Artificial intelligence has seen rapid adoption among big businesses – but what about the rest?

Ever since OpenAI debuted ChatGPT in 2022, tech giants have spoken poetically of AI’s potential. In a KPMG survey of big companies with $1 billion in revenue, 97% said they were investing in AI over the course of the year. Amazon.com Inc. chief executive Andy Jassy said in a 2024 letter to shareholders that “the amount of societal and business benefit from the solutions that will be possible will astound us all.”

But that business benefit has largely neglected 99.9% of companies in the U.S.: the small businesses.

“This is really in the news a lot…so they’re trying to figure out what the applications are,” said Richard Cabrera, head of commercial banking at Oregon-based Umpqua Bank. “I think (right now) this AI is really more squarely relevant for very large companies.”

A recent report from Umpqua Bank found that mid-size businesses are more likely to adopt generative AI compared to small businesses. Around 40% of small businesses said they had no plan to implement generative AI in the coming year, while only 10% of middle market companies said the same. It’s the first time in three years the sides diverged so significantly in their plans to adopt new technology, according to Umpqua Bank.

“For a small business, it’s about resources more than it is anything else,” Cabrera said. “So today is AI a necessity? Not really. Not at this moment in time. Will it be? Absolutely.”

That tracks – the same report found that small businesses like coffee shops, salons and restaurants perhaps have fewer use cases for AI than some of the larger tech-forward businesses. When it came to the most important investments for the upcoming year, AI topped the list for mid-sized companies with 56%. However, only 20% of small businesses saw AI as a priority.

Local AI examples

Sidebench is a Brentwood-based startup that creates custom enterprise software for highly regulated industries. The company hosts workshops for its clients to help brainstorm use cases for AI in their workplaces.

While the brainstorming part begets a variety of ideas, they get whittled down based on what’s legal, feasible and built on a strong data foundation.

“Because of our role of pushing forward technology innovation on behalf of these growing organizations, naturally, the ones that we were speaking with are more excited to explore the possibilities of it,” said Kevin Yamazaki, Sidebench’s chief executive. “But I would say we have a lot of clients that are very realistic and skeptical. What can we realistically use this for? Where is it going to be highly reliable at scale and not open us up to any additional risks?”

Yamazaki, who also invests in companies through Sidebench, said he’s cautious about the AI hype cycle and funding companies that don’t have a strong business model.

“My thing is looking for how technology is going to enable the amplification of an existing value proposition that is already working and in motion,” Yamazaki said. “AI just can really scale it up or make it even more valuable.”

Another reason for the divide is the perceived economic outlook. There is a large discrepancy between how mid-sized businesses and small businesses see the state of the economy – 68% of mid-sized companies had a positive outlook on the economy, while only 29% of small businesses could say the same.

It’s the largest divide between the two sectors’ economic outlook since 2020. Mid-sized businesses are also more likely than they ever have been to invest in digitization.

“It’s optimism and action versus uncertainty and caution,” Cabrera said. “More middle market companies are telling us they are prepared to make strategic investments after a season of caution. More small businesses (plan to) really just hunker down and hang on to whatever liquidity and cash flow that they have.”

Paving the way

More than half of small- and mid-sized businesses in the Los Angeles metropolitan area said they had plans to invest in AI, and around a third of them consider themselves to be early adopters, according to the report.

Scott Barrack founded Hollywood-based Relevant Partners in 2021 with the goal of creating affordable multifamily housing in L.A. The company began using AI for general operations like filing documents and for marketing and sales. Then the company began testing out beta software that could use AI to render homes and calculate the exact cost of all materials, effectively shaving 10 months off a development timeline.

“You either have to get into this or you’re going to be behind it,” Barrack said. “Just think, if you don’t have to do all the nuts and bolts of the back end design, you can really focus on the creative visionary artwork.”

Six in 10 companies in L.A. – regardless of their size – believe that AI will have a significant positive impact on businesses, including profitability and productivity, according to the Umpqua Bank report.

“We’re not a big company, but we’re pretty nimble,” Barrack said. “We think we’re pretty creative. We try to be as innovative as you can to create some sort of competitive advantage.”