The real risks to small business from rapid adoption of AI

Large Companies, Big Innovations

Over 99% of businesses are small businesses. In the US they contribute slightly under half of economic output and employment. It is slightly more than half in the UK. Yet the small business contribution to research and development is around 10% of total spending.

One view of an economy is of a few, large companies engaged in critical activities, supported by a multitude of smaller companies providing supplies and services. In this model, the fundamental economic shifts come from large companies, while small companies adapt.

This might mean small business owners don’t need to worry about AI.

How Many PhDs Do You Need?

It took around 30 years for electricity to be widespread enough to accelerate economic growth. The personal computer took around 15 years. Estimates for AI range from 5 to 10 years.

Electricity is consistent, cheap energy. Personal computers are consistent calculating power. AI is cheap, ubiquitous intelligence. Would your business benefit from a dramatic increase in intelligence?

The answer might depend on how many PhDs you employ. Drug research, writing trading algorithms and creating new technologies soak up PhD talent. Advanced manufacturing, such as aerospace and automotive, absorbs post graduate engineering knowledge. Research organisations pick up a few. Philosophy PhDs are the most likely to cycle back into academia.

If your business does not require the daily application of mathematics and science, the impact of AI may be determined more by what it means for your clients than for you.

Transformational Technologies

A general purpose technology, such as electricity or computers, has a number of features. It applies across industries, it undergoes dramatic improvements and it requires innovations in supporting industries. Most importantly, it enables a significant reduction in the costs of critical business activities.

AI has already enabled a significant reduction in the time taken to discover new drugs. Regulatory hurdles remain but there is the genuine promise of disease cures, breakthroughs in longevity and easing suffering. The collective human capacity for work and pleasure will be transformed for the better.

AI and blockchain technology may recreate the rails of finance. Much of this industry exists behind regulatory walls and the technology will be adopted within existing organisations, even if developed outside of them.

Smart energy grids run by AI, combined with local power from solar farms, small modular nuclear reactors and possibly fuel cells, could reimagine the costs and consequences of power generation. Real-time operating systems will recreate the internet and break existing monopolies.

Small businesses supporting government and regulated industries are better protected from these upheavals and have more time to adjust. Businesses that thrive in marketing and advertising, support technology giants, or are in transport and communications, face greater upheaval.

This is regardless of whether you adopt AI or not.

ChatGPT is Not Transforming the Economy

A Federal Reserve survey of surveys shows that adoption of AI is higher at individual than corporate level. This might mean workers using ChatGPT in their day jobs, while executives are still contemplating how to remake their businesses. ChatGPT is not about to transform the economy.

After three decades with the internet, the digital economy is 10% of the total, according to the Bureau of Economic Analysis. Most of us are online every day, working, shopping and socialising. Yet the physical economy remains dominant.

Technology takes time to transform industries. De Beers flirted with lab grown diamonds for six years before settling on using them only for industrial purposes. It faces a long and losing battle to preserve the status of natural diamonds.

Aerospace, automotive and medical implements account for half of 3D printing. The technology was absorbed by existing players.

The assumption has always been that AI transforms businesses by replacing workers. What if its biggest impact is transforming how industries run?

The big concern for small business may then be how clients are going to change.

Questions to Ask and Answer

1. What is the most important technology in my industry?

2. Who is doing the most R&D in the industry?

3. How will AI impact that technology?

When you are ready there are three ways I can help:

1. Schedule a call to understand the potential of AI.

2. Resolving Team Conflicts: A free email course offering an introduction to the mindset required to be an effective manager.

3. The Profit Through Process Planner: My flagship course on how to design and invigorate a business that scales. I share 30 years of experience of researching, investing in and running companies, intermingled with the science and stories of business.