Silicon Prairie News

Our thoughts on the 2010 Kauffman Index of Entrepreneurial Activity

Omaha June 29, 2010 by Dusty Davidson

The figure above, taken from the Kauffman Index of Entrepreneurial Activity, illustrates variation in entrepreneurial activity levels across the U.S., which, according to the report, is generally highest in Western and Southern states and lowest in Midwestern and Northeastern states.

This past Friday, June 25, the Omaha World-Herald published an article focusing on Nebraska's second to last ranking in a recently released report from the Kauffman Foundation: the Kauffman Index of Entrepreneurial Activity, 1996-2009.

Titled Business startups lag, business reporter Ross Boettcher interviewed the author of the report, economics and finance professor Robert Fairli, as well as a local economics professor and three individuals involved in Omaha and Lincoln's startup scene.

Business startups lag

Published Friday June 25, 2010

By Ross Boettcher World-Herald Staff Writer

A study that ranked Nebraska second to last in new business startups among all 50 states is cause for reflection but not hysteria, local economists and development experts said.

“Second to last is surprising,” said Creighton University economist Ernie Goss. “But on the flip side it's not surprising, because a lot of new business formation [...]

Read full article

Clearly, we here at Silicon Prairie News have an opinion and a stance on the matter. It should come as no surprise to anyone that a large part of what we do at Silicon Prairie News focuses on changing the perception of the region and encouraging people from all walks of life to start new ventures.

The figure above, taken from the Kauffman Index of Entrepreneurial Activity, shows the bottom 10 states ranked by levels of entrepreneurial activity, with 95 percent confidence intervals for each state.

With respect to our focus on perceptions, it is important to note that only two of the top 10 states currently have a reputation of a startup culture: Texas (Austin and Dallas) is ranked fourth and California (Silicon Valley) is tenth. Massachusetts (Boston), on the other hand, sits in the middle of the pack at 23. This says to me that there are different factors at play other than an "entrepreneurial climate." In fact, South Dakota, a state which Silicon Prairie News covers, ranks one above California at position number nine.

That is not to say that it's discouraging to be at the bottom (of any list). As Tom Chapman, director of entrepreneurship and innovation at the Greater Omaha Chamber of Commerce, previously pointed out in a guest post, venture capital dollars deployed in Nebraska rank far below comparable states. Other metrics, such as the amount of Small Business Innovation Research funding granted, are equally dismal. All we can do at this point is accept where we are and aim to improve across the board.

If you're interested in more statistics showing how states stack up against each other for various entrepreneurial metrics, a great read is the 2008 State New Economy Index, also published by Kauffman. Whereas the Index of Entrepreneurial Activity only measures new company creation, the State New Economy Index measures and combines many indicators of a state's entrepreneurial achievements. For instance:

  • Overall Score (Nebraska ranks 27)
  • Gazelle Jobs (Nebraska ranks 1) – Jobs in gazelle companies (firms with annual sales revenue that has grown 20 percent or more for four straight years) as a share of total employment.
  • Technology in School (Nebraska ranks 20) - A measure of three factors measuring computer and internet use in schools.

Regardless of the measure, there is much work to be done at all levels and in all areas. However, we certainly feel that as a community we've made huge strides over the past few years. It's our sincere hope that this trend continues and that the momentum we collectively generate not only changes perceptions but also results in hard facts and figures such as those reported in this study. That is what success looks like.

You can download a full (PDF) copy of the report, or view an interactive version at the Kauffman Foundation website.



Danny Schreiber SPN

Richard Piersol of the Lincoln Journal Star also covered the Kauffman Index, published on May 29:

It's a great read.

Jun 29, 2010 at 02:15 PM

I read the study in preparation for being interviewed by Mr. Boettcher and prior to that when it was released in May 2010. I was disappointed by the study itself which basically has two big issues. Issue one is that the study basically counts people that have become unemployed and start any type of business right along side people with genuine start-ups. There is a direct discussion of this in the study and how that could affect the outcome. And if you look at the data there does appear to be a relatively strong link between unemployment rate and start-up "culture". Issue two is that the study compares a snap-shot of two time periods both in 2008 when the economy around the country was in flux - thus there is not an acknowledgement of the volatility of the economy at the time. Thus, combing the two points the study is probably not measuring very clearly.

However, that being said, two key points that are important is that Nebraska's start up culture has dramatically sagged over the last decade. Longitudinally, the data in the study suggests that there has been a significant reduction of new ventures in the state. I would not say that this has been in Omaha or Lincoln - but around the state in other parts. This is not a slam or an attempt to push the blame to others. Instead, I would say where Omaha probably lagged in the mid-2000s, there has clearly been an uptick in new ventures over the last 18-24 months. And Lincoln has been going strong for about 4 or 5 years. This is consistent with other BLS, Inc., etc. data.

The second is that the same study that is referenced in the post about gazelle jobs was actually done by the same guy using the same data set. This is clearly inconsistent and suggests something should be done to explain deeper than simply draw broad assumptions about the data. I am not criticizing either study directly - just saying that data can be told to say anything. I would much rather have more gazelle jobs and fewer start-ups, but the reality is that the two really have to work together. The gazelle jobs are basically tied to certain industry types - including bioprocessing which had a very high expansion in 2002-2008 in Nebraska. Thus, the data is skewed by a single strong growth industry - not a tremendous upswing of multiple industries.

Now all of that being said, I was quoted by Mr. Boettcher quite correctly as saying - Nebraska is somewhere in the middle. Nebraska is not Massachusetts or Texas, nor is Nebraska the equivalent of Mississippi. Nebraska is somewhere in the middle - mostly 3rd quartile.

In addition, from all of our metrics, Omaha consistently plays out in the bottom of the second to the middle of the third quartile compared to metro areas that we compare against. Some of these are aspirational and some of these are geographical.

But what is clear is that like Dusty said - Omaha can do better and we should push to do better. Omaha can also be a clearer driver of Nebraska's innovation economy than ever before - but its up to us to actually do it, not just talk about why statistics or studies do or don't matter.

Thank you Dusty for your post.

Jun 29, 2010 at 03:06 PM
Charlie Ahern

Among the top five entrepreneurial states are Montana and Idaho. That makes me wonder what's being measured and the value of that data. A contract truck driver or part-time handyman may be considered a "startup" in this study, but would they generally be considered entrepreneurs launching startups?

A few notes:
- Makes sense that unemployment and startup rates are inversely correlated. Some people may decide to create jobs for themselves rather than find a company to "give me a job."
- From my own observation this recession seems to be hitting middle-aged folks hard and long. Some boomers may perceive an age-related lack of demand in the corporate job market, so they are taking their skills & experience to other markets.
- As a recent emigre from Silicon Valley, I'm encouraged so far by the pockets of energy in Des Moines. A key to developing that energy is to build infrastructure linkages and mobility among those pockets.

Jun 30, 2010 at 09:41 AM


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