CT Ranked 9th Among Small States in "Main Street Entrepreneurship," Showing Improvement

Improvements in Connecticut’s “Main Street Entrepreneurship” has pushed the state’s ranking to 9^th among the nation’s 25 smaller states, up from 12^th a year ago, in the latest analysis from the Kauffman Foundation. The nation as a whole and most states and metro areas are experiencing higher rates of small business activity, according to the 2016 Kauffman Index of Main Street Entrepreneurship.  Nationally, there was a sharp uptick in the survival rate of businesses in the last year. At the same time, Main Street entrepreneurship activity gained ground in 47 states and 38 of the 40 largest metropolitan regions.

Among the nation’s smaller states, the top ranked entrepreneurial states were South Dakota, Vermont, Montana, North Dakota, Maine, Iowa, Nebraska, New Hampshire.  After Connecticut, Oregon rounded out the top ten.  Connecticut was one of only two states to move up three positions in the ranking.

The state’s rate of business owners was 6.55 percent; the percentage of the adult population that owns a business as their main job, according to the survey data.

The number of established (older than four years) small (less than fifty employees) businesses per 1,000 firms was 649.9 in Connecticut.  In Massachusetts, which ranked third among the nation’s 25 larger states, it is 684.7.  The top ranked larger states were Minnesota, Wisconsin, Massachusetts, Colorado, Pennsylvania, Maryland, Ohio, Louisiana, California and Illinois. 

"The Main Street Entrepreneurship Index provides additional evidence that U.S. small business activity has rebounded from the downturn and continues to gather strength," said Arnobio Morelix, senior research analyst at the Kauffman Foundation. "More new businesses are making it through their first five years of operation. While this could indicate that a lack of dynamism is allowing less-productive firms to hang on longer, overall the entrepreneurial increases bode well for the established, small businesses that underpin much of our economy."

Among the larger states, the rate of businesses surviving through their first five years ranges from 44 percent in Arizona to 53.3 percent in Pennsylvania. Among the smaller states, the business survival rate ranges from 43.4 percent in Nevada to 58.1 percent in North Dakota.  In Connecticut, the rate is 51.35 percent, the 8^th highest among the 25 smaller states.

In start-up activity, Connecticut ranked 22^nd out of 25 smaller states, a drop of two positions since last year.  The Survival Rate of American businesses is the main driver of the recent improvements in Main Street Entrepreneurship in the United States, and has reached a three-decade high of 48.7 percent—meaning that almost half of new businesses make it to their fifth year of operation.

U.S. Census Bureau business statistics show that established small businesses represent almost 68 percent of all employer firms in the country.   The five metros with the highest Main Street entrepreneurship activity are Pittsburgh, Boston, Portland, San Francisco and Washington, D.C.

The Kauffman Index of Main Street Entrepreneurship captures business activity in all industries and is based on both a nationally representative sample size of roughly 900,000 responses each year and the universe of all employer businesses in the United States, in a dataset that covers approximately five million businesses.

Connecticut's Small Business Friendliness Grade Drops to "D"

A new survey of small business friendliness in the nation’s states has dropped Connecticut’s overall grade from D+ to D, and given the state a failing grade in seven of eleven small business friendliness categories.  The grades dropped as compared with last year's survey. Thumbtack.com, in partnership with the Ewing Marion Kauffman Foundation, released the third annual Small Business Friendliness Survey showing that small business owners in Utah, Idaho, Texas, Virginia and Louisiana gave their states the highest rating for friendliness to small business. In contrast, small business owners gave California, Rhode Island and Illinois an "F," while New Jersey joined Connecticut in earning a "D" grade.

More than 12,000 entrepreneurs nationwide participated in this year's survey - the largest of its kind and  the only survey to obtain data from an extensive, nationwide sample of small business owners to determine the most business-friendly locations.

The survey ranked states on specific categories, including: the ease of starting a business, ease of hiring, state and local business regulations, health & safety regulations, employment, labor & hiring regulations, tax code and tax-related regulations, licensing forms, requirements and fees, environmental regulations, zoning and land use regulations, and the availability of training & network programs for small business owners.

Connecticut received a B in two categories: ease of hiring and training & network programs, and a D in one: ease of starting a business. In all other categories, Connecticut received an F for small business friendliness.

