Measuring Growth and Its Impact on Reported Growth Persistence

Abstract

We identify a model of early-stage company growth persistence. Using seven commercial high growth company lists (either a Top 500 or Top 100 list of companies), we find that approximately 30% of companies remain on these lists two or more consecutive years. This transition probability holds constant over time: companies present for two years in a row have a 30% chance of showing three or more years, the same probability holds for showing more than four years conditional on being in the list for three consecutive years, and so on. To probe potential explanations for 70% failing to repeat, we examine the Inc.5000 list that Inc. magazine has published since 2007. We find that many of these companies have significant drops in their growth rates. Next, we examine how the definition of growth affects growth persistence. We build our own database comprising over 370,000 privately held companies from 11 different countries using ORBIS. We find that growth persistence, as defined by the transition probability, depends significantly on the definition of these growth metrics. In particular longer periods to estimate growth, average growth (rather than difference between first and last year), and minimum organizational size increase persistence. These results hold for both revenue and headcount.

Keywords: Entrepreneurship, Growth, Startups, Growth Measures, Persistence

JEL Classification: M13