Startup Job Growth Slowed in 2014

When we published our first Entrevestor Intelligence report of 2014, the numbers that leapt from the page were the job creation figures. But things have changed in the past year.

The Atlantic Canadian startups we surveyed a year ago told us that they increased their staffing by 43 percent in 2013. They intended to increase employment by 50 percent in 2014, and the IT companies planned to double their staff overall.

It didn’t quite work out that way.

Despite the blazing optimism in early 2014, the 139 companies that gave us 2014 data on their staffing overall employ 1,051 full-time staff and 137 part-time staff in the Atlantic Provinces,. Overall, that is 1,119.5 full-time equivalent positions and an increase of 9.4 percent over the previous year.

So what happened? Why did the job growth fall so dramatically short of expectations?

There are a few explanations, but first let’s take a look at the big picture.

Startups in Atlantic Canada had a massive hiring spree in 2013 and it would have been reasonable to expect some sort of contraction afterward.

#Startupeast Employment in 2014 

Companies providing jobs data	139
Total staff in Atlantic Canada*	1,119.5
Total staff a year earlier	1023
Employment growth	9.4%
Staff outside Atlantic Canada*	127.5
Total payroll (83 responses)	$44.1M
Startups with 10 or more staff	26
Startups with no paid staff	26
Expected hiring in 2015*	476.5
Projected 2015 job growth	43%
*Part-time employees recorded as 0.5.

Whenever I delivered presentations of the Entrevestor data analysis last year, I said that startups were unlikely to meet their hiring expectations, largely because there weren’t enough qualified people to fill the vacancies.

And it should be remembered that the staffing in this economic segment did not contract. It followed a 43 percent increase with a 9.4 percent increase,  for  a  total  two-year  hike  of  about  56  percent.  It’s also advisable to keep in mind that the Atlantic Canadian economy overall saw employment rise 1 percent in 2014, according to Statistics Canada.

Even in a slow year, the startup job-creation vehicle outpaced the broader economy by a multiple of almost 10.

Having said that, startups in the region failed to hire as many people as they had hoped. Talking to founders, it seems that there are positions that have not yet been filled because they can’t find the right people.

And it also seems that CEOs were more cautious in their hiring – and their spending in general — than they initially wanted to be. 

Several of the companies that reported a decline in staffing have also told Entrevestor that they did not receive the Scientific Research & Experimental Development, or SR&ED, tax credits that they had been expecting. That shortfall, often amounting to six figures, sometimes affected staffing levels.

Because of all these factors, several companies actually reduced staff even though they had hoped to hire more people.

There were 77 startups that provided us with employment data for both 2013 and 2014. Some 74 of them had expected to hire people in 2014. However, only six met their hiring predictions – three meeting them exactly and another three exceeding them. Thirty-four of these companies actually shrank staff during the year.

So were these companies with declining staff going through a period of distress? Some were, and one actually closed down. But the interesting statistic is that one-third of the companies that shrank staff actually increased revenues last year. Now, a few of these companies had such a low revenue base that it couldn’t support their staffing. But there were others with six-figure revenues that felt compelled to reduce staff.

There were a few other things we looked at this year so we could get a better idea of the quality of jobs being created.  We asked companies to tell us the number of part-time positions (given a weighting of 0.5 of a position in the totals). Almost 90 percent of the positions created in the startup community are full-time positions. In addition to the jobs created in Atlantic Canada, the region’s startups have 106 full-time and 43 part-time positions in other parts of the world.

There  were  83  companies  with  paid  employees  that  gave  us  payroll information, and they reported a total payroll of $44.1 million. All told, these companies had 752 full-time equivalent employees, meaning that on average they paid their staff $58,600 each. As we saw in last year’s surveys, and confirmed by other research, startups create well-paying jobs.

One final observation about the employment survey is that founders have not been dissuaded by the challenges they faced last year in finding and paying talent. The 139 companies that gave us job data told us they expect to hire 476.5 employees in 2015. If they’re successful, their total staff will increase 43 percent. Forgive us, but it’s a forecast we’re taking with a grain of salt.

This article first appeared in an Entrevestor Intelligence report.