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Why proprietorship companies never scale up?
The most easiest way to start business when you are an individual is proprietorship company which is just only you as proprietor / owner of the business. Though it is legal and legitimate entity there are many setbacks to it.
As proprietor first there is no distinguish between your earning and your company earning as both are considered same though you have company current account.
This type of companies do not scale up because getting good talent and retaining does not happen as every person is at whims and fancy of the proprietor. This ensures that human resource joining company thinks twice before as there is no process and there is no clarity nor there is structure of hierarchy and nor there is classification of roles and responsibility.
Proprietors run the business with there own thought and with closed mind of not to hear any advice from anybody they think they know everything and what they think is the best way. This thought process itself ensures that companies don’t scale.
Then comes the problems of raising funds if required as no bank will give loans to proprietorship companies though no matter how old they are the facilities which bank gives to them is very low when compared to pvt ltd companies.
Above all proprietorship companies where the sole owner takes decision without any process for e.g. a proprietor running a dairy farm for last 20 years still is the same as what it was when started as decision making is not questioned and there is no justification to taking decisions by sole owner.
People feel scared to join as sole owner decides is the performance good enough to keep the employee for next month or he just says thank you to avoid cost if he is not able to pay.
In process the sole owner develops liking to one or two employees whom he feels he can pay less and will still continue working for him, so there is no new thinking coming into company hence this ensures that companies don’t scale.
The company never keeps up pace with technology changes as sole owner feels why he should spend money on it he will work with Gmail id will not have own domain and will never spend on advertising thinking its not required but always wants to earn more without investing any money into company.