Featured Indicator: Kauffman Indicators of Entrepreneurship

In 2017, we brought you a featured indicator piece on the Kauffman Index of Startup Activity. This month, we are revisiting the Kauffman Foundation which recently released their new Kauffman Indicators of Entrepreneurship, to replace the Index of Startup Activity. Through this move, the Kauffman Foundation refined their methodology and has placed an increased focus on the nature of early-stage entrepreneurship.

Index Components

The Kauffman Early-Stage Entrepreneurship (KESE) index is comprised of four measures of entrepreneurship:

  1. Rate of New Entrepreneurs, measuring the percent of the population that starts a business.
  2. Opportunity Share of New Entrepreneurs, measuring the percent of new entrepreneurs who created a business by choice instead of necessity. This measure attempts to separate people who want to start a business to take advantage of new opportunities, from those who need to start a business to survive poor economic conditions.
  3. Startup Early Job Creation, measuring the average number of jobs created by startups in their first year (normalized by population).
  4. Startup Early Survival Rate, measuring the percent of startups that are still active after one year.

The KESE is an equally weighted index of the four normalized indicators. This creates a comparable scale for including the four measures in the KESE, and allows us to compare the individual measures and the KESE across states (and years).

Index Leaders

When using the KESE to compare entrepreneurship activity across states, California ranks highest with an index of 2.86. This is followed by Missouri (1.86), Florida (1.75), Wyoming (1.68), and Texas (1.67).

Interestingly, the states (including D.C.) that rank the highest on each of the four measures of entrepreneurship are different than the top five states of the composite index.

Rate of New Entrepreneurs:

  • Wyoming: 0.47%

Opportunity Share of New Entrepreneurs:

  • Nebraska: 94.03%

Startup Early Job Creation:

  • District of Columbia: 10.34

Startup Early Survival Rate:

  • Maine: 88.13%

Index Laggards

On the flip side, Rhode Island ranks lowest in terms of the KESE, with an index of -2.93. Rhode Island also takes the bottom slot for the opportunity share of new entrepreneurs. The other states that round out the bottom five with respect to the KESE include Ohio (-1.85), New Hampshire (-1.4), Illinois (-1.36) and Pennsylvania (-1.3).

Rate of New Entrepreneurs:

  • Delaware: 0.16%

Opportunity Share of New Entrepreneurs:

  • Rhode Island: 68.72%

Startup Early Job Creation:

  • West Virginia: 2.95

Startup Early Survival Rate:

  • Georgia: 73.48%

Why is this important?

As we wrote back in 2017, entrepreneurs are a major driving force behind economic development. In addition to providing employment opportunities entrepreneurs invest in products and services that people need, promote efficiency through innovation, and strengthen local, regional, and even global economies.  The Kauffman Indicators of Entrepreneurship are a valuable tool for economic developers to understand entrepreneurial trends across the United States.

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