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Big Businesses also have larger overheads, internal bureaucracy and are generally show on the uptake. A small and nimble SMB can surely take advantage of this?

After all, most of the tech startups are in some way small businesses and don't seem to have any trouble innovating against the lumbering tech giants.

Not a great comparison. Capital investments needed for IT production are actually much smaller than other industries, and IT just doesn't really scale well at all with respect to company size. Large and small companies alike are limited to the talent they can attract and pay for.

You seriously believe that IT investment is the sole reason for large companies being more efficient? How about the fact that they can make large investments in general (for example, build a pipeline or a nuclear power plant), at the scale where few competitors exist?

You seriously believe that IT investment is the sole reason for large companies being more efficient?

Of course not. For one thing, large companies typically have far more efficient financials. For example, revolving loans are common to smooth over cash flow bumps and due to their size they can demand long payment terms (120 days or longer to pay for stuff). There's definitely an advantage there.

Large businesses also have a regulatory advantage, since they write the actual regulations that govern themselves (at least in the United States).

Nevertheless, IMO while these are significant, I don't think they are the overwhelming reason why big businesses have 4x the revenue per employee. Regulatory overhead is real, but it's not 4x, and better financials certainly help with profitability, but I don't think they're responsible for bringing in 4x the revenue per employee, either.

I honestly think IT is the thing that counts the most (Amdahl's Law) if you want to see SMBs become competitive, at least on a revenue per employee basis, with the Global 2000.

It's not just lack of IT investment that hurts SMBs. Even when they do invest in IT, they use it differently than the Global 2000, and that difference is, IMO, why SMBs are relatively inefficient, and why gains from IT haven't trickled down to them.

But hey, I could be wrong. It is, after all, just my opinion after studying the problem. YMMV and all that.

> How about the fact that they can make large investments in general (for example, build a pipeline or a nuclear power plant), at the scale where few competitors exist?

Sure, that helps, but revenue is regulated by law in the two cases you mentioned. And the Global 2000 is not primarily made up of companies doing large capital investments in infrastructure. Furthermore, the 1:4 relationship exists across industries. So we're not comparing apple's to oranges here. Even within the exact same industry the Global 2000 has a 4x advantage in revenue per employee.

Like I said, I don't think you can explain a 4x advantage in revenue per employee solely with better financial management and regulatory efficiencies.

I want to capitalize on my argument on huge barriers to entry being a major factor. In industries with such barriers (huge initial investment required) there's always only a limited number of players, and usually no one is interested in "spoiling the market" by selling their products with too small margins. Some of that are just natural dynamics, while sometimes explicit, illegal under the table deals are being made (where prices across the whole industry are being set).

>I personally do not see how SMBs can compete when they are paying 4x more for labor.

This makes the error of assuming that the only thing a consumer values is cost. That isn't actually the case, but it varies greatly.

Consider your statement in the light of looking at the 10 largest corporations in America on a decade by decade basis. Go back a few decades, and I bet you won't even recognize the names.

Again and again, small companies have displaced can't-fail big ones.

So let's look at the 10 biggest public American companies as calculated by Forbes in May of 2013:

1) J.P Morgan

2) General Electric

3) Exxon Mobile

4) Berkshire Hathaway

5) Wells Fargo

6) Chevron

7) Apple

8) Walmart

9) Citigroup

10) AT&T

Yea, I am going to have to disagree with your premise, that the top companies from decades ago have been replaced by bit players considering at least half these companies predate WWII and the rest came about not by competition, but by market evolution.

http://www.forbes.com/global2000/list/

Edit: added public to the first sentence.

And at least half of those companies have received large bailouts from the government or are getting access to natural resources on the cheap ($1/year leases).

Fortune 500, 2013

1. Wal-Mart

2. Exxon Mobil

3. Chevron

4. Phillips 66

5. Berkshire Hathaway

6. Apple

7. General Motors

8. General Electric

9. Valero Energy

10. Ford Motor

Fortune 500, 1970

1. General Motors

2. Exxon Mobil

3. Ford Motor

4. General Electric

5. IBM

6. Chrysler

7. Mobil

8. Texaco

9. ITT Industries

10. Gulf Oil

Here, go nuts, looks like you're way off:

http://money.cnn.com/magazines/fortune/fortune500_archive/fu...

Take a look at this page:

http://en.wikipedia.org/wiki/Historical_components_of_the_Do...

It's interesting, although the Dow Jones index is sort of arbitrary in its choices; it's certainly not the "largest corporations" as you stated, although of course some of the largest will end up in it.

In fact, I'm not really able to find what it is that actually determines what companies are in the Dow Jones Index. If you know or find something I'm curious.

I've seen in print listings of the largest by market cap for each decade, but after considerable time on google was unable to find it.

The DJ is a reasonable proxy of it, though, as it's meant to be representative of the economy, and so by its nature will mean the biggest ones.

Just checked the top 50 list from 2013 and 1960. The number of companies I didn't recognize by name was about the same.