Focus on firm growth

In yesterday’s posting, I mentioned that I preferred an economic development strategy focused on “grow-your-own” — which usually, but not exclusively, means a focus on entrepreneurship. Over at Macroblog from the Atlanta Fed, John Robertson, vice president in the Atlanta research department has an interesting posting on entrepreneurship that highlights the national importance of this strategy – The Young and the Restless. In provides a good summary of some of the latest research on firm size and firm age — including a chart on net job growth of small versus large firms. This reinforces the standard conclusion that small business is what drives job creation.

But that is not the whole story. As he notes in his conclusion:

Perhaps the focus on the number of new firms is misguided. What really matters might be who these new firms are–not how many there are. Research by Dane Stangler suggests that, at any point in time, a relative handful of high-performing companies account for a large share of job creation and innovation. This conclusion suggests that a key to long-term economic growth may lie in ensuring that the economic environment is conducive to the ongoing creation of these types of high-growth performers.

Exactly! There is growing interest in what used to be called “gazelles” – those companies that grow rapidly. To me, to focus of attention should be not just (or even necessarily) on firm creation, but on firm growth.

In that regard, let be second Robertson recommendation of Dane Stangler report High-Growth Firms and the Future of the American Economy from the Kauffman Foundation. According to that study, the top 1% (as measured by employment growth) of all companies of all size account for about 40% of the new jobs and the gazelles (fast-growing young firms which make up less than 1% of all companies) generate roughly 10 percent of new jobs.

So, from a policy perspective it is not enough to worry about the supply of new firms (start-ups and classical entrepreneurship). We need to also find ways to help a greater number of those start ups turn into successful rapid-growth companies. Let me suggest that we really haven’t figured out that policy agenda — but that attention to and better management of intangible assets will be part of the solution.

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