This may be the single most encouraging econ chart in a while
AEI
Entrepreneurial growth — driven by startups that scale — is the propulsive force pushing the American economy forward and US living standards higher. We’re talking about innovative companies that are started with the intent of making cool stuff or delivering new services that will allow them to grow and hire and generate big revenues and profits.
But how do you measure this deep magic? Patents, venture capital totals, valuations, the number of unicorns? All those inputs are helpful, but the Kauffman Foundation has devised an index of growth entrepreneurship to track “growing and high-growth business activity in the United States.”
And as the above chart shows, it’s been rebounding after the Great Recession. From a new Kauffman report:
The Growth Entrepreneurship Index rose substantially in 2016—continuing an upward trend that started in 2014. Over approximately the past decade, the Growth Entrepreneurship Index generally has followed the business cycle, but with a slight time lag to the full business cycle. Growth Entrepreneurship was high leading up to the Great Recession and fell for some time after the business cycle began to recover—with its lowest level of activity measured in 2013. Entrepreneurial growth remains a rare phenomenon—most companies do not grow or intend to grow. However, the increase in the Growth Entrepreneurship Index in 2016 was large and indicates a broad-based return of growth across young and older firms in the United States.
The index itself is an equally weighted index of three measures: the rate of startup growth (how much startups have grown, on average, after five years of founding, as measured by change in employment), the share of scaleups (the number of firms that started small but grew to employ fifty people or more by their tenth year of operation, as a percentage of all employer firms ten years and younger), and the high-growth company density of a region (the number of private businesses with at least $2 million in annual revenue reaching three years of 20% annualized revenue growth).
The bad news here is that, while things have improved in recent years, a deeper dive shows some disturbing longer-term trends with this sort of high-impact entrepreneurship. The startup growth rate “has been around 75 percent over the first two decades for which data are available (’80s and ’90s) but has decreased in volatility and trended downward since at least 2003.” The share of scaleups “has trended downward, indicating that fewer young businesses are growing to be at least medium-sized over time.” Here is a breakdown of each of the three components:
NOW WATCH: How one simple mistake cost 'Real Housewives' superstar Bethenny Frankel millions