High-growth firms are driving Australia’s economy

| December 8, 2017

Innovation is a key driver of company growth, according to new evidence presented in the recently released Australian Innovation System Report 2017.

Published by the Office of the Chief Economist within the Department of Industry, Innovation and Science, the Report provides a snapshot on the state of innovation in Australia. The Report shows the substantial economic impact of Australia’s high-growth firms and the impact of innovation on business performance.

Australia’s High-growth firms

There’s growing international interest in high-growth firms – businesses that manage to maintain greater than 20% average annual growth over a three year period. These exceptional few firms manage to double in size every 3 years and 10 months, or less.

The Report looks principally at employment and turnover growth in Australian firms – termed Employment High-growth firms and Turnover High-growth firms respectively. It is, however, one of the first studies to extend this definition to R&D spending, showing those that significantly and consistently increase their R&D expenditure.

What did it find? Some serious heavy lifters when it comes to economic activity. Each year there are about 11,000 Employment High-growth firms, and 18,000 Turnover High-growth firms. Between 2005 and 2012 these firms accounted for 46 per cent of positive employment growth, and almost 70 per cent of sales growth and value added growth, respectively.

The greatest number of high-growth firms are medium-sized businesses.

Their numbers, however, are declining. They’ve been declining since the GFC. The median growth rate of Turnover High-growth firms is also on the decline. However at 38% per annum in 2013, its lowest point, it still eclipsed that of non-high-growth firms which barely grew at all that year.

The good news is that median turnover levels are rising across the board. Since 2005 they’re up by 20% for micro firms with 1-4 employees and 35% for medium firms with between 20-199 employees. The median turnover for a medium-sized Turnover HGF is now just over $8 million per year.

Innovation is a key driver of business performance

The Report also looks into which types of innovation help firm performance. The work, which uses what is effectively a census of Australian firms, finds that goods and services innovation, and marketing innovation have the greatest impact on firm performance. Each can increase a firm’s turnover growth by 3 and 4 percentage points, respectively.

A firm’s very act of measuring innovation has a measurable impact. When a firm takes innovation into account when assessing its performance, the report finds, it increases turnover growth by 4%.

Understandably this effect is much larger for Turnover High-growth firms. These firms can increase their turnover growth by almost 10% by focussing on their innovation performance.

So, how does a firm become high-growth? Well the Report itself doesn’t hold all the answers. However some case studies, including Booktopia, RedBubble and Nautitech, do contain some wisdom for firms looking to define their own growth pathway.