(KANSAS CITY, Mo.), April 7, 2009 – Business startups that survive grow faster than more-established companies, according to newly released Business Dynamics Statistics—U.S. Census Bureau data funded by the Ewing Marion Kauffman Foundation. However, because entrepreneurial ventures also have higher mortality rates than older companies, they also have higher rates of job loss reflecting an “up or out” pattern.
The report titled High Growth and Failure of Young Firms highlights a single dimension of the Census Bureau’s new Business Dynamics Statistics (BDS). The BDS provide researchers with comprehensive data, broken out by firm age, that are necessary to understanding startup firms’ role in job creation.
The High Growth and Failure data show that very young firms (one year old) have a net employment growth rate of about 15 percent, if they survive, but about 20 percent of jobs at startups are lost due to business establishment closings in the first year. Older firms (age 29 and older), on the other hand, create jobs at a rate of about 4 percent, conditional on survival, and have a similar rate of job loss due to business establishment closings. Among surviving firms, average employment growth rates decline with the age of the firm.
"Because entrepreneurial companies generally are taking greater risks and have the potential for job creation that corresponds to fast growth, the data underscore the need to ensure an environment which allows entrepreneurs access to financing, mentoring and other resources that will help them to survive and thrive," said Robert E. Litan, vice president of Research and Policy at the Kauffman Foundation.
In terms of growth and survival, young firms are doing both better and worse than more mature firms. This “up and out” pattern highlights the trial and error nature of young firms that is an inherent feature of U.S. business dynamics.