America’s Entrepreneurial States: Supporting Entrepreneurs to Help Drive the Economy

Jonas Crews, Ross DeVol, Katie Milligan, Minoli Ratnatunga, Dave Shideler, Julie Trivitt

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Heartland Forward releases new report on entrepreneurship across the country with first-of-its-kind calculator

The metrics underlying America’s Entrepreneurial States: Supporting Entrepreneurs to Help Drive the Economy show that when it comes to creating and supporting entrepreneurial ecosystems, the coasts win and the heartland lags. Our country was built on the American Dream. Even today – 245 years later, the opportunity to create something to achieve a better, richer, fuller life regardless of social class or circumstance still resonates, but the challenge of becoming an entrepreneur – and living the American Dream in the heartland is much more challenging than on the coasts.

Supporting entrepreneurs is an essential strategy for growing and diversifying a state’s economy. This has always been important but even more so now as we face the realities and ramifications of COVID-19.  For economic developers, policymakers, teachers, universities, and even small business owners in states, most especially those lagging in support of entrepreneurs, it will be critical to prepare people, particularly women and those with diverse backgrounds, to pursue and participate in creating a more equitable economy.

Our Entrepreneurial Capacity Index serves as a tool to monitor progress as states build entrepreneurial ecosystems to capture job and economic development opportunities provided by young, dynamic firms.Our previous research provides the foundation for this analysis. We create a composite measure of entrepreneurship at the state level by combining Main Street (percent of total private sector employment) with knowledge-intensive metrics—sometimes referred to as tech focused— (percent of employees with bachelor’s degrees or above) at young firms five years of age or less. We isolate the factors most associated with raising these measures of entrepreneurial ecosystems

Key Findings:

  • The top heartland state in the index is Texas at 14th (thanks to 8th in Main Street entrepreneurship), followed by Illinois at 20th with Minnesota (25th), the only other state among the top 25. Heartland states held 16 of the bottom 20 positions. West Virginia was 50th overall, sparing the heartland last place.
  • California is first—combining high scores on Main Street (the highest in the index at 13.5 percent) and knowledge-intensive entrepreneurship. California has the second-highest value of early-stage deal flow and is third in the number of deals, both adjusted for population. The Pacific Coastline provides a huge quality of place boost for California.
  • New York is second overall with the third-highest knowledge intensity and a strong Main Street score. New York was third in share of jobs at firms with at least 1,000 in employment and in early-stage funding. Utah was third overall, second in Main Street entrepreneurship and first in percent of households with a computer (96.3 percent). New Jersey comes in fourth overall, second in knowledge intensity and third in business R&D per capita.
  • Colorado is fifth (first if you exclude the advantages of a coastline) and is second on the percent of adults with a bachelor’s degree or above. 
  • Massachusetts is sixth; but has the highest share of knowledge-intensity with 31.6 percent of employees at young firms with a bachelor’s degree or higher and among the adult population (44.5 percent); followed by Nevada at seventh; Florida at eighth; Washington at ninth; and Virginia, tenth.

The time is ripe for heartland states to list entrepreneurship among their priorities. Some people will look for work with a young firm or small business. Policymakers, teachers, investors, entrepreneurs themselves and others will need to step-up to the plate to make the economic and political changes needed to give aspiring entrepreneurs in the heartland the tools and support that will inspire them to live the American Dream.

So what is the solution?

While not simple, there are some immediate actions that could be taken to create a shift.

1) Fund Entrepreneurial Support Organizations

Establishing and providing resources to entrepreneurial support organizations (ESOs) (e.g., chambers of commerce, Vistage, Entrepreneurs Organization, Startup Nation, Business Network International) are essential to create the social capital required for success. Strong relationships among people who live and work together in a community facilitates trust among ecosystem participants. These connections enable collaborations, guiding more substantive and productive exchanges of ideas and information available to new firms (i.e., companies that are less than six years old).

