As governments around the world struggle with economic crisis, unemployment and political unrest, there is a little thing often overlooked that can make a huge difference. This “little” thing is the high growth start-up.
Every Fortune 500 firm was once a start-up company. Start-ups, particularly high-growth ones, are the cornerstones of employment and economic growth. They are also a gateway to a rising middle class and hence often the first step towards cultivating democracy.
In the United States, for example, a 2010 Kauffman Foundation study showed that without start-ups there would be no job growth. Surprisingly, existing firms have been job destroyers, losing on average 1 million net jobs per year, while new businesses add an average of 3 million new jobs annually. And remarkably, new firm creation remains relatively stable during recessionary years, while net job losses at existing firms are very sensitive to business cycles. So while governments pay a great deal of attention to large firms and the financial sector, they should give at least as much weight to the opportunities of new businesses.
Unlike the last century, for example, when big was often better, competitiveness today depends on speed and agility, and today’s start-up companies are often the best for the task. We have all seen how Craigslist up-ended the business model of newspaper classified ads, and Square has begun to empower small local merchants and disrupt banks’ relationships with customers across the globe.
But the revolution is no longer limited to the information industries anymore. We are starting to see what happens when you apply the scale of the Web and the democratization of tools and platforms to the physical world as well. Local Motors in the US state of Arizona, for example, used open-source development, online design competitions, micro-factories, and customer-assisted manufacturing to design and ship their first community-designed vehicle last year; in about the same time it takes for General Motors to redesign trim parts.
In the past, corporations attained competitive advantage from vertically integrated and often proprietary supply chains. But now, agile and hyperconnected businesses can use the cloud to tap into a nearly limitless and flexible supply base. With not much more than a 3D printer, credit card and Internet connection, an aspiring entrepreneur can build a prototype on a desktop, ship off CAD drawings to get all of the parts built and launch a business. Supply chains are being disrupted and large corporations have to contend with new and innovative competition.
But this is good news. The democratization of innovation is empowering the individual. It is providing new opportunities for economic growth globally, with start-up businesses creating jobs in their own right, and creating more demand for other local businesses such as manufacturers as they iterate. And innovation doesn’t have to threaten existing industries if they stay agile. In fact, it creates new partnership and growth opportunities.
The challenge is that not all regions are as conducive to supporting the individual entrepreneur. The Global Agenda Council on Foresting Entrepreneurship looks forward to helping reduce barriers to entrepreneurship by gathering and making existing resources more accessible to aspiring entrepreneurs, and partnering with governments and private industry to provide the right environment for start-ups to succeed and contribute to economic growth.
Author: Krisztina “Z” Holly is an Adviser to the National Advisory Council for Innovation and Entrepreneurship, USA, and a Member of the Global Agenda Council on Fostering Entrepreneurship.
Image: An incandescent electric bulb is pictured in a workshop in Vienna. REUTERS/Lisi Niesner