Startup Activity Gains Momentum in Most States and Metros, According to Latest Kauffman Startup Index

(KANSAS CITY, Mo.) Aug. 25, 2016 – A majority of U.S. states and metro areas are experiencing higher rates of new business creation, following the national trend, according to 2016 Kauffman Index of Startup Activity State and Metro Trends data released today by the Ewing Marion Kauffman Foundation.

Thirty states saw higher aggregate levels of new business activity compared with the previous year. Smaller states felt more headwind in the most recent year, when 11 of them saw a contraction in new business creation. By comparison, only five larger states experienced year-over-year contraction.

Twenty-three out of the largest 40 metro areas experienced an increase in startup activity.

“These reports are critical to solving the puzzle of why entrepreneurship thrives in some places and not in others,” said Victor Hwang, vice president of Entrepreneurship at the Kauffman Foundation. “Policymakers, practitioners and entrepreneur support organizations can use the findings as tools to take the pulse of their local ecosystems to strengthen startup activity.”

“With the Kauffman Index of Startup Activity, the Kauffman Foundation provides the essential data and research that allow us to keep that pulse and leverage the insights we learn from the data to create a better future for our communities,” wrote Colo. Governor John Hickenlooper in the reports’ foreword. “All entrepreneurship is local. And the policymakers, entrepreneurship supporters and communities that overlook this reality do so at their own peril.”

“The startup numbers for states and metro areas dovetail with the national Startup Activity Index report, which showed entrepreneurship recovering from the Great Recession slump,” said Arnobio Morelix, senior research analyst at the Kauffman Foundation. “While there is considerable variation from one locale to the next, the aggregate data bodes well for business startup activity around the country.”

As the Kauffman Foundation previously reported, national startup activity rose in the 2016 Index, continuing an upward trend started in 2015. After falling with the Great Recession and reaching its lowest point in the past two decades just two years ago, startup activity rebounded in 2016 to its fifth-highest level ever.

The Kauffman Index of Startup Activity relies on three indicators to look at new business creation:

  • The Rate of New Entrepreneurs in a location, calculated as the percentage of adults becoming entrepreneurs in a given month.
  • The Opportunity Share of New Entrepreneurs, calculated as the percentage of new entrepreneurs driven primarily by opportunity vs. necessity.
  • Startup Density, the number of new employer businesses normalized by population. More specifically, the Startup Density is the ratio of the number of new employer businesses divided by the total population of existing employer businesses.

STATE RANKINGS

The Startup Activity Index groups states into the 25 largest and the 25 smallest by population. Larger states are overwhelmingly urban, while smaller states are less so.

While most states experienced an increase in startup activity, significant differences emerged from state rankings that measure relative yearly performance across states. Nineteen states ranked higher than they did last year, nine experienced no changes in rankings and 22 ranked lower.

Among the 25 largest states by population, the five states with the highest startup activity in the 2016 Index were Texas, Florida, California, New York and Colorado. Nineteen out of the 25 largest states had higher levels of startup activity in 2016 compared to last year.

In the 25 smallest states, the five states with the highest startup activity in 2016 were Montana, Nevada, Wyoming, Oklahoma and Alaska. Eleven smaller states had higher Startup Activity Index measures this year.

Among larger states, those that experienced the biggest positive shift in rank from 2015 to 2016 were New Jersey (18 to 7), Michigan (19 to 11), Minnesota (24 to 21), Texas (3 to 1), New York (6 to 4) and Georgia (14 to 12).

Larger states that saw the biggest negative shift were Illinois (10 to 19), Louisiana (5 to 10), South Carolina (9 to 14), Colorado (2 to 5) and Massachusetts (15 to 18).

Smaller states that saw the biggest positive shift in rank were Oregon (22 to 15), Oklahoma (8 to 4), North Dakota (11 to 7), Wyoming (5 to 3), Mississippi (13 to 11), Nebraska (15 to 13), Arkansas (19 to 17) and Rhode Island (21 to 19).

Smaller states that experienced the biggest negative shift were Utah (6 to 10), Vermont (10 to 14), Maine (16 to 20), Kentucky (18 to 21), Alaska (3 to 5), Idaho (4 to 6), Delaware (14 to 16) and Connecticut (20 to 22).

Rate of New Entrepreneurs

  • Looking at the first component of the Startup Activity Index, the Rate of New Entrepreneurs varied widely across larger states in the 2016 Index, ranging from 180 new entrepreneurs for every 100,000 adults (Pennsylvania) to 390 new entrepreneurs for every 100,000 adults (California and Texas) in a given month.
  • Among smaller states, the Rate of New Entrepreneurs ranged from a low in Iowa of 180 per 100,000 adults to 500 per 100,000 adults in Montana.

Opportunity Share of New Entrepreneurs

  • Among larger states, the Opportunity Share of New Entrepreneurs varied from 66.5 percent in Alabama to 90.7 percent in Ohio. This means in Alabama, approximately seven out of every 20 new entrepreneurs were previously unemployed, while in Ohio about one out of every 10 new entrepreneurs was previously unemployed.
  • Among smaller states, the Opportunity Share of New Entrepreneurs ranged from 71.3 percent in Alaska to 90.8 percent in North Dakota.

Startup Density

  • Startup Density varied across larger states, ranging from 57.9 startups per 1,000 employer businesses in Wisconsin to 101.8 startups per 1,000 employer businesses in Florida.
  • Among smaller states, Nevada topped out with 107.4 startups per 1,000 employer businesses, compared to West Virginia with 51.1 new employer businesses per 1,000 businesses.
  • From 2006 to 2013, Startup Density declined across states at an average of 28 percent at the state level, indicating that larger startups – those that employ other people – remain precariously below historical norms.

METRO RANKINGS

The five metros with the highest startup activity in the 2016 index were Austin, Miami, Los Angeles, San Francisco and Las Vegas.

Twenty-three out of 40 metro areas experienced an increase in startup activity. Seven saw small to no changes and 10 saw their levels fall. Seventeen metros ranked higher than they did in the 2015 Index, while five saw no changes and 18 ranked lower.

The metros that saw the biggest positive shift in rank from 2015 to 2016 were Orlando (33 to 21), Kansas City (29 to 18), Cincinnati (31 to 24), Nashville (23 to 16), Detroit (35 to 30) and San Francisco (9 to 4).

Metros that experienced the biggest negative shift in rank were Virginia Beach (18 to 32), Chicago (22 to 29), Sacramento (20 to 27), Seattle (19 to 26), Indianapolis (27 to 33) and San Antonio (7 to 13).

Rate of New Entrepreneurs

As was the case with the states, the Rate of New Entrepreneurs varied widely across metros. Austin ranked No. 1 in this category, with 600 new entrepreneurs for every 100,000 adults. Last place went to Milwaukee, which tallied 100 new entrepreneurs for every 100,000 adults.

Opportunity Share of New Entrepreneurs

Rankings in Opportunity Share of New Entrepreneurs topped out in San Jose, with 94.2 percent. Charlotte ranked last with 62.3 percent.

Startup Density

Metro Startup Density ranged from 120.8 startups per 1,000 employer businesses in Las Vegas to 52.7 startups per 1,000 employer businesses in Pittsburgh.

Find interactive charts and state and top 40 metro area profiles here.

Follow the conversation on Twitter at #StartupActivity.