Make Your Mark Blog

Who generates economic impact? Luke Johnson writing for the Financial Times (“All of the effort with none of the impact”, 6^th August 2008) set out a proposition that the entrepreneurs that really matter are the tiny proportion who ultimately generate the bulk of economic benefits for the economy. Evidence indeed suggests that these high growth companies or these so called “gazelles”, often defined by their revenue growth, account for only about 3% to 4% of new ventures.

Should government agencies generally stimulate entrepreneurship or should they disproportionately focus on supporting this tiny minority? How can you create the next Google or Dyson or should the real objective be about driving up dynamism and innovation in the economy through venturesome creation and creative destruction?

It would be a real mistake to go down the line of thinking that stimulating entrepreneurship in general or a focus on high growth entrepreneurship are policy alternatives. Yes, these high growth firms do matter but the two scenarios are not mutually exclusive. First, the USA is far better than Europe at generating new global giants, particularly in the technology field – but it also has a much higher rate of entrepreneurship than Europe or the UK. It is having a culture of enterprise that matters, without which we will lack not only new venture creation but also high growth entrepreneurship.

Second, the so called “backing winners” policy and its contribution to overall economic impact is not straightforward. This is because there are also a sizeable number of new ventures which grow steadily but can’t be defined as gazelles or the ones that grow rapidly to a particular size and stay there. Firm growth in reality is not linear but highly sporadic and episodic and it is difficult to pick winners.

One well researched US study focused on “high impact” rather than high growth firms, factoring in both revenue and employment changes. These high impact firms accounted for nearly all private sector job and revenue growth. Surprisingly, the study found that the average age of high impact firms is 25 years old and firms with less than twenty employees represent 93.8% of high impact firms.

It is arguable whether Google or Virgin, when conceptualising their ideas and getting off the ground could have foreseen where their talent and the market opportunity might take them. It is critical to raise the level of ambition in Britain and enhance the quality of would-be and existing entrepreneurs who exhibit growth-oriented behaviour.

Many entrepreneurs in the UK, for example, start small and stay small, and about half have no particular ambition to grow. Maybe it is about teaching people to work on their business rather than in it – and this has to start from a young age.

This entry was posted on Thursday, August 14th, 2008 at 11:06 am and is filed under Enterprising Britain, Entrepreneurship, Future Face of Enterprise, Innovation, Policy. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.