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Yes, Virginia, There is a Job Fairy – And She’s a Gazelle!
Who creates jobs in our economy, presidents and Congress? Not directly, except to increase the bureaucracy, but the awarding of federal contracts can have an effect. And big companies? They create jobs, but not as many as one might think. What about the manufacturing sector? America managed to purge most of its manufacturing capacity through what can only be described as mass madness on the part of government officials and corporate leaders who allowed this to happen. Our once great steel industry lies in the ashes and General Motors, that once unassailable bastion of the national economy, is now well behind Wal-Mart as the nation’s largest employer. This brings us to the big box retailers. Yes, they are creating jobs, but they are doing it by forcing their way through the American economy, leaving a trail of crumbling small businesses in their wake, shipping more and more American wealth overseas while importing cheap foreign goods that add additional pressure on American ones. remaining manufacturers. These jobs, of course, fail to raise a family, and the little paycheck that comes with them is eaten up by the impossible cost of so-called health benefits.
No, these sectors of the economy offer little hope, especially for someone who really needs to earn a living and support a family. However, there is hope. In 1981, David Birch, who was affiliated with the Center for the Study of Neighborhood and Regional Change at MIT, conducted a study of the dynamics of business and employment in the United States from 1969 to 1976. Through this study, which used data from Dun and Bradstreet, Birch developed a powerful database that allowed him to identify the birth, death and growth of businesses across a range of sizes and longevity. This was a departure from the traditional use of aggregate government figures which tended to obscure some of the more specific data. With this database, Birch made some interesting discoveries, including:
- Of the 5.6 million companies active during the 1969-1976 study period, companies with less than 20 employees represent 66% of new jobs created.
- Between 1976 and 1982, companies with fewer than 100 employees created 82% of jobs.
- About 80% of replacement jobs are created by establishments that are four years old or less.
Birch concluded from his study that company size was not the deciding factor in determining whether a company would create jobs or not. It had more to do with the company’s business drive for innovation and growth. He called these companies gazelles.
Mice, gazelles and elephants
In the original study, as well as in subsequent studies dating back to 2006, companies are referred to in one of three ways: mice, gazelles and elephants. By definition, mice are small businesses that don’t create many jobs. There are a lot of mice around. Gazelles are rare, only about 4% of companies can be classified as gazelles, but they create most, if not all, of the new jobs that come into our economy. Gazelles come in all sizes, but most of them are small businesses. The elephants are big companies that are actively cutting jobs. There are several around too. The question is, are you a mouse, a gazelle or an elephant?
Features of the gazelle
One thing you can say about gazelles – known today as high impact companies – that you can’t say with such certainty about mice and certainly not about elephants is that gazelles are healthy and robust businesses. The fact that they are also the place of job creation is in fact an important side effect of this health. The question is, how do you tell real gazelles apart from the rest of the pack? Here are some signs to look for:
- Age. For businesses with 1 to 19 employees, the average age of the business is around 17 years. In companies with 20 to 499 employees, this period increases to around 25 years and to 34 years for large companies. Nearly 95% of gazelle companies are more than five years old, while start-ups, companies between 0 and 4 years old, do not represent more than 5.5%.
- Employment growth. For companies with 1 to 19 employees, average employment rose from 3.4 in 1998 to 16.3 in 2002. The average size of low-impact companies – mice and elephants – remained virtually unchanged during the four-year period. The results for the four-year periods before and after the primary study period were comparable. For firms with 20 to 499 employees, the 1994-1998 period saw increases in employment from an average of 67 to an average of 186 with similar results in the other two four-year periods. Low impact enterprises recorded an increase in employment between 1994 and 2002 before it declined over the period 2002-2006.
- Efficiency. With efficiency defined as revenue per employee, efficiency was higher for high-impact gazelle enterprises in total across all study periods and enterprise size categories. For example, for gazelles with 20 to 499 employees, income per employee fell from 156,440 dollars for the period 1994-1998 to 224,786 dollars. That’s an increase of $68,346. Over the same period, low-impact businesses of the same size earned $2,401, rising from $113,744 to $116,145.
- Industry. Generally speaking, these gazelle companies are found in all industries. However, they show the greatest concentration in the electrical equipment, rubber and plastics, and manufacturing (non-electrical) industries.
Location. You can find the rare gazelle companies spread fairly evenly across the United States. In fact, the range of data (percentage of high-impact firms in the overall business population) between the nine census regions is 2.12% to 2.33%, a minimal difference. That said, the nine regions look like this:
- Mountain – 2.33%
- Centre-North West – 2.25%
- Centre-northeast – 2.24%
- Pacific – 2.22%
- South Atlantic – 2.19%
- New England – 2.17%
- Center-southeast – 2.16%
- Center-southwest – 2.15%
- Mid-Atlantic – 2.12%
Does all of this mean that if your business isn’t a gazelle, with all the robust growth and high efficiency that comes with it, you’re doomed the next time a cheese-baited mousetrap awaits you? If that’s what you’re thinking, you need to stop thinking like a mouse and start thinking like a gazelle, or better yet, a cheetah. You need to study gazelles, learn from their success, and apply it to your business. Remember that there are gazelles in all businesses (except gardens and museums, what a shock!) and with a little study and effort you can find out who the gazelles of your region. If you are a small plastics company and you find a gazelle in your area, ask yourself what it does and what you don’t, and why. Remember that the success of these companies is not based on being “thin and mean”. They are not job cutters. In fact, it’s the companies that really drive employment in the country by doing what politicians all promise but never seem to deliver – create jobs. There’s no reason you can’t too. There’s no reason you can’t do better.
After all, cheetahs eat gazelles.
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