Secret to prosperous companies: how to finance food work, business growth

What makes a company succeed? Each management consultant and founder of startup and financial analyst can tell you, and they will tell you all something different. Services leadership! Culture of innovation! Diversified workforce, fundamental principles of companies, the quality of snacks in the break room – who knows?

Now, in the largest company of the genre, a group of economists has compiled a full database Origins and destinies of 50 million American companies. Which, they wanted to know, became the The biggest employers in their industries? Which successful?

The team leader, John Haltiwanger, is an economist at the University of Maryland who is studying “dynamism. “This means that he is trying to understand changes over time – why some things are increasing while others stand. He and his team have examined the lifespan of American companies based from 1981 to 2022. Haltiwanger said.

So, o Great and powerful database, what makes the numbers go up and right? What makes a company succeed?

The answer – you will be shocked to hear – is money.

The strongest correlation between the success of the company and the factors analyzed by Haltiwanger is the quantity of financing that a company is able to lift before its launch. Start with $ 1 million increases the probability of success with a huge 25 percentage points. It’s like the old Steve Martin joke: Here’s how to become a millionaire: first, get a million dollars.

But Haltiwanger found that it also matters Or Money comes from. If you self-finance with credit cards, your chances of success decrease by 2 points. If you get a loan from a bank, your chances are improving 9 points – but it has been increasingly difficult to do in the past two decades. The best bet is therefore if you are supported by venture capital: the investment in VC increases your chances of success by 5 points.

Like Silicon Valley is still boasting, startups supported by a company were really the most dynamic and productive companies in America. They have the most innovation, the most patents, the biggest R&D budgets. And they have often grown up for having the most employees – the metric that the Haltiwanger team used to indicate success.

And this is where a problem lies: almost no one receives venture capital. Of the 1.5 million companies that Launch every yearOnly a few thousand are blessed with the investment in VC. And the best way to get a venture capital, found Haltiwanger, is to be a young white man.

Now Haltiwanger is not the first to discover the integrated bias of venture capital. As I wrote, the VCs are Especially white and especially maleAnd they tend to Give money to people they know and lovewhich is also mainly white and male. Last year, four out of five transactions went to a Fully male founding team.

But Haltiwanger’s study confirms the model. Women and non-white owners, he noted, are less likely to have external investors-and young founders are more likely to have them. The secret to success in business, according to data, essentially comes down to: being a technological brother who obtains money from other technical bros.

“There are so many things that must go well for you to succeed,” explains Florian Ederer, economist at the University of Boston who studies startups. “It will always favor people with better networks and better initial departure conditions.”

I know! Not great. The data confirm the lived experience of millions of entrepreneurs: the more you start, the richer you are.

But Haltiwanger hopes to use its database to answer an even deeper question than why some companies succeed. That is to say why more and more companies don’t do it. Haltiwanger’s data show that the legendary energy of Silicon Valley startups – the original story of a few geniuses in the 1980s, building something in a garage that metastasized in apple or Microsoft or Google – finally, it no longer happens. Money VC is still there; Dynamism is not.

Young fast companies were major sources of employment. In 1981, 15% of Americans who worked were employed in companies of four or less. In 2022, Haltiwanger’s team found that it was only 9%. And those Companies do not grow so fast As they did. In 1999, the most dynamic companies exceeded the median growth rate of 30%. In 2012, they developed roughly at the same rate as other companies.

If the technological sector was as dynamic as in the 1990s, when a cohort of startups became Big Tech, it would send a constant flow of new Challengers in the field. But that didn’t happen. “Have we seen a remarkable cohort like that in a moment?” Haltiwanger says. “The answer is no – and we don’t know why.” He adds this, he will add, will take more numbers. But he has theories.

Theory n ° 1: Maybe people start different types of small businesses – not high -tech companies, but things like restaurants and pool cleaning services and yoga studios. These companies are more likely than technological companies in the ownership of women and people of color. From 2002 to 2021, Haltiwanger revealed that the share of young companies managed by women increased from 10% to 18%, while those managed by people of color went from 10% to 27%. But these owners almost never receive fundraising funding, and they are more likely to self-finance with credit cards. They are therefore less likely to become large, such as technological companies.

Theory n ° 2: Now that a handful of companies like Google and Meta dominate the technological landscape, perhaps the kind of people who, otherwise, could have been hard-loaded founders, rather obtain concerts with a low stress and stress with low content in Big Tech. After all, older and slower companies are where jobs are. In other words, small businesses have become less dynamic, because some large companies now use all budding dynamos.

Theory n ° 3: Large technological companies do not only use all talents – they also buy all the most promising startups. In the late 1980s and early 1990s, innovative startups were more likely to become public than to buy; In 2001, the reverse was true. In 2019, there was only 100 IPOs – compared to 900 acquisitions. Most of the startups were bought by the half-dozen Large technological companies You would expect. Beginners have not become large. They were eaten.

Why don’t startups grow as fast as before?

The question that Haltiwanger poses – why young companies do not develop as quickly as before – is important. Before 2000, when companies were able to grow, the overall growth in productivity in the United States was just over 2%. Since then, it’s more like 1%. Less dynamism acts as a brake on the economy.

Now, it is possible that all these small startups swallowed by large companies are still creating intellectual property and jobs and new products, on the stock market in a way that the figures have missed. “The proof is not yet final. This is something we want to investigate,” said Haltiwanger. “But if innovation took place in the same way as before – the startups contributed as much as before, just in a different way – then why is the growth of productivity so weak? Something has changed.”

Which brings us to theory n ° 4. GOOD thing. Perhaps, just perhaps, it’s calm before the innovative storm.

Conventional history, told by Silicon Valley, is that technological startups have been important thanks to the daring vision and risk capital that supports them. Haltiwanger thinks it’s more complicated than that. On the one hand, technological productivity and innovation focused on startups occurred long before the invention of modern venture capital. And for another, innovation periods are generally preceded by a significant growth gap. Go back and look at the industries that exploded during the last century – chemicals, cars, robotics – and you see that there is a dormant period before the new technology is implemented on a large scale. Startups quietly work with the folds in their crazy ideas, brilliant like stifles When technology is ready.

If it is true, Haltiwanger theorizes, perhaps the current crisis in business growth is the signal of a boom to come. And perhaps this time, the new technology that is about to explode on the stage is artificial intelligence.

“We clearly see an increase in startups in recent years,” said Haltiwanger. “We see in the data that it is closely linked to AI. The really difficult question is: is it a new platform, a refined change in the way we do business and our way of working and how we live? Or is it not going to have the same kick as?” This is what Haltiwanger seeks to answer with his Monster database. The slowdown in productivity of the last 10 years may well be the Shakedown period before an explosion of new things from AI Nifty, and we will experience another period of dynamism.

Of course, explosions also cause a lot of damage. Cheaper and lighter AI systems from China as Deepseek could cancel the capital’s high -intensity machinations of budding holders like Openai. Or AI could eliminate millions of jobs, triggering all kinds of economic upheavals. Or the most innovative AI startups could be consumed by microsofts and Googles before becoming their own technology giants. The economy could become more dynamic with the rise of AI. But if the new technology evolves quickly and breaks things, as well as its predecessors, will it always count as a success?

Adam Rogers is a main correspondent at Business Insider.