The typical entrepreneurial venture starts small. For it to survive, prosper and grow, a number of skills are required, one of which is managing people and using HRM practices that support high performance.

This article addresses factors contributing to the success of Small and Medium Enterprises (SMEs). This area receives less attention than that devoted to large organizations. This is ironic since there are significantly more SMEs than large organizations as SMEs employ more people and exist in every country. They also seem to be weathering the current economic recession better and some SMEs eventually become large organizations. More individuals are now in SMEs with the downsizing of large organizations, and the frustration many people, particularly women, feel regarding their careers in large organizations. In a nutshell, the performance of an economy is inextricably linked to the SME sector, and SMEs rely heavily on their people and on their HRM practices for their success.

Entrepreneurs sometimes fail to see the importance of sound HRM practices, or if they believe HRM practices to be critical for success, lack the time, patience and skill to fully utilize these practices. Entrepreneurs are typically men and women of action; they get things done. They often lack the time to train, develop and create the conditions that motivate staff by knowing their individual employees. HRM is often given lower priority than manufacturing and/or marketing. In addition, many entrepreneurs believe that HRM is just common sense and being good with people (being liked). Sound HRM practices are much more than this. SMEs, historically, have not incorporated new developments in HRM.

There are unique aspects to working in and managing an SME. SMEs differ from large organizations in fundamental ways. These include: less `slack' in SMEs, less formality and structure, less distance between the top and the bottom levels, fewer systems and administrators in place to handle HRM issues, and less hierarchical layers.

This article has several objectives. First, it highlights why HRM practices are critical to entrepreneurs and the success of their SMEs. Second, it provides concrete examples of specific HRM initiatives that contribute to the effectiveness of SMEs. Third, it indicates some of the personal and organizational challenges facing entrepreneurs/managers and their SMEs and how HRM practices are relevant to them.

MBA Review Magazine, Human Resource Management, HRM, Small and Medium Enterprises, SMEs, SME Sector, HRM Practices, Entrepreneurial Firms, Business Literature, HR Practices, Behavioral Theories, Entrepreneurial Businesses, Stress Management, Strategic Planning.