UE 2: Defining and Tracking Business Start-Ups Flashcards
What are the three characteristics of a start-up?
− new
− active
− independent
What is the meaning of “new” in the start-up definition?
“The creation of an entirely new enterprise which did not formerly exist as an organization” Keeble (1976).
What is the meaning of “active” in the start-up definition?
- A firm should not only be new, but also should engage in the trading of goods or services
- It is active when it takes on a first full-time paid employee (home-based businesses with part-time employees are excluded)
What is the meaning of “independent” in the start-up definition?
“One which has no obvious parent in any business organization”
What is the proposed “omnibus” definition of a start-up According to Michael Luger and Jun Koo (2005)?
“A start-up is defined as a business entity which did not exist before during a given time period (new), which starts hiring at least one paid employee during the given time period (active), and which is neither a subsidiary nor a branch of an existing firm (independent).”
Why is the choice of data important in start-up research?
The choice of data is important because each of the available sources has its own strengths and weaknesses.
What are “license records”, and what are their pros and cons?
Businesses require licenses (from the city or county).
Pros:
- Very comprehensive, as every business needs a license
- Registrations need to be renewed annually
Cons:
- No information about changes in name, ownership, location, and legal status (“new” criterion not satisfied)
- No information about transactions (“active” criterion not satisfied)
- Subsidiaries and branches need their own licenses (“independent” criterion not satisfied)
- Not fully computerized
What are “Business name registration records” definition, pros and cons?
Business names must be registered with the Register of Deeds office of the respective county. Business names of LLPs and LLCs have to be registered with the Secretary of State.
Pros:
- Very comprehensive (every business has to register)
- Information about status changes (“independent” criterion satisfied)
- Year of first registration can be tracked. (“new” criterion satisfied)
Cons:
- Paper firms cannot be identified (“active” criterion not satisfied)
- Very little firm specific information (e.g. about number of employees)
What are “Dun Marketing Identifier (DIM)” definition, pros and cons?
Database on firms that engage in financial activity recorded by Dun & Bradstreet (commercial credit rating and marketing service).
Pros:
- Information about financial activities (“active” criterion satisfied)
- Headquarters and branches can be identified (“independent” criterion satisfied)
- Relatively comprehensive (almost all firms that engage in financial activity)
Cons:
- Difficult to distinguish new firm from firms that underwent a change in ownership
- Independence and activity often not identified accurately
- Less representative for wholesale and service sector
- Very costly for researchers if large datasets are requested
What are “ES202” definition, pros and cons?
Quarterly updated database by Government agencies on wage and employment levels for organizations within the unemployment insurance system.
Pros:
- Includes 96% of non-agricultural employment in the US
- Distinction between new firms and “false births” (“new” criterion satisfied)
- Different identification numbers assigned to headquarters and branches (“independent” criterion satisfied)
- Only firms with employees are registered. (“active” criterion satisfied)
Cons:
- Not including sole proprietorship and agricultural establishments with less than 10 employees
- Start up date is the date employees start to work.
- No distinction between full-time and part-time employees
- Often only aggregate data is available, therefore individual firms not identifiable
What are “The census of manufacturers” definition, pros and cons?
Census about all domestic establishments of the manufacturing sector; Recorded every five years
Pros:
- By comparison between two points in time firms that were founded after the first point can be identified (“new” criterion satisfied)
- Allows to identify ownership changes (“independent” criterion satisfied)
- Only covers firms with at least one employee (“active” criterion satisfied)
Cons:
- Loss of information due to low “resolution” of 5 years
- No unique identification numbers for plants with less than 250 employees
- Underestimates self-employed business
- Often restricted access (only for confidential purposes)
- High cost
What are “Enumeration” definition, pros and cons?
Personal listing built by enumeration on the basis of a variety of sources (e.g. phone books, newspaper clippings, personal collections…).
Pros:
- Can reduce bias
- Important complementary procedure
Cons:
- Not as comprehensive as more systematic approaches
- Unsystematic
- Often very costly
What are the best data sources according to Luger and Koo (2005)? From best to worst.
1. ES202 2/3. DMI & Business name 4. Census of Manufacturers 5. Enumeration 6. License
Why is there a problem in old studies that attempted a measurement for the identification of start-up firms?
Most studies in the 1970s relied upon published industry-level census data (only able to see net changes in the number of firms in an industry).
What are the steps of the “tracking system” created by Luger and Koo (2005) to identify start-up firms?
- Data screening eliminates double counting at one year.
- Initial merge: matches two files from different years based on matching criteria (employer account number, employer federal ID, plant name, ZIP- code, SIC-code, initial liability date).
- Iterative merges with more information to reduce error. It could be the case that some information entries for the same firm changed from one year to the other (e.g. abbreviations, misspellings, ownership change etc.)
- Test of accuracy: scores are assigned to indicate the strength of a match.
