Most States, Metros Experience Resurgence of Entrepreneurial Growth, Annual Kauffman Foundation Index Reports

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Virginia sees highest growth entrepreneurship activity among larger states; Utah takes top place among smaller states; Washington, Austin and San Jose areas are the top three among metros

“Growth entrepreneurship directly contributes to the economy through creating jobs, innovation and wealth,” said Arnobio Morelix, senior research analyst

U.S. entrepreneurial growth, while still in a long-term decline, is happening in cities from coast to coast and in between – well beyond just the typical entrepreneurial hubs. Following the national trend, business growth across industries and geographies edged upward in most states and metro areas, according to state and metropolitan data released today in the 2016 Kauffman Index of Growth Entrepreneurship.

Entrepreneurial business growth rose for the third year in a row in the 2016 Kauffman Index of Growth Entrepreneurship, indicating that business growth largely has recovered from the Great Recession slump. Driving the growth are startups growing faster in their first five years and more companies reaching the scale of medium-sized or larger.

“Growth entrepreneurship directly contributes to the economy through creating jobs, innovation and wealth,” said Arnobio Morelix, senior research analyst at the Kauffman Foundation, which conducts the annual study. “The fact that 39 states and 34 of the United States’ 40 largest metro areas experienced an increase in growth entrepreneurship holds promise for a return to economic vibrancy after the long-lasting impact of the Great Recession.”

The reports present trends in Growth Entrepreneurship in each state and the 40 largest metro areas relying on three composite indicators to look at business revenue and job growth: Rate of Startup Growth, Share of Scaleups and High-Growth Company Density.

“Growth entrepreneurship affects all of us,” wrote Steve Case, chairman and CEO of Revolution LLC and co-founder of America Online, in the foreword to the Growth Index. “The Kauffman Foundation brings a powerful suite of data and research tools to help us understand growth entrepreneurship. The data here give new benchmarks of growth outcomes you’ve not had access to previously.”

METRO TRENDS AND RANKINGS IN GROWTH ENTREPRENEURSHIP

Growth entrepreneurship data for the 40 largest U.S. metropolitan areas was benchmarked against the national average. Cities with the most growth entrepreneurship activity spread widely around the United States, with entrepreneurship growing in certain pockets of virtually every region: the Midwest, the South and the East and West Coasts.

Most of the metros considered “usual suspects” for growth, including Austin, Boston, San Diego, San Francisco and San Jose, performed very well. But top performers also included Washington, D.C.; Nashville, Tennessee; Columbus, Ohio; and other metros not typically noted for entrepreneurship.

The top five ranked metros were Washington, D.C.; Austin, Texas; San Jose, California; Columbus, Ohio; and Nashville, Tennessee.

The five metros that experienced the biggest positive shifts in rank from 2015 to 2016, with a three-way tie for fifth place, were Cincinnati (35 to 16), San Antonio (20 to 9), Cleveland (26 to 19), Philadelphia (26 to 21), Nashville (9 to 5), Phoenix (16 to 12) and Tampa (30 to 26).

The five metro areas that saw the biggest downward shifts in rank from 2015 to 2016 were Pittsburgh (12 to 27), Baltimore (8 to 18), Milwaukee (21 to 31), Indianapolis (11 to 20) and Chicago (25 to 30).

STATE TRENDS AND RANKINGS IN GROWTH ENTREPRENEURSHIP

To facilitate comparison across peer groups of states, the Kauffman Index looked at the 25 largest and 25 smallest states by population. The larger states are overwhelmingly urban, while populations in smaller states tend to be more dispersed.

Virginia took first place in growth entrepreneurship activity among the 25 largest states, followed by Maryland, Arizona, Massachusetts and Texas. Kauffman researchers said it is no coincidence that two of the top states include the highly entrepreneurial Washington, D.C., metro area. Among larger states, 12 ranked higher than they did last year, four experienced no change in rankings and nine ranked lower.

Among the 25 largest states, the five that experienced the biggest increase in rank from 2015 to 2016 were North Carolina (15 to 8), Alabama (13 to 9), Ohio (16 to 12), Tennessee (18 to 14) and Arizona (6 to 3).

The five large states that saw the greatest decrease in rank in 2016 were, with a tie for fifth place, New Jersey (8 to 20), Pennsylvania (10 to 16), Illinois (14 to 17), Wisconsin (20 to 23), Louisiana (4 to 6) and South Carolina (11 to 13).

Among the 25 smallest states, Utah led growth entrepreneurship activity, followed by New Hampshire, Delaware, North Dakota and Oklahoma. Eleven states ranked higher than they did last year, three experienced no change in rankings and 11 ranked lower.

The five small states that saw the biggest increase in rank were Mississippi (22 to 10), Wyoming (23 to 15), North Dakota (11 to 4), Nevada (15 to 8) and Connecticut (17 to 13).

The small states that experienced the biggest decrease in rank, with a three-way tie for fifth place, were Vermont (11 to 24), Arkansas (10 to 20), Maine (13 to 19), New Mexico (5 to 9), Oklahoma (2 to 5), Hawaii (8 to 11) and Kentucky (18 to 21).

INDUSTRY TRENDS

The top five industries with the highest shares of high-growth companies, were, in this order, IT, Advertising & Marketing, Business Products & Services, Health and Software.

While tech played a strong role among high-growth companies, less than 30 percent of high-growth companies are in the tech-associated sectors of IT, Software, Health and Computer Hardware.

“The industry trends in the data suggest that high-tech is not a pre-requisite for high-growth” said E.J. Reedy, Kauffman Foundation senior scholar and co-author of the Growth Index. “While tech industries continue to have a strong presence among high-growth companies, growth comes from a wide range of sectors, from food and beverage, to retail, to government services.”

The Kauffman Foundation's release of state and metropolitan data follows the May 19 release of national Growth Entrepreneurship results. That study reported that the Growth Entrepreneurship Index, an indicator of how much entrepreneurial businesses are growing, rose in the last year for the third year in a row.
Follow the conversation on Twitter at #KauffmanIndex.
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About the Kauffman Index of Entrepreneurship

The Kauffman Index of Entrepreneurship is the first and largest index tracking entrepreneurship across city, state and national levels. It also presents demographic characteristics of the business owners. The Kauffman Index of Growth Entrepreneurship is the first of three reports to be released under the umbrella of the Kauffman Index of Entrepreneurship in this year. The newest data allow for an update to annual reports dating back to 2008. Interactive data spanning all 19 years is available at http://www.kauffmanindex.org.

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, Missouri, 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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