Finnish Ministry Finally Understands Importance Of Growth Companies

Finnish Ministry of Employment and the Economy yesterday announced their first study (better late than never) into the growth company ecosystem in Finland. Like said, it is first of its kind, but this will become an annual look into the effect these companies play for the Finnish society. The study is downloadable online (in Finnish) for free, but we'll go through the main points here and what this might potentially mean in the political sense. The focus of the study is on employment and how many people these so called growth companies can employ. It turns out that during 2006 and 2009, 691 companies created around 50 000 jobs. 50 000 jobs in Finnish terms in just three years is huge, but 691 growth companies by any standards isn't a lot.

The study defined a growth company one if its annual growth in company size in terms of its people grew by at least 20% and it employed at least 10 people in 2006. The definition is the same OECD and Eurostat use. By these standards 691 companies in comparison was only 4,9% of companies who employed at least 10 people in 2006 and continued their operations throughout 2009.

If we look at the study from the pure employment perspective, the following figures are pretty interesting. The data below has been compiled from the graphs supplied together with the study. It is worthwhile reminding that these figures are regarding Finland only and during the period between 2006 and 2009.




The figure shows us a few interesting figures in my opinion. First is the fact that there are 13 662 potential companies who could be pushed into the +20% annual growth category. Naturally not all of these can do that, but there's a lot of potential there. 691 companies represent a mere 4,9% of all companies with more than 10 employees in 2006 that continued operations. Growing this figure should be a new criteria for the new Finnish government chosen this Sunday.

Secondly, it shows that there are 22 268 companies that started off with less than 10 employees in 2006, but managed to grow at least 20% in terms of people employed annually. While most of these companies are naturally closer to the 1-3 people in size, there is still potential in helping these companies become larger. The figure essentially tells me at least, that there's a relatively good base of potential growth companies if the environment is made right for them.

Another aspect worthwhile mentioning from the study (probably lots more, but then I'd be just translating the study altogether) is the role of the government in helping growth companies financially. This is a hugely expensive operation for the tax payers and this should be of key interest again, to the new government that will be formed soon.

In my opinion, it is alarming that according to the study, that of all companies in operation between 2003 and 2006 (note different time frame to previous figures), 44% of them have received some form of government financial aid. This figure is alarmingly high. The question to ask now is, what would happen if the figure of companies that receive government subsidies would correspond to the amount of growth companies?

Furthermore, looking at the 44% of companies that received government subsidies, only 5% of those companies were growth companies. To overstate and -simplify this, 95% of government subsidies are thus wasted. Of course it isn't quite as simple as that, but this shows very clearly that most of the government subsidies are going to companies that aren't benefitting the society enough in return. The study itself determines it quite diplomatically that there isn't enough information on the ROI of government subsidies and more work is needed in this area.

In summary, if there's any effect in writing this article, I hope it is in the form of new politicians realising how much there is to do regarding the ecosystem of growth companies. I'd also like to state that this has perhaps been the most in-depth analysis into helping rid of unemployment in Finland in a market supported way.

The two most important takeaways from the study in my opinion are 1) the realisation of the employment potential of growth companies, but also 2) the fact that how much money is truly wasted in funding the so called innovation system.

Image by Seppo Vuolteenaho.

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William Zimmerman April 17, 2011

We entrepreneurs would be better served if the government got out of the way, i.e. stop subsidizing and lower or abolish barriers to entry and operations.

While tech companies may not face so many barriers to entry/operation - I can vouch for the beverage/food industry - and there are just tons of rules/laws/regulations/different governmental organizations that you need to comply with or send paperwork to - all of which lessens the time the entrepreneur is actually working on his/her company, but filing papers for the State.

There was a great article in the HS about Helsinki rejecting (after they said YES and the entrepreneur had made the investment!) a mobile food stand. Ridiculous.

Another article a week or two ago was about an elderly woman who owned a bake shop and she modernized her kitchen - then the government said she couldn't bake there any longer because it didn't meet with ALL the current requirements - but her old kitchen since it was "historical" she could? WTF?

Regardless of political spectrum we entrepreneurs need to stand up and get people to start pushing for more reforms.