Job Creation Study

A study by John Haltiwanger of the University of Maryland and Ron Jarmin and Javier Miranda of the Census Bureau adds even more credibility to the argument that supporting nimble, innovative entrepreneurs is the most effective, sustainable method for long term job creation and prosperity within communities.

Jeff Cornwall from Belmont University blogged about this earlier this month, and while the data might be further dissected to show that one-off freelancers – with no intention of every creating another job but their own, and local service sector lifestyle companies – with no chance of every growing beyond the 5-10 employee range – could somewhat skew the data, there is enough there to take note.

“In terms of net job creation, the role of business formation is clearly critical,” the authors conclude. “But we also see that businesses that have survived their first few years and have already grown to a mid-sized business exhibit positive (and higher than average) net job creation rates.”

Locally headquartered firms – usually backed by some combination of family, founders, friends, angels, VCs, customers and strategic partners – comprise a significant portion of the small and mid-stage companies this study indicates are the pillars of new net job creation within communities.

From our 10 years at Golden Capital Network working hands-on in the field, we have observed several common characteristics among early stage companies with the greatest chance of growing to become these locally headquartered mid stage firms.

First, we generally characterize early stage companies as: 1) Earning annual revenues in the $0 to $5 million range– depending on the industry; 2) Being developed beyond the concept stage; 3) Being a stand-alone entity, and usually not an affiliated spin-off from an existing larger firm.

We classify these early stage companies with high growth potential as “innovative” in how, through their products, services and/or internal business systems, they: 1) Address new markets; 2) Address new pain or challenges within existing markets; or 3) Offer new solutions to existing customer needs or wants.

We have also consistently observed that while innovation is often technology based, this is not always the case, and innovative companies can be from within any industry.

We consider a scalable company one with the potential to grow or expand into a substantial enterprise, and it is our observation that only scalable companies can quickly grow from small to mid-size businesses. Scalable companies have one or more of the following characteristics: 1) Large, unmet market needs for the company’s products or services; 2) Potential customers all over the country or world; 3) A business model and management team potential that will allow for realistic, significant growth in both market share and revenue.

These companies are also characterized by their most pressing needs, which are access to capital, access to talent and access to networks of expert knowledge, industry advisors and potential strategic partners.

With the findings in this study, and others like them, it seems clear to us that community efforts to improve local economies should focus on helping innovative, scalable, locally headquartered early and mid stage companies to grow, thrive and win.