The economic impact of high growth start-ups:understanding the challenge for policy in the UK

Objectives The creation of more high-growth firms continues to be a key component of enterprise policy throughout the countries of the OECD. In the UK the developing enterprise policy framework highlights the importance of supporting businesses with growth potential. The difficulty, of course, is the ability of those delivering business support policies to accurately identify those businesses, especially at start-up, which will benefit from interventions and experiences an enhanced growth performance. This paper has a core objective of presenting new data on the number of high growth firms in the UK and providing an assessment of their economic significance. Approach This paper uses a specially created longitudinal firm-level database based on the Inter-Departmental Business Register (IDBR) held by the Office of National Statistics (ONS) for all private sector businesses in the UK for the period 1997-2008 to investigate the share of high-growth firms (including a sub-set of start-up more commonly referred to as gazelles) in successive cohorts of start-ups. We apply OECD definitions of high growth and gazelles to this database and are able to quantify for the first time their number (disaggregated by sector, region, size) and importance (employment and sales). Prior Work However, what is lacking at the core of this policy focus is any comprehensive statistical analysis of the scale and nature of high-growth firms in cohorts of new and established businesses. The evidence base in response to the question “Why do high-growth firms matter?” is surprisingly weak. Important work in this area has been initiated by Bartelsman et al., (2003),Hoffman and Jünge (2006) and Henreksen and Johansson (2009) but to date work in the UK has been limited (BERR, 2008b). Results We report that there are ~11,500 high growth firms in the UK in both 2005 and 2008. The share of high growth start-ups in the UK in 2005 (6.3%) was, contrary to the widely held perception in policy circles, higher than in the United States (5.2%). Of particular interest in the analysis are the growth trajectories (pattern of growth) of these firms as well as the extent to which they are restricted to technology-based or knowledge-based sectors. Implications and Value Using hitherto unused population data for the first time we have answered a fundamental research and policy question on the number and scale of high growth firms in the UK. We draw the conclusion that this ‘rare’ event does not readily lend itself to policy intervention on the grounds that the significant effort needed to identify such businesses ex ante would appear unjustified even if it was possible.

A review of models of spatial innovation infrastructures in support of high growth SMEs

This Paper first provides a review and analysis of the recent trends on innovation infrastructures developed in industrialised countries to promote innovation and competitiveness for high growth SMEs. It specifically aims to examine various spatial models developed to support provision of innovation infrastructure for high growth sector.

High-growth firms : characteristics, job contribution and method observations

Largely as a result of mass unemployment problems in many European countries, the dynamics of job creation has in recent years attracted increased interest on the part of academics as well as policy-makers. In connection to this, a large number of studies carried out in various countries have concluded that SMEs play a very large and/or growing role as job creators (Birch, 1979; Baldwin and Picot, 1995; Davidsson, 1995a; Davidsson, Lindmark and Olofsson, 1993; 1994; 1995; 1997a; 1997b; Fumagelli and Mussati, 1993; Kirchhoff and Phillips, 1988; Spilling, 1995; for further reference to studies carried out in a large number of countries see also Aiginger and Tichy, 1991; ENSR, 1994; Loveman and Sengenberger, 1991; OECD, 1987; Storey and Johnson, 1987). While most researchers agree on the importance of SMEs, there is some controversy as regards whether this is mainly a result of many small start-ups and incremental expansions, or if a small minority of high growth SMEs contribute the lion’s share of new employment. This is known as the ‘mice vs. gazelles’ or ‘flyers vs. trundlers’ debate. Storey strongly advocates the position that the small group of high growth SMEs are the ‘real’ job creators (Storey, 1994; Storey & Johnson, 1987), whereas, e.g., the Davidsson et al research in Sweden (cf. above) gives more support for the ‘mice’ hypothesis.

ACE research vignette 036 : SMEs, Growth, and Job Creation: Lessons from Systematic Research

This series of research vignettes is aimed at sharing current and interesting research findings from our team of international Entrepreneurship researchers. This vignette, written by Professor Per Davidsson, summarises some important, stylized facts about small and medium enterprises (SMEs), growth, and job creation. It was specially prepared for “The G20 Agenda for Growth: Opportunities for SMEs Conference” in Melbourne, June 20, 2014. For this reason its format deviates slightly from other vignettes in the series.

ACE Research Vignette 048: Can Policy Initiatives Boost High-Growth Entrepreneurs

This series of research vignettes is aimed at sharing current and interesting research findings from our team of international Entrepreneurship researchers. This vignette is written by Professor Erkko Autio at Imperial College (UK) with some editing by the Director of ACE, Professor Per Davidsson.

GaN epilayers grown at high growth rate using gas source molecular beam epitaxy method

High-quality GaN epilayers have been grown by gas source molecular beam epitaxy using ammonia as the nitrogen source. During the growth, the growth rate is up to 1.2 mu m/h and can be varied from 0.3 to 1.2 mu m. The unintentional n-type doping as low as 7x10(17) cm(-3) was obtained at room temperature. Low-temperature photoluminescence spectrum was dominated by near-edge emission without deep-level related luminescence, indicative of high-quality epilayers. (C) 1998 Elsevier Science B.V. All rights reserved.

High-growth firms : Not so vital after all?

High-growth firms have received considerable interest recently since they create most of the new jobs in the economy. The purpose of our paper is to investigate the characteristics of high-growth firms prior to their growth period, and whether these characteristics differ across industries. Using data on a large sample of limited liability firms in Sweden for the period 2007-2010, we find that high-growth firms do not have the characteristics that we typically associate with successful firms. On the contrary, our results indicate that high-growth firms have low profits and a weak financial position. This might explain why studies have found that high-growth firms are seldom capable of sustaining their high growth rates in subsequent periods, and thus question policies that are targeted towards these companies.

Toward high growth enterprise

The disproportional impact of high growth firms on economies around the world has made them a natural focus of policy attention in New Zealand. That is what is behind New Zealand's ICT taskforce recommendations in 2003 to grow 100 ICT companies each doing over US$ 100 million sales per year by 2012 (a huge accomplishment for a small economy). Those companies could help New Zealand's foreign exchange earnings and jobs, not to mention improved health care, better resourced schools and tertiary institutions, debt reduction and increased savings, and improved standard of living (ICT Taskforce, 2003).