A 10 percent increase in the number of firms per worker in 1977 is associated with a 9 percent increase in employment growth between 1977 and 2000. An abundance of small, independent firms is, along with January temperature and share of the population with college degrees, one of the best predictors of urban growth.
The answer at an intuitive level seems relatively obvious. Smaller firms are more competitive and more efficient, and focus on growing sectors of the economy.
Large organizations become less about serving customers and more about people protecting fiefdoms and territory within a larger realm. It becomes the king's court, instead of a well-oiled menace to one's competitors. With complacency comes inefficiency, and inevitably lost profits and downsizing.
There's no time for that at small firms. Turns out sink-or-swim is good for everybody. Well, except for office slackers. ;-)