Let’s Get Peachy on Entrepreneurship

August 30, 2010

Georgia is the most entrepreneurial state in the nation according to the Kauffman Index of Entrepreneurial Activity published in April 2009.  The index reviews new business creation in the US and seeks to capture new business owners in their first month of significant business activity.  The April report reviewed entrepreneurial activity over a thirteen year period from 1996 to 2008.  While the overall activity rate for the nation stayed the same there were shifts in the demographic and geographic composition of new entrepreneurs across the country.  Georgia in 2008 became the state with the highest entrepreneurial activity rate in the country with 590 per 100,000 adults (followed closely by New Mexico).  Over the decade Georgia also experienced the fastest increase in entrepreneurial activity with an increase of 0.17 percentage points.  So should we celebrate Georgia’s success?

Statistics as we know are not always reliable so before we celebrate let us look behind the data.  Entrepreneurial activity in the study is defined by two types ‘necessity based’ and ‘opportunity based’.  Necessity based entrepreneurship is where individuals engage in entrepreneurial businesses because they have few alternatives whereas opportunity based entrepreneurship is driven more by the opening up of an opportunity that individuals pursue regardless of their personal circumstances.  The study certainly shows a recent trend (2007-2008) towards an increase in necessity based entrepreneurship with increases in lower-income and middle-income businesses and actually a decrease in higher income businesses.  So the surge in entrepreneurial activity in Georgia might simply be caused by the recession, with possibly the rural areas of Georgia driving a growth in necessity based entrepreneurship.  Not an outcome that could be considered positive. 

There is, however, another picture that emerges from the data.  Georgia over the period has continued an upward trend in its entrepreneurial activity (well before 2007-2008) and this trend has continued.  When we look at the data for the fifteen largest metropolitan areas in the United States we discover a different scenario.  Atlanta has the highest entrepreneurial activity rate in the nation at 740 per 100,000 adults (its nearest competitor Phoenix is at 550).  This paints a picture of a state with a high level of opportunity based entrepreneurship driven by an engine of growth, which is metropolitan Atlanta.  Certainly this should be a cause for celebration.   Georgia in this scenario, which seems the right one to me, is becoming more entrepreneurial and it has a significant city driving its entrepreneurial growth.  Of course there might be some concern for those interested in economic development in Coastal Georgia and in particular Savannah because the scenario also implies that the rate of entrepreneurial activity in other parts of Georgia are likely to be closer to the national average and that the state’s data have been skewed by the performance of metropolitan Atlanta.