The Ewing Marion Kauffman Foundation is a definitive source about entrepreneurs and start-ups and the importance to our economy, particularly in the last 20 years when they have accounted for net new jobs. The development of entrepreneurs and incentives to encourage them should be a top priority of any Memphis economic development plan.
We were reminded of it once again with a report by the Kauffman Foundation:
It’s well understood that existing companies of all sizes constantly create – and destroy – jobs. Conventional wisdom, then, might suppose that annual net job gain is positive at these companies. This study, however, shows that this rarely is the case. In fact, net job growth occurs in the U.S. economy only through startup firms.
The study bases its findings on the Business Dynamics Statistics, a U.S. government dataset compiled by the U.S. Census Bureau. The BDS series tracks the annual number of new businesses (startups and new locations) from 1977 to 2005, and defines startups as firms younger than one year old.
The study reveals that, both on average and for all but seven years between 1977 and 2005, existing firms are net job destroyers, losing 1 million jobs net combined per year. By contrast, in their first year, new firms add an average of 3 million jobs.
Further, the study shows, job growth patterns at both startups and existing firms are pro-cyclical, although existing firms have much more cyclical variance. Most notably, during recessionary years, job creation at startups remains stable, while net job losses at existing firms are highly sensitive to the business cycle.
Because startups that develop organically are almost solely the drivers of job growth, job-creation policies aimed at luring larger, established employers will inevitably fail, said the study’s author, Tim Kane, Kauffman Foundation senior fellow in Research and Policy. Such city and state policies are doomed not only because they are zero-sum, but because they are based in unrealistic employment growth models.
And it’s not just net job creation that startups dominate. While older firms lose more jobs than they create, those gross flows decline as firms age. On average, one-year-old firms create nearly one million jobs, while ten-year-old firms generate 300,000. The notion that firms bulk up as they age is, in the aggregate, not supported by data.
I think we can all agree that entrepreneurs are key drivers for a strong economy but how do we support and grow these starts ups without burying them with fixed costs/debt?
How do we build more opportunity out of the success of one start-up and use it to launch the next venture? We need to “exponentiate” opportunity rather than just create more “cash outs.”
What cities are doing this well and what could we learn from them?
As with our economy, our current incubation model just feels worn out.
Aaron, a business plan and resourcefulness is the only way.
I don’t think you should or could try to get one startup going and the try to push that entrepreneur to shoulder any more than the wish too or have planned to, it’s their life.
What you can do is adhere to the rules, have the city adhere to its rules an make better rules where the rule suck, then, create a school training the how and why of best practices and standards. That will create a city people would want to start up in.
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What’s missing in this city is training in profound integrity. If you had that, things would be very different here in no time flat. You see it sometimes rarely here, but, it’s by coincidence only when there is no public training.
The way to encourage startups is to eliminate the volumes of regulations that are well intended but hamper businesses.
I once lived in Mexico and was able to open a pizzeria for less that $2,000 USD … Try opening a pizzeria in the US for that!
What regulations are you talking about?
Which regulation stopped you in the US, health regulations?
I don’t think I want to eat your pizza parlor in Mexico.