When and where American entrepreneurship developed

A new study of American entrepreneurship from 1988-2014 shows that startups performed particularly well in Silicon Valley, the Boston-Cambridge area, and Austin and elsewhere. Credit: Photo: MIT News

Research shows that ambitious US startups are not declining – time and space are important.

1995 was a good time to be an entrepreneur. Especially as a high-tech entrepreneur in Silicon Valley, starting an internet boom, the economy is growing, risk capitalists looking for new capitalists, and a whole new horizon to explore new business ideas.

Indeed, a new work co-authored WITH The professor points out that U.S. startups founded in 1995 have grown more than any other startups founded in any of the years from 1988 to 2014. Other things being equal, 1995 startups were three times more likely to grow significantly than in 2007. 2008-2009 The Great Recession.

As research shows more broadly, ambitious startups remain an important part of the American economy. New business records have seen a long-term decline in the United States, but an increase in the number of startups that can have a high impact. Such firms flourished, especially in the mid-1990s and mid-2010s – although the number of high-growth startups, including 2008 and 2009, declined, they were established at a higher rate than in the 1980s.

“Entrepreneurship is an economic engine,” says Scott Stern, co-author of a new article detailing the results of MIT’s work. “Job growth is concentrated in a relatively small number of young firms. Then they grow very fast on their own.”

However, Stern adds that research shows how dominant economic winds affect start-up travel: “We can provide the first real evidence that weak economic periods, such as the Great Recession, have reduced the amount of high-quality entrepreneurship. Indeed, there was an increase in growth-oriented entrepreneurship in the 1990s, followed by a decline in growth – albeit not as much as people thought. In 2014, we were at record levels [of entrepreneurship], Relative to GDP. ”

The study also shows that startups are doing well, especially in Florida, Silicon Valley, Boston-Cambridge and Austin.

The document entitled “The State of American Entrepreneurship: 32 New Estimates of the Quantity and Quality of Entrepreneurship for the United States, 1988-2014” was published in the latest issue of the newspaper. American Economic Journal: Economic Policy. Co-authors include Stern, David Sarnoff Professor of Management at MIT Sloan School of Management and Lecturer at the Martin Trust Center for MIT Entrepreneurship; and Columbia Business School associate professor Jorge Guzman MBA ’11 PhD ’17.

What’s a name?

To conduct the study, Guzman and Stern surveyed about 28 million new job registrations in these 32 states. Their research is based on the notion that startups have different growth profiles and are distinguished by certain key characteristics, such as intellectual property or even a business name, when they are established.

That is, although entrepreneurship creates employment, not all entrepreneurs have the same goals. Your nearest local establishment – perhaps a pizzeria, a gift shop, or a second-hand boutique – is all worth it, but not necessarily designed to create expanding jobs. Instead, several startups aim to reach a larger scale.

“The vast majority of entrepreneurs aren’t interested in growing up,” Stern said. “They are interested in setting up a local business – a plumbing company, a restaurant, a dry cleaning company. And these companies, as we have seen this year, play an important role in our economy. However, new employment growth and economic growth will be associated with a small number of outsiders. ”

With that in mind, Guzman and Stern found that startups that use one person’s name (“Karl’s Plumbing”) are 78 percent less likely to grow than other startups. (Ben and Jerry’s, who originally intended to work in a store, are a rare example.) Startups with short names – consider biotechnology companies like Moderna – are three times more likely to grow significantly than those with longer names. three words.

In the past, entrepreneurial activity was measured by the number of new job registrations, as shown in the U.S. Census Bureau table, and there was little difference between the new types of jobs. But Guzman and Stern have taken the lead in changing that approach and determining exactly which firms want to grow.

In the study, patent firms were about 47 times more likely to reach 1,000 employees than non-patent firms; When they registered in Delaware, which had a policy of merging themselves, patent holders were 131 times more likely to have 1,000 employees.

Stern says the study “really solves the problem of economic policy: what happens in terms of entrepreneurship? We are trying to prove the dispute between the two camps. ”

The methods used in the study are among the methods used to inform Mtern about the Regional Entrepreneurship Acceleration Program (REAP), which Stern also helped lead. REAP works with communities around the world to help build entrepreneurial ecosystems.

Kendall Square: Better shots on goal

The new document also provides an empirical reserve for other ideas about entrepreneurship, such as the value of moving fast to take advantage of technological trends. Many dot-com stocks peaked in 1999-2000; but in 1995, the boom created by the commercial internet was still going on. Founded in the mid-1990s, firms got off to a start in finding venture capital, hiring software engineers, and building brands.

“Firms founded in 1995 have had great results,” Stern said. “You had the highest chance of success in terms of quality … not at the top of the dot-com balloon, but at the beginning of the dot-com boom [around 1999-2000]. During the bubble, when the capital dried up, high-quality firms were not set up to realize their growth potential. ”

The study also sheds light on the geography of initial success and failure. In addition to Silicon Valley and the Boston area, there are significant growth-oriented beginnings in the Dallas, Detroit, Houston, Los Angeles, Seattle, and Washington suburbs in Northern Virginia. But many other places lag behind in this number.

“There are always Silicon Valley companies,” he said [that grow]and we have big growth companies here in Kendall Square, ”Stern said. “But with a few regional pockets out there, there’s a difficulty in scaling up.” As a result, “More high-quality knocks on the door allow you to be more successful than others. [geographic] areas. ”

In this regard, Guzman and Stern, along with Valentina Tartari, an associate professor at the Copenhagen School of Business and a former guest scientist at MIT Sloan, are working on another study that assesses the relationship between the academy and highly developed new firms. is also related to the geographical distribution of the beginnings.

“Universities have played a more disproportionate role in pushing, or at least coexisting, with these vibrant entrepreneurial ecosystems,” Stern said.

Reference: “American Entrepreneurship Situation: 32 New Estimates of the Quantity and Quality of Entrepreneurship for the United States, 1988–2014” by Jorge Guzman and Scott Stern, November 2020, American Economic Journal: Economic Policy.
DOI: 10.1257 / pol.20170498

The study was supported in part by the Jean Hammond (1986) and Michael Krasner (1974) Entrepreneurship Foundation and the Edward B. Roberts (1957) Entrepreneurship Foundation at MIT and the Kauffman Foundation.

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