According to a recent study by the McKinsey Global Institute, Small and medium-sized businesses (SMBs) play an essential role in the global economy. Regardless of the country, these businesses account for nearly 60% of all jobs and contribute close to 40% of the country’s total value added.
Despite their importance, SMBs face a significant productivity gap compared to larger enterprises. According to recent reports, SMBs in the U.S. are operating at only half the productivity of larger companies. In contrast, SMBs in other advanced economies operate at about 60% of the productivity of large firms.
Narrowing this gap is vital, as it holds back not just individual businesses but also the broader economy. The productivity disparity between SMBs and larger enterprises is equivalent to 5.4% of the U.S. GDP. In an era of digital transformation and rapid AI advancements, one key to closing this gap lies in adopting AI solutions tailored to help SMBs boost their operational efficiency.
Why SMBs Struggle with Productivity
Limited Tech Adoption
One of the primary reasons for this productivity gap is a lack of tech adoption. SMBs are half as likely as larger enterprises to adopt critical technologies such as customer relationship management (CRM) systems or artificial intelligence (AI) tools. Larger companies benefit from these technologies by automating workflows, improving customer relationships, and making data-driven decisions. Without these tools, SMBs are left relying on more manual processes, which slows their growth and ability to scale.
Resource Constraints
Larger companies often invest heavily in their workforce by providing formal training programs, performance incentives, and bonuses. In contrast, SMBs frequently operate with limited budgets and smaller teams, making it harder for them to train employees on new technology or hire skilled talent. This resource gap means that while larger enterprises can afford to optimize their operations and attract top talent, SMBs are often left behind, further widening the productivity gap.
Challenges in Scaling
Another challenge SMBs face is their role in the supply chains of larger companies. Many SMBs take on lower-value, labor-intensive tasks outsourced by bigger enterprises. While this keeps smaller companies busy, it also limits their focus on higher-value, growth-oriented activities that could significantly boost their productivity and revenue.
How AI Can Close the SMB Productivity Gap
Automating Repetitive Tasks
One of the immediate ways AI can help SMBs is by automating repetitive, low-value tasks. Many small businesses spend considerable time on administrative tasks like data entry, scheduling, or customer service responses. AI tools can automate these tasks, allowing teams to focus on higher-priority initiatives that directly contribute to growth.
Improving Customer Relationships
AI-powered CRM systems are now more accessible to SMBs than ever. These tools enable businesses to deliver personalized customer experiences at scale, similar to what large enterprises can offer. For example, an AI-powered CRM can help a small business track customer behavior and preferences, automatically suggesting tailored interactions and offers, which can improve customer retention and satisfaction.
Enhanced Collaboration with Larger Enterprises
AI also opens up opportunities for SMBs to collaborate more effectively with larger companies. AI-driven tools allow SMBs to integrate seamlessly into larger supply chains, providing real-time updates, improving inventory management, or even automating invoicing. This enhanced collaboration can give SMBs access to the same market efficiencies that large enterprises enjoy, helping them grow more sustainably.
Generative AI Accessibility
Perhaps the most exciting development is the increasing democratization of AI through generative AI (GenAI). Unlike earlier AI systems, which required specialized programming skills, many GenAI tools can now be used with simple natural language prompts. This makes AI more accessible to SMBs that lack in-house technical expertise. By leveraging GenAI, small businesses can automate tasks like generating content, analyzing customer data, or creating marketing campaigns—tasks that previously would have required significant time and effort.
The types of AI solutions for SMBs: Horizontal vs. Vertical
When adopting AI-driven SaaS solutions, SMBs typically choose between horizontal and vertical platforms. Horizontal SaaS solutions are designed to be versatile, offering broad functionality that can be customized to fit a wide range of industries. These platforms provide flexibility and allow businesses to integrate AI into various aspects of their operations, but they often require more customization and configuration. In contrast, vertical SaaS solutions are tailored to specific industries, offering specialized tools that address the unique needs of those sectors. While vertical solutions provide immediate, targeted benefits with minimal customization, they can require a more comprehensive tech stack overhaul, as businesses must adapt to the platform’s ecosystem. Understanding the trade-offs between these approaches is key for SMBs looking to boost efficiency and productivity through AI.
Horizontal SaaS Solutions
Horizontal SaaS platforms are designed to be flexible and customizable across industries. Examples include:
Salesforce Agentforce: Salesforce’s AI-driven tool, Agentforce, helps businesses automate customer service workflows, improving response times and enhancing customer satisfaction. This platform is used across various industries, from retail to finance. Despite its capabilities, Salesforce is quite complex and costly to buy and implement, requiring a complex custom setup that can take between 2-6 months. This means that these solutions are often out of reach for most SMBs.
Shopify Magic: Shopify introduced AI features to help e-commerce businesses generate product descriptions and marketing content automatically, reducing manual content creation efforts. Many SMBs in the retail / commerce space use Shopify, and can take advantage of this specific use case.
