High-growth enterprises (HGEs) - enterprises with an average annual growth of 10% or more over a three-year period - have been in the spotlight for years as they stimulate economic growth and create new jobs.
Regular annual reporting on high-growth enterprises that are part of the business demography^[1] is focused on enterprises with 10 or more employees, while enterprises with less than 10 employees were not included in the survey, although they have a significant share in the total enterprise population.
In 2020, a project was completed, the aim of which was to expand regular statistics on high-growth enterprises. The project was financed by EU grants and thirteen countries participated in it, including Croatia.
The aims of the project were the following:
-   develop a methodology for identifying high-growth in the population of micro enterprises
-   establish what happens to high-growth enterprises after the period of high growth, that is, how sustainable high growth actually is.
In addition to developing the methodology for the new type of statistics, the aim of the project was to produce certain statistical data that would provide an insight into how many micro enterprises achieve high growth in three-year intervals and in which activities it most frequently occurs, as well as what happens to high-growth enterprises after the three-year growth period.
The methodology defined as part of the project follows that of the Eurostat-OECD Manual on Business Demography Statistics, which enables the comparison of the results of standard data on HGEs with new data on HGmEs.
The methodology applied for high-growth micro enterprises (HGmEs) requires that the minimum growth in absolute numbers for HGmEs is greater than 3.31 employees in three years. This threshold is drawn from the current HGE methodology for enterprises with exactly 10 employees. In this project, the same absolute growth (of more than 3.31 employees) was applied to enterprises with 1 to 9 employees at the starting year of the growth (T-3). For consistency, the scope of HGmEs is limited only to the size class of 1 to 9 employees in the year when the growth started and therefore omits the 0 employee size class.
Due to the pilot nature of this project, the results should be interpreted with caution.
 
 

High-growth micro enterprises by size
 
High-growth micro enterprises are those that employ less than 10 employees when they start growing. In the following analysis, micro enterprises are divided into two sizes: 1 - 4 employees and 5 - 9 employees.
It is noticeable that the group of micro enterprises with 5 - 9 employees has a larger share of high-growth enterprises than the group with 1 - 4 employees. In the period from 2014 to 2017, in the class with 5 - 9 employees, 9.7% of enterprises had high growth, while in the class with 1 - 4 employees, 2.3% of enterprises had high growth.
The criterion for the classification of an enterprise as an HGmE was a minimum increase of 3.3 employees in the enterprise over a period of three years, which is clearly easier to achieve in larger enterprises (5 - 9 employees) than in smaller ones (1 - 4 employees).
 
Figure 1
 

 
Observing the shares of employed persons in HGmEs by size class, in the class with 5 - 9 employees, the share of HGmEs in the total number of employees of that class is higher than in the class with 1 - 4 employees.
In 2017, a total of 21.2% of employees in enterprises with 5 - 9 employees belonged to high-growth enterprises, while 12.8% of employees in enterprises with 1 - 4 employees belonged to high-growth enterprises.
 
Figure 2
 

 

High-growth enterprises by legal form
 
Business demography statistics includes the legal form of enterprises as one of the variables. When it comes to high-growth enterprises, the potential for high growth is often best realised in the legal form of a limited liability company (LLC)^[2]. Such enterprise generally has better access to finance, risk capital and skilled employees - all of which are critical for high growth - compared to other legal forms of sole proprietorship (SP) or partnership (PA).
A limited liability company is a predominant legal form of enterprises with 1 - 9 employees in the Republic of Croatia. Between 56.3% and 64.7% of micro enterprises in the observed years were limited liability companies, while limited liability companies were even more prevalent among HmGEs, making up more than 75% of these enterprises.
 
Figure 3
 

 

Belonging to an enterprise group
 
Belonging to an enterprise group reflects the dependence or independence of an enterprise. If an enterprise belongs to an enterprise group, it may have less decision-making power than genuinely independent enterprises. On the other hand, enterprises within a group may have better access to multiple resources, such as skilled employees, research and innovation, marketing, technology and finance.
Based on the analysis conducted in the Republic of Croatia, no significant share of dependent micro enterprises was observed in the total number of micro high-growth enterprises.
 
Figure 4
 

 

Age of enterprises
 
The age of an enterprise is an interesting factor to follow in the context of high-growth enterprises.
The age of enterprises is broken down into the following groups: five years or less (young enterprises) and more than five years.
The share of young enterprises in the group of micro enterprises in the observed years ranged between 18% and 22%, while the share of young micro enterprises in the group of HGmEs was somewhat higher - between 22% and 26%.
It follows that high growth is more characteristic of micro enterprises older than five years, which had a larger share in the total number of HGmEs.
 
Figure 5
 

 
Young high-growth enterprises are a population of special attention, since they form the core of the most dynamic enterprises in the economy. Although the number of enterprises in this group is not that large, it includes enterprises with great potential for rapid growth and expansion.
 

Activity
 
Figure 6 shows the share of HGmEs in individual groups of activities in the total number of HGmEs.
In the periods from 2012 to 2015 and from 2013 to 2016, the largest share of HGmEs was present in Wholesale and retail trade, while in the period from 2014 to 2017, the largest share was in Construction.
 
Figure 6
 

 
Figure 7 shows the share of young HGmEs and micro enterprises in individual activity sections.
Observing the period from 2014 to 2017, in almost all activity sections, the share of young high-growth enterprises was larger than the share of micro enterprises.
It is evident that in certain sectors - such as Information and communication, and Accommodation and food services, the share of young high-growth enterprises is higher than in other sectors of the economy. For example, almost 35% of high-growth micro enterprises in the activity section Information and communication was five years old or less.
 
Figure 7
 

 

Type of growth
 
The definition of high growth traditionally includes only organic growth, meaning it excludes growth due to mergers, acquisitions and takeovers. In this pilot project, the focus was also to assess the role of organic vs. gross growth, including also growth due to mergers, acquisitions and takeovers.
Observing Figure 8, it is evident that organic growth relates to more than 98% of all observed HGmEs.
 
Figure 8
 

Conclusions

The share of HGmEs is higher in the size class of 5 - 9 employees compared to the size class of 1 - 4 employees.
Most HGmEs are limited liability companies.
The vast majority of HGmEs in the Republic of Croatia have an independent status (do not belong to an enterprise group).
About 25% of HGmEs are five years old or less, while a significantly smaller share - about 18-22% - of all micro enterprises are young enterprises.
The largest share of young high-growth micro enterprises belongs to the activity sections Information and communication, Accommodation and food services, and Professional, scientific and technical activities.