To create jobs, it’s helpful to think about gazelles, those fast-growing entrepreneurial start-ups that rapidly scale into sustainable businesses with high-value jobs and prospects. In the greater Washington region, both community leaders and entrepreneurs invest time identifying these business successes and encouraging new ones to grow. I’ve been looking at data, hunting for patterns, spotting industries in which local gazelles are appearing. What I found both surprised and concerned me.
The U.S. economy has had two cycles of explosive growth in technology over the last 20 years. The first period I refer to as the era of the “Internet printing press.” It lasted from 1995 to 2001 and framed the establishment of the Internet as an infrastructure to support countless business opportunities. The second period I describe as the “era of sharing” — it stretches from 2003 to today. Our region’s participation in each of these two eras of expansion has been very different.
During the era of the Internet printing press, gazelles in the greater Washington region regularly enjoyed venture capital investment. This kind of funding is a great way to spot a concentration of gazelles because it’s a source that adds rocket fuel to a company’s explosive growth. Overall, our region’s gazelles received approximately 6 percent of the venture capital deployed during this period, and in some areas of particular concentration – telecommunications and infrastructure primarily – our region’s participation rate was much higher.
However, during the sharing era, similar investment has been dramatically muted, with only 1 percent to 2 percent of total venture capital funding feeding the gazelles.
Regional data show that high-value jobs are being created in our region. However, if they are not coming from technology gazelles, what’s their source?
A useful comparison tool is the Inc. 500 list of the “fastest growing” small businesses in the United States. Although an imperfect list in some ways – it measures revenue self-reported by private companies – the composition of the companies designated in the annual Inc. 500 report provide a useful means to identify the occurrence and frequency of these extremely fast-growing companies. For many years, the greater Washington region has been well-represented in the prestigious list, and the composition of these companies is illuminating.
In 1997, our region’s gazelles clustered in computer hardware and software, business products and services, health, telecommunications and marketing, advertising and media. Of these, telecommunications, computer hardware/software and marketing, advertising and media together constituted close to 75 percent of all gazelles in our market. Comparatively in 2015, those three technology areas were not regionally represented on the Inc. 500 list. Not once. In 2015 the fastest growing companies in our region were information technology services, government services and health. They made up about 95 percent of companies on the list.
The numbers illustrate just how much gazelle creation in our region is relying on services, particularly technology services. In light of the federal government’s continued movement towards consuming technology products over services, this heavily concentrated reliance on technology services is even more alarming.
What are we doing to diversify our region’s ability to create new gazelles?
It turns out that efforts (such as TandemNSI or Mach 37 Accelerator) to help the local entrepreneurial community create technology products for government customers and models (such as 1776) to create gazelles that benefit from proximity to the federal government are more crucial than believed.
The last 20 years have proven our entrepreneurial community’s ability to adapt to changing funding patterns. Take the war on terror or recent healthcare changes — even not-so-glamorous areas where entrepreneurs found a way to let innovation prosper.
Let’s ensure that when the next technology era occurs – be it robotics, artificial life, energy conservation or virtual reality – our region is ready to participate and support the gazelles.
Jonathan Aberman is a business owner, entrepreneur and chairman of Amplifier Ventures, a venture capital fund focusing on national security technology innovation. He is co-host of “Forward Thinking Radio” on SiriusXM, a business and policy program launching nationwide on Sept. 20.