The article explores the importance of small firms in today's competitive landscape and challenges traditional economic theories. It discusses different theories of firms, analyzes the relationship between efficiency and firm size, and highlights the need for a specific theory for small firms. The research emphasizes the diversity in structure, behavior, and performance of small firms, and the significance of external economies and collective efficiency. By considering technical, productive, social, and organizational aspects often overlooked in traditional theories, the article suggests that theories by Simon and Nelson and Winter can provide insights for understanding small and medium-sized firms.