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Why Growth Companies Matter

April 29, 2013

When we emerge from the Great Recession, growth companies will have led the way.  Growth companies are the engines of economic growth and wealth creation.  No longer startups, growth companies are private companies, typically with revenues of $5 million to $100 million. They create most of the new jobs in our economy, and that is why investors, job seekers and policy-makers have an enormous stake in the success of our growth companies.

So what is the profile of these companies?

Size and Number of Growth Companies

 

Tracking growth companies and their impact can be challenging since there is no single source of information.  Fortunately we can learn a lot about the impact of growth companies from several reliable sources:

  • According to the Kauffman Foundation, 5 percent of US companies, or about 273,000 firms, create two-thirds of new jobs in any given year. The top 1 percent, or about 55,000 companies with fewer than 250 employees, generate 40 percent of new jobs in any given year.
  • According to Middle Market Foundation (Ohio State Fisher College and GE Capital) the Middle Market is the largest source of sustainable economic growth and job creation today. It’s important to note that 95% of these companies have revenues below $50 million.

Thomson's Gazelle

                                                             Photograph by Erik A. Drabløs

Gazelles: Fastest of the Growth Companies

 

The fastest growing companies are often called gazelles – a term created by David Birch and promoted by Verne Harnish.  According to Birch, a gazelle is a company whose revenues have increased 20% or more per year for four consecutive years from a base of at least $1 million.  His research indicates that gazelles represent about 4% of US business but create 70% of new jobs.

 

            Inc Magazine created the Inc 5000 to track the fastest growing private companies in the US.  The makeup of the Inc 5000 by company size is as follows:

  • $2 – $10 million:  47%
  • $10 – $100 million:  44%
  • $100 million+: 9%

 

When you think about growth companies you might think of young technology companies.  However, David Birch’s research indicates that many of the 350,000 gazelles, have been in business more than 25 years.  And this Inc 5000 infographic shows that our fast-growing companies span all industries and geographies.

Growth Company Success = Sustainable Economic Success for the U.S.

Clearly we all have a big stake in the success of growth companies.  However their success is not guaranteed; sustaining high growth rates is a challenge for any company.  Tragically, most private companies fall off the curve before they reach their potential. (See Why Growth Companies Stop Growing).  Fortunately, they can learn a great deal from the best practices of the most successful growth companies (See Four Keys to Innovation and Growth).

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Follow Dave on Twitter: @wdavidpower

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