Growing Innovative Companies to Scale: How Does Massachusetts Measure up?

Friday, June 24, 2016: 2:30 PM-4:00 PM
235 Dwinelle (Dwinelle Hall)
Richard Lester, MIT, Cambridge, MA
Elisabeth Reynolds, MIT, Cambridge, MA
Charles Sodini, MIT, Cambridge, MA
Max Luke, MIT, Cambridge, MA
Amaya Arcelus, MIT, Cambridge, MA
In recent years concerns have been raised that the Massachusetts economy may be lagging when it comes to capturing the downstream economic benefits of innovation. The overall health of the Massachusetts economy depends on a healthy rate of new business formation and a healthy rate of company scale-up. But in Massachusetts and nationally the scale-up process has received much less attention from policy-makers, researchers, and commentators than has the process of new business formation. This study begins to correct that imbalance. It draws on a combination of publicly available data and interviews with business executives to understand how well Massachusetts has been doing over time and compared to other states when it comes to scaling up innovative firms. The study defines companies of scale as those that have achieved annual revenues of $500 million or greater. The study focuses on the scale-up process in four key industry groups: advanced manufacturing; life sciences; computer-related; and software and Internet services. We analyzed the scale-up performance of these four industries in Massachusetts, California, and New York, comparing firm populations at two stages of scale-up – venture-capital-backed startups and later-stage public companies – over a 24-year period (from 1990 to 2014). To account for the size differences between the three states and the heterogeneities within them, we made these comparisons at the level of Metropolitan Statistical Areas (MSAs) using population-normalized data. Moreover, we conducted interviews with senior leaders of 20 Massachusetts companies with annual revenues greater than $100m (but for biotech) drawn from the four industries.

The main results of our study are as follows. First, while the Boston MSA outperformed the New York City MSA in the rate of formation of startups capable of attracting venture capital, Boston has trailed Silicon Valley in all the industries except life sciences. Second, while the Boston MSA has been relatively successful at growing companies to scale, it has been generally less successful than the California MSAs at growing ‘super-scale’ companies that earn billions of dollars in revenues annually. Third, 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 have achieved scale. Fourth, despite suggestions to the contrary, there is 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. Fifth, in the important software & Internet services sector, while Massachusetts has been losing ground to California in the earlier stages of company formation and growth, it appears to have been holding its own in terms of scale up. These results, combined with insights from our interviews, led us to several policy recommendations, including the recommendation to focus on companies that are on the pathway to scale; the recommendation to continue to support the region’s strength in the life sciences; the recommendation to develop a strategy for growing software & Internet startups; and others.