MCKINSEY REPORT OFFERS INSIGHT INTO SMALL BUSINESS "PAIN POINTS"

 NOTE: O'Hara Business Strategies, LLC. does not necessarily agree entirely with McKinsey's recommendations or conclusions for small businesses or what they term, MSMEs. O'Hara Business Strategies, LLC. also asserts that developing systems and processes (as noted in the book, "The E-Myth") can help small businesses succeed, as well as using the expertise of strategy-focused consulting firms like O'Hara Business Strategies, LLC! Additionally, sometimes staying small is a choice for small business owners; productivity gains and growth can be achieved by using independent contractors instead of additional employees. In short, McKinsey is focused on large corporations and its perspective can be "out of touch" for MSMEs.! Statist instead of being entrepreneurial!

McKinsey research on small business pain points?

Major global consulting firm, McKinsey & Company offered the following findings on small business pain points:

McKinsey Global Institute (MGI) has conducted extensive research on micro-, small-, and medium-sized enterprises (MSMEs), highlighting their critical role in global economies while identifying persistent challenges that hinder their growth and productivity. A key 2024 report, America's Small Businesses: Time to Think Big, analyzes U.S. MSMEs (defined as firms with up to 500 employees), which comprise 99.9% of all American companies, employ nearly 60% of the workforce, and contribute about 40% to national value-added output.

Despite this, MSMEs face a significant "productivity gap," operating at roughly half the productivity level of large firms—a disparity more pronounced in the U.S. than in other advanced economies, where small firms achieve about 60% of large-firm productivity.

This gap stems from structural barriers that limit scale, innovation, and efficiency. A companion MGI analysis, A Microscope on Small Businesses: Spotting Opportunities to Boost Productivity (also 2024), uses granular data from 17 countries to examine nonfarm MSMEs globally, revealing similar issues. It notes that while MSMEs drive job creation and innovation, their productivity lags due to fragmented ecosystems and uneven access to resources.

Below, I summarize the primary pain points identified in these reports, drawing directly from McKinsey's findings, along with targeted recommendations. Key Pain Points for Small Businesses McKinsey's research emphasizes that challenges vary by subsector (e.g., retail vs. manufacturing) and geography, but common themes emerge. These are often interconnected, creating a cycle of low growth and vulnerability.

 

MCKINSEY-IDENTIFIED "PAIN POINTS"

A) Low Productivity and Scale Barriers - MSMEs struggle to grow beyond micro-size (under 10 employees).

B) Limited Access to Technology and Digital Tools - Small firms under-adopt automation, AI, and digital platforms, missing efficiency gains.

C) Talent and Human Capital Shortages - Difficulty attracting/retaining skilled workers, especially in specialized roles, hampers operations and growth.

D) Finance and Funding Constraints - McKinsey reports that, in Israel, SME credit grew 61% vs. 16% for large firms (2010s), yet gaps persist; U.S. MSMEs rely heavily on personal savings or debt.

E) Weak Market Access and Networks - Isolation from supply chains, customers, and ecosystems limit sales and knowledge sharing.

F) Regulatory and Policy Hurdles - Broad policies fail to address granular needs, like incentives for tech adoption or subsector support. U.S. MSMEs need tailored measures; Singapore's GoBusiness model shows how incentives can boost tech uptake.

Recommendations from McKinsey to address these, McKinsey advocates a "think big" mindset, urging MSMEs to leverage ecosystems and policy support: 

A) Build Networks: Foster ties between large firms (for mentorship/supply chains) and small ones (for innovation). Examples include Sacramento's ag-tech cluster, where nonprofits like AgStart provide labs and funding to over 20 startups.

B) Adopt Technology Strategically: Use incentives (e.g., grants) to integrate digital tools, focusing on high-impact subsectors like manufacturing. 

C) Enhance Human Capital: Invest in training and clusters to attract talent; policy makers should promote minority-owned business ecosystems. 

D) Tailor Policies: Shift from broad measures to subsector/geography-specific interventions, like India's focus on the "missing middle."

E) Scale via Acquisitions/Partnerships: Large firms can acquire MSMEs for mutual gains, as seen in U.S. clusters like High Point furniture.

These insights underscore that closing the productivity gap could add trillions to global GDP, with U.S. MSMEs alone potentially boosting output by 30-50% through targeted action.

SOURCE: MCKINSEY.COM