It's All About Geography, Entrepreneurial Skills Article

Start-up Nation

Entrepreneurship IS disproportionately concentrated in the western and southern regions of the United States. Consider a few facts:

Research firm Cognetics' ranking of regions by start-ups and company growth shows the Mountain states; the South Atlantic states, like Maryland; and West South Central states, like Texas; in the top slots.

The top 10 large metro areas and the top 10 small metro areas identified by Cognetics in " The Best Cities to Start a Business in Now" ( Inc., December 2000) are nearly all in western and southern states .

A study by Catherine Armington and Zoltan Acs using U.S. Census Bureau data found that the annual "birthrate" of new companies doesn't vary much over time. But at any one point in time, according to the researchers, states with a high percentage of start-ups are considerably ahead of those states with a low percentage of start-ups. For 1994 through 1996, for example, the average annual company birthrate for top-ranking Colorado was 5.5 new companies for every thousand people in the labor force while lowest-ranking Pennsylvania had 2.91. Armington and Acs believe that the overall numbers wouldn't be substantially different today. The top 10 states in their study were all in the South, the Mountain region, or the West.

What about the Northeast? After all, Greater Boston is a leader in new software companies, the Philadelphia region in biotech, and New York City in media-related start-ups.

Statistically speaking, however, Boston and the others are mere eddies on a flowing tide. The population of the United States has been steadily moving south and west for decades. Business often leads the migration -- think of all the companies that once left New England for South Carolina, or Michigan for Texas. But business also follows a migration, in the sense that new companies spring up wherever there are customers for a company's wares and employees for its payroll.

Aside from population growth, what contributes to high new-business-formation rates? One big factor: what Acs and Armington call "industry intensity," which is essentially a measure of how many businesses (compared with population) already exist in a given area. The more business-intense an area, the friendlier it is to start-ups. The unemployment rate in a region does not make a difference, say the two Census researchers, but education levels do. "People in regions that have a high percentage of college graduates are much more likely to start businesses than those in regions with high concentrations of less skilled workers," their study says.

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