The Kauffman Foundation sponsored a study of the companies in the Inc. 500 over the last thirty years.
State and local government have had way too much unwarranted belief in physical clusters, especially of high tech industries. In the next thirty years, these trends presumably will get stronger as Internet collaboration and video tools become more widespread.
In part, this study is significant because it has been widely distributed among American governors (see their summary at the end):
“Analysis of the Inc. 500 geographic and industrial information led to the following major findings:
- So-called high-tech sectors constitute only about a quarter of fast-growing Inc. firms: IT (19.4 percent) and Health and Drugs (6.5 percent). Other major sectors include Business Services (10.2 percent), Advertising and Marketing (8.5 percent), and Government Services (7.3 percent). Thus, innovations and growth of firms come from a wide range of industries.
- Among large metropolitan areas, Washington, D.C., has the highest concentration of Inc. firms in terms of the number and normalized score, with more than 46 percent of them in Government Services. This rise of D.C. high-growth companies is persistent in the last two decades, regardless of party administration, and demonstrates that, ironically, outsourcing federal government services plays a large role in the growth of private firms.
- There are innovative, high-growth companies outside of the usual suspects of technology places, like Silicon Valley. Such surprise regions include Salt Lake City (second), Indianapolis (sixth), Buffalo, N.Y. (eleventh), Baltimore (fifteenth), Nashville (eighteenth), Philadelphia (nineteenth), and Louisville, Ky (twentieth). These clusters of Inc. firms, including those in the area’s so-called Rust Belt Region, suggest that population growth in the region is not necessarily a factor for growth of firms.
- While regional development literature suggests the presence of venture capital investment, high quality research universities, federal R&D funding (such as SBIR), and patents are good sources for growth, Inc. firms had no correlations with these factors. In contrast, we find that the presence of a highly skilled labor force is important for concentration of Inc. firms.
- We do not find a uniform trend of increasing or decreasing concentrations of Inc. firms across regions in the last thirty years. This geographic inequality comes in a cycle of twelve to thirteen years. Most states remained at their relatively similar Inc. score throughout the last thirty years, while a handful of states experienced radical moves: D.C. and Utah became the rising stars, New Hampshire declined steadily, and Delaware had ups and downs.”
From the National Association of Governors’ newsletter:
Fastest Growing Companies Not Always Part of Tech Industry
The Ewing Marion Kauffman Foundation released an analysis of the Inc. 500 list, an annual list of the 500 fastest growing companies in the United States, between 1982 and 2010. The report includes data visualization tools allowing readers to examine specific counties and states. The report’s authors found there was no correlation between the factors traditionally cited as drivers of growth (such as venture capital investment, high quality research universities, federal R&D funding, or patents) and the existence of Inc. 500 firms. The concentration of firms in states largely remained constant across regions and states in the last thirty years despite varied economic development programs. Only a handful of states made radical moves in concentrations of firms, with Washington D.C. representing the largest jump. Among large metropolitan areas, Washington D.C. has the highest concentration of Inc. 500 firms, with half of firms providing government services.
The authors also found that the fastest growing companies were located in a variety of regions and industries, rather than in the high-tech industries often targeted by state economic development programs. Although cities like Austin, TX that are traditionally associated with the high-tech industry were in the top 20 metropolitan areas according to number of Inc. 500 companies, rust belt cities like Buffalo, NY and Baltimore, MD also made the list. Outside of Washington D.C., the Inc. 500 firms were found in IT (19.4 percent), health and drugs (6.5 percent), business services (10.2 percent), advertising and marketing (8.5 percent), and government services (7.3 percent).
© 2012 Norman Jacknis