The first few years of a new company’s life are critical. Within five years, few will survive and even fewer will employ more than a handful of people. The findings below are from new research on startup employment dynamics that compares the performance of startups across time in 19 different countries.
The study found that several employment patterns are consistent across countries, while other dynamics are widely different from place to place. These differences, the authors argue, can inform local decision makers as they reveal what matters most in boosting scaleup performance.
- Startup survival rates are low across all countries.
Across all 19 countries, about 50 percent firms are likely to fail in the first five years, with some variation across countries. Additionally, only about 3 percent of typical micro startups (i.e., new companies with 0-9 employees), and never more than 6 percent, grow to employ 20 or more people within five years.
- The surviving micro-entrants that grow are responsible for the most job creation. The small percentage of surviving and rapidly growing startups is responsible for 37 percent of the job creation across all countries, and as much as 53 percent in France. These findings are consistent with Endeavor Insight’s research in other countries, including emerging markets such as Nairobi and Bangalore.
- The highest rates of growth happen during the first two or three years of activity. This finding was generally consistent across all 19 countries. After three years, average growth rates of companies vary across countries. Some countries see high average growth rates up to seven years after their companies launch. In others, growth flattened after three years.
- Policymakers should look at both country-specific “barriers to entry” and “barriers to growth”. The above trends demonstrated commonalities across countries, however these two factors showed the strongest divergence. In some countries, start-up rates were low, but companies were able to scale once they entered the market. In these cases, the authors suggested that decision makers address barriers to entry like entrepreneurial capacity and seed capital. In other countries, the start-up rate was high, but the primary bottlenecks were at the scaleup phase—in which case improving factors like access to growth capital and access to markets are most pressing.
Since companies that successfully scale tend to add the most jobs within the first two or three years of activity, this new research underscores the importance of policies and national conditions that identify and support these companies, especially during these crucial first years.
Read the full report here.
Contributed by Leah D. Barto.