Some of the key findings for Connecticut, according to the survey of small business owners:

• Connecticut received a D for its friendliness towards small business, one of the worst grades in the country.
• Connecticut received the worst grade in the nation for its regulatory friendliness.
• The state rated in last place for its health and safety, licensing, environmental regulations, and zoning laws.
• Small businesses in Connecticut had the second worst outlook for the national economy of any state.
• Female entrepreneurs in Connecticut rated the friendliness of their state government 9 percent higher than their male counterparts.

In last year’s survey, Connecticut did not receive a single grade of “F.” The state’s overall grade was D+, and included an A in training & networking,  B in ease of hiring, and  B- in health & safety regulations. Other grades were D+, C- and C. In the first survey conducted, in 2012, Connecticut’s overall grade was D, and the state was not graded F any category.

"Creating a business climate that is welcoming to small, dynamic businesses is more important than ever, but rarely does anyone ask small business owners themselves about what makes for a pro-entrepreneur environment," says Jon Lieber, chief economist of Thumbtack.com. "Thousands of small business owners across the country told us that the keys to a pro-growth environment are ease of compliance with tax and regulatory systems and helpful training programs."

Some of the survey's key findings include:

• Small businesses in Texas, Utah and Idaho have rated their states in the top five every year this survey has run, while California and Rhode Island have been rated in the bottom five every year.
• The friendliness of professional licensing requirements was the most important regulatory issue in determining a state's overall friendliness to small businesses. Closely following licensing requirements was the ease of filing taxes.
• Once again, tax rates were a less important factor than the ease of regulatory compliance in determining the overall friendliness score of a jurisdiction. Two-thirds of respondents said they paid their "fair share" of taxes – that is, they felt like they were neither under-paying nor over-paying.
• Small business owners who were aware of training programs offered by their government were significantly more likely to say their government was friendly to small business than those who weren't.

High Tech Firms Driving the National Economy; Connecticut Slowed as Other Regions Grew

If you’ve wondered why Connecticut has been devoting significantly increased economic development attention on high tech start-up businesses, encouraging and nurturing their development and offering financial incentives at every turn, a new national report on business start-ups in the sector may provide ample rationale.

High-tech startups are a key driver of job creation throughout the United States, according to research by technology policy coalition Engine and the Ewing Marion Kauffman Foundation. The report, “Tech Starts: High-Technology Business Formation and Job Creation in the United States,” finds that high-tech startups are springing up at a higher rate than all private-sector businesses – and in more places around the nation.   A total of 384 metropolitan areas were analyzed, including four in Connecticut, using comprehensive data through 2010, the most recent available.

Relative to their share of firms in the economy, high tech is 23 percent more likely, and the ICT sector (Information and Communications Technology), as a segment of high tech, is 48 percent more likely, than the private sector as a whole to witness a new business formation.

Though they start lean, new high-tech companies grow rapidly in the early years, adding thousands of jobs along the way, according to the study findings. In fact, high-tech startup job creation is so robust that it more than makes up for the job destruction from early-stage businesses failures – a key distinction from the private sector as a whole where job losses from early-stage failures turns this group into net job destroyers, the report indicated.

However, as the density of high tech firms has grown in metropolitan areas across the country, it has not happened in Connecticut, as data reveals a reduction in the density of high tech firms in the state’s major metropolitan areas during the past two decades.  (The U.S. average is 1.0.)

New Haven-Milford’s start-up density went from 1.1 in 1990, when it was one of nearly 70 metropolitan areas above the national average, to .5 in 2010, while the ICT sector start-up density dropped from above average at 1.2 in 1990 to .5 twenty years later.    The Norwich-New London metropolitan area reflects a drop from 1.1 to .8 in high tech start-up density and 1.1 to .9 in the ICT sector comparing 1990 and 2010.

The data indicate that the Hartford-West Hartford-East Hartford area reflected decreases from .9 high tech start-up densities in 1990 to .6 in 2010, and .8 ICT start-up density in 1990 to .7 two decades later. The Bridgeport-Stamford-Norwalk metropolitan region showed a drop from 1.4 to .9 in high tech start-up density over the 20 year period, moving from above to below the national average, and a parallel drop of 1.6 to 1.1 in ICT start-up density.

