Euquant Analysis: An Investigation of New Firm Growth (Part-2)

This is the second part of our on-going series where we examine the Survey of Business Owners (SBO) in detail and discuss how it can be utilized to understand the dynamics of the economy. The ultimate goal of this analysis is to answer three questions. What sectors are adding and losing jobs?  What segments of the economy are  responsible for job growth or decline? What impact is job growth or decline having on the economy? In the previous post,…he-u-s-economy/ we determined  that the total number of firms was increasing and it was being mirrored by an increase in firm sales/revenue.  In this post, we will continue to examine firm growth, but instead of looking at it on an aggregate level it will be examined on an individual firm level.

What is the Impact of New Firms on the Economy?

To continue with the analysis of the previous post, we will use firm data on the sales/revenue/receipts for all, male and female-owned firms. To better understand the value added by both male and female-owned firms it can be helpful to divide the total number of sales by the total number of firms; this results in Sales per Firm. It is apparent in Graph 3 below that sales per firm is increasing; this mirrors the findings in part one for all firms. Graph 3 also shows that male-owned firms have higher sales per firm than do female-owned firms; this specific result is similar to what was shown in graph number 2.

We can duplicate this analysis for all new firms as well. This time, we divide total new sales by the total number of new firms for Male and Female-Owned firms.  So we are examining Sales per New Female-Owned firm vs. Sales Per New Male-Owned Firm. This information is provided in the chart below.

[ultimatetables 1 /]

What is this saying? Well if we combine what was uncovered in part one of the series, that the total number of female-owned firms is increasing faster than the total number of male-owned firms, with the analysis in part 2, that for each new firm added to the economy male-owned firms add more sales than do female-owned firms, it becomes apparent that simply relying on one trend can be misleading. Our two-fold analysis provides a more nuanced view. Combining the two-part analysis shows that while female-owned firms are increasing in number they are not proving to be as profitable as male-owned firms. This should be taken into consideration as policy makers and business leaders target these growing segments of the economy.  This discrepancy in profitability should serve as the as the motivation to further explore why new female-owned firms are less profitable than new male-owned firms? The answer to this question will only bolster the effectiveness of any investment made into these types businesses.