March 16, 2006--Small, fast-growing firms are more likely to find success in industries that employ a high percentage of technology, science, and engineering employees, according to a new study by the Small Business Administration's Office of Advocacy.
In contrast, larger companies tend to flourish in industries that rely on sales, distribution, and production employees.
"Entrepreneurs play an important role in our economy, and that role clearly differs by industry," Chad Moutray, chief economist for the Office of Advocacy, said in a statement. "It has always been a tenet of economic theory that industry conditions can help to determine the role of entrepreneurs. Now, using a unique data set, the theory has been tested and found to be correct."
Using the Inc. 500 list, which ranks the nation's fastest-growing private companies, from 1984 to 1997, Jon Eckhardt, assistant professor of management and HR at the University of Wisconsin-Madison and Scott Shane, professor of economics at Case Western Reserve University, spent three years working on the project.
"This study sheds light on the types of novel ideas that might be a best fit for startups," Eckhardt said.
Changes in the technical intensity of an industry are positively linked to the number of high-growth small private firms. As an industry evolves over time, so too will opportunities for new entrepreneurs.
"Basic science is good for startups," Eckhardt said. But if the science project turns into a production line, the small private firm would lose out in the end, according to the study.
The study, titled "Innovation and Small Business Performance: Examining the Relationship Between Technological Innovation and the Within-Industry Distributions of Fast Growth Firms," was written by Peregrine Analytics with funding from the Office of Advocacy.