What is a Gazelle?
The Gazelle Index is a national quarterly survey of the current conditions, future optimism and hiring plans of high-performing minority, women, and nonminority small-business owners. The Index defines gazelles as high performing small businesses; by this we mean businesses with 10 to 100 employees. Firms of this size comprise 4% of all small businesses in the US, but employ 24% of all workers.
The quarterly survey that makes up the Gazelle Index includes 631 randomly selected CEOs. Among the CEOs are individuals who operate firms that are growing at a rapid rate, some who operate firms that are growing at a moderate rate, and firms that are not growing at all. By design, the survey does not just include all fast growing firms. It would not make sense to do that because in today’s economy, firm growth is too volatile and companies that achieved it one quarter not do so the next quarter. By focusing on firms with 10 to 100 employees, the Gazelle Index staff is able to examine firms that perform well as well as those that do not, and share that information with all small business owners.
The definition of a gazelle has always been controversial. During the 1990s in the height of the IT era, David Birch popularized the concept of “gazelles” to characterize small high growth firms that seemed to achieve success virtually overnight. Researchers have never agreed on the criteria that makes a company a “gazelle”. However, during the Internet bubble a 20% annual growth in revenue or employment evolved as the most commonly accepted criteria. Today, with so many small companies struggling to survive the effects of the Great Recession, setting 20% as a criterion does not make much sense.
Generally speaking, it is accepted that small businesses employ the majority of workers in the economy. But that depends upon how one defines small businesses. If one defines them as does the Small Business Administration (i.e. firms having 500 or fewer employee), they easily account for the largest share of the net increase in jobs. For example, between 1992 and the first quarter 2010, small businesses (i.e. firms with fewer than 500 workers) contributed 74% of the total increase in jobs and 62% of the net increase (i.e. job additions minus job losses). However, if one defines small businesses at a lower threshold, this statement is less true.
Several years ago, the National Commission on Entrepreneurship classified high-growth firms as those which achieved an annual rate of growth in employment of 15% or more each year for five years, or a 100% or greater employment growth over the same time frame. Most interestingly, they found that high-growth businesses were not concentrated in specific geographic regions or industries, such as IT. Instead, they were distributed throughout the country and were present in most industries. A more recent study defines gazelles as firms which doubled their sales over a four-year period and also achieved a doubling of their employment.
A longitudinal study of firm growth between 1977 and 2005, commissioned by the Kauffman Foundation, found that net new jobs are mainly created by start-up companies, i.e. firms that are less than one years old. In contrast, existing firms were found to be net destroyers of jobs. In short, research on the definition and characteristics of gazelles and the contribution to job creation of small businesses, start-up businesses and high-growth businesses is still being researched. In light of this, the staff at Gazelle Index has settled on a definition that is suitable to today’s economic environment. The Gazelle Index tracks the performance of “high-performing” rather than simply high-growth companies.
