are all over the map.
What Is a Successful Small Business?
Ask the average person what the purpose of a business is or how
he or she would define a

successful business, and the most likely response would be “one
that makes a profit.” A more
sophisticated reply might extend that to “one that makes an
acceptable profit now and in the
future.” Ask anyone in the finance department of a publicly held
firm, and his or her answer
would be “one that maximizes shareholder wealth.” The
management guru Peter Drucker said
that for businesses to succeed, they needed to create customers,
while W. E. Deming, the quality
guru, advocated that business success required “delighting”
customers. No one can argue,
specifically, with any of these definitions of small business
success, but they miss an important
element of the definition of success for the small business
owner: to be free and independent.
15
Many people have studied whether there is any significant
difference between the small business
owner and the entrepreneur. Some entrepreneurs place more
emphasis on growth in their

definition of success.[1] However, it is clear that entrepreneurs
and small business owners define
much of their personal and their firm’s success in the context of
providing them with
independence. For many small business owners, being in charge
of their own life is the prime
motivator: a “fervently guarded sense of independence,” and
money is seen as a beneficial by-
product. [2], [3], [4]Oftentimes, financial performance is seen
as an important measure of success.
However, small businesses are reluctant to report their financial
information, so this will always
be an imperfect and incomplete measure of success. [5]
Three types of small business operators can be identified based
on what they see as constituting
success:
1. An artisan whose intrinsic satisfaction comes from
performing the business activity
2. The entrepreneur who seeks growth
3. The owner who seeks independence [6]
When discussing failure rates in small business, there is only
one appropriate word: confusion.

There are wildly different values, from 90 percent to 1 percent,
with a wide range of values in
between. [7] Obviously, there is a problem with these results, or
some factor is missing. One
factor that would explain this discrepancy is the different
definitions of the termfailure. A
second factor is that of timeline. When will a firm fail after it
starts operation?
The term failure can have several meanings. [8] Small-business
failure is often measured by the
cessation of a firm’s operation, but this can be brought about by
several things:
• An owner can die or simply choose to discontinue operations.
• The owner may recognize that the business is not generating
sufficient return to warrant the effort that is
being put into it. This is sometimes referred to as the failure of
opportunity cost.
• A firm that is losing money may be terminated to avoid losses
to its creditors.
• There can be losses to creditors that bring about cessations of
the firm’s operations.
• The firm can experience bankruptcy. Bankruptcy is probably
what most people think of when they hear
the term business failure. However, the evidence indicates that

bankruptcies constitute only a minor
reason for failure.
16
Failure can therefore be thought of in terms of a cascading
series of outcomes (see Figure 1.1
"Types of Business Failures"). There are even times when small
business owners involved in a
closure consider the firm successful at its closing. [9] Then
there is the complication of
considering the industry of the small business when examining
failure and bankruptcy. The
rates of failure can vary considerably across different
industries; in the fourth quarter of 2009,
the failure rates for service firms were half that of
transportation firms. [10]
Figure 1.1 Types of Business Failures
The second issue associated with small business failure is a
consideration of the time horizon.
Again, there are wildly different viewpoints. The Dan River

Small Business Development Center
presented data that indicated that 95 percent of small businesses
fail within five years. [11] Dun
and Bradstreet reported that companies with fewer than twenty
employees have only a 37
percent chance of surviving four years, but only 10 percent will
go bankrupt. [12] The US Bureau
of Labor Statistics indicated that 66 percent of new
establishments survive for two years, and
that number drops to 44 percent two years later. [13] It appears
that the longer you survive, the
higher the probability of your continued existence. This makes
sense, but it is no guarantee. Any
business can fail after many years of success.
Why Do Small Businesses Fail?
17
There is no more puzzling or better studied issue in the field of
small business than what causes
them to fail. Given the critical role of small businesses in the
US economy, the economic

