Small Business and Special Surveys Small Business and Special Surveys DivisionDivision

Statistics CanadaStatistics Canada

Entrepreneurship Indicators ProjectEntrepreneurship Indicators Project

Steering Group MeetingSteering Group Meeting

Paris Nov 19-20, 2007Paris Nov 19-20, 2007

EIP Sensitivity Analysis Objectives

Have countries test various strategies for determining High Growth (HG) rates

Specifically look at how the HG rate is affected by: Period of observation – 3 year vs. 5 year Varying growth rate per year (%) Business Size Class Business Sector Age of the business (Gazelles)

Canadian Sensitivity Testing

Reference data – 2001 to 2006 Notes:

Employment = 12 month average head count as reported to CRA via payroll remittance data

Agriculture NAICS 11 and Government NAICS 91 are NOT included in any outputs

Acquisition, mergers & take-overs not considered

Only businesses active prior to 2001 & with 5 -249 employees in 2001 were in scope

Evaluation Variables Business Size Classes 5-9; 10-19; 20-49;

50-99; 100-249 employees Industrial Sectors

Construction; Wholesale; Retail; Prof. Scientific & Tech Services; Other; All

Window of observation 3 yr (2001 - 2004); 5 yr (2001 – 2006)

Age of business (Gazelles < 6 yrs old) % Growth rate / yr – 10; 12; 14; 16; 18; 20 %

Disclaimer

Data is not for publication and should not be cited

Findings-Observation Period-

The 5 year measurement resulted in 50% fewer HG firms overall using 20% growth/yr

Distribution by size class varied little for 3 & 5 yr HG rates Size 3yr 5yr 5-9 8,948 6% 4,006 3% 10-19 4,354 5% 2,167 3% 20-49 2,488 5% 1,176 2% 50-99 619 4% 309 2% 100-249 227 3% 119 2% 5-249 16,636 5% 7,777 2%

Findings-Observation Period-

Hypothesis A HG rate is NOT sustainable for firms (They go through a

HG period but then plateau until the next HG period) Recommendation

HG should be measured within a 3 yr window Given that HG rate varies greatly by size class (6% HG rate

for size class 5-9 and 3% for size class 100-249) it is essential to produce HG rates by size class

Using an overall HG rate will distort international comparisons as the proportion of large firms in countries varies greatly

Findings-High Growth (HG) Definition-

20% growth per year is high 19% of businesses 5-249 Emp did not survive Only 5% (16,636) businesses were HG If we want to examine HG businesses by size and

industry or size and geography, data will be very sparse and confidentiality may become an issue

Especially large sized firms (100-249 Emp) in Const. 11 HG, Whole. 11 HG, Retail 13 HG

Findings-High Growth (HG) Definition-

Data suggests that there is no natural breakpoint in HG definition – the number of businesses who qualify decreases progressively as the % growth / yr raises

% Growth/yr #HG 10 15% 12 11% 14 9% 16 8% 18 6% 20 5%

Findings-High Growth (HG) Definition-

Hypothesis There is no right or wrong measure of HG, only a

measure that we can all agree to that yields useful and meaningful results for international comparison

Therefore we want a measure that clearly separates businesses that are growing significantly more than the average but that yields sufficient observations to be useful in demographic analysis examining business size, industry, geography etc.

Recommendation Pick a HG rate somewhere between 15 – 20% per year

over a 3 year period

StatisticsCanada

FindingsFindings-(HG) Revenue vs. Employment--(HG) Revenue vs. Employment-

Results Results HG measured by Revenue results in twice as HG measured by Revenue results in twice as

many HG enterprises as Employment (33,653 many HG enterprises as Employment (33,653 vs. 16,636) using 20% growth/yrvs. 16,636) using 20% growth/yr

The difference in the 2 measures becomes more The difference in the 2 measures becomes more pronounced as the % growth / yr increasespronounced as the % growth / yr increases10% growth/yr (firms 5-249) Emp = 15% Rev = 21%10% growth/yr (firms 5-249) Emp = 15% Rev = 21%

16% growth/yr (firms 5-249) Emp = 8% Rev = 14%16% growth/yr (firms 5-249) Emp = 8% Rev = 14%

