November 23, 2014

Rarity of High Growth Young Companies

Policy makers love young high growth companies for their job creating capabilities. However, they are often quite naïve about how rare these companies actually are.

gazelle

According to the Organization of Economic Development and Cooperation (OECD) publication, Entrepreneurship at a Glance 2011, less than one percent of companies with ten or more employees are gazelles – employers that have been in operation for no more than five years with ten or more employees that increase employment by 20 percent per year or more for three years.

The United States has an even smaller share of gazelle companies than other developed nations. In 2007, the last year that the OECD measured employment growth in U.S. businesses, less than one quarter of one percent of companies were gazelles. While I have no hard data on the share of gazelles during the recession and weak recovery that followed, I doubt that the share of gazelles increased substantially, if at all. The share of gazelles means that of the roughly half a million new businesses with employees created in the United States every year, a little over 1,000 will be gazelles.

Moreover, most gazelles, while growing faster than other companies, are not adding jobs at a rocket-like pace. After three years, a company with ten employees needs only have a little over 17 workers to have generated the 20 percent per year compound employment growth necessary to be a gazelle.

Companies that grow much faster than gazelle pace (super gazelles) are much rarer still – so rare that they are hard to measure statistically.

Our elected officials need to recognize that the gazelles and super gazelles they love for their job creation capabilities are extremely rare. They should take that information into consideration when formulating policies toward high growth young companies.

Gazelle Photo via Shutterstock

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Scott Shane


Scott Shane Scott Shane is A. Malachi Mixon III, Professor of Entrepreneurial Studies at Case Western Reserve University. He is the author of nine books, including Fool's Gold: The Truth Behind Angel Investing in America ; Illusions of Entrepreneurship: and The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By.

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