Job Creation : The importance of startups

Interesting report from the Kauffman Foundation on job creation by startups in the USA and it’s importance.

The oft-quoted American sports slogan, “Winning isn’t everything. It’s the only thing!” could well be attributed to the economic importance of firm formation in creating jobs. A relatively new dataset from the U.S. government called Business Dynamics Statistics (BDS) confirms that startups aren’t everything when it comes to job growth. They’re the only thing.

Policy makers take note –

Job growth is driven, essentially entirely, by startup firms that develop organically. To be sure, Survivors create zero to 7 million net jobs (half of which are at establishment births), while Deaths account for a net loss of 4 million to 8 million jobs, which are large flows for the context of the steady job creation of 3 million startup jobs. But, in terms of the life cycle of job growth, policymakers should appreciate the astoundingly large effect of job creation in the first year of a firm’s life. In other words, the BDS indicates that effective policy to promote employment growth must include a central consideration for startup firms.

And if you haven’t seen it already Guy Kawasaki’s talk on The Art of the Start is well worth watching.

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  • jtwo
  • Mack

    Apple isn’t a startup. The author of the article you link to states his opinion

    Start-ups are wonderful but – at least in technology – they generally don’t create jobs on the scale that western economies need

    The author of the report in the OP, Tim Kane, demonstrates empirically that they do. Existing firms are job neutral, survivors create jobs in roughly equal numbers to those of jobs destroyed by the existing firms that fail. It’s the startups that create the new jobs in the recovery. See the graph on page 5. At this stage what you are talking about is a lot of small firms hiring less than 10 people, rather than a big firm scaling up. (See discussion of the Andy Grove article the Guardian author basis his claims on here – http://sluggerotoole.com/2010/07/02/job-creation-what-andy-grove-giveth-deng-xiaoping-taketh-away )

  • Where this really makes a difference is in how we approach economic development. Do we focus on attracting FDI and supporting existing firms or do we champion entrepreneurship and support the startup?

    Each option has its benefits but we can question where the emphasis, and expertise, lies within organisations like InvestNI.

    Attracting big firms to NI is certainly more news-friendly than the hard slog of working in the trenchs with startups, and successes can seem more piecemeal. Two jobs here and three there don’t sound as impressive as 2 or 300 in a call centre.

    I’ve long argued that the emphasis should be on new starts – as much for the knock-on effects as for the immediate wealth and job creation benefits. (http://www.iddictive.com/2010/03/06/two-ways-to-grow-a-forest-or-an-economy/).

    And if a rebalancing of the NI economy from public to private-sector driven, then surely a culture of entrepreneurship must be at the heart of this.

  • Economic development should be about improving the private sector with the long-term aim of making NI self-sustainable.

    For a population of 1.8m NI has far too many bodies involved with ‘economic development’ – the term itself is hard to define within NI bodies – which confuses businesses, fragments services and adds to administration. The main problem is that those from the public bodies have poor – if any – experience of working in the private sector, nevermind starting a business. Politicians favour short-term job creation over longer term wealth creation and moan about corporate tax rates.

    Three things could be done immediately to start the process:

    1. Open up procurement to all – let small businesses compete fairly and acknowledge poor performance where it occurs by the ‘usual suspects’. Start by implementing NI Executive Recommendations to all public bodies http://bit.ly/cnZHRL and vastly improve CPD website

    2. Develop a list of 100 really experienced mentors with a connection to NI who would be willing to work for an hour a week with a small growing business in NI. These mentors would have to have worked at C-level (e.g. CEO, COO etc) in mid-sized company, grown their own successful business and must had global sales. Real experience required. If you looked after these mentors – many would work for free.

    3. Take a fraction of the Peace Funds etc, use £2m to give to 100 – 200 start-ups, in return require match funding, revenue share (or equity) and let them get to work quickly. Application process takes a week. Expect to lose all the money (majority of businesses fail, 56% of Angel Invested businesses fail) but you will have ignited ideas and entrepreneurship among people, will get some great businesses and have started the start-up cycle for many.

    Other than that encourage every business (not just fads or ‘digital’), really push for start-ups to think of sales as only revenue to consider and get businesses into schools at an early age rather than teachers to promote entrepreneurship properly with passion at an early age.

  • Local Government Officer

    Well….

    1. While the overpaid, bloated, and kow-towed-to Northern Ireland Audit Office, and the grand-standing PAC are there, you can forget that. There needs to be a weighting allowed for local businesses, micro-enterprises and the like. And they’ll never countenance that. But you’re absolutely right.

    2. All those really experienced mentors have had the opportunity to get involved in any number of programmes run by local councils or organisations like Business in the Community – a lot of them already do. But many of them do not see the value that the very smallest businesses bring to, for example, a rural community. They cherry-pick the brightest, and the best. And so do many of the agencies involved in economic development. We talk about an entrepreneurial culture, but we like to make sure it only revolves around the latest fads or highest profile businesses. No room for retail or many services – when that’s exactly what keeps anywhere outside of Belfast going. But you’re absolutely right.

