What makes a successful business successful?
Diverse workforce, sound business fundamentals, the quality of the snacks in the break room who knows?
Which ones, they wanted to know, became thelargest employersin their industries?
That means he seeks to understand changes over time why some things surge while other things flame out.
He and his team looked at the lifespan of American companies founded from 1981 to 2022.
So, O great and powerful database, what makes the numbers go up and to the right?
What makes a company successful?
The answer you will be shocked to hear ismoney.
Starting with $1 million boosts the probability of success by a whopping 25 percentage points.
But Haltiwanger found that it also matterswherethe money comes from.
If you self-finance with credit cards, your chances of success actuallydecreaseby 2 points.
They have the most innovation, the most patents, the biggest R&D budgets.
And therein lies a problem: Almost no one gets venture capital.
Of the 1.5 million companies thatlaunch every year, only a few thousand are blessed with VC investment.
Last year, four out of every five venture deals went to anall-male founder team.
But Haltiwanger’s study confirms the pattern.
“That’s always going to privilege people with better networks and better initial starting conditions.”
But Haltiwanger hopes to use his database to answer a question even deeper than why some companies succeed.
That is, why more and more companiesdon’t.
The VC money is still there; the dynamism ain’t.
Young, fast companies used to be major sources of employment.
In 1981, 15% of working Americans were employed at companies four years old or younger.
In 2022, Haltiwanger’s team found, it was down to only 9%.
And thosecompanies aren’t growing as fastas they used to.
In 1999, the most dynamic companies outstripped the median rate of growth by 30%.
By 2012, they were expanding at pretty much the same rate as other companies.
But that hasn’t happened.
“Have we seen a remarkable cohort like that in a while?”
“The answer is no and we don’t know why.”
Figuring that out, he adds, will take some more number crunching.
But he has some theories.
Those businesses are more likely than tech firms to be owned by women and people of color.
But those owners almost never get venture funding, and they’remore likely to self-finance with credit cards.
So they’re less likely to get big, the way tech companies do.
After all, the older, slower-growing companies are where the jobs are.
In 2019, there were only100 IPOs compared with 900 acquisitions.
Most of the startups were bought by the half-dozenBig Tech companiesyou’d expect.
The newbies didn’t get big.
Since then, it’s more like 1%.
Less dynamism acts as a brake on the economy.
“The evidence is not definitive yet.
That’s something we want to go investigate,” Haltiwanger says.
Something has changed."
Which brings us to Theory No.
Maybe, Haltiwanger thinks, the lull in business growth is agoodthing.
Maybe, just maybe, it’s the calm before the innovative storm.
Haltiwanger thinks it’s more complicated than that.
For one thing, startup-driven productivity and tech innovation happened long before the invention of modern venture capital.
And for another, periods of innovation are usually preceded by a noticeable lag in growth.
“We are clearly seeing a surge in startups in the last few years,” Haltiwanger says.
“We see in the data that it is closely tied to AI.
Or is it not going to have the same kick as IT?”
That’s what Haltiwanger is looking to answer with his monster database.
Of course, explosions also cause a lot of damage.
Cheaper and lighter AI systems from China like DeepSeek could nullify the capital-intensive machinations of wannabe incumbents like OpenAI.
Or AI could eliminate millions of jobs, sparking all sorts of economic upheaval.
The economy might get more dynamic with the rise of AI.
Adam Rogersis a senior correspondent at Business Insider.