The website Engine, which collaborated in the report, observed that “Each of the high density metro areas has one of three characteristics, and some have a combination of them all: 1) They are well-known tech hubs with highly skilled workforces, 2) They have a strong defense or aerospace presence, and 3) They are university cities.”

The report noted that “”high-tech startups are being founded across the country fueling local and national economic growth…and are a pervasive force in communities throughout the country.”  The Top 10 Metro Areas for High-Tech Startup Density (1990 and 2010 data):

1. Boulder, Colo.  (High-tech 4.0 to 6.3; ICT 4.7 to 6.1)
2. Fort Collins-Loveland, Colo. (High-tech 1.0 to 3.2; ICT 1.1 to 2.6)
3. San Jose-Sunnyvale-Santa Clara, Calif.  (High-tech 3.0 to 2.6: ICT 4.4 to 2.9)
4. Cambridge-Newton-Framingham, Mass. (High-tech 2.0 to 2.4; ICT 2.0 to 2.3)
5. Seattle, Wash.
6. Denver, Colo.
7. San Francisco, Calif.
8. Washington-Arlington-Alexandria, DC-Va.-Md.
9. Colorado Springs, Colo.
10. Cheyenne, Wyo.

"This report confirms the dynamism of the technology sector and its disproportionate contributions to the U.S. economy. It also underscores the need for policies that enable and support that dynamism," said Dane Stangler, director of Research and Policy at the Kauffman Foundation.

The report, released earlier this year, used data from the Business Dynamics Statistics (BDS) series, which is compiled by the U.S. Census Bureau and tracks the annual number of new businesses (startups and new locations) from 1976 to 2011.  Ten of the 14 high-tech industries can be classified as information and communications technology (ICT), while the remaining four are in the disparate fields of pharmaceuticals, aerospace, engineering services and scientific research and development.

In explaining the report, Engine noted that “While high-tech firms start small, they scale rapidly in the early years. So much so that young high-tech firms--those aged one to five years--contribute positively to net job creation overall. The opposite is true across the private sector as a whole, where the substantial job losses stemming from early-stage business failures - about half of all firms fail in their first five years - make young firms as a whole net job destroyers. Even when we remove the job destruction from all early-stage firm failures, surviving young high-tech businesses create jobs at a rate twice that of surviving companies in the private sector as a whole.”

Small Business Friendliness in CT Improved to D+ in 2013, Data Shows

Connecticut’s small business climate is improving – slowly.  That’s according to the 2013 Small Business Friendliness Survey by Thumbtack.com, in partnership with the Ewing Marion Kauffman Foundation, which ranked the state #35 for overall small business friendliness.

The 2013 study draws upon data from over 7,000 small business owners nationwide and shows that Connecticut improved its overall grade slightly, rising from a 'D' in 2012 to a 'D+' in this year's study.

Although the state struggled overall, the study authors reported, it received high marks in several categories. Some of the key findings for Connecticut include:

Connecticut earned an 'A' for the state's small business training and networking programs, which ranked among the top-5 nationally. Business owners were critical of Connecticut's regulatory systems, giving the state a 'C' in this category, although this was an improvement from the 'D+' grade received last year.

Among its neighbors, Connecticut ranked just behind New York (which had trailed Connecticut in last year's study) and Massachusetts, but ahead of Rhode Island for overall small business-friendliness.

The state’s overall grades, and comparison with last year, in the 11 categories compared in the survey:

D+         Overall friendliness (D last year)

D+         Ease of starting a business  (C last year)

B            Ease of hiring (C last year)

C             Regulations  (D+ last year)

B-            Health & Safety  (C+ last year)

C-            Employment, labor & hiring  (D+ last year)

C-            Tax code (D last year)

C             Licensing  (D+ last year)

D+          Environmental (D+ last year)

C-            Zoning (C+ last year)

A             Training & networking program

The study aims to learn what small businesses believe constitutes a healthy political and regulatory climate by having them rate how it is to do business in their specific location along various metrics.

Over 99% of U.S. employer firms qualify as small businesses, and they employ half of all private sector employees. Over the past two decades, almost two-thirds of net new private sector jobs have come from small businesses, and that number has accelerated in recent years.

