Small-business managers face a wide range of challenges. Between handling employee issues, maintaining product or service quality and trying to keep cash flows positive, managers get pulled in multiple directions. One of the hardest parts of managing a business is that it's hard to know what could come up next. This uncertainty, which comes in three types, is one of the biggest issues facing small businesses.

State Uncertainty

State uncertainty refers to when a business manager is unable to determine what could happen as a result of the business environment. For example, if you're running a business that holds outside events, you deal with state uncertainty during the months of April and October when you really can't be sure what the weather will be. It can also occur when you're unsure of what laws the government might pass that could impact your business.

Effect Uncertainty

Once you've figured out what might happen, effect uncertainty comes into play. It refers to when you can't figure out how outside environmental events might affect your business either now or in the future. If you run an outdoor event business, effect uncertainty occurs when you know it's going to rain but you don't know if it'll keep people away.

Response Uncertainty

Once you know what effects a change in state will have for your business, you can then plan a response. Response uncertainty refers to your inability to be sure of how the market will react to the actions that you take. For instance, if you move your outdoor event indoors, you can't be sure that people will want to be inside.

Four Approaches

Managers typically have four ways to respond to uncertainty. A defensive manager structures his business within a narrow and specific niche that he can defend in face of uncertainty. Prospectors accept uncertainty and are constantly looking for new business opportunities that can replace any areas that get negatively impacted. Analyzers do a little bit of both. They maintain their core competencies while expanding by copying competitors. Finally, reactive managers avoid change until uncertainty forces the issue.