Graduates of the Massachusetts Institute of Technology have founded some 4,000 currently active companies. Worldwide, these companies account for annual revenues of almost $232 billion. On a value-added basis, that sum would be closer to $116 billion, which is more than 50% of the gross state product of Massachusetts. Compared with foreign countries, these MIT-related companies would rank 24th largest in the world--just behind South Africa and ahead of Thailand. Their total employment exceeds 1.1 million jobs .
Just over a quarter of these companies--1,065 in all--have headquarters in Massachusetts and an additional 500 are located elsewhere in the Northeast. More than half the MIT-related companies are located outside the Northeast. MIT-related companies have a major presence in the San Francisco Bay Area (Silicon Valley), southern California, the Washington-Baltimore-Philadelphia belt, the Pacific Northwest, the Chicago area, southern Florida, Dallas and Houston in Texas, and the industrial cities of Ohio, Michigan, and Pennsylvania. There's a good scattering of MIT-related companies throughout the Midwest, the South, and the Southwest.
A few large companies account for a substantial proportion of the total sales and employment of MIT-related companies. Table 1 contains summary information for the 17 MIT-related companies with employment of 10,000 or more. These 17 companies employ 732,000 workers and have total sales of $159 billion. The 106 largest MIT-related companies--those with employment of 1,000 or more--account for about 89% of total sales and employment. Employment information is available for 2,448 of the remaining companies; they average 53 employees each .
Although a few very large companies--all of which are at least 29 years old--account for the lion's share of total employment, the formation of new companies continues at an impressive pace, as shown in Chart 1. The rate of formation of new companies by MIT graduates appears to be accelerating. There are 1,475 currently active companies from the 1980s --more than twice the figure for the 1970s. Through mid-1995, some 756 companies had been founded during the 1990s; at this rate, the total for the decade should exceed 1,500 .
On average, the younger companies have fewer employees than older ones. Of the 17 largest firms (shown in Table 1), all but 5 were founded by students who left MIT more than 50 years ago and none were founded by those graduating in the last 30 years. Nonetheless, a few young graduates have managed to build companies of impressive size in a short period of time. Fifty-five companies with a founder who graduated in the last 30 years (and 25 with founders who graduated in the last 15 years) have 100 or more employees. Of these 55 younger and larger companies, 22 are in software, 8 in biotech and medical instruments, 8 are in electronics, and 5 are engineering consulting firms. These 55 companies represent a significant proportion of MIT-related companies founded by more recent graduates, as shown in Chart 2. Of firms founded by an MIT graduate from the last 15 years, one in 12 (8%) already has 100 or more employees. This compares to 12% for founders out 15 to 30 years and 16% for founders out 30 to 50 years. California and Massachusetts firms are more likely to reach this size than those located elsewhere.
The industry breakdown of MIT-related companies is not typical of the economy as a whole. Table 2 gives industry totals for number of companies, sales, and employment .
The MIT-related companies tend to cluster in a limited number of sectors. About 380 companies with employment of 635,000 are in electronics, which (as used here) includes computers, semi-conductors, instru-ments, telecommunications equipment, and electrical machinery and appliances. These electronics and instrument firms make up 13% of the MIT-related companies but account for 57% of employment and 56% of sales. Other manufacturing firms (including machinery, aerospace, and advanced materials) account for an additional 24% of employment; all told, manufacturing firms make up 27% of the MIT-related companies, 80% of total employment and 84% of total sales . Nationally, manufacturing accounts for less than 16% of total employment. (More detailed information on MIT-related companies is found in Appendix Table 3).
Company size varies substantially by industry. The average aerospace firm has 5,000 employees; the average electronics firm 2,100. The other manufacturing categories average 500 to 1,000 employees while the typical consulting, architecture, or finance firm has 50 to 100 employees. Software firms average 188 employees.
MIT-related companies have a disproportionate importance to their local economies because so many of them are manufacturing, biotech, and software firms (88% of the employment of MIT-related companies) which sell their products and services in national and world markets. In any regional economy, firms such as these, which sell out-of-region (the economic base) play the major role in driving economic growth. As these firms grow, they create markets for utilities, service firms, retailers, and other local market businesses.
Figures from Massachusetts companies which participated in the 1995 founders' survey illustrate this point. Overall, 83% of company sales are to out-of-state markets; 35% of total output is sold abroad. Chart 3 shows these percentages by industry. Only architects, finance companies, machinery manufacturers, and law firms and other business service companies have in-state sales amounting to 50% or more of total revenue. For electronics, chemical, publishing, biotech, software, and management consulting firms, 80% of sales are out-of-state. Electronics and software firms export over half their total output.
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