IT among the Top Industries Slated for Small Biz Growth
While it’s true that more startups and small businesses have been growing quicker than ever in recent years, there is still an area in the way of entrepreneurial growth, which could use some strength. While this might sound like a negative, it’s actually a positive, if you are thinking of starting your own business right now. This is because businesses made a broad-based return to growth in the latest data, indicating that U.S. entrepreneurial growth largely has rebounded from the Great Recession across industries and geographies. This is according to the recently released 2016 Kauffman Index of Growth Entrepreneurship. National Growth Entrepreneurship results.
The Growth Entrepreneurship Index, the Kauffman Foundation’s new report on how much U.S. entrepreneurial businesses are growing, rose in the last year for the third year in a row. This year’s increase was driven by startups growing faster in their first five years than they were in previous years, and more young companies scaling up employment. The entrepreneurial growth increase in the 2016 Index represents the largest year-over-year increase in the past decade. Despite these promising markers, however, many U.S. growth indicators remain in a long-term decline.
“High growth, particularly among young firms, is an important contributor of jobs, output and productivity growth,” said Arnobio Morelix, senior research analyst at the Kauffman Foundation, which conducts the annual study. “Younger entrepreneurial firms again are contributing more broadly to business and job growth. While the indicators show that growth is still below the historical norms before the Great Recession, a third consecutive year of gains is an encouraging sign. In the past two years alone, these growing young companies created an estimated 200,000 jobs in the economy.”
The Growth Entrepreneurship Index was added this year to the Kauffman Index of Entrepreneurship series. The series also includes the Startup Activity Index, an early indicator of the beginnings of U.S. entrepreneurship, and the Main Street Entrepreneurship Index, which measures business ownership and density among established, local small businesses. Tracking growth entrepreneurship tells us how it is helping to drive job creation, innovation and wealth creation in the U.S. economy.
“Growth entrepreneurship affects all of us,” wrote Steve Case, chairman and CEO of Revolution LLC and co-founder of America Online, in the foreword to the Growth Index. “The Kauffman Foundation brings a powerful suite of data and research tools to help us understand growth entrepreneurship. The data here give new benchmarks of growth outcomes you’ve not had access to previously.”
The Growth Entrepreneurship Index relies on three indicators to look at business revenue and job growth: Rate of Startup Growth, Share of Scaleups and High-Growth Company Density.
- The Rate of Startup Growth, which measures how much, on average, U.S. startups grew in their first five years, was 58.5 percent for 2013, the most recent year for which data are available. This indicates that the average U.S. startup from 2008 grew from 5.8 employees at startup to 9.2 employees after five years of operation. For the previous business cohort, the Rate of Startup Growth was 46.9 percent, the lowest level recorded for this indicator since the early ’80s.
- Share of Scaleups, which looks at the percentage of companies that grow to employ at least 50 people in the first 10 years after founding, rose in 2013, the most recent year of data available, to 1.1 percent. This means that approximately 1,100 companies out of every 100,000 firms 10 years of age and younger started small and reached a scale of more than 50 employees. This indicator had fallen steadily during the Great Recession, reaching its lowest point, 0.9 percent, in 2011. The most recent numbers show that Share of Scaleups remains below the historical range of 1.2 percent to 1.4 percent that the U.S. experienced through most of the 1990s and the first part of the 2000s.
- High-Growth Company Density measures the number of U.S. private businesses with at least $2 million in annual revenue reaching three years of 20 percent annual revenue growth. This entrepreneurial gauge fell sharply during and after the Great Recession, but ticked up for two years in a row starting in 2013. In 2015, the latest year of data available, this indicator plateaued at 79.3 high-growth companies for every 100,000 employer businesses. Despite the recent plateau, high growth as measured by revenue has increased from the levels seen during the Great Recession.
Industries associated with technology, including IT, health and software, were among the top five industries with the highest shares of high-growth companies. However, high tech is not a prerequisite for high growth. Entrepreneurial growth is evident in other sectors, such as food and beverage, retail and government services, that are not always associated with fast-growing businesses.
”Entrepreneurial growth is a rare phenomenon,” said E.J. Reedy, Kauffman Foundation senior scholar and co-author of the Growth Index. “Tracking growth tells us about both the immediate and long-term economic benefits of job creation and productivity growth.”