National Dialogue on
Entrepreneurship

Monday, October 13, 2003

Welcome to the National Dialogue on Entrepreneurship and E-News, an electronic newsletter sponsored by the Kauffman Foundation of Kansas City for followers of the entrepreneurial economy. Through E-News, we bring you short summaries and analyses of various trends driving the innovation economy. Please feel free to share this with friends and colleagues. To subscribe, visit www.publicforuminstitute.org/nde/join/

The 2003 INC 500: America's Gazelle Companies

The latest INC 500 list of America’s fastest growing private companies is out on the newsstands tomorrow. Companies listed in the INC 500 are America’s entrepreneurial stars---the kind of companies we all want to see start up and grow in our communities. This year’s list includes lots of interesting businesses. The histories of these firms and their founders also tell us a lot about the state of entrepreneurship circa 2003. Here are some highlights from this year’s list. 

In most years, the INC 500 includes a diverse set of industrial sectors, but this year’s list is somewhat unique in that the fastest growing firms don’t include a lot of technology companies. This year’s No. 1—Rhode Island’s American Biophysics—makes the mosquito magnet, a new product for killing mosquitoes. There’s an upside to West Nile virus, at least that’s one message you could take from the firm’s 25,000% growth rate. Other firms in the top 5 include an apparel maker, an operator of assisted living centers, a rental company, and a maker of fingerprint identification products. Overall, the INC 500 firms employed 67,973 workers at the end of 2002. The average annual growth rate for these firms is 1,312%.

HOT ISSUES: Each INC 500 list includes survey data from the company founders and senior executives. This year’s survey found that most firms have not been slowed by the recession, but CEOs did note that winning new customers and keeping employees motivated have become significantly more difficult in the past year. When asked about their future plans, 43% of INC 500 CEOs plan to start another business. Twenty-one percent are looking to retire. Retirement should be cushy for most INC 500 CEOs as 4 out of 5 are millionaires. 

FINANCING: It does not take much money to start an INC 500 firm. Sixty-one percent of CEOs started their business with less than $50,000 in start-up capital. Where does the money come from? The majority (53%) derives from personal assets. Overall, 80% of start up funds came from personal assets or assets of other firm founders, friends, and family. Bank loans accounted for 8% of start-up capital, while government-backed loans (2%) or formal venture capital (2%) accounted for tiny portions of these early stage funds. 

REGIONAL VARIATIONS: Which region does best in terms of spawning INC 500 firms? California -- home of 59 INC 500 firms -- still ranks as the top state, and the Washington, DC region, with 41 firms, is the top metro for hosting INC 500 companies. Washington, DC’s dominance is partly attributed to a growing number of government contractors on the INC 500 list. When looking at regional variation on a per capita basis, some other interesting results emerge. Utah (followed by Maryland and Virginia) does best at the statewide level, with 5.7 INC 500 firms per million residents. The best cities on a per capita basis are (in order): Provo, UT; Trenton, NJ; and Johnson City, TN. 

To learn more about the INC 500, visit http://www.inc.com/inc500/

Places Rated Version 1.0

INC magazine is not the only journal looking at the best places to start a new business. Entrepreneur magazine is also on the beat, and its October 2003 issue includes its Tenth Annual List of the Best Cities for Entrepreneurs. Washington, DC also ranks well on Entrepreneur’s list, coming in 2nd in the rankings. But, this year’s winner is Minneapolis-St. Paul which enjoyed major growth in existing businesses, even though it performed at average levels in terms of new business starts. The rankings, developed in partnership with Dunn & Bradstreet, track a variety of measures such as new business starts, existing small business growth, job growth and risk. This year’s top 10 are in order: Minneapolis-St. Paul, MN; Washington, DC; Atlanta, GA; Fort Lauderdale, FL; Salt Lake City, UT; West Palm Beach, FL; Norfolk, VA; Miami, FL; Charlotte, NC; and Orlando, FL. 

To access Entrepreneur magazine's list of best cities for entrepreneurs, visit www.entrepreneur.com. The listing is also available in the October 2003 edition of Entrepreneur magazine. 

Places Rated Version 2.0

Last but not least, the Small Business Survival Committee (SBSC) has released its annual report on the best states for small businesses. The SBSC ranks states according to their tax and regulatory climates. Thus, there is not always a direct correlation between a state’s ranking and its subsequent economic performance. In fact, the SBSC’s number one state -- South Dakota -- is deemed an “entrepreneurial desert” in the INC 500 list because it has no INC 500 companies located there. Among the measures used in the SBSC index are tax rates, health care costs, liability costs, and minimum wage rates. Following behind South Dakota as the most “small business friendly” states are: Nevada, Wyoming, New Hampshire, and Florida. Washington DC, which performs admirably in the both the INC 500 and Entrepreneur rankings comes in dead last in SBSC’s index. Other laggards include Maine, Minnesota, and Hawaii.

The Small Business Survival Index 2003 is available at http://www.sbsc.org/Media/pdf/SBSI2003.pdf

Hill Democrats Track Small Business Progress

It seems like everyone is getting into the act when it comes to small business rankings. Democrats in the House of Representatives are the latest to join the fray. Minority members of the House Small Business Committee, led by Rep. Nydia Velazquez, have recently released the first version of a quarterly index of small business performance. The Small Business Index includes a basket of measures that assess job growth, business starts and failures, business operating costs, and the like. While this is the first published version of the index, the report includes index measures going back to 1998. This historical look-back shows that the index is now at a five year low—largely due to high unemployment, high electricity prices, and the trade deficit. As one might expect from House Democrats, part of the blame for this poor performance is attributed to the “failed policies of the Bush Administration.” However, the report also calls for health care reforms and a national energy policy to help reduce costs for small businesses in two critical areas. The Small Business Index, released by the Minority Staff of the House Committee on Small Business is available at: http://www.house.gov/smbiz/democrats/Reports/SBI_Report.pdf

A Tale of Two Employment Surveys 

Washington, DC — The Joint Economic Committee (JEC) recently released “A Tale of Two Surveys,” a report today that delves into the growing disparity between two sets of employment data produced by the Bureau of Labor Statistics (BLS). The BLS uses two distinct surveys to measure the number of jobs in America, a payroll survey that measures the number of people employers have on their payrolls and a household survey that measures the number of individuals who report being employed.

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