Saturday, June 18, 2011

Start-Ups +3 Existing Firms -1

People collaborating on innovations, whether at the core or at the margins, find it almost impossible to later unwrap the specific DNA of the magic that results.

That’s why Michael Goodmon, the VP-Real Estate over the American Tobacco Complex and his father Jim Goodmon, who spearheaded the public-private, adaptive-reuse of the historic Lucky Strike Factory in Durham, North Carolina, may not be able to readily disaggregate the full story of the resourcefulness and passion behind the revolutionary American Underground.

A subsequent study released last week by the Kaufmann Foundation isn't the source but it certainly is validation. The 12-page report reveals that start-ups such as those for which American Underground has been created, are the nation’s true job creation engine.Capture

New firms nationwide add an average of 3 million jobs in their first year, while older companies lose 1 million jobs annually. The finding is based on an analysis of existing and start-up businesses from 1977 to 2005 and the averages indicated in the study hold up for all but seven years in that span.

Maybe even more remarkable is what happens during recessionary cycles. During downturns, the job creation in start-ups remains stable while existing firms are highly sensitive to the business cycle.

The job generation decline at existing firms occurs as they age. On average, one-year-old firms create one million jobs annually, while ten-year-old firms generate only an average of 300,000. The study upends conventional wisdom that businesses bulk up in the aggregate as they age.

The study further supports an earlier Federal Reserve Report published in 2007 citing that the net job impact of recruiting large corporations is close to zero.

The report describes that the impact of traditional economic development, known as industrial recruitment or “smokestack chasing” from a time when most relocations were manufacturing-oriented, has long been exaggerated because it wasn’t realized there are negative spillovers to relocation of large employers as well as positives.

A study of U.S. Census data reveal that between 1990 and 2003, 80% of jobs were created in firms of less than 20 employees. The large firms, often coveted by communities, generated less than 8% of the net new jobs.

The revolution this new information is having on this particular form of economic development, traditionally reliant on recruitment and incentives, has not been lost on the City of Durham or the County of Durham which contracts with the Durham Chamber of Commerce or Downtown Durham Inc., an advocacy organization funded in part by both local governments.

The findings are also validation for Bull City Forward, a collaborative to encourage social entrepreneurship, and the Durham-based Council for Entrepreneurial Development now relocated Downtown to American Underground.

They also validate the efforts of the organizations involved in “place-making” such as the Durham Convention & Visitors Bureau, Preservation Durham and the Durham Arts Council. By protecting and shaping and sustaining the unique identity, organic attributes, values and traits of this community, in essence, its unique-sense-of-place they draw the creative class workers so crucial to start-ups.

The reports also strengthen the calls by leaders such as Bob Ingram of Hatteras Venture Partners for a concerted effort to expand the sources of available venture capital for start-ups.

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