Is Midwest new entrepreneurial powerhouse?

Post date: Mar 18, 2011 3:41:45 PM

The Midwestern states and the Southern states at the same longitude appear to drive the core entrepreneurial activity in the US. The Kauffman Foundation's report about Index of Entrepreneurial Activity for the year 2010 delivers basic statistics. After some data clean up true centers of innovative work are revealed.

The original 2010 Index of Entrepreneurial Activity (IEA) distribution map:

The IEA doesn't say a lot about the entrepreneurial zeitgeist or quality of pro-entrepreneurial governance. It accounts for all phenomena leading people into venturing on their businesses. The fundamental flaw of such approach is that it doesn't respect structural discrepancies within entrepreneurial community. For example, an entrepreneur starting business on the basis of having productive new business idea has significantly greater chances to succeed than an entrepreneur starting business to serve the customers abandoned by her previous employer. Actual statistics doesn't differentiate those entrepreneurs. In fact, the new-idea-entrepreneur is a sign of economic growth. It is what we attribute the hope of impact for such activity with. The serve-abandoned-customers-entrepreneur, on the contrary, is a sign of desperation and shrinkage. Corporation can't serve the customers costs efficiently any more. Some newly unemployed employees pick the clients up. The costs structures for little shops are worse than those of the corporations. The only way to cover the costs and the fall out of standard profits is lower personal income. It is economy winding down. There is no point for entrepreneurship. That is in the times of epic economic change the IEA should consider structural entrepreneurial differences.

One way to get real with IEA is to clean it up, to remove the induced entrepreneurship component. That could be that objective lack of jobs forces people to jump start on their own. People have no other choice. There are two hints here. First, the long-term unemployment growth. Second, founder's confidence.

The long-term unemployment growth is a difference between actual unemployment level and the normal levels of unemployment throughout the time. The basis for the later is unemployment rate in the year prior to crisis. The official unemployment report 2007. The relevant for Kauffman's report unemployment data is official unemployment report 2010. To obtain recent unemployment growth metric use official data in unemployment report 2009. To consider relevant long-term unemployment growth for the year 2010 one can use average long and short term unemployment growth as


The founder's confidence is to consider as it's variance. I.e. the larger is variance (span of founder's confidence within a state) the more drastic are structural differences in the entrepreneurial community. The data can be obtained from Kauffman's report. The True IEA can be calculated as


The final Core Entrepreneurial Activity Index (CIEA) is defined as


It wipes out the induced entrepreneurship form IEA metric entirely. Here is CIEA map:

Well, it doesn't look like a heat map for the origin of entrepreneurial blog messages, entrepreneurial clusters or VC residencies, does it? But it bears a close resemblance to the wind power distribution in the US ():

Under the link is another interesting chart. It hints indeed that the real business growth beyond the job regeneration level occurs in energy sector, far away from the usual suspects. California, Georgia and others make surely a lot of efforts to kick-start entrepreneurial ventures. But! It is merely enough to replenish business fall-out and to maintain existing productivity levels. Such states are riding crowded, increasingly less productive industries, having no real growth in sight.

What do you think?