Several months ago we wrote in this column that in the bank bailout, small is beautiful. We argued that “we must take heed against feeding ‘too big to let fail’ to the point where the government is no longer able to pick up the pieces.”

As the recession has continued since that time, several more events have happened that have underscored the urgency in heeding this advice. As the strongest of the big banks, JP Morgan Chase, which absorbed Washington Mutual in the fall of 2008, is getting some pressure to take control of other “weak sisters” in the industry. The American taxpayers and United Auto Workers have absorbed General Motors. And the idea of a taxpayer bailout of the newspaper industry was briefly floated on Capitol Hill.

All of this has happened as, during this fiscal year, 28 states and the District of Columbia face a budget deficit, according to the Center on Budget and Policy Priorities. After California’s share grew $8 billion to $24 billion since the agency announced state budget shortfalls a little over a year ago, Gov. Schwarzenegger asked President Obama for a bailout. Obama said no, likely setting a precedent for other states that may solicit the White House for much-needed funds.

For both the financial services and auto industries, there has been much discussion that federal stimuli will only serve as dressing for wounds which require full-blown surgery to repair. Our question is, if, as many argue, JP Morgan Chase, for example, is already too big to fail, what happens as it gets even bigger?

We continue to believe that small is beautiful – and successful. Many of the qualities that strong small businesses embody – attentiveness to an ever-changing marketplace, a commitment to strong relationships with customers, constant attention to what their value-add in the economy can be – are what the economy needs most to revive itself and build a sustainable future. Instead of cramming together JP Morgan Chase and WaMu, or Fiat and Chrysler, the focus should be on keeping small enterprises healthy so they can remain focused and customer-centric. We should be sowing the seeds of success instead of the seeds of future failure.

To put it another way, are we talking about “Too Big To Fail,” or “Too Big To Really Succeed”?

Recently the managing partner of venture capital fund Softbank Capital, Eric Hippeau, wrote an opinion piece which argues that Too Big To Fail is un-American:

“Too Big To Fail … saps the foundation of the American Dream. It mitigates against the level playing field necessary to establish the long-term success of new enterprises. It inserts short-term expediency where ideals and entrepreneurship are called for. It protects the status-quo against new ways of thinking.”

With laid off and disillusioned employees as a result of the recession, studies are showing that entrepreneurship is on the rise. The Kauffman Foundation’s most recent Index of Entrepreneurial Activity, for example, found that the number of people who started new ventures last year is at the highest rate since they started tracking this information in 1996.

We can see that the entrepreneurial spirit is cresting in other ways. Sramana Mitra, a longtime Silicon Valley strategist and Forbes columnist, has attracted hundreds of current and would-be business owners to monthly online Strategy Roundtables she’s been hosting lately, in which a lucky few pitch their business models to her and she provides immediate feedback.

We recently interviewed Mitra about her stimulus plan for entrepreneurs, which she first outlined in Forbes and has expanded in her new bookBootstrapping: Weapon of Mass Reconstruction. She addressed Too Big To Fail and the fact that small is beautiful when we spoke with her:

“My huge concern right now is that we are in this welfare mode, and we’re not putting policy in place that is going to focus on building sustainable, private enterprise – which is the only way to build back a thriving economy.”

It is our hope that with both large, successful companies that are looking to pair with weaker institutions and new ventures coming down the pike, the focus will be on the drivers of success rather than on first aid to the “Too Big To Fail” entities. We are skeptical that the very large corporations that have created this economic crisis can be the source of a renewed economy. It is the nimble, principled, focused enterprises that are striving to become the best in their respective niches that can provide leadership in this economy. These are consistently small businesses.