The Kauffman Foundation has a wonderful new piece of entrepreneurship research out, that I finally had a chance to read today. It’s called, High Growth Firms and the Future of the American Economy. Besides being a wonderful title, the document speaks to a topic near and dear to many of us …policy implications for entrepreneurship. From the report:
The data generally show that:
• In any given year, the top-performing 1 percent of young firms generate roughly 40 percent of new job creation.
• Fast-growing young firms, comprising less than 1 percent of all companies, generate roughly 10 percent of new jobs in any given year.
A couple of other points of interest:
In 2007, the U.S. economy contained 5.5 million firms. About half a million of these were brand new (age zero, that is); another two million, or just over one-third, were five years old or younger. Some companies were expanding, some contracting, some standing still. By and large, job creation (about two-thirds) came from young firms, many of which were small and never got much bigger. Only a small number of firms, moreover, creates a disproportionate share of such additional jobs; these are the top-performing firms. For example, the top 5 percent of companies (measured by employment growth), or about 273,000 firms, creates two-thirds of new jobs in any given year. The top 1 percent of companies (about 55,000), generate 40 percent of new jobs in any given year.
Every year, roughly half a million new firms are started in the United States; not all of these will survive, of course, and survival rates across time are remarkably stable.4 In the first two years, roughly a third of these companies will fail and, in five years, just under half (48 percent) will remain.