New research conducted by Sparkyard and HSC shows that new companies, those less than 1 year-old, have created an impressive 25,000+ jobs a year in Tarrant County for each of the last six years. In 2018, new companies created a whopping 25,147 jobs. What do these rather impressive numbers really mean for Tarrant County and why are these numbers important to our future?
Fort Worth natives and residents, current and future entrepreneurs, policymakers, academics, small business owners and business leaders in Tarrant County: pay attention. Startups are crucial to building a resilient economy and fostering an environment for innovation in our metroplex.
Here are five reasons why understanding startups are critical to a stronger future:
1. New Companies, New Jobs
The data prove that startup companies are an economic driver. According to several studies by the Kauffman Foundation, between 1980 and 2005, ALL net new job creation in the United States came from firms less than 5 years old. Since then, the number of companies created every year has been steadily declining. In other words, less jobs are created by young companies because there simply aren’t enough companies being started to represent ALL net new job creation. But, the adage still largely stands as ALMOST ALL net new job creation in the US comes from firms less than 5 years old.
At the same time, in job creation it is not the SIZE of the company that matters but rather the AGE. Indeed, these large companies do represent a sizable share of the total jobs in the US, but they also destroy many jobs each year due to automation and other efficiencies. Their NET impact on job creation is negative. This directly contrasts the prevailing narrative that small businesses are the “backbone of our economy” and that large, multinational companies are the most important actors in our economy. This data proved that same trend locally. Research on new companies under 1 year old and the high rates of job creation point to a similar trend for startup companies less than five years old. Given the percentage of NET job creation they represent, it is hard to ignore the contribution that young companies make in our local economy,
2. Policymakers and Job Creation
In this blog, we have shared many data points and research on subjects including Inc. 5000 (fastest growing firms), total new firms starts (new company creation) and early stage capital raised (seed, angel and venture capital raised). However, these stats are frankly not that interesting for policymakers. In the immortal words of the late Ted Kennedy, policymakers care about “three simple words: jobs, jobs, jobs.”
Often, economic development headlines feature policymakers bargaining with large companies for job creation in exchange for tax incentives is common and can often end up doing more harm than good. State and local governments will often make irrational decisions just to win a battle for the next big employer to show positive impact on the local economy. Many times they give away the proverbial farm on the promise of future job creation. Like in the case of Foxconn in Wisconsin, the jobs promised by some of these incentive packages don’t always materialize. The state and local government gave away nearly $4 billion in tax incentives on the promise of 13,000 jobs created in the state. Almost 2 years later, Foxconn has fewer than 520 full-time employees.
3. A Stronger Foundation for Startups in Tarrant County
In 2018, the Fort Worth Chamber of Commerce announced their Fortify strategy – a four year effort to grow our local economy. This experiment represents a new understanding of our local economy, and provided a baseline to start measuring the impact that new firms have on our local economy’s ability to create jobs. The goal of the Fort Worth Chamber of Commerce was to help local companies create 2,000 jobs over the course of the four year plan and create 500 jobs per year. With no frame of reference, the Fort Worth Chamber of Commerce vastly underestimated the power of investing in local companies. As previously noted, local companies created about 25,147 jobs in the first year; more than 50 times the initial goal set by the Chamber. This again proves the value that comes with investing in startups as a means to strengthen our city.
Here is another way to put the power of local companies to generate jobs into context: Amazon announced their search for a second headquarters in 2017 (HQ2), and economic development officials all over the US salivated at the opportunity to attract the 50,000 jobs that Amazon was promising to bring to the winning city. States and municipalities plotted to attract the online retailer’s second headquarters by offering billions of dollars in incentives, building infrastructure and taking other drastic measures. This promise of 50,000 jobs set off a very public battle of one upmanship. Yet, as we now know, Tarrant County and other local startups are already creating the same number of jobs in just two years, largely without lavish tax incentives or infrastructure investments.
This report from Sparkyard sets a baseline to track future job creation by new companies and can serve as a bellwether to indicate the health of our entrepreneurial ecosystem.
4. Backing our Community’s Talents
Very simply, this research reminds us that our local economy is dynamic and that new companies are important. Our family, friends, neighbors and community members are taking very real risks to pursue their passions and start new companies which we cannot downplay. Investing in startups not only builds our local economy, but invests in the potential of people in our community. There are lots of ways that we can all support them and if we do, they can avoid failure, continue to grow and create jobs.
5. Investing in Tarrant County’s Potential
Let’s pretend for a minute that leaders in our area would throw the kitchen sink at startup companies like they would at Amazon, Foxconn or a similar multinational company. With incentive programs and tax abatements for people starting companies, tax credits for companies investing in research and development or trying to commercialize technology, and even incentives for high net worth individuals to invest in local startups, we could tap into the talent and potential which already exists in our local community.
Entrepreneurial activity is critical to job creation in the US and in Tarrant County. This research is just the first step to understanding the tremendous impact that entrepreneurs and startup companies have on our local economy, and it is a step in the right direction.
If this future of Fort Worth and Tarrant County did exist and increased importance was placed on new firm formation, how high could this job creation number go? How many jobs could new companies create? What would that mean for innovation, research dollars and early stage investment? And most importantly, what could investing in startups do for the people in our community?
This post is a collaborative effort by Cameron Cushman, Assistant Vice President at HSC Innovation Ecosystems and Fatima Burney, Intern at HSC Innovation Ecosystems.