Small businesses are defined as firms having one to 500 employees and make up approximately 50% of the civilian non-farm workforce in the United States (Waddell, 1992). Since 1980, the number of small business owners and operators has steadily increased in number (Paleno & Kleiner, 2000). Evidence shows that small business is responsible for providing essentially all of the new jobs created in the US during the 1980’s (Paleno & Kleiner, 2000). New jobs arise from the expansion of existing small businesses or though the startup of new companies (Paleno & Kleiner, 2000). Each year, more than 500,000 new small firms are started in the US (Paleno & Kleiner). To maintain vitality in small business, leadership is essential. Leadership in all companies, including small organizations, affects the US economy. The existence of a strong and healthy small business community has always been recognized as the best way to preserve competition in a capitalistic society and to prevent monopolistic activity in the US (Paleno & Kleiner). Benefits of competition include lower prices and higher quality.

Due to the more than 5.7 million firms in the small business category, it is necessary to look at the organizational structure and leadership of the small business (Waddell, 1992). Determining what makes a small business thrive, flourish and grow helps support the US economy. During recessions, small business is likely to be one of the few sources of new jobs in business (Waddell, 1992). Leadership is vital for the small companies themselves as well as the US economy. The organizational environment includes leadership, strategies, structure and culture; thus, creating the organizational behavior of the firm (Jackson & Schuler, 2003). A company’s leader should provide a vision of what the company stands for, the mission it seeks to fulfill, and the values that will guide the means it uses to achieve its mission. Leadership sets the stage for managing human resources by providing a broad set of guidelines that help people make choices and direct their energies (Jackson & Schuler, 2003). Effective leadership ensures that employees are generally working to achieve the same results, and by achieving those results, the organization will satisfy the mission of its leadership. The vision, mission, values and strategy set forth by the leader(s) of the small business determines its ability to survive, thrive, stabilize and grow. Extensive research and papers exist regarding CEO’s/leadership of large corporations. It is important to look at strengths and weaknesses in the leadership of small organizations as well. This builds the understanding and abilities of our small business economy. Nearly half of the new businesses started each year in the US go out of business within the first 18 months of operation (Paleno & Kleiner, 2000). The need for a solid understanding of how leadership affects small businesses is enormous.

Leadership is the ability to influence a group toward the achievement of goals (Robbins, 2003). Not all leaders are managers, nor are all managers leaders. Yet, a leader can be placed into a management position and lead effectively. Organizations need strong leadership and strong management for optimal effectiveness (Robbins, 2003). Thus, the leader of a small business who plays the role of management must be effective at both roles. If the leader is unable to be effective at both roles, it will be up to the leader to appoint a manager to effectively complete tasks where the leader is lacking. If unable to relinquish control, the leader will have to evaluate his/her true vision of where the small business is going and what it will look like when it gets there. In fact, the leader may need to accept that his/her actions will stifle further growth, and he/she may need to accept that the current state of the organization will remain so for as long as current control is maintained solely by the leader.