Raising giants: MIT study tracks business growth in Mass.

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A new study from the Industrial Performance Center at the Massachusetts Institute of Technology finds that the state’s doing pretty well at launching new companies and growing them to substantial size. But the state is still burdened by a shortage of “super-scale” companies, the kind that generate multiple billions in revenue.

“Our analysis has shown that Massachusetts has a solid track record of growing innovative companies to scale,” said Elisabeth Reynolds, executive director of the IPC, who coauthored the report, “but to prosper in the national and global economy of the future, the Commonwealth needs to have more companies of scale and super-scale.”

When it comes to building companies from startup stage to $500 million in revenues, “we don’t do badly. We actually hold our own,” said another co-author, MIT physics professor Richard Lester.  “But.where we don’t hold our own, except in biotech, is when it comes to super-scale companies.”

The 18-month-long study compared the performance of companies based in California, New York, and Massachusetts  at each stage of their development, from startups to massive publicly traded firms. It focused on four industries: advanced manufacturing, life sciences, computers, and software and Internet services.

There’s lots of good news in the results. Massachusetts pharma and biotech companies equal or exceed the performance of rival California firms at every stage of corporate development.

Boston also has a higher rate of startup formation than New York City. And when it comes to growing new companies to $500 million in annual sales, Boston beats New York and matches California in growing such firms in advanced manufacturing and software and Internet services.

“What was so great to see, is we’re keeping pace and even exceeding in some areas in terms of the number of those companies,” said Katie Stebbins, assistant secretary of innovation, technology, and entrepreneurship in the Executive Office of Housing and Economic Development.

But except in life sciences, Boston lags badly in the creation of super-scale firms with revenues in the billions. That’s especially true in the software and Internet segment, where the state has no companies approaching the scale of West Coast giants like Google and Facebook.

Tom Hopcroft, president of the Mass Technology Leadership Council, calls these giant companies “shade trees,” and says they’re immensely valuable to the regions where they’re based.  “They create a lot of wealth in the community,” said Hopcroft. In addition, they generate a large pool of management talent who can eventually move to other firms or even start new companies of their own.   Hopcroft said that the scarcity of such big companies makes it harder for Massachusetts companies to find veteran managers. “Right now  you have to recruit a lot of that expertise from the west coast or other regions.”

The MIT report calls for public- and private-sector efforts to foster the development of bigger businesses in the Bay State. The authors urge continued strong support for the state’s life-science companies, and new initiatives to help small- and medium-sized companies grow. It also recommends efforts to encourage specialization in the state’s software and Internet sector. The report notes that Massachusetts is already a center of expertise in business-to-business software. It suggests expanding into key niches of the consumer software market that play to local strengths. That could mean software for helping people manage their money, protect their health, or protect the security of their digital devices.

Hiawatha Bray is a technology reporter for the Boston Globe. E-mail him at h_bray@globe.com.
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