Governments must defend the fast-growing

If you are interested in the entrepreneurial ecosystem that exists in Australia and the world, and the importance of entrepreneurship to Australia, then a new report from the World Economic Forum will make you think it’s Christmas.

The report, entitled WEF Entrepreneurship Report 2011, is 380 pages worth of detail on how and why companies start-up, the challenges they face and the keys to successful growth.

Happily, the report does cover Australia, with a number of local firms – including tech star Atlassian, medical devices group ResMed and miners Fortescue Metals Group and Paladin Energy – included in 70 main case studies that form the basis of the report.

It’s a monster of a report that was only released overnight, so we’re only starting to digest it here at SmartCompany. No doubt we’ll continue to delve into it in the coming weeks and months so stay tuned – and if you’ve had a look at the report, be sure to tell us what aspects interested you.

One of the main headlines coming out the report was the stunning fact that it is the top 1% of start-ups (that is, the 1% of companies with the most revenue) that are responsible for creating 44% of jobs created by all start-ups in their fourth or fifth year of operation.

That’s probably lower than most business experts would have thought and as the report argues, it suggests that a very small number of “elite” start-ups really matter when we think about the impact start-ups really have on a wider economy.

But as the report also suggests, this should change the way we think about government policy supporting start-ups.

Rather than trying to support a broad group of start-ups, should governments spend more time focusing on nurturing a smaller group of real stars?

“Governments can devise policies to support the elite few that are responsible for a large percentage of growth,” the report says.

“At a minimum, they should avoid policies that negatively target the most successful early-stage companies. Such policies in the past have included extra taxation rates (eg. an excess profits tax), reduced taxation exemptions and reduced offsets for job creation.”

The report argues that at the very least, government should do more to understand highly-successful start-ups.

“Careful attention to these companies leads to various other benefits. For instance, it helps in better understanding what kind of economic, social and political environment benefits of these companies to reproduce it more often.”

“Copying Silicon Valley may be less effective than understanding the local elite few in their own ecosystem.”

While governments tend to bristle at the idea of “picking winners” in terms of industry support measures and may therefore be wary of introducing policies to actively support “elite” companies, there is clearly an argument here to suggest that we should be very careful about putting any roadblocks in front of these businesses during their start-up phase.

For example, forcing any business still in its start-up phase (let’s call that five years at least) to pay payroll tax seems to me to be extremely counterproductive.

These elite companies will still pay plenty of taxes (indeed, the more people they employ, the bigger the tax revenues created from a business will be) but they do not need any sort of obstacles to fast growth.

Let’s change our thinking and create an environment where the 1% and the other 99% have a greater chance of thriving.