After years of stagnation, startup activity is on the rise again.
For the second year in a row, the rate of new businesses rose in 2016 across the country, nearly reaching a level not seen since before the recession, according to a new report from the Ewing Marion Kauffman Foundation. Only two years ago, startup activity was at its lowest point in the past 20 years.
The Kauffman Index of Startup Activity ranks how quickly businesses across all industries in the U.S. are growing -- from both national, state and local perspectives. Based on a national sample representing more than 5 million U.S. companies, the index takes a look at both entrepreneurs and startups.
To understand and analyze the startup activity across the nation, the report equally weighs three indicators: the rate of new entrepreneurs, the opportunity share of new entrepreneurs and startup density. It analyzes state data by dividing them into halves -- the 25 most populated states and the 25 least populated.
Of the larger states, 11 ranked higher than the year before, two experienced no changes and the remaining saw a negative shift. It’s no surprise that Texas, Florida, California, New York and Colorado had the highest startup activity -- finding Austin, Miami, Los Angeles and San Francisco to be the areas with the most activity.
Among the smaller states, eight ranked higher than the year before, seven saw no changes and the rest fell short. Between these states, Montana, Nevada, Wyoming, Oklahoma and Alaska were among those bustling with startups.
With the growing rate of entrepreneurs, creating your own hours and pursuing your passion is an increasing trend this year. The report found that in Pennsylvania, there were 180 new entrepreneurs for every 100,000 people in a given month. In California and Texas, there were about 390 new entrepreneurs per 100,000 people. The report uncovered a positive relationship between the rate of entrepreneurs and the density of an area: Austin had 600 new entrepreneurs per every 100,000 people.
The report also showed that entrepreneurship is often born of unemployment. The opportunity share of new entrepreneurs (the number of new entrepreneurs driven primarily by “opportunity” vs. “necessity”) varied state to state, but was similar regardless of whether the state was classified as small or large. Seven in 20 entrepreneurs in Alabama were previously unemployed, as were one in every 10 entrepreneurs in Ohio.
It’s no shock that San Jose -- often considered the heart of Silicon Valley -- had the most new entrepreneurs, with a 94.2 percent opportunity share of new entrepreneurs. San Francisco was also among the cities seeing a big jump in the action. But Orlando, Kansas City, Cincinnati, Nashville and Detroit also saw the biggest increases compared to last year.