There has been significant discussion among experts, business leaders and policy makers regarding how businesses that grow at a rapid pace, known as high-growth firms (HGF), can contribute to economic prosperity. However, there has been little analysis of the actual performance of high-growth firms as well as how they are specifically defined.
A new report by Cleveland State University’s Center for Economic Development sought to examine HGFs throughout the business cycle in the various regions of the state of Ohio. The findings indicate that the lack of definitional consensus surrounding HGFs, including no less than 10 separate methods for identifying a firm as high growth, creates unclear expectations for public policy makers and practitioners, while making it difficult to count the number of HGFs in a region. Creating clearer guidelines based on the needs of policy makers, therefore, should be a key goal of efforts to improve overall HGF development.
“How high-growth is defined matters,” says Merissa C. Piazza a program manager with the Center for Economic Development and lead author of the report. “In order to craft better public policies and regional strategies, it’s important that we are all talking about the same businesses. Creating a clearer definition of high-growth firms will greatly improve the ability of economic developers to spot these businesses and support their growth.”
The report was produced with support from the Ewing Marion Kauffman Foundation in partnership with JumpStart, Inc. and Burton D. Morgan Foundation.
“Not only does this report highlight the importance of common definitions and an understanding of what comprises a high-growth firm, it also illustrates how critical these firms are to long-term job and economic growth,” notes Ray Leach, CEO of JumpStart Inc. “For example, some may be surprised to learn that between 2011and 2014, 1,100 Northeast Ohio firms with 10 employees or more grew their employment by at least 72%.”
The report also indicates that, across different definitions, high-growth firm performance is directly tied to the business cycle and one can see a distinct dip in HGF development during the Great Recession. This contradicts arguments by some experts that HGFs can often be “recession proof.” Finally, the study looked at what industries high-growth firms were concentrated in, finding that HGFs exist in a variety of industries, not just technology-based sectors, regardless of the regional location.
“Morgan Foundation is working closely with JumpStart, EDGE, and many other strong partners to build scale up capacity in Northeast Ohio,” adds Deborah Hoover, President and CEO of Burton D. Morgan Foundation. “The conclusions in this report serve as an important underpinning to building deeper understanding of common characteristics shared by high growth firms and how they can best position themselves on a path to healthy and sustainable growth.”