Economists Credit Small Business 'Gazelles' With Job Creation

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Published April 25, 2011

| FoxNews.com

“Keeping the economy going and making sure jobs are available,” President Obama told the audience at a UPS facility in Landover, Md., earlier this month, “is the first thing I think about when I wake up the morning; it’s the last thing I think about when I go to bed each night.”

If so, the nation’s chief executive would be well advised to skip the counting of sheep and concentrate instead on gazelles.

Gazelles? Yes, gazelles. That’s the hot new buzzword used by economists who study the mechanics of job creation to identify small businesses that surge quickly, experience double-digit growth across several consecutive years, and grow their payrolls accordingly. The greatest gazelle of modern times, of course, is Google – which, like many in its species, did not remain a small company for long.

“These are the companies we'd like to see more of,” said Dr. Martin N. Baily, a senior fellow at the Brookings Institution. “I mean, many of our household words today – whether it's an Apple or Google – started out as a small company, some of them in garages or dorm rooms...And they became big companies with lots of employment and listing on the stock market. So those gazelle companies are pretty important to our economy in terms of net job creation. They are the ones who on balance create a lot of the new jobs in terms of net wealth creation.”

One formal definition of a gazelle holds that a company, to qualify, must have grown at least 20 percent in each of the last four years, starting with at least $1 million in sales; but the term is used widely, and less strictly, than this. Typically, gazelles demonstrate their greatest growth after four years of existence, and do so over a period, coincidentally, of four years.

Small businesses account for two-thirds of all new jobs in America, but within that world, analysts are now increasingly recognizing the role that start-ups play in driving job creation. Economist Ying Lowrey of the Small Business Administration has calculated that new entrepreneurial businesses created 3.5 million new jobs a year between 1997 and 2008, with 1 million of those jobs going to paid employees, and 2.5 million to the entrepreneurs themselves.

Yet gazelles are thought to account for only 5 percent of all start-ups. What’s more, these gazelles, unlike their zoological cousins, have no “natural habitat.” As the Brookings Institution has noted, “gazelles exist in all industry types and in all regions of the country…[and] attempts to anticipate which companies or even industries are likely to produce gazelles are prone to error.”

“It's hard even for the most experienced investors to do this, and as economists doing research, we don't have a way of identifying them,” said Baily, who formerly served as chairman of the Council of Economic Advisers under President Clinton. “So the trick from a policy point of view is to create an environment in which we think new companies can prosper, and that those that have the potential to be gazelles, and to add value to our economy, are going to find fertile ground to fall on.”

Some analysts have suggested that the federal government should first develop a greater body of research data on start-ups and their impact. Other policy prescriptions have included suggestions that the government offer matching private financing for new ventures and lower marginal tax rates on capital gains, among others.

Fox News hunted down a gazelle in Northern Virginia who felt similarly. Michael Ortner founded Capterra in his basement a dozen years ago, and maxed out his credit cards to the tune of $250,000 to do it. The firm is a business-to-business provider that helps match entrepreneurs with the software they need to grow their own companies. Ortner said he has posted double-digit growth in all but one of those twelve years, and has, over the last five years, multiplied his staff by twelve.

“I think it would be difficult for the government to make bets on who the gazelles are going to be,” Ortner told Fox News. “So I think it is important for the government to have policies in place that give – that allow potential gazelles, or [existing] gazelles, to hold onto as much of their capital as possible.

“We are set up just like many gazelles are, I'm sure. We are set up like a C corporation. And we pay corporate income tax every year….the full 35 percent. So every month, we are paying a check out to Uncle Sam for our corporate income taxes….Of course, we would love an elimination, but any reduction in corporate income tax would allow us to hold onto more of that capital. And that capital we could use to, again, fund more areas of our business, hire more people, invest more in our software – whatever it is to fuel that growth.”

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