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Entrepreneurial startups are a game changer for economic growth

Startup companies fuel economy, but tough times are taking a toll.
BY TOM WALKER Published: August 9, 2011

Here's an intriguing thought for anyone who likes numbers and believes private sector jobs are Oklahoma's most sustainable force of economic growth.

Imagine a mass of entrepreneurs, say about 600,000 of them, who all start their businesses in the United States the same year.

These companies open their doors with an average of 7.5 employees.

The sorting out process begins fairly quickly — entrepreneurship is risky business, after all — and just two-thirds of these firms make it past their second year. Then over the next 36 months, 25 percent of those go away.

The remaining 300,000 companies reach the five-year mark. The good news is that, in aggregate, after all the churn, these 300,000 firms still retain about 90 percent of the number of jobs created by the original 600,000 startups.

That's a contribution of a net 3 million jobs every year, averaging 3 percent or more of the total jobs in the U.S. economy over the next decade. And that accounts for most of the net new jobs as larger companies gain efficiencies from downsizing and moving work overseas.

Now imagine a different scenario where the same 600,000 entrepreneurs start their companies with an average of 4.9 jobs.

This cadre of young companies is pounded by the most severe recession in decades. Their five-year survival statistics drop to less than 45 percent. The firms that do survive retain only about 80 percent of the jobs created by the original 600,000 startups.

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2010 had the highest rate of entrepreneurial activity in 15 years in the United States.

Source: Kauffman Index of Entrepreneurial Activity


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