Dr. Gary Kunkle is the founder of Outlier, LLC

Dr. Gary Kunkle is the founder of Outlier, LLC, a research firm that implements innovative approaches to nurturing and retaining high-growth companies. Hired by Team PA Foundation, Dr. Kunkle has provided in-depth analysis of the expansion patterns of approximately two million companies and field interviews/surveys of 600 CEOs of high-growth firms. This research and analysis serves as the foundation of the Pittsburgh Impact initiative and has helped with the identification of Impact companies. Dr. Kunkle has worked in international economic development, has served as a Senior Manager at KPMG’s International Trade and Investment Group, and holds a Ph.D. in public policy and regional economy from the University of North Carolina at Charlotte.

1) What made you pursue research into economic vitality?
I’d spent 20 years working in the field with more than 500 companies on expansions projects in 32 countries. Based on that experience, I believed that firm-level growth was primarily driven by internal firm capabilities and dynamics. Yet the leading economic growth theories were saying that a firm’s industry and location were more important in determining whether it grows or not. It just didn’t compute. So I took a six-year sabbatical to study the issue. Working with the Team PA Foundation and a university, I used a new dataset that tracked every company in Pennsylvania from 1990 through 2006. I then spent a year testing the findings with 600 case studies, interviews and surveys.

2) Your research indicated that fewer than one percent of companies were creating roughly 74% of jobs. What surprised you about the characteristics of these companies that were having such an impact on the economy?
We found that multi-year profitable growth is surprisingly difficult to sustain. Once a firm begins to rapidly grow they face a host of complex challenges, such as finding the right talent that can grow with the firm, securing non-debt capital to fund expansion, managing and growing capacity, implementing effective cost accounting practices, replicating successful geographic expansion, and so on. The most surprising discovery was that almost all high-growth firms face these same basic challenges, regardless of the firm’s industry or location. Yet most of these CEOs think they are alone in their struggles since they have very few places to turn for peer advice or assistance.

3) What was the most surprising feedback you received from interviewing and surveying 600 CEOs?
First, we’ve all heard that companies face shortages of qualified workers, even during recessions, but I didn’t appreciate how dynamic that issue is. Of course, high-growth firms need lots of entry-level workers, but they also need workers that have some aptitude to assume supervisory positions. I heard repeatedly from CEOs that their growth was threatened by a lack of supervisory and junior-level management talent among early-hired employees. This has big implications for government-supported job training programs. Second, I was surprised by the extent to which high-growth CEOs shun debt financing, despite the fact that growth can create a devastating capital gap in the firm. CEOs know that if they hit a market downturn they still have to service their debt which can threaten the very survival of the firm. Although equity financing would seem to be the natural alternative, most high-growth firms are too large for venture capital funds and too small for most private equity investors.

4) What other research could contribute to a better understanding of how local economies function?
While job creation is exceptionally important, creating new jobs with above-average wages is also crucial for long-term prosperity. Our research shows that high-growth firms tend to be magnets for talent – attracting ambitious workers who want to join a small growing firm and develop their skills as the company grows. A large portion of high-growth CEOs told me they offer wages between 10 percent and 20 percent above industry peers as well as far more generous benefits packages. For starters, we need to know more about the comparable wage and benefits levels of high-growth versus other firms to truly appreciate the impact of these companies on the regional economy.

5) What advice do you have for companies that are steadily growing?
First, become active in a peer network of CEOs from other high-growth companies in your region. Share experiences and find additional resources to help you stay on the growth path. Second, learn more about “best practices” to sustain profitable expansion and how they can help with problems such as recruiting and nurturing talent, identifying your profit “sweet spot,” replicating successful geographic expansion and filling the capital gap. Third, work closely with your local economic development partners as early as possible when you are planning to expand your operations. They can provide invaluable assistance identifying available properties and securing permits so that your expansion happens as quickly and smoothly as possible.