The thumbtack survey also compared the age and size of the businesses with those of the general business population. The Small Business Administration reports that 69% of small businesses are at least two years old, and 51% are at least five years old.  The survey sample is very close to these numbers, with 76% over two years old and 57% at least five years old.

According to US Census data, 91.6% of small businesses have between one and four employees. Another 3.8% have 5-9 employees, and 4.6% have 10 or more employees. The survey respondents followed a very similar distribution: 89.3% have between one and four employees, 6.7% have 5-9 employees, and 4% have 10 or more employees.

Some of the key findings at the national level include:

• Professional licensing requirements were 30 percent more important than taxes in determining a state's overall business-friendliness, confirming the findings from last year's study. Furthermore, this year's research revealed that 40 percent of U.S. small businesses are subject to licensing regulations by multiple jurisdictions or levels of government.
• Utah was the top rated state, and Austin, TX was the top rated city. At the other end of the spectrum, Rhode Island and Newark, NJ were the lowest rated state and city.
• The ease of obtaining health insurance was an important factor for many businesses. One-third of small business owners rated obtaining and keeping health insurance as "Very Difficult," versus only 6 percent who rated it "Very Easy."
• Small businesses were relatively unconcerned with tax rates – more than half of small business owners felt they pay about the right share of taxes.

The top 10 states were Utah, Alabama, New Hampshire, Idaho, Texas, Virginia, Kansas, Colorado, South Carolina, Georgia, Minnesota, Nevada and North Carolina. Professional/nonprofessional services make up a large share of Thumbtack’s clients, so fewer manufacturers and retailers were surveyed, which may have impacted the survey results.

"It is critical to the economic health of every city and state to create an entrepreneur-friendly environment," said Dane Stangler, director of Research and Policy at the Kauffman Foundation. "Policymakers put themselves in the best position to encourage sustainable growth and long-term prosperity by listening to the voices of small business owners themselves."

Bridgeport-Stamford-Norwalk Above National Average in Sustaining Startups, Study Finds

A new report assessing trends in start-up companies in 40 major metropolitan areas in the U.S. over the past two decades has found that the Bridgeport-Stamford-Norwalk corridor has performed well compared with similar regions in weathering, and rebounding from, the national economic downturn’s impact on the level of start-ups.

The report by the Kauffman Foundation, “The Most Entrepreneurial Metropolitan Area?,” was recently presented to the U.S. Conference of Mayors on Entrepreneurship, the first such conference of municipal leaders devoted solely to exploring entrepreneurship.

In reviewing Metropolitan Statistical Areas (MSA) with a population of between 500,000 and one million people, the report found that the Bridgeport-Stamford-Norwalk MSA placed “toward the top of the group, consistently above the year-to-year changes.”  In addition, the data indicate that Bridgeport-Stamford-Norwalk “did not fall as far during the (economic) downturn, so it appears to have fared slightly better.”

The paper compared the trends in the 40 metropolitan areas with high numbers of start-up businesses to the significant national downward trend in overall new firm formation starting after 2006.  Nationally, the trend reversed and started to recover in 2011. No metropolitan area escaped this downward trend, but there are differences among regions in the timing of the downturn and subsequent recovery.

In counting the number of times that the annual percentage change in start-up density for each of the MSA’s, within the same size class, five of the MSA’s – including Bridgeport-Stamford-Norwalk – were “above average 12 times thorough the period” reviewed. The others to attain that “level of consistency” were Tulsa, OK; Omaha-Council Bluffs, NE-IA; Little Rock-North Little Rock-Conway, AR; and Knoxville, TN.

The report also found that the largest MSAs – those with populations greater than 1 million – fared slightly better through the recession and have experienced slightly stronger recoveries, though none has returned to pre-downturn levels.

The report compared MSAs with relatively larger populations and high startup densities from among the nation’s 366 MSAs.  The MSAs were divided into four groups for purposes of comparison, those with greater than 1 million population, those with 500,001 to 1 million, those between 250,000 and 500,000, and those smaller than 250,000.

The federal government’s Office of Management and Budget (OMB) provides official definitions for MSAs in the United States:  densely populated areas with close economic ties.