America’s Entrepreneurial States: Entrepreneurial Capacity Index & Tool


As part of Heartland Forward’s report, “America’s Entrepreneurial States: Supporting Entrepreneurs to Help Drive the Economy,” we have released a first-of-its-kind interactive tool, which allows users to see how their state compares to other states in the Entrepreneurial Capacity Index and how improving in certain areas would be expected to improve or worsen their state’s ranking.

The Entrepreneurial Capacity Index consists of two components: one focusing on Main Street entrepreneurship (share of private employment at firms five years old or younger) and knowledge-intensive entrepreneurship (share of employment at firms five years old or younger with a bachelor’s degree or higher educational attainment).

These two components are proxies for a community’s capacity to support entrepreneurship as an economic development strategy. Such capacity encompasses tangible resources such as financial capital, technical assistance, experienced entrepreneur mentors, resource networks, as well as intangible resources like favorable attitudes toward risk and failure, creativity and the political will to try things differently.

Higher levels of entrepreneurial employment are evidence of significant capacity within the community to support entrepreneurship, though the type of entrepreneurial employment matters. Main Street entrepreneurship is an indicator of broad support and capacity for new businesses, both small and growth-oriented businesses; key goods and services will be provided in the community such as legal services, restaurants and retail stores. Knowledge-intensive entrepreneurship points to more specialized and innovation-driven businesses that attract revenue from consumers from beyond the local community and cause the local economy to grow much more rapidly.

This tool allows users to see how their state compares to other states in the Entrepreneurial Capacity Index, and how improving in certain areas would be expected to improve their state’s ranking.

To use the preset Michigan as an example, changing the state’s Percent of Households with a Computer in the Home from the actual value of 91.1% to the “try” value of 93.4% would be expected to improve Michigan’s Entrepreneurial Capacity Index rank from 32nd to 25th; “try” values can be interpreted as challenging, but attainable, goals. 

It should be noted that our analysis found declines in business R&D spending and government grants to businesses to be associated with increases in states’ Entrepreneurial Capacity Index value. This is reflected in the fact that “try” values are smaller than actual values. 

Additionally, this is a tool designed to provide insights for every state. As a result, the general rules used to generate “try” values may result in unreasonable values for some states. Policymakers and economic developers should interpret an unreasonable “try” value for a given measure as an indication that the measure should not be given as much consideration as others when crafting entrepreneurship-driving legislation and programs. Technical details on the generation of “try” values, as well as other technical information, can be found in the calculator notes.

To use the tool:

  1. Select a state to view its current measures.
  2. Try hypothetical values to see how changing values for the measures above will improve or worsen the state’s ranking; we recommend initially setting the hypothetical values to the actual values, and adjusting hypothetical values one at a time to better understand the impact of improving in a specific area. 
  3. To better visualize impacts of hypothetical changes, select Hypothetical Rank in the “How to Order States?” dropdown.