The economic impact of high-growth startups

Editor’s note: This post was republished with permission from the Ewing Marion Kauffman Foundation’s Growthology blog.


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Spend enough time talking about entrepreneurship and you’re likely to hear people refer to “gazelles,” “cheetahs,” or other fleet-footed animals (even the mythical unicorn!). These terms may leave you scratching your head, wondering if you wandered into a safari—not an accelerator.

Like many labels, the utility of these terms is limited; but these words are used because we need a way to describe and talk about an important phenomenon in entrepreneurship—the fact that some businesses grow and others do not. And even among the firms that grow, a few blossom substantially bigger and faster than the rest.

Though few in number, these high-growth businesses have a big impact on the economy. Research has found that high-growth firms:

Not all entrepreneurs have ambitions to grow their businesses and dominate market segments, nor should we expect them to. However, given the outsized economic contributions of high-growth firms, it is important to both understand how these firms are defined and ways to encourage more business growth.

Growth Entrepreneurship Through the Lens of the Kauffman Index

The Kauffman Index of Growth Entrepreneurship uses a combination of employment and revenue thresholds to identify growing firms in the United States.

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Growth Entrepreneurship Index Key National Findings:

  • High-Growth Employs: Companies that started five years ago grew from an average 5.8 employees at the year of birth to 9.2 employees for surviving businesses at year five.High-Growth Trending Up: In the 2016 Growth Entrepreneurship Index, growth entrepreneurship experienced the sharpest year-over-year increase seen in the last decade. While growth entrepreneurship is not at historic highs, there has been steady growth since its lowest level of activity following the Great Recession.
  • High-Tech is Not a Prerequisite for High-Growth: Firms in diverse industries, from Food & Beverage to Retail to Government Services are growing.
  • Industries Rise and Fall: The number of high-growth companies in the Health industry has increased, while the Housing-Associated (Construction and Real Estate) and Maker (Manufacturing and Computer Hardware) industries have seen a decrease in high-growth firms in the past decade.

Growth Entrepreneurship Rankings by State Larger States

Larger States

  1. Virginia
  2. Maryland
  3. Arizona
  4. Massachusetts
  5. Texas
Smaller States

  1. Utah
  2. New Hampshire
  3. Delaware
  4. North Dakota
  5. Oklahoma

 

Creating Fertile Ground for Growth

Entrepreneurs flourish in a connected, dense, and diverse ecosystem where they can move quickly to take advantage of opportunities. Remember, you can’t scale what you don’t start, so pursue entrepreneurial growth in a holistic manner, while focusing on policies that particularly benefit growth entrepreneurs.

Nurture a Skilled and Educated Workforce

Encourage Spin-offs

  • Limit the scope, duration, and enforcement of non-compete agreements so that employees with entrepreneurial ambitions can more easily start new businesses. People who start companies generally have industry knowledge that helps them start successful firms.

For More Information


Emily Fetsch | Courtesy of the Ewing Marion Kauffman Foundation
Emily Fetsch | Courtesy of the Kauffman Foundation

Emily Fetsch is a research assistant in Research and Policy for the Ewing Marion Kauffman Foundation, and assists in the processing of new grants including grant research, grant write-ups, setting deadlines, and reviewing financials. She also assists in writing literature reviews and informative briefs, and conducts quantitative and/or qualitative analysis on the economy, policy, and entrepreneurship.


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