In the 1980s, David Birch found that firms with rapid revenue growth (Gazelles) were responsible for creating most new jobs. In an SBA funded 2008 study, “High-Impact Firms: Gazelles Revisited” (http://www.sba.gov/advo/research/rs328tot.pdf), Corporate Reach Board, LLC expanded on Birch’s work by adding an employment growth metric and investigating firms’ business lifecycles before, during, and after their four-year high growth period.
The study defines a “high-impact firm” as an enterprise with sales that double over the most recent four-year period and an employment growth qualifier of two or more over the same period. The employment growth qualifier equals the product of the absolute change in employment by the percentage change.
Some of their findings were counter to commonly held beliefs. High-impact firms are old (average age is 25 years), rare (represent only about 2 to 3 percent of all companies), and they account for almost all private sector employment and revenue growth. Another surprising finding is that high-impact firms exist in almost all industries, not just the high-tech industries, and they can be found in all geographic areas. The report goes on to say that most job losses occur in “low-impact” companies with more than 500 employees. Less than 3% of the high-impact firms were started in the prior four-year period, and only 3% of the firms died in the following four-year period.
The methodology employed in the study limits the ability to evaluate the impact of small start-up companies (many of which are under five years of age). However, it does allow an understanding of high-impact firms. Using this approach, Whittaker Associates was able to identify the high-impact firms within a potential client’s region and found 137 firms that had created over 11,000 jobs from 2007-2009 out of a total of 45,000 companies.
The stages of the corporate lifecycle are explained by the Adizes Institute. Dr. Adize has developed a web-based survey to help businesses conduct a self-assessment of the stage of their business lifecycle: http://www.adizes.com/corporate_lifecycle.html. Dr. Adize describes the cyclical nature of a growing business as it moves through repetitive patterns of behavior. The business is faced with new challenges at each stage, requiring new skills, and perhaps, even new leadership to continue its growth.
What is the implication of this recent study to development organizations? For one, it would indicate that it is important to understand who the high-impact firms within the region are, and what stage of their business lifecycle are they in. It also suggests that local development organizations would benefit from cultivating these high-impact firms as a priority in their overall economic development strategy.