I’ve blogged a bit in the past about how new research techniques, especially randomized controlled trials, are providing new insights into what works in innovation and entrepreneurship policy. (The Innovation Growth Lab is a great resource to track recent trends.) It’s actually getting tough to keep up with new research, as useful studies and reports seem to be coming out on a daily basis. The latest example comes to us from Geoffrey Barrows in a report published by the French Association of Environmental and Resource Economists (FAERE). This study asks the basic question: Do business accelerators and startup business competitions work? In other words, do the world’s many business accelerators and business idea/plan competitions actually produce better business outcomes in terms of jobs, profitability, innovation and firm survival? Barrows studied 460 different programs and competitions that took place in 113 countries, engaging more than 20,000 firms. He finds that the competitions have a big impact. Competition winners have a 64% higher rate of survival, and their employment levels exceed non-winners by 47%. Finally, competition winners also win in the quest for capital, as the average winner typically raises an additional $260,000 in follow-on funding. We should expect that accelerator graduates perform well–after all, that is our goal! But, it’s still helpful to have new and strong evidence that these programs work.
The latest edition of EntreWorks Insights, our quarterly e-newsletter, is now available. This issue looks at interesting new legislative proposals under consideration in the US Congress. A future issue will look at new ideas from the States. You can view back issues and subscribe here.
The quality of official data on startups and entrepreneurs in the US is generally quite poor, especially when compared to what is captured in other developed economies. Meanwhile, government funding for key programs like the decennial Census is declining. But, it’s not all bad news as some new data sources are coming on line. The latest is the US Census Bureau’s Business Formation Statistics dataset, which was just unveiled last month. The BFS tracks when individuals apply for a new Employer Identification number, via the Internal Revenue Service’s SS-4 form. The BFS, which tracks data at the state and county level, should give us an excellent picture that projects a location’s future entrepreneurial potential, i.e. are there lot of local folks starting new companies?
A related research paper assessing the BFS results offers some tantalizing ideas on how this data can be used. It finds that regions with shale gas activity showed much higher EIN application numbers. Similarly, and not surprisingly, EIN applications were also higher in places that have recovered most quickly from the Great Recession. Finally, a related National Bureau of Economic Research paper finds that the number of new EIN applicants with potential to create new jobs still falls below levels found before 2008.
There’s a lot of cool stuff happening in the Midwest-Great Plains region that many folks have dubbed The Silicon Prairie. The latest good idea is the Technology Association of Iowa’s The Iowan Project, a neat website designed to track former Iowans and encourage them to consider returning home for exciting new lives and careers. This effort is based on the recognition of core challenge facing Iowa and other rural states. They groom talent that often opts to leave for other regions (for a great book-length dive into this issue, check out Hollowing Out the Middle: The Rural Brain Drain and What it Means for America). Reversing this brain drain involves encouraging the in-migration of new residents and encouraging former residents to return home. This latter task is actually easier, as talented young people often want to return home to raise families. Yet, they fear that local career options may be limited. Efforts like the Iowan Project help these folks identify career opportunities back in Iowa, and build networks with fellow Iowans across the US. The ultimate success of the Silicon Prairie will depend on talent development—home grown talent and talent that moves or returns to the region. Efforts like the Iowan Project are sure to help on all fronts. If you’re an Iowan, drop your pin on the Iowa Project Map. If you’re not from Iowa, consider bringing a similar project to your own community.
My longtime friends and colleagues, Maria Meyers and Kate Pope Hodel, have just published a new book that’s worth your time if you’re working in economic development or entrepreneurial ecosystem building. Beyond Collisions is a how to guide on “how to build your entrepreneurial infrastructure.” Maria and Kate have been doing this for decades, so they have deep experience and an understanding of what works and what doesn’t if you’re trying to get more startups and more growth businesses in your community. It’s a quick and easy read that’s works like a playbook that you can refer to on a regular basis. The book’s real benefit is that it is chock full of real life stories and examples that come from the authors’ long experience building entrepreneurial communities in Kansas City and elsewhere. This real world focus means that you can also learn about the less sexy sides of ecosystem building: how to measure your impacts, how to fund it, and how to sustain momentum in the face of hard times. This is a useful guide for new ecosystem builders and as a refresher course for those with more experience in the field.
If you’re looking to understand what’s happening with the American economy at the state and local level, let me suggest that you check out the 2018 Prosperity Now Scorecard, which was released today. I’m a big fan of this benchmarking tool, because it provides a holistic look at economic prosperity. It doesn’t just track job or business growth; it also looks at poverty rates, home ownership, health care access and the like. It presents a deep dive look at the quality of life across the US. The Scorecard has been produced for decades, and it gets improved every year. This year’s version tracks states, counties, and metro areas, and allows for downloads of profiles for these various geographies. The site has tons of insights, and it’s worth spending some time surfing around. As usual, Prosperity Now also ranks states on how they do in terms of providing economic opportunity and prosperity for all residents. This year’s rankings have the following top performers (in rank order): Vermont, New Hampshire, Hawaii, Minnesota, and Utah. This year’s weakest performers include Mississippi, Louisiana, Georgia and Nevada.
