For those of us who value small businesses for unique inventories, personalized customer service, and the benefits small businesses bring to our local communities, the fact that small business activity is on the rise in 49 of the 50 U.S. states and 38 of the top 40 largest metropolitan areas this year is great news. According to two new reports from the Kauffman Foundation, the first analysis of its kind about Main Street business activity at the state and metro levels. The reports follow the December 3 release of a report on national small business activity.
According to E.J. Reedy, director in Research and Policy at the Kauffman Foundation,
“Following a post-recession downward and stagnant trend in small business activity, we’re now seeing Main Street Entrepreneurship begin to rise. This obviously is good news given that these small businesses make up 63 percent of all employer firms nationally.”
The new Main Street Entrepreneurship Index is an indicator of small business activity, presenting trends over the past two decades, focusing on established small businesses (firms older than five years with less than 50 employees) and trends in ownership rates. The Index measures business activity along two distinct and complementary dimensions: the rate of business owners in the economy – the percentage of adults owning a business in a given month, and established small business density – the ratio of established small employer businesses compared to population.
“Main Street Entrepreneurship is at the heart of the American economy,” wrote Maria Contreras-Sweet, administrator of the U.S. Small Business Administration, in the report’s Foreword. “This Index is an important step forward, equipping us with the information required to make wise policy decisions and ensure the continued vitality of our entrepreneurial ecosystem.”
“For the first time, state and local policymakers can now see where their regions stand in terms of small business activity,” said Josh Russell, senior research assistant in Research and Policy at the Kauffman Foundation. “This Index provides a baseline for metro and state leaders to gauge the number and density of small businesses and the rate of ownership over time – including a first-ever look at trends by demographic groups.”
Metro and City Highlights
The top five metropolitan areas for small business activity as measured by the Index were New York; Boston and Providence, RI, tied for second place; San Francisco; and Portland, Ore.
The metropolitan areas of Nashville and Charlotte, NC, are the only two areas that saw a decline in small business activity among the top 40 U.S. metro areas in the 2015 Index when compared to 2014.
The rate of business owners varied widely across metropolitan areas, ranging from approximately 3,810 business owners for every 100,000 adults in the Cincinnati metropolitan area to nearly 8,690 businesses owners for every 100,000 adults in Miami.
Established Small Business Density, a key component of the Index that measures the number of small businesses per 100,000 people in an area, also ranged widely from metro to metro, ranging from a low of 560 established small businesses per 100,000 people in Riverside, Calif., to a high of 1,267 established small businesses per 100,000 people in New York.
The reports also show owner demographic trends in states and metro areas, broken out by gender, age, nativity, race and education. Key findings show that the metro areas with the highest rates of female business owners were Portland, Ore.; San Francisco; Nashville, Tenn.; Austin, Texas; and Miami. Metro areas with the highest rates of older adult business owners (ages 55-64) were Portland, Ore.; Austin; San Diego; Los Angeles; and Miami. And the areas with the highest rates of young adult business owners (ages 20-34) were Miami; Nashville; Austin; Jacksonville; and Portland, Ore.
To facilitate comparisons across peer groups of states, the report divides states in two groups based on size: the 25 largest states by population and the 25 smallest states by population.
Tennessee is the only state that did not show an increase in established small business activity in 2015 compared to 2014. Among the 25 largest states, the five states with the highest activity were Minnesota, Colorado, Massachusetts, New York and New Jersey. Among the 25 smallest states, the states with the highest activity were Vermont, Montana, North Dakota, South Dakota and Wyoming.
Key owner demographic trends for the 25 largest states show that the locations within that group with the highest rates of female business owners were Colorado, Minnesota, California, Washington and Wisconsin; areas with the highest rates of older adult business owners (ages 55-64) were Colorado, California, Minnesota, Massachusetts and Florida; the areas with the highest rates of young adult business owners (ages 20-34) were Florida, Colorado, Texas, Louisiana and Missouri.
Key owner demographic trends for the 25 smallest states show that the locations within that group with the highest rates of female business owners were Vermont, Montana, Wyoming, Oregon, and South Dakota; areas with the highest rates of older adult business owners (ages 55-64) were South Dakota, Vermont, North Dakota, Montana and Nebraska; the areas with the highest rates of young adult business owners (ages 20-34) were South Dakota, North Dakota, Montana, Wyoming and Vermont.
The Kauffman Index of Entrepreneurship is the first and largest index tracking entrepreneurship across city, state and national levels for the United States, and also presents demographic characteristics of the business owners. The Kauffman Index: Main Street Entrepreneurship is the second report to be released under the umbrella of the Index of Entrepreneurship; the first report was the Kauffman Index: Startup Activity.