TheStartup.eu

This is the first article by Floriano Bonfigli, founder of We Innov8. Expect to see quite a few more by him over here.

You may have already heard about this: start-up companies have been a major contributor to U.S. job creation. In fact, the Kauffman Foundation released a report in January 2009 showing that over the 1980-2005 period, companies with 1 to 4 employees accounted for a large percentage of new jobs in any given year, about 20% on average. Moreover, if the jobs coming from new firms were excluded, the U.S. net employment growth rate would have been negative on average.

Last July, the Kauffman Foundation released a new report. They looked at employment in new companies as they age, by tracking cohorts of firms started from 1977 till 2000. There are some good news coming out the document. The first is that for a given cohort of start-ups reaching the five years mark, the employment level is 80% of what it was when they were launched. It does seem that jobs created by start-ups do not tend to disappear that fast, despite being highly volatile. As several studies show, fewer than half of all new startup survive to their fifth year, and this rate is already a huge improvement over the previous years. However, the jobs lost at failing or reorganizing ventures are partially balanced out by the ones created at growing firms.

Given the recent crisis, the Kauffman Foundation has also investigated how recessions affect total employment in start-ups. The second good news is that new ventures do not appear to be affected in the long term if they start in a recession. They indeed hire fewer people in the first years, but they are likely to catch back up to firms not launched in a recession cycle, as they reach the five years mark. On the contrary, prolonged or serial recessions do seem to affect total employment. In particular, ventures that go through periods of three recession years showed about 10% less employment, with reference to their start-up years, than ventures facing no recession in their first 5 years (obviously). Thus, companies starting now are less likely to be hurt than the ones started at the beginning of the current recession. As long as the U.S. economy keeps growing and eventually ramps up out of recession!

This is just a short review of the report. If you want to go dig deeper and take a look at the charts, you can download the .pdf document right here.