Business race isn't always to the swift

By Alan Webber

You may think that the one person who knows the most about theU.S. economy is Federal Reserve Chairman Alan Greenspan. And youmay also believe that the one person who can spot winning companiesbetter than anyone else is legendary investor Warren Buffett.

But for my money, there's one guy who's the best at both: DavidBirch. He may not hold a high-ranking public office (althoughthe king of Sweden stays in touch with Birch and, a few yearsago, the Swedish government awarded him the equivalent of a "babyNobel Prize" for his research in entrepreneurial studies).He may not be the wealthiest investor in the country (althoughhe has compiled a database of the nation's fastest-growing entrepreneurialcompanies). In fact, you may never have heard of him.

But to people who follow the performance of the U.S. economy atthe grassroots level and who are fascinated by the dynamic changesgoing on in the world of business today, David Birch is the fountainof knowledge.

And he has been for quite some time - roughly since the economybegan its dramatic shift from an industrial to a knowledge base.I first came across Birch's studies about 20 years ago, when Iwas trying to figure out where jobs in this country were comingfrom. At the time, the U.S. industrial base was under a tremendousassault from foreign competition. Autos, steel, rubber - all thetraditional industrial powerhouses - were in trouble. And yetnew jobs were cropping up - quite a few of them, in fact.

Birch, who was working at MIT at the time, came up with the answer:Through fine-grained business analysis, he demonstrated that 82%of all new jobs in the country were being created by smaller companies."It was a major reversal in what people thought was goingon in the economy," Birch says today. "What I demonstratedwas that the structure of the economy had changed."

It was a revelation. And since then, revelation has been Birch'sstock in trade. (Another Birch calculation: more people in theUnited States work for female-owned businesses than for Fortune500 companies.) He's taken his training as a particle physicistand applied it to the study of business. "I study the economyone particle at a time," Birch explains. "I startedin the late 1960s in New Haven. I interviewed every single start-upcompany in the city. I always thought that macroeconomics wasthe equivalent of ether. Its ludicrous to think of the economyas anything other than the atoms that create it."

Today, as the president of Cognetics Inc., a Boston-based consultingfirm, Birch has turned his attention full time to tracking thewinners and losers in the new economy. When it comes to growth,the losers are easy to identify. "We haven't added one industrialjob in this country in 50 years," Birch declares. "We'vecreated 70 million jobs over the past five decades, and not onein manufacturing."

Birch is equally clear about who the winners are. "Virtuallyall growth in this economy is attributable to small business,"Birch says. "About 276,000 companies account for 70% of alljob growth. That's just 3% of all U.S. companies. And of thosecompanies, 97% have 100 or fewer people working for them whenthey start growing."

These are companies Birch has dubbed "gazelles" forthe twin attributes that make them so successful: speed and agility.Interestingly, gazelles are spread out across the economy; only1.8% of all gazelles are in high tech, according to Birch. Butif gazelles can be in any business, nevertheless, says Birch,they all share three attributes: They rely on the inspirationof one individual, one person who sees an opportunity no one elsesees; they use technology as a competitive weapon; and they startout with a global view of the marketplace.

These high-growth start-ups may share common traits, but theycan be located anywhere, Birch says. (For the record, he namesSalt Lake City, Utah, as the hottest of hot spots.) But again,gazelles can be drawn by specific factors: A good airport (gazellesemploy lots of road warriors). A great university. A terrificquality of life. And a culture that welcomes and appreciates entrepreneurs.

Now, if Birch is right about all this - and he's been pretty muchspot on for the past 30 years - it's not hard to rewrite the rulesfor success in the new economy.

Rule No. 1 It's a unit-of-one economy. Forget about thepower of huge corporations, bricks and mortar, and hundreds ofthousands of workers. One person with a great idea and enoughtechnology can reinvent an entire industry, overturn establishedcompanies, and build a job-creation machine. And, oh yes, makea lot of money.

Rule No. 2 Different is better. Why are all the new jobscoming from smart, innovative, young start-ups? The conformityof big companies is a straitjacket on the kind of creativity ittakes to imagine your way into the land of the gazelle. No wonderBirch says, "Nothing will kill a gazelle faster than an MBA."

Rule No. 3 Check your corporate DNA. Gazelles get it -from birth. They've got the genes to run smart, fast and agile,and to keep running as far as the eye can see. The challenge forthe big, slow companies is to see if they can engineer a DNA transplant,to bring some of those gazelle-like genes into their organizations,and then take a test run at the horizon.

Rule No. 4 Geography isn't destiny. Used to be, if youwere a computer company, you had to be in Silicon Valley; an advertisingagency needed a New York City address; and auto retailing hadto come out of Detroit. Not anymore! Thanks to an economy of ideas,you can live where you like, collect a talented team that wantsto work with you, and use technology to take you where you needto go.

Rule No. 5 Speed kills - the competition. Gazelles arefirst to see an idea, first to seize on it, develop it and takeit to market. Once they start growing, they use speed as a wayto blow by the competition. Gazelles have mastered the art ofthe quick: They have internal approaches and fast decision-makingprocesses that let them move with maximum agility in a fast-changingbusiness environment.

So while the race isn't always to the swift, in an economy ofgazelles that's sure the way to bet.

Alan Webber is founding editor of Fast Company magazine anda member of USA TODAY's board of contributors. He can be reachedat awebber@fastcompany.com.

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