    3. The civil servants will never, ever countenance so much as one ha’penny going into a private sector project unless it has had a least one A4 lever arch file of paperwork to back it up, and has had to wait at least six months before getting their funding.

    They will only ever “back winners”.

    They will engage in the highest levels of work-snootiness. They do not understand that a couple of hundred quid spent on, say, a window-cleaner now, could mean a couple of hundred thousand generated two generations down the line by entrepreneurship being instilled in a family.

    They also don’t understand the concept of losing money or of business failure. Who could blame them? How well does your theory of “losing” (and I know that’s not what you mean) £2m play once the media gets hold of it?

    But again, you’re absolutely right.

    And finally education. I agree there should be more business-skills taught at school. But it’s hard to make that effort when, for example, so many kids leave unable to even master a written sentence. And that’s the ones that get a degree.

    If we are serious about this entrepreneurial culture, there is so much more foundation work needed. The DUP purport to be serious about the economy. If they were, the Minister (yeah, the one you all say is such a steady pair of hands), would be having a long hard look at business supports offered by her Department to those who don’t make the hallowed halls of INI clientship, and listening a little more to the 92% of businesses in this region who keep this place afloat with ne’er so much as a bean of government dosh. And we’d be reviewing business rates, business rents, the way HMRC deals with its customers, the absolutely absurd protections that stretch over everything involved in hiring and keeping an employee, and half a dozen other things that act as business barriers.

    We’re not even close to being serious about this.

  • If we have collectively little confidence in INI et al to do this work, how can we take up the reigns.

    How much of what we need to do could be delivered by private sector initiatives? pros / cons?

  • Local Government Officer

    Mark, what IS an enterprise culture? Although it’s aimed at growing the private sector, it isn’t all down to the private sector. It falls into that strange category of intangibles where a whole morass of other intangibles come together to make something equally intangible in the zeitgeist happen, over a period of years. Decades, even.

    Notwithstanding that we must accept that not everyone is “designed” or able to start their own business, I have to ask the following – and I ask because I don’t know:

    Do Jobs & Benefits offices actively promote self-starts to their clients?

    Do schools actively promote self-start as an option to the same degree that they actively promote “get a degree”?

    Do enterprise agencies set aside ten percent of their time to target schools and colleges with self-start as a career/life option? Do schools invite them in?

    Does HMRC really try to make it as simple as possible for people to start their own business? Don’t they use a tagline of “because tax doesn’t have to be taxing”? Here’s their basic “what is a tax code?” page. I got lost after the first paragraph. http://www.hmrc.gov.uk/incometax/codes-basics.htm

    Why are business and retail rents so high outside of the enterprise agency sector?

    Are councils actively fighting to get businesses a fair deal in rates from central government? What rates breaks have we fought for, for small start-ups? (None is the answer, I know that one.)

    Why are the banks which we all bailed out not lending, and what has our assembly REALLY done to get that flow of funding moving?

    Who on earth let the Civil Service set the rules for EU funding in Northern Ireland? Anyone who’s tried to access the Rural Development Programme will know what I mean.

    I mean, the list goes on. I have full respect for anyone that’s actually managed it, whether it be hi-tech or a retailer. It can only have taken determination, a small inheritance and an abnormal love of fighting things for anyone to start today and actually make it.

  • Most people who have started a business, do so because they couldn’t work for other people, have an idea and a desire to make a success of it. Perception of risk and cosy existence within public/private sector is what put people off.

    There are too many excuses and passing the buck, yes HMRC, MLA’s, Schools, INI etc could do more but everyone can have a go. Funding often causes more problems than it solves on all sides. That said what can a Local Gov Officer do:

    1. As LGO, Council could open up tender system, display them easily on their website and email a wide range of potential participants. They could assess tenders post completion and evaluate how well they did and take this into account next time that company tenders for work. They could also move away from “3 examples in last 12 months” thereby reinforcing the usual suspects, they could take risks with new companies. I think CPD allow 10% weighting to ‘local’ firms

    2. What about Mentors outside NI, Ireland has the biggest Diaspora in the world, why don’t we use them for scalable businesses? What about promoting local role models for more local based businesses – is that done?

    3. NI Public Sector wastes money all the time on range of projects and private projects. Issue is speed & low admin. This is a risk and has to be seen in that context. However the Govt acknowledges needs innovation and to be a catalyst. This could be under EU funds whatever but as a pilot project it should be tried not least to compare value for money with other costly initiatives – i would bet that in short and medium a £2m fund as proposed would at least match success of any other programme.

    we can all do something, less not make excuses

    Liam