A business unit, sometimes called a strategic business unit or SBU, is a segmented group or department within a company that focuses on reaching a specific market or client. It may also focus on achieving a specific goal for the organization. While some businesses find success with this strategy, there are concerns and potential problems to consider before trying it at your company.
Finances
In business, money is usually a problem. It can be good to make money, but when you are just getting started with a business, it can be easy to lose money quickly.
Before you start your business, develop a comprehensive list of the things you will need to finance and how much money you will need to make it happen. Discuss your business with others who have experience to try to cover as many costs as you can. When you have developed your startup budget, add 20 percent to it to cover the costs that you have not yet accounted for.
When it comes to financing a startup, it is better to plan for more than you will need than to find yourself deep in debt right away.
Employees
Your employees can be your greatest asset and your greatest expense. It costs money to hire, train and retain employees. Your company needs to provide some sort of benefits package that includes health insurance, paid vacation days and paid sick days to attract and retain employees, and even then, you will have competition from other companies that may be able to offer better.
As you delegate responsibilities to your employees, you begin to rely on them for your company’s success. A key employee leaving your company can have an effect similar to losing a major account.
Space
It is common for a new business owner to try to keep his office and warehousing costs down. When your company first starts out, a small and affordable space may be adequate. As your company grows, you will need more space, and you may realize that the facility you signed the one-year lease for is no longer sufficient. Have a backup plan available for warehousing just in case you outgrow your current warehouse. Offer sales employees the option of telecommuting to reduce the amount of office space you need. Become creative with your space, or you may find yourself spending money to remedy a space problem to which you are contractually bound for years.
Problems Meshing Ideas
When you segment your company in this way, you may find it becomes more difficult to get units to combine and work together. Though the separate units have different purposes, there may come a time when they need to convene in order to accomplish a goal for the organization. If your employees become too familiar with working in segmented groups, they may have problems working on joint projects with other units.
Expensive
Establishing business units can also be expensive. For one, you may have to create separate physical departments within the company. You may also need to create separate websites, mailing addresses and, in some cases, entirely new sub-organizations to properly establish these units. Finding a balance between efficiency and cost when maintaining these units can be challenging.
Time-Consuming
Setting up and running business units is also time-consuming. When you establish one, you must create a separate mission statement, budget, marketing plan and general business proposal. You must also set up technology and tools to support the department. You must then evaluate the functionality of the department before repeating the process with another business unit. If you decide to start all of your units at the same time and then determine that the formula isn’t working, you’ll also spend a significant amount of time dismantling or updating all of them.
Social Responsibility
Small businesses can encounter several problems related to Corporate social responsibility due to characteristics inherent in their construction. Owners of small businesses often participate heavily in the day-to-day operations of their companies. This results in a lack of time for the owner to coordinate socially responsible efforts.[9] Additionally, a small business owner’s expertise often falls outside the realm of socially responsible practices contributing to a lack of participation. Small businesses also face a form of peer pressure from larger forces in their respective industries making it difficult to oppose and work against industry expectations.[9] Furthermore, small businesses undergo stress from shareholder expectations. Because small businesses have more personal relationships with their patrons and local shareholders they must also be prepared to withstand closer scrutiny if they want to share in the benefits of committing to socially responsible practices or not.[9]
Job Quality
While small businesses employ over half the workforce [10] and have been established as a main driving force behind job creation [11] the quality of the jobs these businesses create has been called into question. Small businesses generally employ individuals from the Secondary labor market. As a result, in the U.S. wages are 49% higher for employees of large firms.[11] Additionally, many small businesses struggle or are unable to provide employees with benefits they would be given at larger firms. Research from the U.S. Small Business Administration indicates that employees of large firms are 17% more likely to receive benefits including salary, paid leave, paid holidays, bonuses, insurance, and retirement plans.[12] Both lower wages and fewer benefits combine to create a job turnover rate among U.S. small businesses that is 3 times higher than large firms.[11] Employees of small businesses also must adapt to the higher failure rate of small firms. In the U.S. 69% last at least 2 years, but this percentage drops to 51% for firms reaching 5 years in operation.[10] he U.S. Small Business Administration counts companies with as much as $35.5 million in sales and 1,500 employees, depending on the industry. Outside government, companies with less than $7 million in sales and fewer than 500 employees are widely considered small businesses.
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