In this guest post, Steve Hartkopf, shares some insights on Job Creation and Growth Companies.

The respected MIT professor and lead researcher at Cognetics David Birch is a true pioneer when it comes to statistical analysis of growth firms. Birch defines growth firms as companies with $100,000 in sales that grow an average of 20 percent or more over for a four-year period, which means they basically double in size over the four years. Does that sound like a major accomplishment to you?

The facts indicate it is tremendous accomplishment. By Birch’s count, only about 352,000 companies qualify, fewer than 2 percent, of America’s roughly 20,000,000 firms make the grade. Most of these companies are small to midsized and only 5 percent of them employ more than 100 people even after their four-year growth surge.

So one could ask, if true growth firms represent such a small portion of our nation’s total population of companies, why should we care? The answer may surprise you and it holds the key to evaluating the success or failure of our current economic policies and job-growth initiatives. It is this small band of exceptional companies that lead the entire U.S economy in employment and innovation.

Large companies and mom-and-pop outfits don’t create jobs. Between 1989 and 1993, a time of relative little to no economic expansion, growth firms added 4.4 million jobs. Similarly, between 1994 and 1998 growth firms accounted for about 95 percent of the total job growth, adding 10.7 million of the 11.1 million new jobs.

To paraphrase Birch, “Small companies can change direction and react to market forces and large companies can’t.” Adaptability and flexibility are key attributes for success and growth. Success and growth require more people to do the work.

If we want to know whether our government’s economic policies and “Job Initiatives” are working all you have to do is watch the growth firms. I have a better idea, maybe we should listen to them too.

Steve’s firm, Aligned Marketing,  is a marketing consulting firm with core competencies in strategy development, communication planning and technology solutions.  You can reach Steve via his website at www.aligned-marketing.com or via email at shartkopf@aligned-marketing.com.

If you think that Social Media websites such as Twitter, Facebook, and YouTube are a waste of time and can not be used in your business, you better watch this.  After you watch it, you will want to find a way to incorporate it into your marketing strategy. (Hat tip to Rick Telberg from CPA Trendlines for this one.)

I recently sat down with a colleague who has been in the accounting profession for quite some time.  He talked to me about a conference that he recently attended.  As most conferences do, there was an evening where they had a banquet and dinner type ceremony.  When he walked in, he noticed an older man sitting at a table in the back of the room.  He thought that this gentleman would certainly have some good stories, so he chose to sit next to him.  It turns out that the man was 90 years old, and was still working in his accounting practice.

My friend didn’t tell me everything they talked about that evening, but he did discuss on profound statement that the man said:  “Computers and technology have destroyed small business.”  This statement goes counterintuitive to everything we have come to believe, but when the 90 year old accountant explained the reasons behind this statement, it made perfect sense.

The old man explained that:

Many many years ago,  small businesses depended upon their accountants for proactive advice and guidance on a nearly daily basis.  Accountants helped with developing both short-term and long-term growth planning.  Accountants helped them develop more profitable businesses for the business owners that they worked with.    Accountants were involved in almost every facet of the strategic side of running the small businesses they worked with.

Then computers came out, all this changed.  Over time, business owners started to move to a “do-it-myself” type of approach to their accounting.   They would manage the books and once a year they would drop off a file to the accountant to have them file the tax returns.  Even worse, some small business owners did the tax accounting themselves too.    This had a detrimental effect on the ability of these business owners to make sound judgments that were necessary to have strong companies.    Small business owners didn’t plan properly for taxes, until it was too late and they often made strategic mistakes that made them much less profitable.  Most didn’t even know what their break-even point was.

The old man made some good points.  I see this case with small businesses all the time.  They try to do all of the accounting themselves; often making poor decisions that lower their profits or put them further from break-even.    This all goes back to the teachings of Michael Gerber in The E-Myth.  Business owners should be working on their business, not in their business.  They should also work on the things that they enjoy the most and the things that they can make the most positive impact by doing.  Should a plumber really spend several hours a week updating his accounting records, when he could be using it to grow his business?  The same is true in my business.  Most of our information technology functionality is outsourced.  Why do I want to spend countless hours managing IT resources, instead of growing my business?

The good news is that many small business owners are coming full circle with this.  Many of them are beginning to learn what they don’t know.  They are also learning to focus their efforts on what they do best – which usually isn’t accounting and tax planning.    The business owners that survive the next decade will be the ones that get the best advice and make the best decisions.    Have you talked to your accountant this month?  Hopefully, the last time wasn’t on April 15th.