Startup Activity on the Rise, but Room for More Growth

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The U.S. economy reversed a five-year downward trend in startup activity last year with a big jump in the number of new entrepreneurs.


With the largest year-over-year growth in two decades, American startups are on the rebound, according to the 2015 Kauffman Index: Startup Activity.


Since 2004, the Kauffman Index has provided policymakers with a timely and early peek into the world of entrepreneurship. This year’s revamped and expanded Index offers state and local policymakers a more comprehensive tool for assessing entrepreneurship.


The new Kauffman Index is a powerful tool that belongs alongside federal employment and economic growth statistics as a critical measure of American economic performance.


Insights into the 2015 Kauffman Index


This year, as in years past, the Index measures startup activity in each state, as well as in the 40 largest metropolitan areas of the country.


New business creation increased in 32 states and in nearly half of the metropolitan areas measured last year. Montana, Wyoming, North Dakota, Colorado, and Vermont ranked highest in the Index.


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For cities, Austin led the way—topping this year’s Index with the highest rates of startup activity. Other “usual suspects” like San Jose, San Francisco, and Denver top the list.


By region, the West and Southwest have a high concentration of metropolitan areas that rank highly.


Startup activity is growing again in America, but it is still below historic norms. Moreover, the latest data from the U.S. Census bureau continue to show a long-term decline in startup rates.


All states and cities—even those at the top of this year’s Index—can grow.


How Policymakers Can Bolster Entrepreneurship


Though the Kauffman Index: Startup Activity is the leading indicator of entrepreneurship in the United States, it doesn’t tell policymakers how to improve the environment for new business creation and growth.


The Kauffman Foundation works to understand what public policies can make the U.S. economy more dynamic and entrepreneurial. Here are some of our answers:


Welcome Immigrants

According to the Kauffman Index, immigrants are nearly twice as likely as native-born Americans to start business.


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While federal law sets overall U.S. immigration policy, states and cities are pursuing innovative policies to welcome immigrant job-creators.


Last year, for example, Massachusetts created a pilot program to employ immigrant entrepreneurs on college campuses as “entrepreneurs in residence.” These foreign entrepreneurs would advise students and also work to build their business.


A similar, but privately financed, program is underway now in Colorado.


Remove Barriers like Occupational Licensing

Entrepreneurs are often successful when they create a new way of doing something or delivering a new product. Yet, occupational licensing laws discourage this type of “out-of-the-box” thinking.


Nearly one in three American workers is required by the state to have a license to do his or her job. These licensing laws fence out entrepreneurs while protecting licensed incumbents.  


States can pursue alternative forms of regulation that protect public health and safety while also limiting the negative effects of licensing.


Encourage Competition

Most entrepreneurs, especially high-growth entrepreneurs, have prior industry experience. This is reflected in data, which show the peak age for entrepreneurship is around 40.


In many states, however, strict enforcement of non-compete agreements blocks, or at least delays, entrepreneurship by erecting a barrier to mobility. To facilitate labor mobility and competition, states can shorten the duration of non-compete agreements, mandate employers disclose the requirement to sign a non-compete earlier, and narrow the scope.

Visit www.kauffman.org/policydigest to learn about more public policies that research suggests can boost entrepreneurship in America.

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