Local government support programs for home based businesses: challenges and strategies.

• Author: Ali, Shameem
• Position: Report

1. INTRODUCTION

   The Australian Bureau of Statistics reported the number of home-based businesses (HBBs) at 856,000 as of June 2004. Of these, 198,700 are located in the state of Victoria (ABS, 2005). The large number of HBBs helps to support a popular estimate that some twelve percent of households host a home based business, and this proportion is likely increasing (Jay, 2003). There is now widespread agreement that HBBs create significant and meaningful employment opportunities. Indeed, each HBB is estimated to provide, on average, some 2.8 positions for its operators and employed staff (Hitech Marketing, 1998). Cognizant of HBBs' employment generation potential, the Federal and State governments have taken a keen interest in promoting the sustainability and growth of the HBB sector (Commonwealth of Australia ,2004; Victorian Government, 2004).

   Small businesses in Australia comprise a significant proportion of overall business activity, as is the case in most economies. These small businesses defined as those employing less than 20 people, count for as much as 96 percent of the total number of businesses in the country and provide 42% of existing jobs (Peacock, 2004). In June 2004, there were an estimated 1.269 million small businesses. Interestingly, the Australian Bureau of Statistics (ABS) report that that some 67% of these could be classified as home-based as these businesses are actually conducted from the operator's home (ABS, 2005).

   At the state level, the Victorian Government sought information on the relationship between local government and the HBB sector across the state to provide a framework for policy and program development for this sector specifically. Thus a research project was commissioned by the Department of Innovation, Industry and Regional Development to survey the attitudes, initiatives and experience of local government authorities across Victoria in relation to HBBs in their municipality. The project's aim was, on the one hand, to determine challenges facing local government in dealing with HBBs, and on the other hand, to describe initiatives undertaken to nurture this important sector. This paper reports on the nature of extent of HBB programs and issues and problems faced by local government authorities (municipal councils) in contacting and engaging their constituent home based businesses.

   To a significant extent, the interest in home-based businesses (or HBBs) in Australia as a distinct group within small businesses has occurred because of better understanding of the small business data as well as more attention to proper definitions of various sub-categories. For example, the HBB sector as a group within the small business classification was not clearly delineated in the past. Peacock (2004) reports that in 1994, the ABS undertook the first study of HBBs as a component of small businesses, using the definition of a HBB where "one or more of the operators of the business worked more hours at home than away from home". From 1997, the sector has since been better defined and this definition is still currently in use. For instance, the ABS (2005) report reflects this definition, and describes the two classifications of HBBs.

   1 "Businesses operated at home": where most of the work of the business was carried out at the home(s) of the operator(s)

   2 "Businesses operated from home.": where there are no other premises owned or rented other than the home(s) of the operator(s)

   These HBB classifications are not mutually exclusive as the data in Table 1 shows (ABS, 2005):

   Home-based businesses have been the target of policy interest from all three tiers of government in recent years. The Federal government and most State governments now have a policy on home based businesses. The strong interest in HBBs on the Federal and State levels comes from the recognition that these numerous businesses provide employment for operators, their families and other hired staff. For instance, 69 percent of the 856,000 HBBs provided a livelihood mainly for their operators, 28 percent or 240,000 actually hired one to four additional staff, and 3.1 percent or 26,000 had between 5 to 19 employees (ABS, 2005). Another reason for interest is the assumption that many HBBs could have growth potential that could be tapped to facilitate local economic development.

   Starting a new business is onerous for many people, involving both cost burdens and risks. Many HBBs are at the early stages of business development and face difficulties related even to mere survival (Walker and Still, 2003). Local government authorities have the closest connection to HBBs. These councils have started to realise the economic contribution of this sector and are initiating programs to encourage, sustain and grow these businesses. One of the earliest initiatives in the State of Victoria was the study commissioned by the City of Casey and its neighbouring councils in the Southeast Region of Victoria. The study, prepared by Hitech Marketing Services (1998), involved a survey of HBBs and recommended action plans for the councils to develop this sector.

   Some other Victorian councils followed suit and conducted research on HBBs within their jurisdiction. Melton and Wyndham councils collaborated to survey the demographics of their HBBs and emerging trends within the sector (Melton Shire Council and Wyndham City Council, 2001). The report forwarded suggestions for a role by local government. Similar approaches have been noted in another report prepared for Mitchell Shire (Hitech Marketing Services, 2003).

2. LITERATURE REVIEW

   2.1 The Stages in Business Development

   An understanding of the life-cycle model of small business growth is important in the development of appropriate policies and programs relating to support provision by local and other levels of government. Greiner's (1972) life-cycle model contends that businesses go through five developmental stages: inception, survival, growth, expansion and maturity. The model implies that a business firm in a particular stage of its life-cycle will be characteristically different from another firm in another life-cycle stage. Such a model is useful for business operators, who can respond in a proactive fashion with respect to planning and providing for the required resources to enable the business to capitalise on opportunities.

   Similar to the model set out by Greiner (1972), other authors have suggested that businesses go through a process of growth, which can be divided into stages, (Churchill and Lewis, 1983; Scott and Burns, 1987). The staged approach to describe small business growth and development, as is the basis of the life-cycle model, seems intuitively reasonable. Whether firms go through all these specific growth stages is however debatable (Storey, 1994). For instance, Carson et al., (1995) describes a range of internal and external factors that could influence a firm's progression in this lifecycle model. Internal factors concern the goals and personal characteristics of the owner manager that have a considerable impact on the future of the business. The owner manager can make a deliberate choice to control the growth of the enterprise for purely personal and lifestyle reasons. Or on the other hand, the choice could be to remain entrepreneurial, thereby actively seeking growth opportunities.

   Then there are the factors of owner abilities and their capacity to capitalise on opportunities, which Morrison et al. (2003) suggests are key variables in identifying small firms that will grow further. They also propose that these operator capabilities can be enhanced by targeted external support to the business. Ali et al. (2001) build on this proposition by identifying elements relating to both "smart business operator" and "good business practices" that are essential for businesses to draw on available support, and hence, be able to take advantage of growth opportunities.

   Other contributions that may help inform government policy for small business support come from economists (Jovanovic, 1982; Frank, 1988; Reid, 1993) who have expressed the view that there is much "adaptation" or learning required on the part of the business operator as the business develops and grows. This adaptation process suggests that the business' development at various stages could be characterised by changing resource needs, managerial and leadership demands, knowledge and information needs, as well as systems and planning demands.

   2.2 Small Business and Support Programs

   Previous studies on obstacles to small business participation in support programmes (Sims et al, 2002; Hull, 1987) suggest that lack of awareness of support services was an impediment to small business growth. Hull (1987) also found that business support programmes have failed to consider the individual attitudinal and behavioural characteristics of small firms, the business characteristics of individual firms, and the specific and often unique nature of the support provision needed. This was seen to have hindered business participation in such programmes.

   It is important to recognize that there are various obstacles facing support service providers in dealing with small businesses. Gibb (2000) describes economic factors that inhibit the delivery of appropriate support such as the costs of establishing credibility with these businesses and customisation of such support. Similarly, Kearney (1998) refers to the cost of incorporating flexibility in the delivery mechanism to suit the business operator. Government funding support is implied to overcome these hindrances. Beyond financial assistance, there could be an intermediary role which was originally defined by Hull (1987) as linking local firms on one hand and various local, regional and national resource-providing institutions on the other. An issue addressed in this paper is: Do local...