The Nature of Firm Growth

Only half of all startups survive past the age of five and surviving businesses grow at vastly different speeds. Using micro data on employment in the population of U.S. businesses, we estimate that the lion's share of these differences is driven by ex-ante heterogeneity across firms, rather than by ex-post shocks. We embed such heterogeneity in a firm dynamics model and study how ex-ante differences shape the distribution of firm size, ``up-or-out'' dynamics, and the associated gains in aggregate output. ``Gazelles'' --a small subset of startups with particularly high growth potential-- emerge as key drivers of these outcomes. Analyzing changes in the distribution of ex-ante firm heterogeneity over time reveals that the birth rate and growth potential of gazelles has declined, creating substantial aggregate losses.