Powering the Economy with Local Gazelles
Small business doesn’t grow the economy. Gazelles grow the economy. We should spend our resources accordingly.
Have you heard the catchphrase that small businesses are the engine of growth in America? I hate it.
I hate it because the term small business is vague to the point of uselessness.
According to the federal government, a small business is any business with fewer than 500 employees. This is 99.7 percent of all employer firms in the country!
Instead of thinking of growth in terms of “small business” it’s better to dig deeper. The true engine of growth in the United States are the so-called “gazelles.” Gazelles are business that increase their revenue 20% annually for four years or more starting from a revenue base of $1 million. This means the business essentially doubles its revenue in a four year period.
Gazelles are 1% of all businesses in the United States but account for 10% of new jobs according to the Atlantic. An average gazelle accounts for 27 new jobs annually in their first few years of existence and sees greater growth than the overall economy. Even during the recent economic downturn, gazelles saw little to no negative growth.
Gazelles drive the local, regional and national economy.
If we want to grow our communities and states, we should encourage, nurture and learn from these businesses. Unfortunately, the thrust of government action, even in my home state of South Dakota, has been the opposite.
Currently, South Dakota is in the beginning of a political drama, the likes of which is rarely seen on the prairies.
From what has been uncovered thus far, South Dakota joined the EB-5 visa program to encourage investment from overseas. These investors receive a visa in exchange for $500,000 or more.
The government employee who was responsible for promoting investment in the state moved to the private sector and was then hired by the government to continue promoting investment. This despite the fact that he was also an employee of a company receiving investment from abroad. Investigations are now underway looking in to possible financial misconduct. Tragically, the employee passed away near a grove of trees just a few weeks ago from a gunshot wound.
Many people are asking who knew what and where the money went. The bigger question in my mind however is:
Why are we focused on large companies (that may even be considered small businesses) instead of the gazelles?
There are programs in place to help find and support these gazelles but the effort and resources dwarf in comparison to the resources and incentives given to larger companies.
Here in South Dakota there is a $15,000 startup fund to help accelerate new business ideas (of which our digital marketing and education firm 9 Clouds was born!), the SBDC and SBA provide amazing services to new businesses and there is the Governor’s Giant Vision Award to provide incentive and recognition to gazelles.
Compare these efforts however to the amount of time and resources devoted to attracting large businesses. For example, my hometown of Brookings attracted a new Bel Brands cheese plant to town. With it comes the promise of 400+ jobs and a total economic impact of up to $500 million dollars.
The effort and cost to attract them however, was also great. The state provided $21.6 million dollars to help attract the company while the local community chipped in $11.6 million just for Bel Brands.
What if our investment of time and resources was put towards gazelles?
Could we create 400+ jobs by helping create innovative companies right where we are? In 9 Clouds’ case, we started almost five years ago with a $15,000 grant from the state. That startup money multiplied us in to two companies with a total staff of 15.
At that rate, a $400,000 investment would create 400 jobs in the state. Even with a small investment of $4 million from the state, one out of ten gazelle startups could fail and still create the same amount of jobs as one large company.
Plus, when times get tough, gazelles can decide where to work. Large companies on the other hand have to listen to headquarters, and when headquarters says a plant is closing, the local jobs quickly disappear as Deb learned in Webster City.
Fortunately gazelles breed gazelles.
People who have successfully launched a company tend to want to do it again. A great example is Brian Gramm. After building and selling Milo Belle, a governance, risk and compliance consulting firm, Brian started Peppermint Energy creating innovative renewable energy products designed and built in South Dakota. Within 2 years they now employ four full-time employees, seven to ten contractors and another 10 employees for their contract manufacturer. Plus, they raised $83,000+ from Kickstarter online and seven figures in equity investment thus far.
Organically, 9 Clouds trying to promote even more gazelles by hosting Start Up Weekend November 15-17. Start Up Weekend brings creators together for a weekend of business generation, the goal of which is to sell products and keep the businesses going after the weekend is done. We expect to create 8-10 potential gazelles in 54 hours with around $5000 of pizza, soda and beer.
Gazelles should be the main focus of economic development efforts rather than a side project. Gazelles are faster to grow, can be developed locally and more often than not solve local problems that will immediately impact the local community.
We don’t need more drama around luring millions in from others.
Build it right where you are and support those who can create the future herd of gazelles powering the local economy.
Note: This essay was first shared via email with subscribers to the Digital Homesteading blog.