Innovation
Top 1% of entrepreneurial firms in 10 countries account for 40% of job creation among startups
By Michael Hennigan, Finfacts founder and editor
Jul 7, 2014 - 9:50 AM

According to the 'Global Entrepreneurship and Successful Growth Strategies of Early-Stage Companies,' [pdf] report, that was published in 2011 by the World Economic Forum in collaboration with Stanford University and Endeavor Global, the top 1% of companies from among 380,000 companies reviewed across 10 countries contributed 44% of total revenue and 40% of total jobs, while the top 5% contribute 72% of total revenue and 67% of total jobs.

The report recommends that policy-makers seeking to drive wealth creation and jobs through entrepreneurship develop a better understanding of the economic, social and political factors which helped the leading local companies to succeed. “Understanding the elite few in their own ecosystem may prove a far more effective strategy than trying to replicate the success factors of other entrepreneurial hubs such as Silicon Valley,” said George Foster, Wattis professor of management and Dhirubhai Ambani, faculty fellow in entrepreneurship at the Graduate School of Business, Stanford University, and co-author of the report.

“After avoiding a collapse of the global financial system, governments are now focused on building the foundation for future growth. Entrepreneurs are recognized as important drivers of economic and social progress. We hope that this report provides useful insights into the phenomenon of global entrepreneurship and will help to encourage and foster further high-impact entrepreneurs around the globe,” remarked Max von Bismarck, director and head of Investors Industries, World Economic Forum, and co-author of the report.

“This report offers compelling proof that to drive economies forward, the key is not to generalize approaches for all entrepreneurs, but to focus resources on high-impact entrepreneurs – those innovators with the highest potential to scale,” said Linda Rottenberg, co-founder and CEO of Endeavor.

The report also highlights eight different growth strategies that early-stage companies around the globe are adopting as well as the opportunity/risk factors associated with each: (1) creating and riding a new business growth wave, (2) new product in a new category, (3) new product in an existing category, (4) redesign of business value chain, (5) research or discovery of knowledge, (6) rollup (aggregation) of existing players, (7) governmental, regulatory or political change, and (8) idea transfer or transplant.

Recognizing the increasing globalization of successful and high-impact entrepreneurship, the report features 70 case studies across 22 countries including Ireland's IONA Technologies, on companies as diverse as Baidu, eBay, Etihad Airways, Skype, Microsoft and WPP. Each case focused on various factors including growth accelerators, growth challenges and negative periods that the founders faced.

US Census data for 2007, analysed in 2010 by researchers at the Kauffman Foundation, [pdf], America's leading entrepreneurship think-tank, showed that the US economy contained 5.5m firms. "About half a million of these were brand new (age zero, that is); another 2m, 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% of companies (measured by employment growth), or about 273,000 firms, creates two-thirds of new jobs in any given year. The top 1% of companies (about 55,000), generate 40% of new jobs in any given year."

NESTA (National Endowment for Science, Technology and the Arts), a UK science advocacy group, said in a report [pdf] in 2011 that a small minority of fast growing companies account for half of new jobs in the UK. It also said:

Some of the most startling high-growth businesses of the last decade have been technology companies, specifically internet companies. The allure of these businesses, and the goal of creating a British Google or Facebook, is an admirable one. But the Silicon Valley tech company is not representative of the majority of high-growth businesses.

NESTA’s analysis of growth companies from 2002 to 2010 shows that they are distributed across the economy, from mining to banking."

A report published in 2012 by the Kaufmann Foundation, America's leading entrepreneurship think-tank, said that state economic development programs, which traditionally target high-tech firms, may be missing 75% of high-growth companies.

"Our analysis of these fast-growing firms shows us that high-growth company founders can come from anywhere," said Dane Stangler, director of Research and Policy at the Kauffman Foundation. "Their firms can be found throughout the country and, rather than following the conventional expectation that high-growth companies are grouped into a narrow technology category, they represent exceptionally diverse industry segments. These findings offer important lessons for economic development leaders, such as to target firms that are high-growth rather than high-tech."