Ranking Startup Ecosystems

A couple of new studies that rank regional start-up ecosystems have been released in past week.   Startup Compass, a blog that tracks global startup activity, has released its rankings of the world’s 25 most  effective startup ecosystems.  Silicon Valley, New York, and London take the top spots, followed by (in rank order) Toronto, Los Angeles, Singapore, and Sao Paulo.   The rankings are based on 22 different  measures, including startup success rate, market size, perceived competitive advantage, work ethic, and the makeup of founder teams.

Meanwhile, American Business Journals has been releasing its own regional On Numbers rankings of local small business climates.  The rankings are presented at the national level, along with regional rankings for the East, South, Midwest and West.  Regional winners  were Pittsburgh, Austin, Minneapolis-St. Paul, and Salt Lake City.  These rankings use a six part formula that includes population growth, employment growth, and small business concentration and growth.

Like most readers, I enjoy these ranking exercises, but I also recognize their limitations—especially when they are primarily designed to interest readers as opposed to driving policy.  There are many good aspects to these two examples.  For example, they both recognize—unlike many other such ranking models—that low taxes alone do not make a strong small business climate.  All else being equal, lower taxes are better.  But, if they are not accompanied by local assets and  resources, they will do little to spark small business growth.

The main shortcoming of these studies, like most such rankings, is that they provide no way to fully assess their data, their methodologies, or their ranking models.  For example, how does the Startup Compass measure work ethic or perceived competitive advantage?  And, how  does one assess this measure across diverse countries such as India,  Brazil, Poland or Canada?  The On Numbers rankings provide access to data sources, but don’t explain their purpose.  For example, why and how does population growth create a strong small business climate?

When you are reviewing these kinds of rankings in the future, keep these kinds of questions in mind.  Have a nice read, learn a little, but don’t expect the rankings to be the last word on how your region (or others) stacks up in terms of small business and entrepreneurship success.

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