Measuring an Entrepreneurial Ecosystem & How Columbus Stacks Up

Columbus being one of the six cities across the U.S. to hold a Startup Week means there is obviously a huge local interest in startups and entrepreneurialism. But how does that ecosystem translate into data? How is it doing? The burst of entrepreneurialism over the last few years is carving a new need for data to measure entrepreneurial ecosystems. It’s a challenge the Kauffman Foundation has started to tackle.

“If you’re not measuring it, if you’re not capturing how you’re doing, you’re undermining your own effectiveness,” says Dane Stangler, VP of research and policy at the Kauffman Foundation.

When it comes to entrepreneurial ecosystems, Stangler says a question they hear quite often is “What do I measure and how do I measure it?” In attempts to solve this problem, the Kauffman Foundation recently proposed a four-prong framework for measuring a city’s startup environment.

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“We wanted to try to create something that was useable and useful for non-academics, non-specialists – something that was straight forward and as simple as possible,” Stangler says.

The proposed framework looks at density, fluidity, connectivity and diversity, each with three sub-factors.

Density

The most straight-forward measure, “How many entrepreneurs do you have and how many do you have relative to your population?” Stangler asks. Columbus ranks a bit below the national average when it comes to the density of new companies per 100,000 people. Stangler says this might not necessarily be a bad thing for Columbus though. With its steadily rising population, it’s possible business creation is just not keeping up with population growth.

Density also tracks the employment share of young companies.

“If you are going to have a strong entrepreneurial community, you want more than a bunch of one-person shops,” Stangler says. The foundation measured employment share of businesses up to five years old and found Columbus to be below the national average but right in line with other Ohio cities Cleveland and Cincinnati.

Right now, the metrics also include a measure of high-tech startup density – an area where Columbus is improving and ranks relatively well with a rate of 9.5 compared to the national average of 6.3.

Fluidity 

Fluidity in the sense of an entrepreneurial ecosystem measures population flux, labor market velocity, and high-growth firm presence.

“People are the most basic input into economic growth,” Stangler says. For a strong ecosystem, a city wants to see a circulation of people, ideas and resources. Retention of a population doesn’t need to be the goal. Cities should want to see people leaving and people coming in.

As for labor market velocity, “This is how fast people move between jobs and how fast jobs move between different companies,” Stangler says. Again, Columbus ranks low.

However, the city does rank well when it comes to high-growth firms.

“High-growth firms…they are growing fast because resources, whether money or ideas or people, are moving from not-growing companies to these growth companies, so those should represent a very vibrant and productive and fluid entrepreneurial ecosystem,” Stangler says. With a rate of 43, Columbus ranks 31 out of 365 metropolitan areas.

Connectivity

Connectivity is one of the most difficult to measure, with much of the data being underdeveloped or as of now, non-existent. However, the Kauffman Foundation is attempting to map a city’s programs and how they are connected to each other, measure the spinoff rate, and analyze the dealmaker network to determine connectivity.

A city can have as many business plan competitions, Startup Weekends or incubators as they want, but “If they’re not somehow connected to each other, that’s going to make for a weaker ecosystem,” Stangler says. He reiterates that the idea of having a “one-stop shop” that offers everything an entrepreneur would need misses the mark. A city should want diversity in programming with connections.

Probably one of the most difficult statistics to measure is the spinoff rate. One company often leads to another, but it doesn’t happen overnight. It’s something that needs to be measured over time.

Finally, the dealmaker network looks to map how connected equity investors and board members are in a given community.

Diversity

“How many sectors does your city specialize in?” Stangler asks. The number of economic specializations is the first of three measures for diversity

“You don’t want just one cluster, you want several different specializations for your area,” Stangler continues. Data shows that Columbus only has a few economic specializations, of which even those are not very concentrated compared to some cities.

Social and economic mobility can also be a good indicator of an entrepreneurial ecosystem’s strength.

“The purpose of building a vibrant entrepreneurial ecosystem is to improve living standards,” Stangler says. Columbus’ absolute mobility ranks 324 out of 381 metropolitan statistical areas across the U.S. That translates into Columbus being a better place if you are born into an affluent family that inf you’re not. It’s a place for progress found by more inclusiveness.

Finally, the immigrant population is correlated to a city’s entrepreneurialism.

“Immigrants have a very high entrepreneurial propensity,” Stangler says. A city should want to attract immigrants as a part of their population. This is an area where Columbus does rank well with an immigrant population of 6.8 percent, making it 39 among all MSAs.

The Kauffman Foundation is using these parameters as a starting point to analyze such a complex system. Feedback will be used to further define and refine just how entrepreneurialism is measured. However, while the Columbus ecosystem is growing, the numbers show there is always room for improvement.