By E. J. Reedy
Manager, Research and Policy, Ewing Marion Kauffman Foundation
Before the year is out, the Census Bureau will have gathered data on more than 300 million United States residents. At $15 billion and counting, the 2010 Decennial Census is the largest-ever federal effort to collect statistics on the American population. And, with the government’s increased public relations campaign this year, my American readers likely already have filled out their Census forms or been visited by Census workers.
While countries are concerned with tracking key information on their citizen populations, they also have an interest in tracking their business populations to monitor the state of the economy. Although businesses are human creations (Hello, Mr. or Ms. Entrepreneur), they actually are independent and legally functioning entities that are not well-studied through the Decennial Census or most household surveys. Unfortunately, measurement of business activity has advanced scientifically more slowly than measurement of household activity. As a result, many of our limitations in understanding the complexities of entrepreneurship stem from a lack of meaningful data -- something the Kauffman Foundation and many others are working to change.
In many ways, Kauffman's interest in creating better, more accurate, and timely entrepreneurship and innovation data came at the perfect time.
Improving measurement of business activity can help to drive more effective research into entrepreneurship—a key priority in our efforts. And sound policies need quality research as a basis. Historically, entrepreneurship as an area of study has lacked rigorous empirical research. Good data also are important to businesses and the entrepreneurs or managers behind them who are trying to make decisions, but who lack benchmarks or market research knowledge. By providing relevant data to business resources, like the James J. Hill Reference Library, we are putting practical information into the hands of aspiring entrepreneurs who are enrolled in Kauffman’s FastTrac courses across the country.
Recent studies conducted with Kauffman support have looked at changes occurring in the U.S. economy that can only be explored because of new data becoming available. One notable example of converting the data into a compelling collection of policy briefs is the Kauffman Firm Formation and Economic Growth Series. Kauffman Senior Research Manager Dane Stangler took the lead in translating some of the mountain of recently available data into an easy-to-understand and informative series. We make these insights from our associates and partners available to researchers, policymakers, the media, and the public to foster a better understanding of the entrepreneurial eco-system.
In many ways, Kauffman’s interest in creating better, more accurate, and timely entrepreneurship and innovation data came at the perfect time. For years, the United States has tried to update its measurement infrastructure to better cover businesses in the modern economy, but Congress wouldn’t embrace funding such relatively cheap modernization work.
To simplify things greatly, it would be accurate to say that our nation (and most other nations) is better equipped to measure the economy from the 1950s rather than the 2010s. Measuring the activities of large manufacturing firms is relatively easy. These were the firms of most interest and relevance when the modern national statistical offices came into being after the Depression. It’s the smaller, newer firms, primarily involved in services delivery—among the most common firms in today’s U.S. economy—that are more of a mystery. But, thanks to complementary (and sometimes coordinated) efforts as well as technological advances in collecting and matching data, that is beginning to change.
At its heart, entrepreneurship and innovation measurement is about understanding changes in business over time. Entrepreneurship looks more at changes in the population of businesses and business owners; innovation more at the products, services, and activities of these businesses, owners, or employees. Beginning in the late 1990s, some of the Kauffman Foundation’s funding began shifting to data collection projects and other research, a trend that accelerated under the leadership of Kauffman Foundation CEO Carl Schramm and Vice President for Research and Policy Robert Litan. Today, the Kauffman Foundation supports numerous original data collection projects and efforts to improve statistical infrastructure globally, which ultimately will generate a wave of new understanding of the roles entrepreneurship and innovation play in driving economic growth.
A Sample of Recent Data Kauffman Has Supported
While Kauffman has supported data development efforts on topics from intellectual property litigation to bankruptcy, the Foundation’s most significant investment in data is the Kauffman Firm Survey (KFS)—the largest and longest longitudinal survey of new businesses in the world—which follows a cohort of 4,928 firms that began operations in 2004, annually, through 2011. This public-use research dataset creates records about the same 4,928 businesses each year to track sources and amounts of financing, firm strategies and innovations, the owners, and outcomes such as sales, profits, and survival, as well as other issues.