20% growth/yr (firms 5-249) Emp = 5% Rev = 11%20% growth/yr (firms 5-249) Emp = 5% Rev = 11%

StatisticsCanada

FindingsFindings-(HG) Revenue vs. Employment--(HG) Revenue vs. Employment-

Summary Summary Data suggests that using Emp or Rev changes Data suggests that using Emp or Rev changes

the # of HG firms but not demographic trends the # of HG firms but not demographic trends

*** We need to decide whether having 2 *** We need to decide whether having 2 measures of HG will enlighten users or confuse measures of HG will enlighten users or confuse users***users***

StatisticsCanada

FindingsFindings-(HG) Sector Analysis--(HG) Sector Analysis-

The proportion of HG by Sector is similar The proportion of HG by Sector is similar whether Emp or Rev is used to calculate HGwhether Emp or Rev is used to calculate HG

Rev:Rev: 33,653 HG firms33,653 HG firmsCons’t 14%; Manuf 10%; Whole 8%; Cons’t 14%; Manuf 10%; Whole 8%; Ret 12%; Prof 8%; Oth 47%Ret 12%; Prof 8%; Oth 47%

Emp:Emp: 16,636 HG firms16,636 HG firmsCons’t 11%; Manuf 9%; Whole 7%; Cons’t 11%; Manuf 9%; Whole 7%;

Ret Ret 17%; Prof 7%; Oth 48%17%; Prof 7%; Oth 48%Differences are confined to Cons’t and RetailDifferences are confined to Cons’t and Retail

StatisticsCanada

FindingsFindings-(HG) Sector Analysis--(HG) Sector Analysis-

Based on Emp HGBased on Emp HG

A lower concentration of HG small firms 5-49 A lower concentration of HG small firms 5-49 is found in Manuf 91% vs. norm of 95-96%is found in Manuf 91% vs. norm of 95-96%

A marginally higher concentration of HG small A marginally higher concentration of HG small firms 5-49 is found in Cons’t 97% vs. norm firms 5-49 is found in Cons’t 97% vs. norm of 95-96%of 95-96%

Results were very similar when using Rev Results were very similar when using Rev rather than Emprather than Emp

StatisticsCanada

FindingsFindings-(HG) Sector Analysis--(HG) Sector Analysis-

Summary Summary Sector analysis is importantSector analysis is important

For many sectors it will not be possible to drill For many sectors it will not be possible to drill down too deeply due to confidentiality but down too deeply due to confidentiality but probably not essential for international probably not essential for international comparisonscomparisons

Detail sector analysis for large firms 50-249 is Detail sector analysis for large firms 50-249 is impossible due to too few observationsimpossible due to too few observations

StatisticsCanada

FindingsFindings-(HG) Gazelles--(HG) Gazelles-

Tracking firms < 6 yrs oldTracking firms < 6 yrs oldThey represent 1/3 (105,141) firms 5-249 EmpThey represent 1/3 (105,141) firms 5-249 Emp72% of these firms survived vs. 81% overall72% of these firms survived vs. 81% overallAlthough they represent 1/3 of firms they represent 41% of Although they represent 1/3 of firms they represent 41% of

HG firms (6,838)HG firms (6,838)***Using 20% growth/yr over 3 yrs******Using 20% growth/yr over 3 yrs***

The proportion of HG Gazelles decreases as bus size class The proportion of HG Gazelles decreases as bus size class increasesincreases

Size classSize class #HG#HG #Gazelles#Gazelles Prop. GazellesProp. Gazelles5-95-9 89488948 41244124 46%46%10-1910-19 43544354 16761676 38%38%20-4920-49 24882488 817817 33%33%50-9950-99 619619 171171 28%28%100-249100-249 227227 5050 22%22%

StatisticsCanada

FindingsFindings(HG) Gazelles(HG) Gazelles

A higher concentration of small Gazelles 5-49 is A higher concentration of small Gazelles 5-49 is found in Cons’t 99% vs. norm of 96%found in Cons’t 99% vs. norm of 96%

Severe disclosure issues arise when looking at Severe disclosure issues arise when looking at Gazelles by size and industry even if one were to Gazelles by size and industry even if one were to collapse medium sized firms together 50-249collapse medium sized firms together 50-249