Business startups lag

A study that ranked Nebraska second to last in new business startups among all 50 states is cause for reflection but not hysteria, local economists and development experts said.

“Second to last is surprising,” said Creighton University economist Ernie Goss. “But on the flip side it's not surprising, because a lot of new business formation comes from unemployed workers, and when you have fewer unemployed workers there's a smaller pool.”

Nebraska's unemployment rate of 4.9 percent is the third-lowest in the country.

The Kauffman Foundation of Kansas City, Mo., one of the largest foundations in the United States and the world's largest foundation devoted to entrepreneurship, sponsored the study, which was conducted by a professor at the University of California, Santa Cruz.

The Index of Entrepreneurial Activity showed that for every 100,000 Nebraskans, 200 businesses were started last year. In 2008, 270 businesses were started for every 100,000 Nebraskans.

The only state below Nebraska on the index was Mississippi.

Of less concern than the one-year figure is the state's lagging entrepreneurial performance over the past decade, said Robert Fairlie, the author of a report on the study and a professor of applied economics and finance.

According to the index, over the past 10 years Nebraska's entrepreneurial activity rate had the fourth-largest decline, above only North Dakota, Alaska and New Mexico.

“Maybe Nebraska isn't the lowest in the United States, but it certainly isn't at the high end, or even in the middle,” Fairlie said, although he added that the state's slower population growth has some effect on the numbers.

Ken Moreano, executive director of the Scott Technology Center, which sponsors a number of programs to encourage and support business startups, questioned whether the index measures entrepreneurship or just the creation of new businesses.

The Kauffman index doesn't even mention entrepreneurship hubs like Boston, Boulder, Colo., or the Silicon Valley in California, Moreano said.

“The typical hotbeds that have had true economic impact are not identified there and aren't mentioned in the study,” he said. “I find it curious.”

Fairlie said the index was the best measure of business creation that he could draw from U.S. Census Bureau and Department of Labor statistics.

The index indicates that Nebraska still has work to do in fostering entrepreneurship and business creation, said Tom Chapman, director of entrepreneurship and innovation for the Omaha Chamber of Commerce.

Development and entrepreneurship experts are working on a number of measures that wouldn't be reflected in the index, Chapman said. Those efforts include establishing investment networks and winning the continued support and involvement of major universities, he said.

To be regarded as a business in the index, a company must have been started by someone working there at least 15 hours a week. Chapman said many Nebraska endeavors don't qualify because their owners work less than that at the startups while keeping their full-time jobs.

Other factors work against the state as well.

Nebraska has fewer investment opportunities, entrepreneurial advisers and mentors; it trails other states in Small Business Innovation (SBIR) funding; and it has less involvement from the state government compared with other, more populous states, said Jay Wilkinson, a board member of Nebraska Angels, a 30-member “angel investing” group that provides capital to startup companies.

“I'm impatient with the way the State of Nebraska is approaching entrepreneurial activity and business startups,” Wilkinson said. “There isn't a lot of focus at the state level at business creation by entrepreneurship. I don't believe we've had great leadership that is specifically catered to the evolution of entrepreneurship in our state.”

Wilkinson said the Legislature did make some positive moves this past session; State Sen. Danielle Conrad's Legislative Bill 1109 was approved. The Lincoln lawmaker's bill will create a task force and strategic plan for cultivating high-tech, high-growth entrepreneurship, Wilkinson said.

Additionally, the index doesn't take into consideration the size of the companies being started or the expansion of existing companies into new ventures.

For example, Chapman said, a new hot dog stand in Omaha's Old Market with just one employee working 15 hours a week counts the same as a new financial institution that employs hundreds of people and does business across the country and globe.

Another good example of entrepreneurship overlooked by the index would be Mutual of Omaha, Chapman said, which in the past few years has started a bank operation and Midtown Crossing at Turner Park.

In the Midwest region, which includes Nebraska and Iowa, entrepreneurship improved but remained behind Western states, where entrepreneurial activity was highest, according to the index.

Overall, Fairlie wrote in his report, entrepreneurship in 2009 hit its highest point in 14 years.

Iowa's index improved to 230 businesses created for every 100,000 residents, up from 190 in 2008.

The five highest-scoring states were Oklahoma, Montana, Arizona, Texas and Idaho.

Regardless of the statistics, Nebraska, specifically Omaha, has made good progress in fostering entrepreneurship in the past five years, Chapman said.

“We're clearly not on the top. Are we second to last?” he asked. “Probably not. ... Regardless of what Kauffman says, we have been improving our game over the last five years.”

Contact the writer:

444-1414, ross.boettcher@owh.com

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