I’m reminded of the saying “if you don’t know where you’re going, any road will take you there.” If we don’t know whether our efforts to grow the economy and enhance the overall community are bearing fruit, how will we know which efforts we should continue? Simply put, we need to track our efforts against important community and economic development benchmarks. This is particularly true in the relatively new arena of entrepreneurship. We cannot use the difficulty in making perfect connections between our efforts and outcome measures as an excuse not to be more purposeful and reflective in assessing our strategies. There are certainly elements of “art” and “science” in our assessment, but what they need to have in common is that they’re rigorous and defensible.
An important first step is to establish some benchmarks that provide a starting point from which we can keep track of changes over time. And since we know that we cannot attribute our economic development interventions to all of the resultant changes, we’ll want to keep track of broad economic and quality of life indicators for comparable places and the region, state and nation as well. Far from trying to take credit for external influences, we want to isolate to the degree it is possible the unique changes we might reasonably attribute to specific local actions.
It’s important to be clear about what we are measuring. For example, we find the words ‘entrepreneur’, ‘entrepreneurs’ and ‘entrepreneurship’ used interchangeably in a variety of venues. But when we look more closely, ‘entrepreneur’ refers to individual actors; ‘entrepreneurs’ refers to a set of or class of businesses; and ‘entrepreneurship’ captures economic activity occurring in a place. If resources were unlimited, we would determine the perfect set of measurements and go out and take them at regular intervals. Since few of us can afford this, we turn to publicly available secondary data sources (information already gathered). These data are already measured and compiled, freely available, and regularly published – allowing for comparisons over time and place.
What do we measure when we’re trying to capture “entrepreneurial activity?” A summary of government agency, foundation and other research efforts finds the following business and economic activities are part of one or more of the many indices and measures employed:
- New business formation
- New business growth
- Job churning
- Self-employment to total employment
- Income and economic growth of self-employment
- Employment growth
- Technology/knowledge industry growth (income, employees)
- Patents and research grants activity
- Investment activity (angel and venture capital, debt financing)
- Initial public offerings
- “Creative Class” assets
Our experience finds that the most robust of indices and measures include a wide variety of activities in the assessment.
Most of these activities can be ascertained from publicly available research. Who’s measuring what? A partial list of available measures and indices includes:
- Global Entrepreneurship Monitor (GEM): national entrepreneurial; activity assessment—nascent and new entrepreneurs, existing businesses, and dynamism (Babson College)
- Kauffman Index of Entrepreneurial Activity: rate of business creation (EMK Foundation)
- Development Report Card for the States: entrepreneurial energy sub-measure—new companies, change in new companies, job growth due to new business, technology industry employment, IPOs (Corporation for Enterprise Development)
- The State New Economy Index: economic dynamism sub-measures—gazelle jobs, job churning, IPOs (Progressive Policy Institute)
- Various State Innovation “Indices and Benchmarks”: Maine Innovation Index (Capacity in R&D, Innovation, Employment, Education and Connectivity), Minnesota Economic Trends (new firm and job creation), Michigan Entrepreneurship Scorecard (Entrepreneurial Change, Vitality and Climate: growth in small businesses and payrolls, University spin-offs, SBIR awards, financial capacity, etc.), Wisconsin’s High-Growth Economy Grade (patents, academic research, political climate, business costs, college degree awards, investment activity)
- Regional Asset Indicators: entrepreneurship depth—value creation and breadth—self-employment (Center for the Study of Rural America, Kansas City Federal Reserve Bank, Sarah Low)
- The Innovation-Entrepreneurship NEXUS: A National Assessment of Entrepreneurship and Regional Economic Growth and Development—new firm activity and regional economic assessments (SBA Office of Advocacy and Edward Lowe Foundation)
- Entrepreneurial Activity Index (Entrepreneur Magazine’s “Hot Spots”): sustained business formation and rapid growth (National Policy Research Council)
- Rewriting the Location Rulebook: proximity to university, diverse mix of culture and recreation, strong business start up and growth support (Business Week Online)
- Entrepreneur and Small Business Community Metrics Tool: home-based and small businesses, SBA loans, licenses and permits issued (RUPRI)
- Entrepreneurship Determinants and a Measure of Entrepreneurial Climate: Inc. 500 firms, IPOs, SBIR awards, patents, higher education attainment, venture capital, SBA loans (Goetz and Freshwater)
- Growth and Entrepreneurial Activity: birth, survival and growth of establishments—LEEM file (Acs and Armington)
- Creating Entrepreneurial Communities: Facts About High-Growth Entrepreneurs in Rural North Carolina: firm-owner “portrait” surveys—owner characteristics and attitudes, business profiles, future outlook (North Carolina Rural Development Center)
The majority of these are designed to quantify ‘entrepreneurs’ as a class of economic activity; a couple address ‘entrepreneurship’ in a broader community economy context; and only one is geared to providing insights about an individual entrepreneur.
Using one or more of these measures and indices, or finding additional important barometers of economic activity, communities need to establish a starting point from which they can look back and attempt to attribute changes in the community and economy to actions taken over the intervening period. Like making a major lifestyle change in an effort to become healthier, it may be hard to pinpoint just what made the difference (or not) – diet, exercise, other healthier habits, medicines, a better environment, etc. – but we need to know at the very least if and how our weight, cholesterol, and other indicators have changed over time. What is our community’s current “health?” What are we going to do about it? How will we know we are on the right road to better economic health?
Prepared by Greg Wise, University of Wisconsin-Extension
