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To be or not to be…..a HPSU
Dr Naomi Birdthistle, Yvonne Costin and Briga Hynes
Introduction
In today’s rapidly changing world the economy needs enterprising people who have the willingness and ability to take control of their own lives. Entrepreneurs that are able to turn a vision into reality positively influence the long-term strength of any economy because they are actually creating the industries of the future. While most new businesses focus on local markets, have relatively low growth aspirations, and imitate or replicate existing business strategies (products, markets and technologies), there is an important subset of new businesses that can be broadly classified as ‘high potential’ / ‘high expectation’ start-ups [HPSU].
There is no widely agreed definition of what an emerging HPSU is. According to Autio (2007) author of the 2007 Global Entrepreneurship Monitor (GEM) Report on High Growth Entrepreneurship, high growth entrepreneurs can be defined as those who have established a business and currently employ 20 or more. High-expectation entrepreneurs are those who are considered to be nascent and/or new entrepreneurs who expect more than 20 employees in 5 year’s time. In the Irish context, the term high expectation/ high potential start-ups can be defined as a company that is based on a technological innovation, achieves significant growth in 3 years; is export oriented, is led by an experienced team and is Irish owned and located in Ireland (Enterprise Ireland, 2007). As one can see from the two contrasting definitions they vary according to how growth is measured: in profits, sales, book value, workforce or event future expectations, either presented as rates of growth or actual growth.
High Growth Ventures: A Global Perspective
According to Autio (2007) HPSUs represent only a small proportion of all entrepreneurial activity, globally. This is evidenced by the fact that the GEM Report found that only 7% of all start-ups expected to create 20 or more jobs. As many as 70% did not expect any job creation at all. Only 3% of all start-ups expect to employ 50 or more, sometime in the future (Autio, 2007). He also observes that in the world’s richest regions, including North America, highly developed Asia, Europe and Oceania [Australia and New Zealand], the anatomy of entrepreneurial activity is tilted toward high-expectation entrepreneurship, especially in the category of 20 or more expected jobs. Conversely, the incidence of low expectation entrepreneurship is highest in regions with low gross domestic product (GDP) per capita.
In terms of age profile, nascent high-expectation entrepreneurs are most heavily biased toward young individuals, whereas established high-growth entrepreneurs are biased toward older individuals. In all, 18.8% of nascent high-expectation entrepreneurs were from 18 to 24 years old, whereas only 3.3% of established high-growth entrepreneurs were observed in this age bracket. In contrast, the two oldest age categories are overrepresented among high-growth established entrepreneurs and under-represented among nascent and new entrepreneurs. While women are underrepresented among all categories of entrepreneurs, they are particularly underrepresented among high-expectation and high growth entrepreneurs. Only some one-third of all categories of entrepreneurs were women, whereas less than one-quarter of the high-expectation and high growth entrepreneurs were women. Similar findings were uncovered by Fisher (2006) who found that in 2006 only 7% of US HPSU’s were owned by women. For secondary education, lower levels of education are underrepresented among all categories of entrepreneurs, but particularly so among high expectation and high-growth entrepreneurs. With the exception of graduate experience, nascent and new high-expectation entrepreneurs tend to have higher education (Autio, 2007). Riley (2008) found similar results in his study whereby he found that 92% of HPSU entrepreneurs surveyed had undergraduate degrees, 31% held Masters and 10% had PhDs.
Not surprisingly, entrepreneurs in all categories are more likely to have either full- or part-time employment than the general population, and high growth and high-expectation entrepreneurs are particularly likely to do so (Autio, 2007). The distribution of high-expectation and high-growth entrepreneurs across business sectors provides insight into the effect of industry structure on high growth entrepreneurship. We can observe that high-expectation and high-growth entrepreneurs are underrepresented in the agriculture, fishery, forestry, and hunting sectors (i.e. primary agricultural output). High-expectation new entrepreneurs and high-growth established entrepreneurs are slightly overrepresented in the manufacturing sector and in transportation, communication, and utilities. Nascent and new high-expectation entrepreneurs are underrepresented in retail, hotel, and restaurant sectors, but not so for high-growth established entrepreneurs. Interestingly, nascent high-expectation entrepreneurs are overrepresented in the financial, insurance, and real-estate sectors, but high-growth established entrepreneurs are underrepresented in these sectors. There is also slight under-representation of high-expectation and high-growth new and established entrepreneurs in consumer services (Autio, 2007).
A focus on high-growth ventures in Ireland
A total of 150 new high-potential start-ups were assisted by Enterprise Ireland over the course of its Business Plan 1998-2001. In 2007 alone, Enterprise Ireland supported the establishment of 79 new export focused high potential companies (Enterprise Ireland 2008). The 79 export focused start-ups are expected to grow rapidly and to create over 887 new high skilled jobs (the start-ups currently employ 660 people) and generate sales of €756m, with exports accounting for over 70% (Enterprise Ireland, 2008). Enterprise Ireland invested €20m of the total €69m investment in the 79 new start-ups (DETE, 2008). The majority of HPSU’s in Ireland are ‘home grown’, meaning that they are indigenous based businesses (60%). The next source of HPSU’s are spinoffs from multinational companies (20%). Interestingly, a small majority of HPSUs emerge from the commercialisation of business ideas from tertiary level education institutions (10%).
To support the further development of these high potential start-up companies, Enterprise Ireland in 2007 devised a financial package called the “Innovative HPSU offer” whereby they provide a financial contribution towards the company's business plan to develop products, services or processes which are technologically new or substantially improved when compared to the state of the art in its industry in the European Community and which carry a risk of technological or industrial failure.
Preliminary findings by Birdthistle et al (2009) identify that in the Irish context high expectation/ high potential startup entrepreneurs display the following characteristics:
• Typically male, married and has a tertiary level education.
• The industry sectors operated in by HPSU enterprise are the ICT sector and electronics and engineering sector. Few if any HPSU’s are operating in the services sector.
• The HPSU is typically funded by a combination of funding sources such as personal finance, venture capitalists, business angels and government investment.
• From the outset the majority of HPSU’s are internatioanl in their focus compared to mainstream small businesses.
The key business imperatives for companies that want to succeed are to be innovative, competitive and have the leadership and management capability to drive business growth. Growth in business, revenue and profitability is the challenge for any company, and world-class leaders and management teams are critical to meeting that challenge. It appears therefore if one wants ‘to be’ a HPSU enterprise they need their business to be based on a technological innovation; be open to venture capital funding, be within the ICT sector, be export oriented from the outset and have growth at their core.