New Understanding Gained Of Small Business Dynamics

October 23, 2007; 10:29 AM
WASHINGTON, D.C. – A close analysis of firm data is generating a new and deeper understanding of small business dynamics.  On October 30, the authors will present the results of this analysis to the U.S. Census Bureau's Center for Economic Studies, as part of its fall seminar series.

“The life-cycle of firms has not been well understood,” said Brian Headd, Economist for the Office of Advocacy.  “This working paper adds to our understanding by showing that most firms tend not to grow after start-up, that growing firms tend to be a constant percentage of all firms, and that over time fast growing firms tend to slow their growth and become like other firms.”

The authors analyzed data from special tabulations of the U.S. Census Bureau’s Statistics of U.S. Businesses (SUSB) database.  The SUSB data provided information on how firms started, grew, merged, declined, survived, and closed from 1992 to 2002.  Among other things, the authors’ analysis determined that:

  *  Growing single establishment small firms are generally a constant percentage of industries and the economy.

  *  Over time, the percent of growing firms tends to be greater than that of decliners.

  *  Fast growing firms tend to grow in spurts, then revert to average growth.

  *  No significant relationship exists between fast growing industries and the number of fast growing firms within those industries.

  *  Industries with many growing firms also tend to have many decliners.

Bruce Kirchhoff of the New Jersey Institute of Technology and Brian Headd of the Office of Advocacy authored the working paper, entitled Small Business Growth: Searching for Stylized Facts (http://www.sba.gov/advo/research/rs311tot.pdf).

The Office of Advocacy, the “small business watchdog” of the federal government, examines the role and status of small business in the economy and independently represents the views of small business to federal agencies, Congress, and the President.  It is the source for small business statistics presented in user-friendly formats, and it funds research into small business issues.

For more information and a copy of the paper, visit the Office of Advocacy website at www.sba.gov/advo.