NEW MIT RESEARCH STUDY LOOKS AT GROWING MASSACHUSETTS COMPANIES TO SCALE
Launch Event Features Remarks from State Leaders, Key Industry Execs
CAMBRIDGE, MASS., December 10, 2015 – A study released today by MIT’s Industrial Performance Center (IPC) addresses the critical issue of how innovative companies scale up their businesses and assesses how the Massachusetts economy compares in this dimension of performance with other regions of the country, bringing together for the first time a critical mass of observations, data, and analysis on this critical topic. The inaugural study, “Growing Innovative Companies to Scale: How does Massachusetts Measure Up?,” finds that over the past two decades, Massachusetts has held its own compared with other leading innovation regions of the country (San Francisco/Silicon Valley and New York City) in terms of growing companies to scale, but lags far behind California in growing ‘super-scaled’ companies with billions of dollars in annual revenue.
The study found that in the life sciences sector, Massachusetts matches or surpasses California at multiple stages of company growth, including the number of venture-backed companies and the number of IPOs. Even in the important software and internet services sector, where Massachusetts has trailed California in the rate of formation of venture-backed firms, it has held its own when it comes to growing companies to $500 million or more in annual revenue.
“Our analysis has shown that Massachusetts has a solid track record of growing innovative companies to scale, but to prosper in the national and global economy of the future, the Commonwealth needs to have more companies of scale and super-scale,” said Elisabeth Reynolds, Executive Director of the IPC and co-author.
The report emphasizes the critical role played by companies of scale in the regional economy, through their generation of jobs, wealth, management talent, future entrepreneurs and role models, cluster specialization, and acquisition capabilities. Scaled-up companies also directly and indirectly support startup formation, which often occurs through the acquisition of startups or the creation of new startups by senior managers who have left scaled companies.
“How well an innovation-oriented economy fares in growing early-stage companies to scale and creating an environment that supports them is no less important than its success in encouraging the formation of new companies in the first place,” said Richard Lester, faculty chair of the IPC, Japan Steel Industry Professor of Nuclear Science and Engineering, and a co-author of a report.
The research was jointly sponsored by the Commonwealth of Massachusetts, through the Massachusetts Technology Collaborative (MassTech), along with the Massachusetts Competitive Partnership, a non-profit focused on job growth and competitiveness that is composed of some of the Commonwealth's largest businesses. The research aligns closely with the goals of the Mass Scale Initiative, an industry-led effort supported by the Innovation Institute at MassTech, which connects the CEOs of scaled and scaling tech firms to discuss opportunities and challenges for growing companies and improving the conditions and culture for doing so successfully here in Massachusetts.
Secretary Jay Ash of the Massachusetts Executive Office of Housing & Economic Development, who keynoted the launch event, highlighted the Commonwealth’s engagement on this critical issue.
“The Commonwealth’s innovation ecosystem is the envy of the nation,” said Housing and Economic Development Secretary Jay Ash. “We are committed to maintaining our leading position in the knowledge economy by investing in the applied research that enables the development of companies capable of dynamic growth. And we are committed to deepening the public-private partnerships that build supportive networks around scaling companies, and helping them grow to scale in Massachusetts."
The report analyzed the scale-up performance of four focus industries in the MSAs of Boston, San Francisco/Silicon Valley and New York comparing firm populations at various stages of development – including venture-capital-backed startups and later-stage public companies – over a 24-year period (from 1990 to 2014). Together the four key industry sectors studied (advanced manufacturing; life sciences; computer-related; and software and Internet services) account for 90 percent of all Massachusetts startups that have received financial backing from venture capital firms in recent decades.
The report found several areas for encouragement, as well as areas for Massachusetts stakeholders to address:
Researchers found no evidence that venture-backed Massachusetts companies are being sold at an earlier stage in their lifecycle than their counterparts in California or New York. Moreover, the likelihood that venture-backed companies will be acquired at any point in the lifecycle seems broadly similar among the three states.
On a population-adjusted basis, the Boston area outperformed New York City in the rate of formation of venture-backed startups in all four focus industries. By this measure Boston also surpassed Silicon Valley in the life sciences industry, but trailed Silicon Valley in the other three focus industries.
