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SBE Lect 3_ Part 4: Ch3.5- Ch4 (Are gazelles in need of support? (Gazelles…
SBE Lect 3_ Part 4: Ch3.5- Ch4
Strategic direction of policy
Challenge faced is segmenting entrepreneurship policy: there are a wide variety of potential support and types of businesses
Can segment entrepreneurship policy by looking at the types of support that government provides and see what works i.e. can examine ‘hard’ (financial support) or ‘soft’ support (business development services, training
High-growth firms (gazelles)
1.20 × 1.20 × 1.20 = 1.73 → see slide 18
At least 73% growth in three years
OECD definition
: Firms with 10 or more employees that have an average annual growth greater than 20 percent per year over a 3-year period, as measured by
employment levels
or employee turnover
Rationale for supporting growth firms
Shane (2009) asks is it better for Germany to spend €12 billion on supporting the unemployed into self-employment or spending that money on supporting fast growth firms?
“Stop subsidizing the formation of the typical start-up and focus on the subset of businesses with growth potential”
Amongst small firms, concrete evidence that fast growth entrepreneurial firms (gazelles) are the most likely to create employment, provide innovation and create wealth
Jovanovic (2001) showed that the value of four young (less than 20 years old) companies in the US adds up to 1/8 of GDP
During the 1990s, Nokia on its own provided half of the GDP growth for Finland
Are gazelles in need of support?
Gazelles may lack managerial training ◦ Provide management training?
Gazelles may lack support and assistance in terms of developing networks that can support them
◦ Entrepreneurship ‘supper’ clubs
Gazelles struggle to access appropriate finance (equity gap) which makes it difficult for them to grow
◦ Provide loan guarantee schemes
Gazelles are unaware of potential export opportunities
◦ Export assistance, export guarantees
Reasons for not supporting gazelles
There is a very low take-up of the provision of business support by gazelles suggesting that
◦ Only those gazelles that have gone ‘lame’ are likely to use public support
Providing support may weaken focus
◦ Spending more time on chasing grants and loans than actually getting on with developing their business
Providing support may have deadweight effects ◦They would have done the activity regardless of the support Public support may
‘crowd out’
private sector support (e.g. accountants, lawyers) whose interest it is developing alongside gazelle type businesses
Despite myths surrounding gazelles (e.g., that they are young, that they are VC backed, are found in high-tech industries and often spin out of universities), even in hindsight it is difficult to work out which firms are likely to grow
Behaviour of gazelles
see slide 20-21/32
There is little serial correlation in growth rates (remember the OECD definition >20 percent per year over a 3-year period)