Rewriting the history of small business: What you didn't know
The standard narrative is too simplistic about the role, origins, and impact of entrepreneurship. But the closer you look, the fuzzier it gets, finds guest blogger Dane Stangler.
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(Some of this also calls into question the role of high-growth firms. As the above comments indicate, rapid revenue growth does not necessarily mean profitability. This corroborates other work that examines the Inc. lists of fast-growing companies. I am a huge fan of the Inc. data and I think much more can be done with it, but we shouldn't imagine that high growth in revenues tells us anything about economic impact or long-term success. Presumably it should, but it apparently does not. I have written elsewhere that high-growth firms are neither as interesting nor important as they are typically thought to be. If the underlying dynamics of firm formation and competition are reasonably healthy, we should expect to see high-growth firms as epiphenomena of those, not necessarily drivers in themselves.)Skip to next paragraph
Writer, Kauffman’s Growthology.org
Dane works in research and analysis at the Kauffman Foundation for Entrepeneurship.
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In any case, what does any of this mean? Let's review. During the period of entrepreneurial capitalism, we have seen no increase (yet no significant decrease either) in levels of firm formation, but a larger number of IPOs and greater volatility among publicly-traded firms, indicated particularly by dispersed growth rates and profitability. This dimension in the public markets is, in part, an effect of greater availability of financing. Is what we call entrepreneurial capitalism really just a reflection of public-market volatility, itself a reflection of the rising role of finance in the American economy over the past thirty years?
I should point out, again, that none of this is meant to imply that the last thirty years were somehow worse than the middle part of the twentieth century. Nor is it meant to exclude the dramatic changes in technology over the past three decades. Indeed, high-tech companies likely account for much of the public-market volatility. At the broader level of aggregate firm formation, sectors such as food service, administrative services, health care, and professional services (in particular lawyers) tend to predominate, particularly among high-growth firms. My points here are not a value judgment on the types of companies that are formed. But it appears that there is still quite a bit about entrepreneurship--its trends, its composition, its impact--that we do not understand. And, should we be on the cusp of an entrepreneurship boom--whether because of technology, changing economic factors, demographic factors, whatever--it remains to be seen whether, in the context of existing structural factors, this will shift us to a different neutral state. And, again, we have not even touched the impact of new companies yet; a much more extensive treatment than I have given here will also layer on technological change. So much goes on beneath the surface of aggregate entrepreneurship levels, of IPO activity, of growth and profitability, that it is difficult to make blanket claims about capitalist typology.
I could, of course, be wrong.
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