consequences of failure can be significant. Yet there is no
definitive answer to the question.
Three broad categories of causes of failure have been identified:
managerial inadequacy,
financial inadequacy, and external factors. The first
cause,managerial inadequacy, is the most
frequently mentioned reason for firm failure. [14]
Unfortunately, it is an all-inclusive explanation,
much like explaining that all plane crashes are due to pilot
failure. Over thirty years ago, it was
observed that “while everyone agrees that bad management is
the prime cause of failure, no one
agrees what ‘bad management’ means nor how it can be
recognized except that the company has
collapsed—then everyone agrees that how badly managed it
was.” [15] This observation remains
true today.
The second most common explanation cites financial
inadequacy, or a lack of financial strength
in a firm. A third set of explanations center on environmental or
external factors, such as a
significant decline in the economy.
Because it is important that small firms succeed, not fail, each

factor will be discussed in detail.
However, these factors are not independent elements distinct
from each other. A declining
economy will depress a firm’s sales, which negatively affects a
firm’s cash flow. An owner who
lacks the knowledge and experience to manage this cash flow
problem will see his or her firm
fail.
Managerial inadequacy is generally perceived as the major
cause of small business failure.
Unfortunately, this term encompasses a very broad set of issues.
It has been estimated that two
thirds of small business failures are due to the incompetence of
the owner-manager. [16] The
identified problems cover behavioral issues, a lack of business
skills, a lack of specific technical
skills, and marketing myopia. Specifying every limitation of
these owners would be prohibitive.
However, some limitations are mentioned with remarkable
consistency. Having poor
communication skills, with employees and/or customers,
appears to be a marker for
failure. [17] The inability to listen to criticism or divergent
views is a marker for failure, as is the

inability to be flexible in one’s thinking. [18]
18
Ask many small business owners where their strategic plans
exist, and they may point to their
foreheads. The failure to conduct formal planning may be the
most frequently mentioned item
with respect to small business failure. Given the relative lack of
resources, it is not surprising
that small firms tend to opt for intuitive approaches to planning.
[19], [20] Formal approaches to
planning are seen as a waste of time, [21] or they are seen as
too theoretical.[22] The end result is
that many small business owners fail to conduct formal strategic
planning in a meaningful
way. [23], [24] In fact, many fail to conduct any planning; [25],
[26] others may fail to conduct
operational planning, such as marketing strategies. [27] The
evidence appears to clearly indicate
that a small firm that wishes to be successful needs to not only
develop an initial strategic plan

but also conduct an ongoing process of strategic renewal
through planning.
Many managers do not have the ability to correctly select staff
or manage them. [28] Other
managerial failings appear to be in limitations in the functional
area of marketing. Failing firms
tend to ignore the changing demands of their customers,
something that can have devastating
effects.[29] The failure to understand what customers value and
being able to adapt to changing
customer needs often leads to business failure. [30]
The second major cause of small business failure is finance.
Financial problems fall into three
categories: start-up, cash flow, and financial management.
When a firm begins operation (start-
up), it will require capital. Unfortunately, many small business
owners initially underestimate
the amount of capital that should be available for operations.
[31] This may explain why most
small firms that fail do so within the first few years of their
creation. The failure to start with
sufficient capital can be attributed to the inability of the owner
to acquire the needed capital. It

can also be due to the owner’s failure to sufficiently plan for his
or her capital needs. Here we see
the possible interactions among the major causes of firm failure .
Cash-flow management has
been identified as a prime cause for failure. [32],[33] Good
cash-flow management is essential for
the survival of any firm, but small firms in particular must pay
close attention to this process.
Small businesses must develop and maintain effective financial
controls, such as credit
controls. [34] For very small businesses, this translates into
having an owner who has at least a
fundamental familiarity with accounting and finance. [35] In
addition, the small firm will need
19
either an in-house or an outsourced accountant. [36]
Unfortunately, many owners fail to fully use
their accountants’ advice to manage their businesses. [37]
The last major factor identified with the failure of small
businesses is the external environment.

Citation Lopes, J.M.; Oliveira, J. The

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