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• 2004
• Section 2

• Small & Medium Enterprises

• Small Business Advisory Group

• SBAG Reports

• 2008
• 2006
• 2004

There is no globally recognised definition of an SME. In this report SMEs are defined as businesses with fewer than 20 employees.¹

While SMEs are diverse, typically an SME may:

• have begun spontaneously from just one idea or new product and may continue to be an incubator for innovative ideas and products
• have an owner/manager with little formal business experience or few generic business skills
• have begun because the founder/owner has a particular technical expertise
• comprise the founder/owner and up to four employees (often with an unpaid family member providing administrative support)
• have the owner as the only person in a managerial position, and no board or formal governance arrangements
• operate on trust, rather than on systems and contracts
• have a tight family-like culture where the values of the owner are strongly shared by the staff and workplace practices are flexible and suited to individual employees' needs
• focus on a small range of products or services sold mainly on the local domestic market
• have all personal assets, including the owner's home, committed as security for the business
• acknowledge the owner's time as one of its scarcest and most valuable assets
• operate flexibly, on a "reasonable person" basis, rather than on an informed and strict observance of regulations
• have a vision and outlook that is bounded by the horizons, skills and experience of the founder/owner, the pressures of day-to-day management and tight resource constraints (i.e. a tactical rather than a strategic approach)
• endeavour to operate independently of other businesses and institutions and to favour self-help over seeking advice
• not be aware of the regulations to which it is expected to adhere
• in provincial areas, be a key part of the social fabric of the community
• close within three years of its inception, not infrequently in circumstances that could easily have been prevented.

These characteristics mean that managers in successful small firms need to be multi-skilled rather than specialists, with expertise in a diverse range of areas.

¹In New Zealand 96.8% of enterprises employ 19 or fewer FTEs and 86% employ five or fewer FTEs. The number of SMEs increased 4.9% in 2003. SMEs accounted for 42.3% of all FTEs and 38.1% of the economy's output in 2003. Between 1997 and 2002 new firms employing 0-5 FTEs created 180,370 new jobs. The proportion of SMEs in New Zealand is similar to a number of other OECD countries, although SMEs account for a higher proportion of employment in New Zealand relative to other countries.