Recent reports from the SBA find that entrepreneurial firms are now over 50% of the GDP, and have created about 78% of all new jobs every single year for the past twenty years.
A new study released by the SBA gives some insight into the role of growing entrepreneurial firms in the economy. Bruce Kirchhoff of the New Jersey Institute of Technology and Brian Headd of the Office of Advocacy of the SBA authored the working paper, entitled Small Business Growth: Searching for Stylized Facts.
Using census and other public data, the study examines how firms started, grew, merged, declined, survived, and closed from 1992 to 2002. The authors’ analysis determined that:
– Firm survival four year survival rates were consistently at about 50 percent. This was consistent during the ten year time frame of the study. This is consistent with recent studies using other data bases, and should finally put a stake in the heart of the urban myth that only 10-20% of firms survive. What is sad is how many scholars, business media types, and “experts” still perpetuate the failure rate myth.
– Industries that grew in employment did not necessarily have higher rates of fast growers but industries
with high rates of fast growers tended to have high rates of decliners. About 35 percent of employer (private sector, nonfarm, single-establishment) firms had no employment change from one year to the next, about 11
percent closed each year, about 25 percent shrank in employment each year and about 28 percent grew in
employment each year. This finding reinforces the breath of the entrepreneurial strength in our economy. Rather than depend on a few firms in a few industry sectors, this entrepreneurial economy is very diverse and widely dispersed.
– Fast growing firms (defined as having a 50 percent or more increase in annual employment with at least a five-employee increase) were only 3% of all firms. Given the burn-out rate of fast growing firms, this finding is reassuring to me. My experience is that slow and steady is want leads to long-term survival in business. As fun as things like the Inc 500 can be to watch, these may not be the firms we need to focus on for our long-term economic development.
Previous
Next