States Receive Poor Grades for Entrepreneurial Activity

More than a quarter of states earned a D or lower, according to a new study.

When it comes to entrepreneurial activity, the U.S. barely receives a passing grade, a new study shows.

The nation averaged a grade of C- for its level of "entrepreneurial dynamism," according to The Entrepreneurship Score Card, created by the Edward Lowe Foundation and the Small Business Foundation of Michigan.

Massachusetts, California, and New Mexico were the only states in the nation to receive an A, while more than a quarter of states received a grade of D or lower. The seven states that received an F include Nebraska, Kentucky, Louisiana, West Virginia, Alaska, Kansas, and North Dakota.

Because it was conducted by two Michigan-based groups, the study focused heavily on the Great Lake State, which received a D and was ranked 31 out of the 50 states.

The study defined entrepreneurial dynamism as a measure of a state's performance in entrepreneurship relative to other states -- using entrepreneurial growth and decline, overall entrepreneurial vitality, and entrepreneurial climate as criteria.

"An entrepreneurial economy is characterized by the robust creation, retention, expansion, and attraction of first- and second-stage small business entrepreneurs and their companies," the study read.

Michigan is significantly behind the leading states and has a ranking consistent with its Midwest neighbors. Both Wisconsin and Ohio earned a D+ while Illinois and Indiana received Ds.

"Michigan is so tied to the automobile industry that when entrepreneurs want to start something new, they're going out of state," said Mike Kranz, director of member development at the Michigan Chamber of Commerce. "A lot of small businesses are looking out of state for new customers."

Although the state has received a boost from the tourism, research and development, and technology sectors, Kranz noted that that Michigan will never be the same as it was in the golden age of auto manufacturing. "Technology is replacing jobs."

However, the study did find that Michigan's quality of human capital -- measured in terms of education and workforce -- is one of its strongest assets. The state ranked sixth in the nation for post-secondary education. Other assets include the quality of life, government efficiency and regulatory environment.

Researchers offered several recommendations for states with sub-par grades:

• Work on linking commercial enterprise with university -based discoveries
• Create business alliances and B2B networks
• Embrace entrepreneurship across age, multicultural, and international dimensions
• Aggressively support affordable access to information for small to mid-sized companies
• Create increased incentives for private seed and mezzanine financing

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