H&D Partners

Focusing On Job Creation In Startups

Time and again I have focused too much of my attention on the number of jobs created in start-ups as a measure of success of any business support organization. In doing so, honestly, I fell short of my professional commitments. Too much importance has been allotted to the numbers of jobs springing from start-up support programs in a given year, leading to myriad misinformed decisions which were taken on its behalf.

The number of jobs created is indeed, in its simplicity, a powerful indicator.  But when it comes to start-ups, what troubles me most in the use of such an easy-to-read-explain-digest indicator is its capacity of leading to massive misinterpretations, which, in their turn, lead to sub-optimal decisions when it comes to local economic development policy-making.

Start-ups in the early stage of their life will not hire massively. Impact reports of many different support organizations speaks quite clearly: There is an average of 5,2 employees per incubated start-up. To my eyes this is both not impressive and, at the same time, very normal, and therefore I have no problems with the value per-se. We are talking about companies who are in their seed phase. Eventually they will grow sometime in the future, but not here and now. Where I feel there is a real problem is in the perception of this indicator in the communities and within its policy and decision makers, whom, we have to assume, are generally misinformed and therefore might take misinformed decisions. For example, I have been questioned many times why local governments should use tax-payers money to fund programs that have so little impact on regional employment? It is a fair question. And if you are not able to convey the “big picture” you will find yourself in a lot of trouble trying to defend the industry.

Of course the big picture is that supporting start-ups is a long term commitment, and therefore the exercise of measuring and benchmarking at any given year employment in a startup community, might very well be a futile, and possibly even an uninteresting exercise. What good does it make to know that at any given time 204 people are employed in a given community of start-ups? None that I can see, really. The interesting figure would be to know year after year what has happened to the employment records of said community. Has it grown sensibly or not? Are there real successes that have impacted growth structurally? Can the start-ups today actually be those that will turn around regional economy in the future? Is the long-term investment in incubating start-ups really worth it in terms of employment? These should be the questions we should seek to answer and here, the simple but powerful “employment generated by supported startups” will not capture the relevant information and therefore is simply misleading.

Tracking job creation in the long run is really hard and it may not be in the direct scope of any incubator, which needs to concentrate on the job at hand, which is to support early-stage companies, and already have limited resources to do so. I have visited many business support organizations around the world, and I can’t recall one who is actually making an effort in tracking what has happened to the companies they have supported once the program has ended. I would be happy to be informed if the reader has some examples to provide. But, tracking the data should be among the industries priorities because there is a mismatch between the long-term investment needed to create visible and impactful results and the mid-term perspective of any policy-maker who may seek re-election based on, among other things, the net number of jobs created by the development programs she/he has supported. And here it makes a lot of difference if we are able to feed the correct indicator measuring the long-term contribution to growth, rather than the yearly observation, which sincerely, will impress very few people.

May 2022

Giordano Dichter



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