Hubspot Breeze: HubSpot Breeze offers AI-driven tools to help SMBs streamline key business functions. Its AI features generate content like blog posts and marketing materials, identify high-intent leads based on website activity, and automate social media management by suggesting posts and optimizing scheduling. For customer support, HubSpot's AI handles routine inquiries and escalates complex issues to human agents, while providing insights to improve service performance.
These horizontal platforms allow small businesses to leverage AI without needing to invest in industry-specific solutions, making them highly accessible to a wide range of SMBs.
Vertical SaaS Solutions
Vertical SaaS platforms, on the other hand, are designed for specific industries, offering tailored AI tools that meet the unique needs of those sectors. Examples of vertical SaaS solutions include:
Harvey.ai (Legal): Harvey.ai is designed for legal professionals, helping small law firms with AI-powered document drafting and legal research, which can significantly reduce time spent on these labor-intensive tasks.
DolphinCare.ai (Healthcare): DolphinCare.ai is a healthcare solution that helps nursing homes optimize reimbursement processes, improving financial efficiency without extensive administrative overhead.
Syntra (Healthcare): Syntra offers AI solutions specifically for doctors' offices, automating tasks like patient scheduling and follow-ups, allowing small medical practices to focus more on patient care.
Merlin AI (Construction): Merlin AI supports construction firms by automating project management, timelines, and bidding processes, helping businesses in the construction sector stay on track and within budget.
Propaya (Property Management): Propaya provides AI-driven tools for property management companies, automating tenant management, payment collection, and maintenance requests.
These are just a few examples of vertical SaaS tools that are helping SMBs in specific industries close the productivity gap by addressing the unique operational challenges they face.
Actionable Steps for SMBs to Implement AI
Start Small: SMBs should begin by automating simple, repetitive tasks to get a feel for how AI can enhance operations. For example, AI tools can handle tasks like data entry, email marketing automation, or managing social media posts, freeing up employees to focus on more strategic work. Starting small allows businesses to gain experience with AI, helping them understand both its power and its limitations. This approach also enables SMBs to fine-tune their AI strategy before expanding its use into other areas of the business. The McKinsey article on SMB productivity echoes this advice: implementing AI incrementally can yield quick wins while minimizing risk.
Look for AI Features in Existing Tools: Before exploring entirely new platforms, SMBs should first check if their current software providers have integrated generative AI solutions. Many SaaS companies are rapidly investing in AI features, and leveraging these tools within a familiar ecosystem is far easier than switching to a new platform. If your existing software offers AI capabilities, take advantage of free trials to test the tools and see how they fit your needs. Even if the AI features don’t meet your expectations now, revisit them every few months—AI is evolving quickly, and future updates could bring significant improvements. The key is to stay informed and open to trying the latest iterations without committing to new platforms prematurely.
Focus on Talent Development: SMBs should consider investing in a few employees who have a passion for technology and efficiency. By upskilling staff members, businesses can build in-house AI expertise, ensuring that the team is equipped to manage and optimize AI tools effectively. Many online resources and training programs are available to help employees get up to speed with generative AI. This not only benefits the business but also provides employees with valuable skills, keeping them engaged and motivated. Creating a tech-savvy team will allow your business to be more adaptive and ready to explore more advanced AI tools as they become available.
Consult with Experts: When diving deeper into AI adoption, consulting with experts can help guide implementation. Industry-specific AI consultants or specialists with experience in your sector can offer tailored advice. Additionally, SMBs can experiment with freelancers on platforms like Fiverr or Upwork to find developers who specialize in AI. However, keep in mind that the quality of freelancers varies, so referrals and thorough vetting are essential. A knowledgeable expert can help ensure that AI implementations align with your business goals and are customized to your specific operational needs.
The Future Impact of AI on SMBs
AI holds enormous potential for SMBs. Those that adopt AI solutions will find themselves more competitive, able to scale faster, and capable of delivering more personalized experiences to their customers. However, SMBs that do not embrace these technologies risk falling further behind, exacerbating the existing productivity gap.
Moreover, as AI tools become more adept at data-driven decision-making, SMBs will be able to harness the power of their data to make better business choices. This could lead to long-term growth, improved customer retention, and new revenue streams, all of which contribute to closing the productivity gap.
By narrowing this gap, SMBs can play a vital role in boosting the overall U.S. economy and remaining competitive in the global market.
AI offers a clear path for SMBs to close the productivity gap and drive growth. From automating repetitive tasks to adopting industry-specific AI tools, small businesses have the opportunity to rethink their operations and leverage AI for efficiency. Now is the time for SMBs to embrace AI-driven solutions to stay competitive and unlock their full potential.
Much of the data in this blog post is courtesy of the McKinsey Global Institute's report on small business productivity.
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