The life sciences have been the crown jewel in the Massachusetts innovation economy, not only at the early stages of the growth cycle but also when it comes to companies that are on a pathway to scale or that have achieved scaled or super-scaled status. At each of these stages, Massachusetts has been on par with or surpassed California.
Massachusetts is losing ground to California in terms of the number of software and internet (S&I) startups, the number of such companies that go public, and the growth of large “super-scaled” S&I companies such as Google, Facebook and the like. Venture-backed Massachusetts S&I firms are also increasingly likely to be acquired by California-based companies.
The report also recommends several strategies for promoting the scale-up of innovative companies, which include public and private interventions at multiple levels. The report emphasizes the need for a greater understanding of the direct and indirect benefits provided to the regional economy by larger companies. It also highlights the characteristics of the regional innovation ecosystem that are particularly important in supporting scale-up (as distinct from startup) such as:
The regional talent pool, especially the availability of experienced senior managers;
The presence of business networks, mentors, and role models; and
A business culture that provides recognition of successful entrepreneurs and successfully scaling companies.
The report strongly recommends focusing on developing talent from the university to the executive suite, which it states is the lifeblood of the region’s innovation economy, noting that human capital is a core reason why innovative companies start and grow here.
The event featured a panel of CEOs that have built or are building companies in Massachusetts, who represented a range of core Massachusetts industry sectors. The leaders, many of whom were involved with the MassScale effort, addressed several of the key issues identified in the research:
Colin Angle, CEO, iRobot: “We need more mentors and role models. Just as entrepreneurship begets entrepreneurship, growing more companies to scale will beget more companies of scale. CEOs believe they can create large companies if they interact with others who have done something similar.”
Ash Ashutosh, Actifio: “Business-to-business software is a core strength of the Massachusetts economy and is as valuable if not more valuable in market terms than business-to-consumer software. Forty percent of IT spend worldwide is done within a five hour radius of Boston.”
"Massachusetts’ diverse economy is a strength. It allows for cross-fertilization where folks start out in one field and cross over into another.”
Diane Hessan, former CEO, C-Space: “Over 30 percent of Massachusetts venture-backed companies are ultimately acquired which often brings more talent, jobs, and investment to the region. Yet when a company is acquired here, even if it is growing and hiring like crazy, we stop paying attention to it. We need to embrace all growing companies in the region.”
Bob Mulroy, Merrimack Pharmaceuticals: “Massachusetts is hitting it out of the park in life sciences. Now we need to look ahead 10 years and figure out what we need to do to continue this success. Part of the strategy has to be preserving the “nursery” in Cambridge and keeping affordable space for emerging biotech companies.”
The study was carried out over an 18-month period by a team of MIT faculty, research staff and students based at the IPC. To download a copy of the report, visit the IPC’s website:
Executive Summary: https://ipc.mit.edu/sites/default/files/documents/ScaleUpReportDec2015.pdf
Deirdre Coyle, MIT, (617) 504-4547, dcoyle (at) mit.edu
Brian Noyes, MassTech, (508) 870-0312 X:293, noyes (at) masstech.org
About the IPC
The IPC at MIT is dedicated to the study of innovation, productivity and competitiveness in the United States and around the world. The Center specializes in bringing together multidisciplinary teams of researchers in engineering, science, management and the social sciences to carry out innovative, applied research on industrial growth and transformation, national and regional economic growth and competitiveness, and innovation performance.
About the Massachusetts Technology Collaborative and the Innovation Institute
The Massachusetts Technology Collaborative is an innovative public agency working to enhance economic growth, accelerate technology use and adoption, and harness the value of research by engaging in meaningful collaborations across academia, industry, and government. From improving our health care systems and expanding high-speed internet across the state to fostering emerging industry clusters, MassTech is driving innovation and supporting a vibrant economy across the Commonwealth.
The Innovation Institute at MassTech was created in 2003 to improve conditions for growth in the innovation economy by enhancing industry competitiveness, promoting conditions which enable growth; and providing data and analysis to stakeholders in the Massachusetts innovation economy that promotes understanding and informs policy development.