Posted by: John Tozzi on August 8, 2011
This is a guest post by Bloomberg Businessweek reporter Victoria Stilwell.
States in the Northeast and West Coast are most favorable for startups, according to the latest State Entrepreneurship Index published by the University of Nebraska-Lincoln last week.
The annual index ranks states using the number of businesses that open and close, the average earnings of its entrepreneurs, the number of patents per capita, and other data, says Eric Thompson, an economics professor and director of the university’s Bureau of Business Research.
New York, Washington state, Massachusetts, New Jersey, and Oregon topped the list. South Carolina came in with the lowest ranking, while Nevada plummeted 40 spots to 47 for the biggest change on the index. Alabama, Mississippi, and Arizona were also in the bottom five.
Thompson says states in the South and Southwest had a higher number of business closures compared to the rest of the country, which contributed to their poor index performance. He suggests attitudes toward entrepreneurship and economic development affected states’ rankings.
“The states where the traditional model of economic development has been starting companies — such as in the Northeast, such as California and other states in the Northwest — that tends to continue because they’ve got the investors, they’ve got a concentration of experienced entrepreneurs that allow them to create high-income entrepreneurship even in the difficult economic conditions,” he says. That’s not the case for other regions that have focused economic development more on attracting new branches of existing companies, he says.
Thompson says states should focus on creating an attractive environment for entrepreneurs through increased education at the high school and college levels, more affordable individual health care policies, and lighter tax rates and regulation.
Having existing networks of suppliers and customers for new companies is also important, Thompson says. “One thing that really helps a state like New York is having a business service community that’s very attuned to the needs of entrepreneurs,” he says. “That can be hard to recreate in a lot of states.”