three people he doesn’t have to hire. But he’s been hesitating. “The business side of me knows equipment is the proper way to go,” says Sparks.
“The humanitarian in me wants to be able to o;er more jobs.”
The data shows that fast-growing companies are hiring fewer
people, even as revenue swells—and even while it’s the credo of politi-
cians, the press, and entrepreneurs that starting companies means
creating jobs. Founders choke up talking about their full parking lots
and how many employees’ children they’ve helped put through college.
In economically challenged regions, starting a business is considered
among the highest of public callings.
But in 1997, about 3 percent of firms with 10 or more employees had
notched at least 20 percent annual employment growth over three years,
reports the Bureau of Labor Statistics. By 2012—the most recent year for
which data is available—that share had fallen roughly one-third. That same
year, the average number of employees added from
a company’s launch through year five hit the lowest
level since the 1990s, according to the Kau;man
Foundation. That level has risen since, but it’s still
far below where it was in the ’80s. New and grow-
ing companies are the most prolific job creators,
but the number of jobs they create is falling.
Despite the warm feelings generated by
creating jobs, employees are a cost—something
businesspeople want to minimize. What’s changing
is companies’ ability to get by with fewer and fewer
people thanks to the (growing) litany of tasks that
can be digitized and automated. In 2018, building
for success increasingly means building lean.
Job creation is lionized by politicians and
society, so founders like to discuss it, says Scott
Shane, an economics professor at Case Western
Reserve University. But few understand the cur-
rent math. “If you have a company that increased
employment by 50 percent and tripled its revenue,
and people ask, ‘Did you grow employment?’ the
CEO’s answer is yes,” says Shane. But “what is not
being captured in the discussion is that every
additional dollar of revenue is being produced with fewer cents of labor.”
Surveys of the Inc. 500 suggest reasons that go beyond dollars. Year
after year, CEOs say their greatest obstacle to growth is finding and
keeping good people. But founders figure out ways to do without when
resources are scarce—and business models built for periods of low
unemployment don’t need to change when labor is abundant.
And, of course, founders don’t like having to fire those they hired. In
2017, more than a third of Inc. 500 CEOs said that worry about employees’
livelihoods weighed against their decision to start a business. (The only
more common concern: fear of failure.) For leaders of small companies,
who know each employee personally, such misgivings are keenly felt.
That doesn’t stop founders like Sparks (who expects to employ another
20 to 30 people when he opens a brewery and brewpub in Bloomfield). But
they can hire more sta; only if their companies survive the competition.
Which, of course, requires operating lean.
Amount raised by Jessica Matthews’s renewable-energy startup, Uncharted Power, in its A round. And the
median amount raised in early-stage rounds in 2017, according to PwC. It’s also believed to be the largest
funding round raised by an African American woman ever. (For more on Matthews, see page 62.)
INTRODUCING OUR INDEX
Crunching all the data out
there to determine the state of
Startup USA isn’t an easy task.
That’s why we’re introducing
the Inc. Entrepreneurship
Index—a measure that tracks
the overall health and contributions of American startups,
produced in conjunction with
Inc.’s new data scientist, Startup
Genome research director (and
former Kauffman Foundation
analyst) Arnobio Morelix.
The Index, which updates
quarterly, currently clocks in at
88, out of 100. This is notice-ably down from recent quarters.
(The chart above tracks Index
performance over the past six
years; it peaked at 98 in the
second quarter of 2014 and has
now reached its lowest point
in that time frame.) Driving up
this Index: the percentage of
adults who owned their own
businesses grew in 2017; and,
arguably, the Trump administration’s emphasis on deregulation and tax cuts, which
has bolstered entrepreneurial
spirits. Tamping it down: Job
growth fell to its lowest level
since the end of the recession.
The Index is based on public
stats on business ownership,
and data on head counts and
loan approvals from payroll
services provider Paychex
and online loan marketplace
Biz2Credit. For further Index-related charts, analysis, and
updates, go to inc.com/inc-entrepreneurship-index.
; MARLI GUZZETTA
2012 2013 2014 2015 2016 2017
Source: Bureau of
A TIRED ENGINE
Job gains at
measured over a
since the ’90s.
7. 4 MILLION
4. 2 MILLION