VOL. 127 | NO. 2 | Wednesday, January 4, 2012
Cultivate ‘Economic Gardening’
By Martin Harshberger
With all of the hype surrounding stimulus packages and estimates of cost starting at $200,000 per job, it is time we all understand where jobs are actually created.
In 2009, large corporations shed 700,000 jobs, small-business employment was down 20 percent and startups (because of their 50 percent failure rate inside of five years) were a net zero.
Virtually all job creation in the past 20 years has come from “high-impact” firms, according to studies done by the Small Business Administration Office of Advocacy and the Blueprint Growth Institute.
So, what are high-impact firms? They are defined as those that have doubled sales and employment in the most recent four-year period; are 25 years old on average; not startups in most cases; represent less than 4 percent of all firms; exist in all regions of the U.S. and in all industries; take about 20 years to reach high impact; and in the four years after reaching high impact, less than 4 percent “die” or cease to exist.
A ranking of all 50 states on the percentage of high-impact firms compared with all firms in the state has Tennessee ranked No. 25 and Mississippi No. 47. South Carolina leads the Southeast at No. 4 overall.
Clearly the answer to creating more jobs is to find a way to create more of this level of growth from existing companies in the region. The term being used today is “economic gardening.”
Economic-development groups and business incubators focus on startups and attracting companies from other locations. Toyota’s plant near Tupelo was a great boost for Northeast Mississippi, but net job creation for the country was zero because of the corresponding plant closure in Fresno, Calif. The same can be said for the Winchester ammunition plant in Lafayette County, Miss., as these jobs were relocated from Illinois.
There is little focused effort to grow existing companies with potential in this or any other region.
The Blueprint Growth Institute has identified seven critical factors that growth companies employ. They studied all companies that went public since 1980 and found that 100 percent of the companies that reached $1 billion in sales employed at least five of the seven essentials.
These companies reached $1 billion in sales on three trajectory paths – four, six or 12 years – and 100 percent of the time launched their growth trajectory from the level of $50 million in sales.
Of all of the companies that went public since 1980, only 387 (4 percent) reached $1 billion in sales. Those 387 companies accounted for 63 percent of employment, 64 percent of total market value and 72 percent of revenue and taxes paid.
Our challenge is to grow more companies to the $50 million level with the essentials built in to facilitate growth beyond that level.
As business leaders, we all have experience that can help in growing businesses. However, it is imperative that we first know where to direct our efforts to have the greatest impact on job creation and, therefore, stability for our state and our country.
Martin Harshberger is the founder and President of Measurable Results LLC, as well as the author of “Bottom Line Focus.” He has extensive executive management experience in Fortune 500 companies, as well as start-ups and mid-sized organizations across all industries. For more information on Martin, call 662-844-9088, email firstname.lastname@example.org or visit www.bottomlinecoach.com.