Silicon Valley and the entire Golden State may be in danger of losing their reputation for entrepreneurship, a new study shows. California doesn’t even rate a spot on an index of the top five states for entrepreneurship in the U.S.
Even worse, from a West Coast perspective, right coast rival New York tops a newly released state-by-state measurement of entrepreneurial activity developed by economists at the University of Nebraska-Lincoln's (UNL) Bureau of Business Research and Department of Economics.
Rounding out the top five, following the Empire State, are Washington, Massachusetts, New Jersey and Oregon. California dropped nine places to land at No. 14 on the index.
The State Entrepreneurship Index (SEI) evaluates how states stack up in terms of business formation and innovation. The SEI combines five key components—a state's percentage growth and per capita growth in business establishments, its business formation rate, the number of patents per thousand residents and gross receipts of sole proprietorships and partnerships per capita—to provide a comprehensive picture of the levels of entrepreneurship in each state.
"The SEI uses a broad group of indicators rather than just raw counts of business starts," said Eric Thompson, a UNL professor and director of the bureau. "This ensures that the index reflects sales and innovation among a state's businesses as well as the business formation rate."
The SEI combines detailed data from the Bureau of Labor Statistics, the IRS Statistics of Income Bulletin, the U.S. Census Bureau and the U.S. Statistical Abstract.
Oregon was the biggest climber in the rankings, to No. 5 from No. 45 in 2008, while Delaware moved up 28 spots to No. 14. The drastic changes were largely caused by growth in establishments and establishments per capita. Kentucky, Texas and Rhode Island also saw marked improvement, jumping 26, 25 and 25 spots, respectively.
South Carolina was No. 50 and Arizona was No. 49, behind Mississippi), Nevada and Alabama. Nevada, which was No. 7 in previous rankings, highlighted a handful of states that experienced steep drops.
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