Defying Gravity: High-Growth Entrepreneurs Buck the Macroeconomic Factors Challenging Other Companies

While the U.S. economy continues to wrestle with persistently high unemployment, slow growth and challenges from other developed and emerging economies, the more than 600 American companies named as finalists in the 2012 U.S. Ernst & Young Entrepreneur Of The Year® program are creating jobs, expanding their businesses and planning for growth. Ernst & Young, in collaboration with the Kauffman Foundation, looked at what these companies are doing right, and in a new paper, “Defying gravity: High-growth entrepreneurship in a slow-growth economy,” released today at the Ernst & Young Strategic Growth Forum®, identify eight reasons why these exceptional companies are bucking the trend and finding success.

The Entrepreneur Of The Year finalists are spread across all industries, including technology, manufacturing, consumer products and energy. Between 2009 and 2011, these companies, which together employ nearly 700,000 people, achieved 30 percent job growth (over 150,000 jobs) and 48 percent revenue growth, dwarfing U.S. figures as well as companies in the Standard & Poor’s index, which had revenue per share growth of only 15.9 percent over the two-year period from 2009 to 2011. Companies in energy, cleantech and natural resources led in employment growth, at 49 percent over the period 2009 to 2011, closely followed by technology (42 percent) and services (33 percent).

 So what are these companies doing right? According to the paper, the eight key reasons these companies are succeeding are because they:

• Have a unique perspective on risk. A majority of the entrepreneurs indicate they believe entrepreneurs are born, not made. This explains their passion to identify an unmet need in the marketplace and then set out to solve it, versus their counterparts who either miss the need altogether or see a need and conclude someone else could or should solve it.
• Communicate their vision and instill passion in great teams. Regardless of their position in the marketplace, these companies overwhelmingly cite people as their leading priority. This is not simply a generalized focus on the workforce. The findings reveal a strong concern for the individual employee among entrepreneurial companies. This is in sharp contrast to well-established global companies, many of which have been more interested recently in implementing efficiency and productivity increases that translate into headcount reductions. In addition, where entrepreneurial companies really differentiate themselves is in their ability to communicate their vision and instill their passion. More than 40 percent cite this as their biggest strength.
• Demonstrate resilience and rapid recovery. Everyone makes mistakes, including successful entrepreneurs. More than 30 percent of the entrepreneurs acknowledged having made one or more bad decisions or encountering significant difficulty in execution. But while all businesses make bad decisions from time to time, the best entrepreneurs and their teams seem to be more resilient. Encountering obstacles, they are able to set a new course and rapidly recover — perhaps being able to react much more nimbly than their large corporate counterparts and to learn from mistakes to avoid making them again.
• Embrace innovation. Entrepreneurial companies are the predominant sources of radical innovations. While older and larger companies can also innovate effectively, more established companies tend to resist radical innovation that might displace their existing revenue streams in the short term. Successful entrepreneurs know that their agility and propensity for innovation can make them an attractive investment, acquisition or partnership target.
• Do what they do best. High-growth entrepreneurs focus on the things they do best and appropriately partner with other, often larger corporations, to carry out certain infrastructure and technology needs, administrative functions, sales channels, manufacturing and distribution and regulatory compliance. This enables more rapid, flexible and cost-effective scalability as the business grows.
• Pursue geographic expansion. The majority of the entrepreneurs indicate they are continuing to expand their businesses in domestic (U.S.) markets, while more than 20 percent indicated they are expanding in developed global markets. Many, especially those with revenues greater than $1 billion, indicate they are expanding into emerging global markets.
• Secure the right capital at the right time. The entrepreneurs report accessing a wide range of funding sources as they have grown their businesses. Nearly half report raising venture capital, angel investment or private equity. Roughly a third cite the use of personal funds, while another quarter access bank loans. And, 16 percent received funds from friends and family. Few indicate they have accessed government grants – perhaps due to the risk- reward tradeoff involved in paperwork and compliance, continued volatility in the rules, concerns about government disclosure requirements or simply the length of time it takes for such grants to be completed.
• Preserve what they’ve built. Successful entrepreneurs look to preserve those company qualities that made them a market leader. Their four top concerns as they are grow and mature are preserving company culture (52 percent), attracting and maintaining top talent (44 percent), protecting and enhancing brand and reputation (38 percent) and retaining best customers (30 percent).