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Tech Startups Aren’t the Hottest in America Anymore. Here’s What Replaced Them

High-tech companies are most likely to grow fast.

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BY Leigh Buchanan - 13 Feb 2018

PHOTO CREDIT: Getty Images

In a game of word association, the prompt "entrepreneur" might elicit responses like "Silicon Valley," "venture capital," and (pick one) "Zuckerberg"/"Musk"/"Jobs." But, in actuality, the large majority of fast-growth companies are not in tech at all.

That's according to a new study from the Brookings Institute, which took a deep dive into the Inc. 5000, Inc.'s ranking of America's fastest-growing private companies. Brookings characterized the 5000 companies as "vital to the economy" because of their performance: Median annual growth rates of 43 percent for revenues, and 35 percent for employment.

Just 29 percent of fast-growth companies are in traditional high-tech industries, such as IT services, software, and computer hardware, the study found. Of course, 29 percent is nothing to sneeze at, and high-tech businesses are much more likely than those in other industries to be fast-growth. (Across the economy, they account for just 5 percent of firms overall.) Still, more than 70 percent of the most successful entrepreneurial companies are in fields like retail, construction, and government services.

Recognition of the diversity of business types may encourage more people to consider pursuing high-growth, says Ian Hathaway, a non-resident senior fellow at Brookings who wrote the report. "Someone who has a small local business that does something amazing might start to think about bigger markets," he says. "The idea of becoming a high-growth business becomes accessible to a wider set of business owners."

If industry variety influences the proliferation of growth companies, the outsize presence of high tech may affect where they launch. Companies in industries like marketing and business services sell into the high-tech sector, "and if I am a supplier it is good to be where my customers are," says Hathaway. So while entrepreneurs build companies all over the country, they tend to join ecosystems fed by tech.

Ninety-eight percent of fast-growth companies are in metropolitan areas, with the majority in cities of one million or more residents. The top five metropolitan areas for fast-growth density are Boulder, Col., Provo, Utah, Washington D.C., Huntsville, Ala., and Austin, Tex. Some smaller regions also made the list, including Columbia, S.C., Charlottesville, Va., and Fargo, N.C.

The study found four factors positively associated with high-growth company density: a large college-educated workforce, a substantial number of people employed in high-tech, a significant share of the population at the prime age for entrepreneurship (35 to 44), and high business formation rates overall.

Surprisingly, the study also found larger concentrations of fast-growth companies in areas with fewer patents. Hathaway suggests one explanation: Those regions may be dominated by large corporations or universities whose armories of intellectual property are barriers to entry for entrepreneurs.

Because entrepreneurship is primarily a local phenomenon, Hathaway advises city officials to pursue agendas (for example, investments in transportation and education) that are supportive of high-growth businesses and their founders.

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