Report: Vermont is one of ten most entrepreneurial states

Opening up a small business in a tough economy is a risky gamble. But  vermont is one of 10 states that saw more startup activity than anywhere else in the nation in 2011, according to the Kauffman Index of Entrepreneurial Activity. The ranking is based on the number of startups per 100,000 adults. Vermont is ranked eighth in the US with 390 startups per 100,000 adults. Vermont is the highest ranked state east of the Mississippi. Arizona was far and away first among states with 520 startups. 

The US average rate of business creation was 320 per 100,000 adults, a decline from the 340 average in 2010, which represents a drop of 5.9 percent. This 0.32 business-creation rate translates into approximately 543,000 new businesses being created each month during the year. While there was an overall drop from 2010, in the last 15 years, the data show that entrepreneurs are getting older, less white, more male, more immigrant and less educated. 

In its analysis, the Kauffman report said of Vermont: "The joke is that when people come to Vermont on vacation, they don't want to leave. According to state legend, iconic IBM chief Tom Watson Jr opened up a plant here because he loved skiing so much.

"Today, IBM is one of the biggest employers in Vermont. Other notable companies include General Electric and Ben & Jerry's.

"Smaller biotech, bioscience, environmental engineering and other tech companies are drawn to Vermont's vibrant venture capital network and state funding for startups. If Vermont has a downside, it's the high rates for individual income and businesses taxes.

"Many innovative firms get their start in incubators based at the state's top-notch schools, like the University of Vermont's Fletcher Allen Medical School. Such academic powerhouses also help produce a highly skilled workforce for entrepreneurs to hire.

"And when they need to take a break from business, entrepreneurs can let off steam at the the state's beautiful parks and hiking trails." 

Executive Summary 

The Kauffman Index of Entrepreneurial Activity is a leading indicator of new business creation in the United States. Capturing new business owners in their first month of significant business activity, this measure provides the earliest documentation of new business development across the country. The percentage of the adult, non-business-owner population that starts a business each month is measured using data from the Current Population Survey (CPS). In addition to this overall rate of entrepreneurial activity, separate estimates for specific demographic groups, states, and select metropolitan statistical areas (MSAs) are presented. The Index provides the only national measure of business creation by specific demographic groups.

New 2011 data allow for an update to previous reports, with consideration of trends in the rates of entrepreneurial activity over the sixteen-year period between 1996 and 2011. The Kauffman Index reveals important shifts in the national level of entrepreneurial activity and shifts in the demographic and geographic composition of new entrepreneurs across the country. Key findings for 2011 include: 

• The rate of business creation declined from

340 out of 100,000 adults in 2010 to 320 out

of 100,000 adults in 2011, which represents a

drop of 5.9 percent. This 0.32 business-creation

rate translates into approximately 543,000 new

businesses being created each month during

the year.

• Although the entrepreneurship rate declined in

2011, it remained more than 5 percent higher

than before the recession started. Over the past

decade and a half, the business creation rate

fluctuated within the range of 0.27 percent to

0.31 percent, but then rose above this level in

the past four years. A separate measure also

calculated in the report shows that, from 2007

to 2010, the quarterly employer establishment

birth rate dropped from 0.13 percent to 0.11

percent. These opposing trends may be due to

the Great Recession pushing many individuals

into business ownership because of high rates

of unemployment. These individuals probably

were more likely to start sole proprietorships

and other non-employer firms instead of more

costly employer firms.

• Both men and women experienced slightly

declining rates of entrepreneurial activity

in 2011.

• The entrepreneurial activity rate among

Latinos decreased from 0.56 percent in 2010

to 0.52 percent in 2011, but remained at a

high level relative to previous years and other

demographic groups. The Asian entrepreneurial

activity rate also decreased in 2011 (from 0.37

percent to 0.32 percent).

• Immigrants were more than twice as likely

as were the native-born to start businesses

each month in 2011. The immigrant rate of

entrepreneurial activity decreased from 0.62

percent in 2010 to 0.55 percent in 2011. The

native-born rate declined from 0.28 percent in

2010 to 0.27 percent in 2011.

• The aged 20–34 and aged 45–54 groups

experienced increases in entrepreneurial activity

from 2010 to 2011, whereas the aged 35–44

and aged 55–64 groups experienced decreases

in rates. 

• Over the past sixteen years, Latinos, Asians, and

immigrants experienced rising shares of all new

entrepreneurs, partly because of rising rates of

entrepreneurship, but also because of increasing

populations. The oldest age group (ages 55–64)

also experienced a rising share of all new

entrepreneurs, mainly because it represents an

increasing share of the population.

• Although the entrepreneurship rate declined for

high school dropouts from 2010 to 2011 (0.59

percent to 0.57 percent), the rate remained

much higher than the pre-recession level, which

may be due to lingering high unemployment

rates pushing many individuals into business

ownership or changing patterns of outsourcing

less-skilled workers.

• The construction industry had the highest rate

of entrepreneurial activity of all major industry

groups in 2011 (1.68 percent). The secondhighest rate of entrepreneurial activity was in

the services industry (0.42 percent).

• From 2010 to 2011, entrepreneurial activity

rates decreased in all regions of the country

except the Northeast, which experienced a

slight increase in rates. Entrepreneurship rates

are highest in the West and lowest in the

Midwest.

• The states with the highest rates of

entrepreneurial activity were Arizona (520

per 100,000 adults), Texas (440 per 100,000

adults), California (440 per 100,000 adults),

Colorado (420 per 100,000 adults), and Alaska

(410 per 100,000 adults). The states with

the lowest rates of entrepreneurial activity

were West Virginia (150 per 100,000 adults),

Pennsylvania (160 per 100,000 adults), Hawaii

(180 per 100,000 adults), Illinois (200 per

100,000 adults), Indiana (200 per 100,000

adults), and Virginia (200 per 100,000 adults).

• The states experiencing the largest increases

in entrepreneurial activity rates over the

past decade were Nevada (0.23 percentage

points), Georgia (0.18 percentage points),

Massachusetts (0.16 percentage points),

Tennessee (0.15 percentage points),

California (0.13 percentage points), Louisiana

(0.12 percentage points), and Florida (0.12

percentage points). States that experienced the

largest decreases in entrepreneurial activity rates

were Wyoming (-0.17 percentage points) and

New Mexico (-0.13 percentage points).

• Among the fifteen largest MSAs in the United

States, the highest entrepreneurial activity rate

in 2011 was in Los Angeles (580 per 100,000

adults). The large MSAs with the lowest rates

of entrepreneurial activity were Chicago

(180 per 100,000 adults) and Detroit (180 per

100,000 adults). 

See top ten ranking with analysis HERE. See INTERACTIVE MAP. See full PDF report HERE.

Source: The Kauffman Index of Entrepreneurial Activity, June 2012. Report authored by Robert W Fairlie, Professor of Economics at the University of California, Santa Cruz.