2) Support State Level Entrepreneurial Risk Capital

Venture capital and equity crowdfunding (i.e., raising small amounts of money from a large number of people), can increase entrepreneurial density – defined as the number of people who work at entrepreneurial companies per capita. Organizations like Right to Start have come up with various ways states can support entrepreneurial development including dedicating 5% of government procurement dollars to businesses under 5 years old, updating the State Small Business Credit Incentive to help with business financing, and educating eligible individuals on how to become accredited investors to participate as angel investors.

Also, states should not overlook the $1.9 trillion economic stimulus package signed into law in March 2021. States will need to strategically decide how they should spend those funds and a portion should be dedicated to increasing the generation of new firms. Funding from the Department of Treasury for the State Small Business Credit Initiative is another opportunity.

3) Improve Access to High-speed Internet

 High-speed internet availability in the home is more important than ever. As COVID-19 clearly and profoundly demonstrated, you cannot participate in the entrepreneurial economy without high-speed internet. States have utilized a variety of funding options to deploy high-speed internet, including using special designated funds, general funds, or fees from the Universal Service Fund levied on telecommunications companies to offset costs for consumers. More still needs to be done. As the historic amount of funding is flowing to states and communities to increase access, affordability and adoptability, policymakers and state broadband offices need to ensure they are putting funds across their entire community – including a focus on entrepreneurial growth.

4) Invest in Higher Education

The role of universities and a university education remains critical to the entrepreneurial success of states. In addition to producing the highly skilled workforce needed for innovation, universities through their Technology Transfer Office (TTOs) also generate new commercially viable products and processes. While not directly addressed in this analysis, we would be remiss if we didn’t point out the opportunity to provide universities with additional funding to better staff and support these efforts. Similarly, we do not directly address immigration in this report, though many immigrants come to the U.S. to study and earn advanced degrees, and many of the country’s innovation and entrepreneurial businesses are created by immigrants. States should be proactive to retain these individuals by supporting companies that sponsor J-1 and H-1B Visa holders. States should also utilize apprenticeship and cooperative education models to connect college students with in-state employers, to both provide them with experience that may help keep them focused on degree completion as well as increase the likelihood of those students working in-state following graduation.

5) Teach Entrepreneurial Thinking in K-12

With the extended decline in business startups, young people need to be presented with entrepreneurship as a potential career path. Entrepreneurs are needed not only to perpetuate economic growth, but entrepreneurship also has the potential to create a more just society by giving underprivileged populations the opportunity to build wealth through business ownership.

6) Taking a modernized approach

Over the past year Heartland Forward, Builders + Backers and Accenture have used a new approach to problem solving to stimulate entrepreneurial thinking and action across the heartland. The Community Growth Program and Toolkit (CGPT) leads and supports heartland communities with a transformative approach to problem solving — with an entrepreneurial mindset, creating value for communities and increasing access to capital and resources. This approach allows ideas to be tested through pebble grant funding, solving problems, creating new opportunities and the opportunity for communities to thrive.

ENDNOTES

1) Crews, J., DeVol, R. Florida, R. and Shideler, D. (2020, May) Young Firms and Regional Economic Growth: Knowledge-intensive Entrepreneurs Critical, Heartland Forward. https://heartlandforward.org/wp-content/uploads/2020/05/young-firms_full-report-launch-1.pdf

2) Lai, Y. L. (2021, April 8) Not Everyone Wants to be an Angel – Especially in the Heartland. Heartland Forward. https:// heartlandforward.org/case-study/not-everyone-wants-to-be-an-angel-especially-in-the-heartland/

3) Learn more about Heartland Forward’s work to increase access to broadband https://connectingtheheartland.com/

4) J-1 Visas are nonimmigrant visas that allow individuals to work or study for the purpose of “teaching, instructing or lecturing, studying, observing, conducting research, consulting, demonstrating special skills, receiving training or to receive graduate medical education or training.”

5) H-1B visas are specifically for individuals that have a specialty occupation.

6) LaRock, J. D. (2021, June) “Investing in the Next Generation of American Entrepreneurs.” Testimony to the Committee on Small Business, Subcommittee on Innovation, Entrepreneurship and Workforce Development.

7) Learn more about Heartland Forward’s Community Growth Program and Toolkit https://community.heartlandforward.org/