Longitudinal data, or data collected on the same entity over time on the same topic, is important for social science research that attempts to look empirically at factors driving differences and similarities in outcomes. Cross-sectional data captures information at one point in time with a sample but doesn’t have data on the same sample at an additional point in time. In entrepreneurship, longitudinal data lets us track what causes a person in the process of starting a business to actually get the operation up and running, or to look at the effects of early strategy or business structure decisions on long-term survival of the business. Longitudinal survey data is rare, as it can cost anywhere from five to fifteen times as much as cross-sectional data, but cannot be replaced by cross-sectional data.
Researchers are using the KFS to explore important topics like the impact of the financial crisis on new business development, the balance of debt and equity financing over time, and the innovation activity of emerging businesses. The KFS reflects a changing perspective in the study of businesses—looking at businesses as they age—which is remaking the way we think about startups and small businesses, and helping us to understand the potential impact of policy on new businesses’ ability to achieve success.
Internationally, a key Foundation investment is the Organization for Economic Co-operation and Development (OECD) Entrepreneurship Indicators Program (EIP). In 2005, the Foundation provided the OECD, a consortium of thirty-one industrial democracies, the financial support for a feasibility study to explore what could be done to improve entrepreneurship data. Seven countries—Canada, Denmark, the Netherlands, Finland, Norway, Sweden, and the United States—added financial and intellectual support for the work. In 2007, Eurostat, the European Union’s official statistical office, formally joined forces with the OECD to create the joint OECD-Eurostat EIP, which aims to create a durable, long-term program of policy-relevant entrepreneurship statistics. The EIP establishes multiple measures of entrepreneurial activity data that can be compared internationally based on information that national statistical offices produce according to new, internationally agreed-upon definitions. The program is progressively broadening its country coverage, and is investigating the possibility of producing additional comparable indicators of entrepreneurial activity over time. The data demonstrates the critical role entrepreneurs play in the global economy.
While many know our role as funder, we likely are having our broadest impact in the roles of facilitator, advocate, and subject matter expert. Kauffman tracks what is going on under the hood of the federal statistical engine. We keep tabs on the Federal Register of data the government collects and we respond to calls to comment by sending letters of support, critique, and open suggestions for improvement. In 2007, the National Academies, the United States’ top body of scientific advisors, completed a Kauffman-funded study examining how change in businesses was and could be measured. The following year, Carl Schramm chaired the Department of Commerce’s Advisory Committee on Measuring Innovation in the 21st Century Economy, which highlighted key areas where investment in the data infrastructure could improve our future understanding of U.S. innovation.
To better disseminate entrepreneurship and innovation data, advocate for improvements, and increase our subject matter expertise, we developed the Kauffman Symposiums on Entrepreneurship and Innovation Data and began blogging on the topic. The Kauffman Data Symposiums provided a venue for potential users and producers of new data to connect with one another. In its inaugural 2007 meeting, 150 people attended to discuss thirty-eight datasets, some of which Kauffman had funded, but many that we had not.
The most recent Kauffman Interagency Data Forum in 2010 brought together fifty representatives from the federal statistical community, academia, and other interested parties to talk about upcoming changes to the ways federal statistical agencies collect data. These discussions cut through silos of knowledge across statistical agencies, encourage academics to contribute to the collection of better data, and create momentum for improvement. We continue the data conversation over the course of the year through Data Maven, a blog developed to track new developments in entrepreneurship and innovation measurement.
The horizons for change in data collection are long. Achieving rigorous collection, international standards, and broad-based dissemination takes years. I feel privileged to continue to coordinate this work and to work with so many people who are passionate about driving improvements to our understanding of these important topics. Already we are seeing increased policy recognition that entrepreneurs are important players in driving economic growth.
Many improvements are underway, but many more are needed—such as developing better concepts of the types of innovation that are most relevant in new firms and getting a handle on high-growth firms globally. Additionally, now that data are becoming available, much of our current and future work focuses on dissemination to ensure that researchers make use of these data, mainstream media become better informed, and, ultimately, policymakers and entrepreneurs get better information to drive their decisions.
Kauffman Firm Survey Data Fuels Global Research