Startup or Scaleup?
The latest State Entrepreneurship Index created by a University of Nebraska economist has received a lot of attention in Kentucky.
Each state index is calculated from five datapoints; 1) percentage growth in business establishments, 2) per capita growth in business establishments, 3) business formation rate, 4) patents per thousand residents and 5) average non-farm proprietor income. “The combination is designed to reflect key elements of an entrepreneurial climate: business startups and failures compared to population, innovation and income.” Kentucky rose 45 spots in the 2013 index to fourth best “entrepreneurial climate” in the United States.
I’m all for innovation, entrepreneurship and startups.
Research from the Private Equity Growth Capital Council, Private Equity: Top States and District in 2013, was recently featured on CNBC. According to that research, Kentucky was not in the top 20 of states for private equity investment in 2013.
According to the BioEnterprise Midwest Healthcare Venture Investment Report, Kentucky did not have a healthcare company [defined to include medical device, biopharmaceutical and healthcare software and service companies] receive a venture investment in either of H1 2013 or 2014.
In What an Entrepreneurship Ecosystem Actually Is, Daniel Isenberg states, “There is no evidence that increasing the number of startups per se or new businesses formation stimulates economic development. There is some evidence that it goes the other way around, that is, economic growth stimulates new business creation and startups.” He goes on to say, “In fact, encouraging startups may be bad policy,” noting his article For a Booming Economy, Bet on High Growth Firms, Not Small Businesses.
In Why encouraging more people to become entrepreneurs is bad public policy, Scott Shane says, “Policy makers often think that creating more start-up companies will transform depressed economic regions, generate innovation, and create jobs. This belief is flawed because the typical start-up is not innovative, creates few jobs, and generates little wealth. Getting economic growth and jobs creation from entrepreneurs is not a numbers game. It is about encouraging the formation of high quality, high growth companies.”
In other words, you have to be able to scale your winners. Bruce Booth, and others, have said that on several occasions.
“You can’t expect the broader public to get excited, or support an industry in any way, when the local area only has 100 little bootstrapped companies no one has ever heard of,” Luke Timmerman noted in Someone Needs to Rank U.S. Biotech Hubs, For Real.
Startups have to be able to scaleup.
I’m all for a positive entrepreneurial climate and startups. But in that entrepreneurial climate, there should be room for culling the herd. And giving “winners” the ability to scale.