Last week I wrote a post about the skewed distribution of financial value created by start-up companies. That post had the goal of pointing out that a few companies account for much of the financial value generated by start-ups.
But a couple of readers pointed out something else that is very interesting in those data. Almost one third of all value created by six-year-old businesses comes from businesses that achieve between $1 and $5 million in sales. In fact, they provide almost twice as much financial value as the businesses that achieve $50 million or more in sales.
The $50-million-in-sales-plus companies are the ones that venture capitalists and sophisticated angel groups are targeting. And there is a lot of public policy devoted to encouraging the creation of these types of companies.
But venture capitalists and angel groups can’t make money backing companies that reach between $1 and $5 million in sales in six years. So encouraging these companies would require some other type of public policy than efforts to boost venture capital and angel activity.
I’d like to learn more about policies that are designed to help people who are building companies that are trying to grow to between $1 and $5 million in sales in six years. That is, I’d like to know about policies that do more than help people get started, or build small companies (ones that generate less than $1 million in revenue), or build high potential businesses.
If you know of some, please comment. I’d like to find out what’s being done around the world to create these kinds of companies.
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About the Author: Scott Shane is A. Malachi Mixon III, Professor of Entrepreneurial Studies at Case Western Reserve University. He is the author of eight books, including Illusions of Entrepreneurship: The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By; Finding Fertile Ground: Identifying Extraordinary Opportunities for New Ventures; Technology Strategy for Managers and Entrepreneurs; and From Ice Cream to the Internet: Using Franchising to Drive the Growth and Profits of Your Company.