I’ve been thinking a lot about the issue of job creation and cluster growth, in light of Zymogenetics’ recent sale to Bristol-Myers Squibb. The sale kicked off the latest round of debate in the local life sciences community, to the tune of “is it a good or a bad thing that all our successful biotechs get bought up.” We’ve all debated this over and over again, and the answer really stems from what it is that you think creates jobs: large anchor companies vs. small businesses.
Interestingly, the answer might be neither. Apparently, the businesses that create jobs are the new ones.
Let’s back up a little bit. This TechFlash piece outlines both of the traditional arguments; either:
Seattle’s biotech industry has encountered numerous fits and starts over the past two decades. And one of the reasons for this is the lack of a global brand — an anchor tenant — which has grown and prospered here over the years. The reason why Seattle has established a reputation as a hub for software development is because Microsoft is based here. The same goes for e-commerce — with anchors in Amazon.com and Expedia. Those companies import smart people — either through traditional hiring or acquisitions. And they continue to grow and grow and grow.
Acquisitions can inject money into the region, providing liquidity to employees and shareholders. It also means that researchers are creating drugs that are attractive to big pharmaceutical companies. In some cases, but certainly not all, the acquisitions also lead to new research operations in the region. (See Amgen’s buyout of Immunex as an example).
So there you have it. Either we need a Microsoft in the biotech community (the next big bet is on Dendreon) or we’re blessed to have lots of little companies around innovating and attracting capital. But I’m really fascinated by this new study that talks about the biggest job creators being start-ups, regardless of size:
The notion that growth is negatively related to firm size remains appealing to policymakers and small business advocates. The widespread and repeated claim from this community is that most new jobs are created by small businesses…However, our main finding is that once we control for firm age there is no systematic relationship between firm size and growth. Our findings highlight the important role of business startups and young businesses in U.S. job creation. Business startups contribute substantially to both gross and net job creation.
If that’s true, then Washington is in a great place, since we’re near the top each year in number of business starts. But, there’s plenty of counterexamples in our own backyard. Microsoft’s global headcount has almost doubled in the past decade, and it was founded in 1975. And biotech companies wait for years and years to finally get their drugs through development, testing and approval before it can hit the market and scale up.
This isn’t a conflict, though…it’s an ecosystem. Do we need large anchor firms or start-ups? Both, since the anchor firms seed start-ups, like in my favorite poster of all time. Do we need small businesses or start-ups? The answer to that one is “both” also, since the creative destruction of small business failure (“business churn,” as it’s known) contributes to the financial and human capital for those small businesses.
As it turns out, in the biotech community the potential for a big buyout down the road can actually be the incentive for equity investments up-front, kind of like the heady days of the tech boom when your internet start-ups main goal was to get purchased by a much bigger company. And plenty of those tech millionaires then dusted themselves off, thought up the next big idea and launched themselves right back into the fray…with a start-up.