Supporting Local, High-Growth Entrepreneurship

Many government and development agencies aim to support local, high-growth entrepreneurship.

Last month I chaired an Economic Development Australia seminar on Supporting Local, High-Growth Entrepreneurship [presentations and report available here].

This seminar examined the opportunities for developing practical local policies and programs to support high-growth entrepreneurship. High-growth entrepreneurs, often known as ‘gazelles’, have been the focus of much public policy interest because of their contribution to employment and economic growth (for example). Thus, many governments are eager to find and support high-growth entrepreneurs.

I have written previously about my suspicions regarding the feasibility of choosing high-growth firms before they grow. Our discussions during this seminar underscored these concerns.

While many policymakers are eager to invest public funds to support high-growth enterprises because of the significant impact they promise, there is very little evidence such investments succeed. I have listed a few relevant studies below.

High levels of enterprise growth are more likely to be found in mature firms that refocus their effort on growth than in new start-ups. Thus, a common theme of the day was that more attention should be given to supporting growth in mature firms. However, in contrast to the evidence, governments typically invest more in enterprise start-ups and often abandon their support for later stages of enterprise growth.

Furthermore, most high-growth firms are self-selecting: they choose to obtain support to improve their prospects for, and ability to, manage growth. This is an important policy lesson for many governments, who are advised to create better, more enabling and entrepreneurial business environments and opportunities for growth-oriented firms to access support rather than attempting to select beneficiaries through a quasi-objective process.

High firm growth rates can also be anticipated in markets and sectors that are growing faster than others and oriented toward national and international markets.

The question of whether public policies and programs can support local, high-growth entrepreneurship was discussed. It was broadly agreed that public policies and programs can’t speed up the growth process. Indeed, enterprise accelerator programs can quickly become enterprise incinerators! The objectives of government policies and programs should be to improve firm competitiveness and help entrepreneurs diagnose their operations, and know where to go for support when they need it. Mentor support and improved business and market networks have proved valuable in this regard.

More than getting out of the way, local governments have an important role to play in bringing together key local actors. Governments must become more responsive to the needs and opportunities facing their local business sector in general without attempting to decide which ones are more worthy of public support than others.

Some useful studies on high-growth entrepreneurship

Acs & Mueller (2008) Employment effects of business dynamics: mice, gazelles and elephants

Bos & Stam (2013): Gazelles, Industry Growth and Structural Change

Davila, Foster, He & Shimizu (2015) The rise and fall of startups: Creation and destruction of revenue and jobs by young companies

Henrekson & Johansson (2010) Gazelles as job creators: a survey and interpretation of the evidence