Back on the Radar: Chicago’s second-stage companies

The following is a re-post of my first column for Crain’s Chicago Business’ Enterprise City blog on January 7, 2011.

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What happens to startups after the start-up stage? Why don’t we hear much about them? How and why do they fall off the radar?

Those are questions I found myself asking in my role at DePaul University’s Coleman Entrepreneurship Center. We recently started offering continuing education programs to owners of “second-stage” companies and, as I got to know them and their firms, I found myself fascinated with their stories.

As someone whose career has revolved around entrepreneurship, most of my work focused on start-up, or “first-stage,” companies. Furthermore, I realized that students, the media and the general public get entranced by new firms.

After all, startups are cool, innovative and dynamic. Their products and services often make our lives better. They create hope for our economy. Their David vs. Goliath stories capture our imagination. And they inspire new entrepreneurs from all walks of life.

But for all the excitement and intrigue, the reality is that only seven in 10 new firms survive beyond two years and only five in 10 make it past five, according to the U.S. Small Business Administration. So for those that make it, why do they drop off the radar screen? What becomes of those companies and their stories?

Well, I plan to tell you through this blog, which will focus on second-stage firms. According to the Edward Lowe Foundation, these companies typically have $1 million to $50 million in revenue and 10 to 100 employees, “have grown past the start-up stage but have not grown to maturity,” and differ from small businesses (or “lifestyle” businesses) in their growth orientation.

Author Doug Tatum describes this stage as when businesses are “too big to be small but too small to be big.” In other words, they used to be startups or small businesses, but their ambition and market opportunity have driven their growth. And as they grow, they create jobs.

According to YourEconomy.org, the Lowe Foundation’s business census tool, in 2008 second-stage firms made up 9% of all companies in the Chicago metropolitan area but accounted for 24% of all jobs. Contrast that with first-stage companies (two to nine employees), which were 51% of all companies yet represented just 18% of all jobs in the Chicago area. So while we often hear that entrepreneurship is the engine of our economy, it’s evident that second-stage firms are the motor in that engine.

On a weekly basis, I’ll share stories of such firms that were once darlings of their industries and the media, get pushed off the radar screen by startups and corporate giants and are the real drivers of America’s economy. I’ll share their challenges, successes, growth trajectories, innovations and value creation.

And as we explore these companies and their stories, I welcome your questions and comments. Furthermore, if you have your own second-stage story, let me know in the comments section.

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