How Local and State Governments Can Rev Up Business Creation

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New Kauffman Foundation guidelines say fostering connections could change the downward startup trend

Local and state governments should reformulate their efforts to promote business startups, according to a research paper released today by the Ewing Marion Kauffman Foundation that first focuses on what does not work.

“Guidelines for Local and State Governments to Promote Entrepreneurship,” reports that, even though many cities and states have been promoting entrepreneurship for at least two decades, the rate of new business formation is declining. New businesses comprised about 8 percent of all U.S. businesses in 2011, down from about 15 percent in the late 1970s. Further, recent groups of startups are creating fewer jobs.

“Cities and states have been devoting a great deal of energy and resources toward the promotion of entrepreneurship, yet entrepreneurship has been sputtering,” said Jason Wiens, policy director at the Kauffman Foundation and the paper’s co-author. “The traditional methods of encouraging entrepreneurship are not producing desired results and should be replaced with methods that are more likely to gain traction.”

The paper states that local government efforts to foster entrepreneurship have often relied on public venture funds and incubation centers that provide startups with free or low-cost office space, business assistance, management training and similar services. But research demonstrates that these strategies often are ineffective in promoting entrepreneurial activity.

“We’ve found that the public sector typically lacks the expertise to evaluate and support entrepreneurs, and business incubators may only serve to prop up businesses that would not otherwise survive,” said Yasuyuki Motoyama, director of Research & Policy at the Kauffman Foundation, and co- author of the paper. “At the same time, entrepreneurs often find it difficult to meet other entrepreneurs or investors in their regions.”

Instead, state and local governments should implement strategies that focus on entrepreneurs as individuals who learn by doing and interacting with others. While books and courses may inform continuous learning, there is no substitute for advice from local business owners as entrepreneurs navigate the complicated decisions they face at each stage of their businesses’ development, the paper reports.

The paper, available here, recommends that state and local governments adopt several strategies to refocus their entrepreneurship support efforts.

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About the Kauffman Foundation
The Ewing Marion Kauffman Foundation is a private, nonpartisan foundation that aims to foster economic independence by advancing educational achievement and entrepreneurial success. Founded by late entrepreneur and philanthropist Ewing Marion Kauffman, the Foundation is based in Kansas City, Mo., and has approximately $2 billion in assets. For more information, visit http://www.kauffman.org, and follow the Foundation on http://www.twitter.com/kauffmanfdn and http://www.facebook.com/kauffmanfdn.

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