Small Business and Special Surveys Division Statistics Canada

1. Entrepreneurship Indicators Project Steering Group Meeting Paris Nov 19-20, 2007 Small Business and Special Surveys DivisionStatistics Canada

2. EIP Sensitivity Analysis Objectives • Have countries test various strategies for determining High Growth (HG) rates • Specifically look at how the HG rate is affected by: • Period of observation – 3 year vs. 5 year • Varying growth rate per year (%) • Business Size Class • Business Sector • Age of the business (Gazelles)

3. Canadian Sensitivity Testing • Reference data – 2001 to 2006 • Notes: • Employment = 12 month average head count as reported to CRA via payroll remittance data • Agriculture NAICS 11 and Government NAICS 91 are NOT included in any outputs • Acquisition, mergers & take-overs not considered • Only businesses active prior to 2001 & with 5 -249 employees in 2001 were in scope

4. Evaluation Variables • Business Size Classes 5-9; 10-19; 20-49; 50-99; 100-249 employees • Industrial Sectors • Construction; Wholesale; Retail; Prof. Scientific & Tech Services; Other; All • Window of observation • 3 yr (2001 - 2004); 5 yr (2001 – 2006) • Age of business (Gazelles < 6 yrs old) • % Growth rate / yr – 10; 12; 14; 16; 18; 20 %

5. Disclaimer Data is not for publication and should not be cited

6. Findings-Observation Period- • The 5 year measurement resulted in 50% fewer HG firms overall using 20% growth/yr • Distribution by size class varied little for 3 & 5 yr HG rates • Size 3yr 5yr • 5-9 8,948 6% 4,006 3% • 10-19 4,354 5% 2,167 3% • 20-49 2,488 5% 1,176 2% • 50-99 619 4% 309 2% • 100-249 227 3% 119 2% • 5-249 16,636 5% 7,777 2%

7. Findings-Observation Period- • Hypothesis • A HG rate is NOT sustainable for firms (They go through a HG period but then plateau until the next HG period) • Recommendation • HG should be measured within a 3 yr window • Given that HG rate varies greatly by size class (6% HG rate for size class 5-9 and 3% for size class 100-249) it is essential to produce HG rates by size class • Using an overall HG rate will distort international comparisons as the proportion of large firms in countries varies greatly

8. Findings-High Growth (HG) Definition- • 20% growth per year is high • 19% of businesses 5-249 Emp did not survive • Only 5% (16,636) businesses were HG • If we want to examine HG businesses by size and industry or size and geography, data will be very sparse and confidentiality may become an issue • Especially large sized firms (100-249 Emp) in Const. 11 HG, Whole. 11 HG, Retail 13 HG

9. Findings-High Growth (HG) Definition- • Data suggests that there is no natural breakpoint in HG definition – the number of businesses who qualify decreases progressively as the % growth / yr raises • % Growth/yr #HG • 10 15% • 12 11% • 14 9% • 16 8% • 18 6% • 20 5%

10. Findings-High Growth (HG) Definition- • Hypothesis • There is no right or wrong measure of HG, only a measure that we can all agree to that yields useful and meaningful results for international comparison • Therefore we want a measure that clearly separates businesses that are growing significantly more than the average but that yields sufficient observations to be useful in demographic analysis examining business size, industry, geography etc. • Recommendation • Pick a HG rate somewhere between 15 – 20% per year over a 3 year period

11. Findings-(HG) Revenue vs. Employment- • Results HG measured by Revenue results in twice as many HG enterprises as Employment (33,653 vs. 16,636) using 20% growth/yr The difference in the 2 measures becomes more pronounced as the % growth / yr increases • 10% growth/yr (firms 5-249) Emp = 15% Rev = 21% • 16% growth/yr (firms 5-249) Emp = 8% Rev = 14% • 20% growth/yr (firms 5-249) Emp = 5% Rev = 11%

12. Findings-(HG) Revenue vs. Employment- • Summary Data suggests that using Emp or Rev changes the # of HG firms but not demographic trends *** We need to decide whether having 2 measures of HG will enlighten users or confuse users***

13. Findings-(HG) Sector Analysis- • The proportion of HG by Sector is similar whether Emp or Rev is used to calculate HG Rev: 33,653 HG firms Cons’t 14%; Manuf 10%; Whole 8%; Ret 12%; Prof 8%; Oth 47% Emp: 16,636 HG firms Cons’t 11%; Manuf 9%; Whole 7%; Ret 17%; Prof 7%; Oth 48% Differences are confined to Cons’t and Retail

14. Findings-(HG) Sector Analysis- • Based on Emp HG • A lower concentration of HG small firms 5-49 is found in Manuf 91% vs. norm of 95-96% • A marginally higher concentration of HG small firms 5-49 is found in Cons’t 97% vs. norm of 95-96% • Results were very similar when using Rev rather than Emp

15. Findings-(HG) Sector Analysis- • Summary Sector analysis is important For many sectors it will not be possible to drill down too deeply due to confidentiality but probably not essential for international comparisons Detail sector analysis for large firms 50-249 is impossible due to too few observations

16. Findings-(HG) Gazelles- • Tracking firms < 6 yrs old • They represent 1/3 (105,141) firms 5-249 Emp • 72% of these firms survived vs. 81% overall • Although they represent 1/3 of firms they represent 41% of HG firms (6,838) • ***Using 20% growth/yr over 3 yrs*** • The proportion of HG Gazelles decreases as bus size class increases Size class #HG #Gazelles Prop. Gazelles 5-9 8948 4124 46% 10-19 4354 1676 38% 20-49 2488 817 33% 50-99 619 171 28% 100-249 227 50 22%

17. Findings(HG) Gazelles • A higher concentration of small Gazelles 5-49 is found in Cons’t 99% vs. norm of 96% • Severe disclosure issues arise when looking at Gazelles by size and industry even if one were to collapse medium sized firms together 50-249