The Role of SMEs in the US Economy

SMES are the unsung heroes of the US Economy

Role of SMEs in the US Economy

I recently came across some compelling research compiled by Marshall Cooper, CEO of Chief Executive Group. Additionally, most of his data, compiled directly from the most recent US Census, took this lifetime Chief Executive reader, content curator and aggregator completely by surprise! In fact, the research rebutted many long held beliefs that I personally held around SMBs holistic contribution to the US economy. Accordingly, allow me to summarize and synthesize the most salient “myths” contained in his research below.

Myth #1 “Small Business (SMB) is the engine of job growth”

Another key point that we have probably all heard over the years is that SMBs makes up more than 95% of all businesses in the US. Because, over the last fifteen (15) years, SMBs have shed more than 3,000,000 jobs! As a consequence, SMBs share of US total employment dropped from 35% to 29%. Another key point, SMEs (companies with $10M-$1B in revenue) added more than 5,000,000 jobs over the same period! Comparatively, large companies (companies with revenues in excess of $1B) added over 13,000,000 jobs. Certainly, as measured by employment, SMEs>SMBs.

Myth #2 “Large Companies are Poor employers”

As an illustration, large employers have expanded headcount by more than 17% since 2017. Moreover, they pay the highest wages in the land with an average annual compensation of $81,000. Comparatively, SMBs pay just over $42,000. Takeaway here is SMBs are finding it increasingly difficult to compete for top talent.

Myth #3 “SMEs are “tweeners”

You might know that college football players are often characterized as “tweeners.” Meaning that if you’re on the defensive side of the ball you’re too heavy to play defensive back while at the same time to light to play linebacker. However, returning to SME lexicon, the middle market is anything but average. Correspondingly SMEs represent 4.4% of all firms while evidently almost 34% of overall US employment. Indeed, SMEs represent 29% of all business receipts with average compensation of approximately $69,000. In other words, SMEs match the agility of SMBs while evidently combining efficiencies of scale.

Myth #4 “The US Economy is small vs. Big”,

However, the real tension is between SMEs and Large. At this point, large companies now control 59% of the revenue in the US in contrast with 29% for SMEs and remaining 12% for SMBs.

Myth #5 “Bigger always means better” (More Productive)

In the words of Lee Corso, “not so fast my friend!” Large firms still post the highest productivity reaching just shy of $600K per employee. Comparatively, although productivity data for SMEs can be obscure, it did grow 43% for the fifteen-year period 2007-2022.

How SMEs Drive Innovation and Local Growth

1. SMEs are the unsung heroes of the US Economy.
2. If you’re an SME, your competition for talent is larger companies. And there continues to be rapid consolidation at the top. In reality, SMEs twin growth challenges are to outpace SMBs while at the same time chase relentless larger competitors.
3. The old “small vs large narrative” is outdated. In the same way, though SMBs remain vital to communities across the US, they are losing economic weight in contrast to SMEs. Forthwith, large firms face efficiency hurdles.

At The Convergent Group, we help SME leaders operationalize strategy, streamline processes, and scale responsibly. If your business is ready to move from stability to sustainable growth, let’s connect.