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Kauffman Index Shows Higher Start-Up Growth in 2016

Top metro areas for start-up growth

Top 40 metropolitan regions in the U.S. in rate of entrepreneurial growth. (Ewing Marion Kauffman Foundation)

8 June 2016. An index of high-growth start-up companies shows the rate of entrepreneurial expansion in the U.S. accelerated for the third year in a row, with greatest concentration of growing enterprises found in the Washington, D.C. region. The Ewing Marion Kauffman Foundation in Kansas City, Missouri yesterday issued its annual Index of Growth Entrepreneurship for 2016.

The Kauffman Foundation that studies and fosters entrepreneurship worldwide compiles the index to highlight the ability of new employer enterprises to grow beyond the initial start-up stage and take root in their communities. The growth entrepreneurship index combines data from 3 indicators in geographic areas:

Rate of start-up growth: Extent of growth of companies in the first 5 years after founding

Share of scale-ups: Number of small businesses expanding to medium or larger size, defined as 50 or more employees

High-growth company density: Number of private companies with growth rates of 20 percent or more for 3 years and at least $2 million in annual revenues

Each of the 3 indicators has equal weight in the index. The report’s authors — Arnobio Morelix, E.J. Reedy, and Joshua Russell — drew the data from the U.S. Census Bureau’s Business Dynamics Statistics, derived from payroll tax records.

The report says for the country as a whole, growth entrepreneurship is rising in 2016, continuing a trend begun in 2014 that followed 4 straight years of declines. Start-up companies in the U.S., says the report, are growing faster in their first 5 years than in recent years, and are reaching medium-size or larger at a faster clip.

Some of these high-growth enterprises are found in technology-based industries, but non-tech industries are also represented. The 5 leading industries for high-growth companies are, in order: information technology services, advertising and marketing, business products and services, health, and software.  The authors underscore the point that start-ups do not need to be tech companies to succeed, noting, “While important, high tech is not a prerequisite for high growth.”

An analysis of the places where high-growth enterprises are concentrated show the Washington, D.C. area leads the rest of the U.S. The nation’s capital, including adjacent areas from Virginia and Maryland, are joined by Austin, San Jose, Columbus, and Nashville in the top 5 regions. San Jose slipped from the top spot last year, while Nashville jumped from number 9 in 2015 to number 5 this year. Boston, San Diego, San Francisco, San Antonio, and Dallas were the areas ranked 6 through 10 respectively.

Among industries, Washington, D.C. ranks first in information technology services companies in 2016, as well as number 5 in business products and services, and software. Austin is the second ranking region for health, and ranked third in advertising and marketing, business products and services, and software. San Jose is the top ranked region for software. Columbus is first in advertising and marketing, and fourth in IT services. Nashville is ranked first in health and business products and services.

The states adjacent to Washington, D.C. — Virginia and Maryland — ranked first and second, along with Arizona, Massachusetts, and Texas in the top 5 places. States from the South make up most of ranks 6 through 10: Louisiana, Colorado, North Carolina, Alabama, and Georgia.

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