Kauffman Index: Arkansas Drops Six Spots In Annual Ranking Of U.S. Startup Activity

As more prominence and recognition has been given to the state’s burgeoning startup and entrepreneurial community over the past few years, Arkansas still fell six spots in a highly-watched national index that ranks new business growth and startup activity among the 50 states.

However, the state was still able to hold its spot as one of 32 U.S. states where startup activity gained momentum in 2015, according to the annual Kauffman Index released earlier this month.

The influential report, released earlier this month by the Kauffman Foundation in Kansas City, analyzes and ranks start up activity in all 50 states. This year, the study also expanded its research to look at entrepreneurial trends nationally, at the state level, and for the 40 largest metropolitan areas of the United States.

And although startup activity tended to be highest in the western and southern states overall, the five states that ranked at the top of the 2015 Index were Montana, Wyoming, North Dakota, Colorado and Vermont.

“There’s been an explosion of entrepreneurship programs and events across the country in recent years, and while we don’t fully understand their impact, last year’s rebound in new business creation is a good sign,” said Dane Stangler, vice president of Research and Policy at the Kauffman Foundation. “State and local leaders need to understand how many startups they have in their regions and who’s starting them so they can make decisions on how to build on what they currently have.”

NUMBER OF ARKANSAS STARTUP FIRMS ON THE DECLINE
Arkansas fell from its spot at 26th in 2014 to 32nd in 2015. The report shows that the actual rate of new entrepreneurs across the state fell from last year’s 0.28% to 0.25% in 2015. That component of the index, which measures the percentage of the adult population in Arkansas that became a business owner in a given month, has declined year-over-year since 2006 when that number peaked at 0.41%.

Also, the number of startup firms in Arkansas per 100,000 residents as measured by the Kauffman index fell from 110 in 2014 to 105.9. A states’ so-called “startup density” is defined as firms less than one-year old employing at least one person besides the owner. According to data from the Kauffman report, the number of startup firms topped out in 1977 at a robust density of 285.8 per 100,000 residents.

Arkansas, however, held steady at 82.5% in the area of entrepreneur “opportunity share,” which measures the percentage of new entrepreneurs who were not unemployed before starting their own business.

In the Kaufmann Foundation report, it was noted that the Plains and Rocky Mountain regions have not been thought of as hotbeds of entrepreneurial activity. “But entrepreneurship is closely associated with economic growth, so it should not be surprising that some of the states seeing increased levels of startup activity have experienced high rates of real GDP expansion in recent years,” said Arnobio Morelix, research analyst at the Kauffman Foundation, and one of the studies’ authors.

Nationwide, the rate of new entrepreneurs varied from 0.17% – or 170 entrepreneurs per month for every 100,000 adults – in Wisconsin to 0.54 % in Montana. Western states, including California, Nevada and New Mexico, fared particularly well on the rate of new entrepreneurs in the 2015 Index.

Opportunity share also revealed a divergent range of results between states. At the low end in the 2015 Index, Alabama had a 69.0% opportunity share of new entrepreneurs, which means that approximately three in 10 new Alabama entrepreneurs came directly from unemployment. On the high end, Idaho had a 90.3% opportunity share, or just one in 10 new entrepreneurs starting their businesses when they were unemployed.

States’ startup density in the 2015 Index ranged from the low end of 81.4 startups per 100,000 people in West Virginia to the high end of 244.7 startups per 100,000 people in North Dakota.

Meanwhile, the rate of new entrepreneurs, one of the components of the Kauffman Index, varied widely across metropolitan areas, from 0.55% to 0.13%.

Austin, Texas, came out on top, at 0.55% rate of new entrepreneurs, or 550 new entrepreneurs per month on average, followed by Miami at 0.52% and San Jose, Calif. at 0.41%. San Jose – often considered the heart of Silicon Valley – ranked highest, with an opportunity share of 91.2%. On the other end of the spectrum was Nashville, with a 60.0% opportunity share.

Startup density, considered a key indicator of vibrant entrepreneurial communities, tracks new businesses rather than entrepreneurs. Metros’ density range among the top 40 metros stretched from the lower end – 93.9 startups per 100,000 people in the Cincinnati, Ohio, metro area – to the high end – 247.6 startups per 100,000 people in metropolitan Miami.