Here is a brief excerpt from an outstanding article co-authored by John Horn and Darren Pleasance, featured in The McKinsey Quarterly published by McKinsey & Company. Reinvigorating small business starts with identifying the high-growth firms that disproportionately drive economic activity and jobs. In an accompanying video, the chairman and CEO of Revolution and cofounder of AOL, Steve Case, explains why small, high-growth companies are the secret to economic vitality and job creation and how large companies could benefit from them.

Source: Strategy Practice

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There’s mom. There’s apple pie. And there’s small business. As the US economy struggles to go on climbing out of the downturn and create jobs, no hero stands taller in the nation’s political and business psyche than the small-business owner. With good reason. Small businesses, defined as companies with fewer than 500 employees, account for almost two-thirds of all net new job creation. They also contribute disproportionately to innovation, generating 13 times as many patents, per employee, as large companies do. (Note: For more, see the frequently-asked-questions page on the US Small Business Administration’s Web site. This site and the Ewing Marion Kauffman Foundationare the source of many of the statistics in this article.)

Sadly, small-business optimism is at its lowest levels in almost 20 years. (Note: Check out this article,  “Small business economic trends,” National Federation of Independent Business, October 2012.) After crashing in the recession, confidence remains below any level recorded since the early 1990s, because the recovery has been so anemic.

Had small business come out of the recession maintaining just the rate of start-ups generated in 2007, the US economy would today have almost 2.5 million more jobs than it does.

What’s particularly disturbing is that the greatest decline in entrepreneurial activity occurred in the 18–24-year-old cohort. While older entrepreneurs bring more experience and a higher likelihood of success to their business building, the shortage of young business founders means that the US economy is currently not producing enough of its next generation of serial entrepreneurs.

The recent US presidential campaign made much of the need to restart the US small-business engine, which won’t be easy. But one place to begin, our research suggests, is to focus more sharply than usual in today’s economic debate on two things: precisely how small business contributes to growth and job creation, and the ways the private sector—not just government—can support that job creation dynamic. (For more, view this video interview with Steve Case, chairman and CEO of Revolution and cofounder of America Online, or download a PDFof the edited transcript.)

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To read the complete article and/or check out the video, please click here.

John Horn is a senior expert in McKinsey’s Washington, DC, office, and Darren Pleasance is an alumnus of the Silicon Valley office.