When working with communities to build entrepreneurial ecosystems, I’m often asked for the “secret sauce” to identifying successful entrepreneurs in advance. I wish I had this power, but it’s sadly not that easy. A large chunk of the entrepreneurship literature is focused on this question of what factors contribute to a business’ long-term success. If, for example, you take a look at the excellent Startup Cartography Project, you’ll find lots of interesting correlations. For example, a new venture has a massively higher prospect of success if it takes out a patent in the first year, is headquartered in Delaware, and is organized as a corporation (as opposed to a partnership or LLC). Another interesting stream of research assesses how personality traits affect business success.
All of this excellent research still doesn’t translate well into the real world, in the sense of providing clear directions to winnow out good ideas and good businesses from bad. Another recent research piece from the World Bank as offered further confirmation on this front. This study, “Man vs. Machine in Predicting Successful Entrepreneurs,” looked at Nigerian business plan competitions and tested a number of ways—from expert judges to economic modeling to the use of machine learning to predict business success–to assess the quality of business pitches and ideas. The results? None of the methods proved to be very effective in predicting success, leading to this “dog bites man” conclusion from the authors: “Business success is really hard to predict.” Well, we knew that already but it’s always useful to be reminded of the dangers of hubris and excessive confidence. Even when we’re armed with the best research and analysis, a good entrepreneur can surprise us!
Last November, I was fortunate to visit Estonia as part of the Startup Nations Summit, a global meeting of folks who work on public policies to promote entrepreneurship. It was a great event, but it was equally great to see what was happening in Estonia. Estonians are in the midst of radical experiment in how government works and the appropriate role of the state in the modern 21st century economy. The New Yorker did a great review, “Estonia: The Digital Republic,” in December and that is definitely worth reading. Among the transformations underway in Estonia are the digitization of nearly all government services, and the creation of an E-Residency, where anyone can set up a business and become an e-resident of Estonia. This is all very interesting and exciting, but I’m especially excited to see that many of these ideas are starting to gain traction here in the US. The latest example comes from Vermont, which is now considering whether to adopt many of these interesting ideas from Estonia. The Vermont Legislature is currently considering several bills that would assess whether Vermont should set up its own e-residency programs. These ideas are just gaining traction, but they could offer many benefits to Vermont and other rural regions, which like Estonia, are trying to attract new residents and workers. Vermont’s current Governor, Phil Scott, has made the attraction of new residents into one of his top priorities, and these new e-government efforts could be one means to attract greater interest for new businesses and new residents. These new experiments are worth watching!
I like the term Character Towns. This is a concept coined by Bill Kercher, a planning consultant based in Florida. He refers to Character Towns as small communities that direct all of their planning and economic, physical and social assets to develop a city that is both prosperous and pleasant. We all understand this concept, and we live it whenever we visit a place and say the following upon returning home: “You know—I could live in that place!”
Character Towns is also the name of a useful website and new e-book that provides tips and guidance on how to build a character town of your own. The e-book is definitely worth a read, especially at the low Kindle download cost of only $5. As someone who works in many Character Towns or wanna-be Character Towns, I found these materials to be very helpful. They don’t contain any blinding new insights (to me, at least), but the e-book is full of sensible ideas and concepts–all in one place and presented in a useful and readable format. It also contains lots of real-life exercises and examples from Kercher’s long experience in community planning.
We spend much of our consulting work focused on helping communities diversify after they’ve faced some economic shock, such as loss of a major industry (coal or manufacturing), a natural disaster, or a more general economic downturn. We’ve learned a lot about what works and what doesn’t, but a few important lessons jump out from this experience. Transforming one’s economy is hard, and if you attempt it, you need committed high-level leadership and you need to be in it for the long haul, not just until the next election. That’s why I’ve been so impressed with the preliminary work of Wyoming’s ENDOW (Economically Needed Diversity Options for Wyoming) Initiative. Started by Governor Matt Mead in late 2016, ENDOW is focused on helping Wyoming develop new economic engines to replace lost jobs in the state’s large coal industry. ENDOW has just released its preliminary recommendations, and they contain a host of good ideas. They offer a mix of strategies that are relevant beyond Wyoming too—such as attracting Bitcoin focused companies, strengthening the state’s entrepreneurial ecosystem, and beefing up workforce offerings. As always, the devil is in the details and execution of these ideas is still in the future. But, ENDOW is off to a good start and its ideas and progress are worth rooting for and following in the future.