Conference
Identifying high growth and gazelle firms and their importance to job creation
It is very difficult to identify ‘quality businesses’ that might become gazelles or High Growth Firms. First and foremost, there is no widely agreed definition of what an emerging high growth firm or a gazelle is, as definitions vary according to how growth is measured. However, the consensus of opinion favours a definition of high growth enterprises as those with an average employment growth rate exceeding 20 per cent per annum over a three-year period, and with 10 or more employees at the start of the period.
A number of important findings about these firms have emerged from research presented at the 2009 ISBE Conference:
1. A few rapidly growing firms generate a large share of all net new jobs. This is particularly marked in recessionary periods when these firms continue to grow.
2. High Growth Firms or Gazelles can be of all sizes.
3. Newness is a more important factor than size in terms of rapid growth.
4. High Growth Firms and Gazelles are found in all industries. They are not over-represented in high technology industries. If anything, they are over-represented in services.
These findings have provoked a still unresolved debate that is pertinent to policy, concerning the relative importance of focusing on new firms with growth potential as opposed to an approach that simply encourages more start-ups
The preoccupation by policymakers with high growth start-ups (and gazelles) as a mechanism to generate economic growth at national and regional level is not well supported by the evidence in relation to their overall importance. For example, Hart et al. have shown that the majority of High Growth Firms have been established for many years. This suggests that if we are aiming to stimulate growth in the private sector then it is to the established stock of business that we should look rather than relying upon policies aimed at a group of start-ups that may be described as ‘born globals’.
The English Regional Development Agencies place an expectation on ‘high growth firms’ as a vehicle for delivering growth against targets. The relative rarity of these firms in the UK economy, which is consistent across all the developed economies, makes the task of finding them and working with them very difficult. However, the results show that supporting High Growth Firms is perhaps a better policy option in terms of job creation than a general business support policy for all SMEs, many of which have achieved only modest growth. There remains the problem though of accurately identifying High Growth Firms in the first place. The challenge is, therefore, what range of business support policies can be designed to help potential High Growth Firms without the need to identify them ex-ante.
Can growth be predicted? Examining the characteristics of high ambition entrepreneurs
Research on the growth of new firms has predominantly focused on the actual size of the business. However, Hart et al. examine another important dimension of the theoretical framework, which seeks to explain the growth of firms in their early years, namely the individual characteristics of the founder or founders of the business. One of the criticisms of much of the previous research is that many of the studies are retrospective, once the business has been launched, and suffers from the twin weaknesses of ‘hindsight biases’ (poor recollection of what actually happened) and positive selection biases (data available on only those up and running a business).
New research by Hart et al. examines the future size expectations of nascent and new business owners. The investigation into the characteristics of high ambition entrepreneurs points to what might be termed an ‘alpha-male’ type profile. The simple interpretation of the model is that high ambition entrepreneurship in the UK, as measured within the GEM Global project, is strongly associated with the following characteristics: males, high income households, graduates, being in full-time work, having shut a business in the previous 12 months and knowing an entrepreneur. This is consistent with the conclusions of Autio (2007) in his study of the GEM Global international datasets.
Understanding the needs of underrepresented social groups
The analysis of the profile of individuals who are more likely to be associated with high growth enterprises poses a challenge for the design and implementation of enterprise policy, and start-up policy in particular.
For example, there is an under-representation of women among ‘high aspiration entrepreneurs’. The findings of the papers presented at the 2009 ISBE Conference suggest that gender divisions, along with higher levels of human capital (education, experience of employment and business), are common in ambitious entrepreneurs. The finding of this alpha-male dominance perhaps indicates systemic differences in approach and in encouraging and supporting high-growth female led businesses. It is necessary to be careful of gender stereotyping, and a number of reasons underlying differences in aspirations when looking at this.
A number of recent policy initiatives in the UK have been designed to increase the number of growth-oriented women-led businesses. The conference findings point to the scale of the challenge facing this policy objective with respect to business growth and highlight the importance of previous business ownership and informal investment activity in other businesses – currently activities dominated by males. However, ISBE research shows that women are not the only under represented group. Supporting specific social groups, however, does require specific policy initiatives aimed at needs of that group (e.g., young, old, socially disadvantaged, economically inactive, ethnic minorities, ex offenders, home-based businesses, pedlars, rural businesses and so on).
Vickers et al. note the need for enterprise promotion in disadvantaged areas to go hand in hand with improvements in human capital (i.e. educational attainment, skills, and work experience) if it is going to improve the quality of enterprises and the life chances of the entrepreneurs themselves, but that support provision also needs to recognise the degree of risk facing different groups. A ‘one size fits all’ approach is not appropriate – groups have different levels of skills, opportunity and aspirations. For example, generic business support provision does not work, is patchy and does not engage or address the needs of those, for example, from BAME (Black, Asian and Minority Ethnic) groups (Nwankwo et al.), or Home-based businesses (Mason et al.) which are also a significant part of the economy, but are largely ignored in policy support terms. There is a need to consider both the economic (creating better enterprises) and wider social rationales (how do we connect and support groups’ specific needs) for enterprise support policy.
Any business support policy has to be delivered by credible individuals and institutions if it is to engage with business development in specific minority or disadvantaged groups.
Nwankwo et al (2009) note the lack of engagement from those within the BAME community is as much to do with people trying to engage with them as it is the actual policy. In their study providers’ authenticity is negotiated along three axes: race/skin colour, emotional connection, self-identification (i.e. internal ethnicity). They suggest that black entrepreneurs themselves need to be accorded a more vital role in the advisory process than is currently the case. In other words, those that understand the minority sector (young/old/BAME) need to be fully integrated into the process of support.
According to research by Hart et al., between 2002 and 2005 UK businesses who recorded growth created 2.98 million net jobs. Of these, High Growth Firms created 1.9 million jobs or almost two thirds of the total. This share fell to just over half of net job creations in the 2005-08 period: that is, 1.3 million jobs out of a total of 2.4 million net job creations.
The research also shows that Gazelles were responsible for a very small proportion of net job creation in the UK economy in the period under review: only 9 per cent of jobs in the 2002-05 period and 15.7 per cent in the 2005-08 period.
High growth and survival appear to be closely linked. Of the examined 221,731 firms that were established in 1998, 60% had failed by 2008, whereas the proportion of high growth firms that failed was just 18 per cent. For those firms with multiple instances of high growth this was even less.
Modelling the Individual Determinants of High Aspiration Firms in the UK by Mark Hart, Michael Anyadike-Danes and Jonathan Levie
The Economic Impact of High-Growth Start-ups: understanding the challenge for policy in the UK by Mark Hart, Michael Anyadike-Danes, Karen Bonner and Colin Mason
Removing Barriers to Enterprise Through Targeted Support For Disadvantaged Groups by Ian Vickers, Fergus Lyon and David North
Home‐Based Business: the Cinderella of the Enterprise Economy? By Colin Mason, Emma Jones and Tim Dwelly
Supporting black businesses: narrative analyses of support providers in London by Sonny Nwankwo
An Examination Of High And Low Expectation/Growth Entrepreneurs: Is There A Difference In Their Competencies And Skills? by Naomi Birdthistle, Briga Hynes and Yvonne Costin