MIT Innovative Initiative: A New View of the Skew – A Quantitative Assessment of the Quality of American Entrepreneurship, by Catherine Fazio, Jorge Guzman, et al
This report originally appeared on MIT’s website on May 5, 2016.
The state of American entrepreneurship shapes the outlook for the American economy. High-growth startups contribute disproportionately to net job creation and to impactful innovation, laying a crucial foundation for economic dynamism and prosperity. Fostering these firms is a strategic priority. Among all new businesses, however, only a very small fraction experience the explosive growth (in terms of jobs, revenue, or valuation) that propels the economy.
The state of American entrepreneurship—and its potential to fuel economic dynamism and prosperity—therefore depends more on whether there are enough startups being founded with the potential to realize this outsized performance than on the quantity of new business starts. As Robert Litan, former vice president of research and policy at the Kauffman Foundation, noted in the wake of the Great Recession, “America’s great challenge is to … bring about a substantial increase in the numbers of highly successful new companies … Nothing less than the future welfare of America and its citizens is at stake.” From the perspective of a policymaker, a central difficulty in assessing the state of American entrepreneurship is being able to systematically account for “the skew:” the fact that the overall ability of entrepreneurship to facilitate American economic prosperity depends disproportionately on the realized performance of a very small number of new firms. But how do we identify whether the economy at a given point in time is nurturing the types of startups that have the potential for exponential growth