The top 1% of 380,000 companies in 10 countries provide 44% of total revenue and 40% of total jobs created among start-ups less than six years old.
Switzerland-based non-profit organisation World Economic Forum, in collaboration with Stanford University and venture firm Endeavor Global, in its Global Entrepreneurship and Successful Growth Strategies of Early-Stage Companies report added the top 5% of the 380,000 companies contribute 72% of total revenue and 67% of total jobs. The UK had the most extreme reliance on the top few companies while South Korea had the lowest, according to the study.
George Foster, Wattis Professor of Management and Dhirubhai Ambani Faculty Fellow in Entrepreneurship at the Graduate School of Business at Stanford University and co-author of the report, said: "Understanding the elite few in their own ecosystem may prove a far more effective strategy than trying to replicate the success factors of other entrepreneurial hubs such as Silicon Valley."
By contrast, the bottom 1% of all companies accounted for 53% and 46% of revenue and job losses, respectively.
The potential impact of government policies that target the highly successful companies, such as the introduction of a super-profits tax or reduced tax deduction offsets for income and payroll taxes, negatively affecting early-stage company growth should be considered in policies, the report said.
Max von Bismarck, head of investors industries at World Economic Forum and co-author of the report, said: "After avoiding a collapse of the global financial system, governments are now focused on building the foundation for future growth. Entrepreneurs are recognized as important drivers of economic and social progress."
Dan’l Lewin, corporate vice president for Strategic and Emerging Business Development at software company Microsoft and one of the advisory board members for the report, said: "I’m pleased that the report was undertaken and completed and that it was a useful study in support of the need for a common understanding of the issues – everywhere/locally.
"We’re continuing to up our investment in enabling entrepreneurs build and grow new companies of all kinds in all sectors around the world. This week alone we stepped up our support for the Startup America Partnership – and I spent the week in Turkey on the same topic."
Microsoft is a so-called triple-play wave company, which means it has built a market and grown to be a major player in it, according to the Forum. Although Microsoft did not need venture capital money, in 1980 it did take $1m from outside firm Technology Venture Investors partly to gain expertise in management systems.
This is the second area of implication is in company decision-making, according to the report. Sizeable revenue and job losses could be due to self-inflicted wounds due to poor company management (such as not investing in management systems that scale) or because initial large gains by some early-stage companies are transferred to larger companies when they enter the market.
The speed of adoption of 13 management systems (see table below) by 110 companies from 17 different countries found companies with the highest adoption rates by either their second year or between the second and fifth years had the fastest increase in headcount in their first five years.
The entrepreneurs used eight different growth strategies: creating and riding a new business growth wave, new product in a new category, new product in an existing category, redesign of business value chain, research or discovery of knowledge, rollup (aggregation) of existing players, governmental, regulatory or political change, and idea transfer or transplant.
Table: Management Systems to Introduce
Area Criteria
Financial Budget Financial Operating Budget
Financial Evaluation Actual to Budget Performance Analysis
HR Planning Human Resources – Written Job Descriptions
Sales Target Sales Targets for Sales Force
Strategic Planning Definition of Strategic (Non-Financial) Milestones
HR Evaluation Human Resources – Written Performance Evaluation Reports
Product Development New Product/Project Development Milestones
Investment Approval Capital Investment Approval Procedures
Customer Relationship Customer Relationship Management
Sales Pipeline Sales Pipeline Information
Marketing/Branding Marketing/Branding Project Evaluation Analysis
Quality Management Quality Management System
Partnership Partnership Development Plan
Source: World Economic Forum
Box:: Signature customer importance for start-ups
The relationship of Iona, formed in Ireland in 1991, with computer equipment maker Sun Microsystems expanded from being a customer, to a partnership, and then to Sun’s becoming a 25% investor in Iona.
Chris Horn, co-founder and chief executive (CEO) at Iona, said: "At the time Sun was in discussions with us, we had been approached by [mobile phone maker] Motorola, [which] wanted to use our products. [Motorola was] reluctant to buy such a major programme from us because of our very weak balance sheet. When we were able (under a nondisclosure agreement) to disclose the likely Sun investment and they confirmed the investment directly with the Sun CEO, then the situation changed overnight, and Motorola purchased."