MADISON – The increasingly dynamic nature of the economy
means that while workers themselves may be living longer, companies are not.
The average lifespan of a company listed in the S&P 500
index of leading U.S. companies has dropped by more than 50 years in the last
century, from 67 years in the 1920s to just 15 years today, according to
Richard Foster, a Yale University professor and an emeritus director of
McKinsey & Co. Fowler has estimated that, by 2020, more than three-quarters
of the S&P 500 will be made up of companies virtually unknown to us today.
Here’s a close-to-home example: In 1896, General Electric
was one of the 12 original firms on the newly formed Dow Jones Industrial
Average. Today, the company – which maintains a strong healthcare presence in
Wisconsin – is the only one of the 12 still listed on the index.
Coming off a week in which four Wisconsin companies
announced the collective loss of 1,000 jobs, the notion of “creative
destruction” in the marketplace is more than just economic theory. It’s a
painful reality for those who will lose their jobs.
It demonstrates why creation of new companies is so vital to
workers and the economy. A report released this week by the Ewing Marion
Kauffman Foundation in Kansas City showed Wisconsin still lags most states when
it comes to company creation, even if other studies show Wisconsin does a
better job of keeping companies alive once they do start.
One of many ways Wisconsin helps to grow – and sustain –
fresh crops of companies is the statewide Governor’s Business Plan Contest.
Launched in 2004, the contest has logged 2,905 entries across four broad
categories: Advanced manufacturing (738), Business Services (916), Information
Technology (846) and Life Sciences (405). Not every contest entry results in a
company, but many do – especially for those contestants who reach the
semi-final and final rounds.
A recent review of the 247 companies that were finalists in
the contest’s first 10 years revealed they have collectively raised at least
$160.6 million in all forms of financing, which includes $108.4 million in
angel and venture capital, and $52.2 million in federal Small Business
Innovation Research grants, venture debt, loans and other sources outside sales
The latter figure is much harder to track, but about
two-thirds of all past finalists are still in business today – which means
they’re selling products and services.
That survival rate runs ahead of national statistics. The
U.S. Small Business Administration reports that seven out of 10 new employer
firms survive at least two years, half at least five years, a third at least 10
years, and a quarter stay in business 15 years or more.
Data from the U.S. Census revealed that 69 percent of
employer establishments born to new firms in 2000 survived at least two years
and 51 percent survived five or more years. Survival rates were similar across
states and major industries.
The U.S. Bureau of Labor Statistics has reported that 49
percent of establishments survive five years or more; 34 percent survive 10
years or more; and 26 percent survive 15 years or more.
Why do most businesses fail? According to the Dun &
Bradstreet Business Failure index, 92 percent are due to a lack of financial
management or marketing skills and knowledge.
That’s why structures such as Governor’s Business Plan
help improve survival rates. Companies rarely fail because their technology
wasn’t “gee-whiz” enough. They fail because they haven’t fully considered the
rigors of building a company around that technology, with the goal of gaining
customers and selling products and services that sustain the company over time.
Finalists in the 2014 version of the contest will be
announced soon. They will range from companies with innovative life science
technologies, to software for games, recreation and professional services, to
novel ways to inspect and clean water. They’re judged by about 80 judges from
varied backgrounds, and they receive feedback along the way from those judges
and other mentors. It’s all part of a process that helps young companies not
only launch, but to endure.
Shorter life spans for mature companies mean younger
companies are needed to take their places in the economy. The Governor’s
Business Plan Contest is one such pipeline.