Four Indicators to Assess Local Ecosystem Vibrancy

New Kauffman Foundation report recommends starting-point measures to evaluate entrepreneurial vitality within cities and regions

(KANSAS CITY, Mo.) March 16, 2015 ­– With the rise of entrepreneurial ecosystems – elements within a community that support firm formation and growth – how can local leaders measure success? That's the subject of a report released today by the Ewing Marion Kauffman Foundation.

Most communities fall short in assessing the performance of their entrepreneurial ecosystems, according to the paper, "Measuring an Entrepreneurial Ecosystem."

Community leaders tend either to focus on a limited number of input metrics rather than quantifying outcomes, or to take a "kitchen-sink approach."

The latter considers all aspects of an entrepreneurial ecosystem equally important and therefore attempts to track every result, failing to provide adequate focus for community leaders.

Assessments of entrepreneurial vibrancy may need to vary by city or by region, based on each area's priorities.

As a starting point, however, the paper's authors propose four indicators that reflect an entrepreneurial ecosystem's vitality and evolution: density, fluidity, connectivity and diversity.

"While additional indicators may be valuable to specific regions, these four baseline gauges – tracked over time – will provide a clear picture of an entrepreneurial ecosystem's health and effectiveness," said Dane Stangler, vice president of Research and Policy at the Kauffman Foundation and one of the paper's authors. "They also serve to inform entrepreneurs and regional leaders about actions that will make the ecosystem stronger."

"While this is not an exhaustive list of indicators, it is meant to be a discussion-starter," said Jordan Bell-Masterson, analyst in Research and Policy at the Kauffman Foundation and one of the paper's authors. "Further research is needed, and we'd like to stimulate a discussion on better measures, missing indicators, and new and better datasets to assist in measuring the health of entrepreneurial ecosystems."

The report recommends several measurements within each of the four indicators:

  • Density: density of new and young firms, defined as the number of new and young companies per 1,000 people in a geographic area; share of employment in new and young firms; and high tech (or the region's preferred sector) density.
  • Fluidity: population flux, or the level at which people move between cities or regions, providing a constant remixing that is key to idea generation; labor market reallocation, or people's ability to find the right match of jobs within a region; and number of high-growth firms.
  • Connectivity: program connectivity, or how connected entrepreneurs are with resources and each other; spinoff rates, which indicate the extent to which successive waves of new companies are created; and dealmaker networks, which inform entrepreneurial leaders about how effectively deal professionals are establishing relationships and facilitating new firm formation.
  • Diversity: economic diversification, which ensures that a city or region is not overly reliant on a particular industry; immigration, or how effectively the ecosystem attracts and assimilates immigrants, who tend to start companies more frequently than the native born do; and income mobility, or how well the entrepreneurial ecosystem diversifies economic opportunity.