Tennessee Improves Standing in Entrepreneurial Score Card

Tennessee has improved its standing in the 2008-2009 Entrepreneurial Score Card to #22, up from the #31 position among all the states in the US. The Score Card summarizes data into three main categories, and Tennessee achieved substantial gains in two of them. In the Category of Entrepreneurial Change, Tennessee Improved from #29 to #12. In Entrepreneurial Vitality, we scored 24, up from #36. In the category of Entrepreneurial Climate, we still face challenges with our ranking of #36.

Each year the Small Business Foundation of Michigan (SBFM) publishes the Entrepreneurship Score Card. It researches more than  125 objective metrics and rank each state within each metric. The scores are based on raw data and are not weighted in any way. The value in the score card is in the trends it has revealed in the 5 years of its existence. The SBFM uses the data to evaluate Michigan’s position across the categories of metrics in hopes that policy makers will recognize and support entrepreneurship as ing among the most important factors affecting economic growth. The incredible thing is that the Score Card research ranks every state and the data are available in the report.

We have extracted the data for Tennessee along with all our border states to see how we compare. The Score Card is summarized in three main categories along with an overall ranking called Entrepreneurial Dynamism.  

Tennessee moved from 31 to 22 in the overall position of the Score Card, and putting the state right in the middle of the southeast region behind VA, NC and GA.

Entrepreneurial Change is a group of metrics that seeks to measure “churn”, which is a measure of new business formation as well as those that fail. A healthy economy has both and it shows the degree to which entrepreneurs are willing to take on risk in order to create wealth. It is an indirect indicator of how many “serial entrepreneurs” there are. Tennessee has improved significantly, rising to #12 from #29, just behind GA. The biggest driver for the improvement was the increase in High Performance Firms which are fast growing technology oriented firms listed on Inc.com and Deloitte and Touche’s Fast 500. Here Tennessee is tied with 5 states for the #3 spot. A little ground was lost in Small Business Payroll Growth (#21 from #16) and Proprietor Income Growth (down to #32 from #21).   

Entrepreneurial Vitality measures the amount of startup activity across a range of source data as well as providing some insight into the funding sources such as SBIR’s and debt. Again Tennessee had very respectable gains improving to #24 from #36, and placing the state right in the middle of our southeast neighbors. In this category, there were 6 results among the top 20 across the nation. The biggest driver was in the Entrepreneurial Activity Index published by the Kauffman Foundation and it measures business creation by individuals and non-corporate owners. The increase was incredible, moving up to #4 from #34. However, Tennessee is still lagging the country in two areas. Expansion Job Gains measures the number of jobs created by fast moving growth companies, which is an indicator of risk level among the startups. Tennessee fell from #15 to #30. This would suggest that even though new companies are being created, they are not growing very quickly which points to the next category, Entrepreneurial Climate. The other area Tennessee lags is in the number of SBIR and STTR awards. Virginia and Alabama rank # 4 and #7 respectively but the rest of the southeast is typically in the bottom 40%. 

  

Entrepreneurial Climate measures the business and institutional environment as a base of support on which entrepreneurial activity can grow and thrive. Tennessee ranks #36, down a spot from #35. This puts the state firmly in the bottom half of the southeast, far behind Virginia (#3) and North Carolina (#7).  

There are three sub-drivers in the category. Ideas and Innovation measures investments and returns with respect to innovative activity. While the state is doing quite well with universities licensing technology to small business (#11), the state is well behind in overall University R&D expenditures (#37), Patents and Patent Productivity (#36 and #33), and the funding rate from NSF and SBIR’s ( #31 and #32). There has been very little movement year over year in most of these areas. Tennessee is doing well with royalty income from the university technology licenses at #20 and EntrePoint’s list of the top Entrepreneurship Colleges puts the state at #20.

In the Financial and Institutional Capital sub-category, the news is a little better. Overall, Tennessee improved to #20 from #28. Strangely enough, in a world where IPO’s are virtually non-existent, the state won the top spot in the country for IPO Financing as a percent of GDP. SBIC Financing is a measure of SBA regulated private investment companies per $100,000 in GDP. Tennessee ranks an impressive #12 and scored #15 in Private Lending to Small Business. Venture Capital sits in the middle at #25. We have great hopes for the new TNInvestco’s to improve this metric. As the number of SBIR awards would indicate, the amount of SBIR financing is dreadful at #38.

 

Conclusions

A lot of hard work from across the state is paying off for the cause of entrepreneurship. Clearly, the overall entrepreneurial activity is on the rise at a faster rate than most other states. Tennessee holds top 10 spots in 4 categories and top 20 spots in16 of the 45 overall metrics. The state seems to be creating innovation-based new ventures at a blistering pace although once created, they are struggling to grow. This calls for more support and mentoring programs for companies once they are up and running.

The biggest opportunity is the overall investments in R&D at all levels. Tennessee's scores indicate that R&D investment as a percent of GDP are in the bottom third of the country. The source for Federal R&D research investment is a report from NSF on Science and Enginerring R&D.  It is not clear if that includes DOE and DoD Federal research funding. However, the follow-on indicators support these trends. These include Patents, Patent Productivity, SBIR and NSF grant funding. The bright spot is the #11 ranking in openness of the universities to license their technology to small businesses.  

It is very important to point out that much of these data are two or more years old by the time they are published and made available. For example, SBIR data usually runs about two years behind the current funding year. Certain US Census data are only updated every 5 years or so. The value is in the trends year over year. It will be quite interesting to see how the Federal Government stimulus funding will impact the trends as well as Governor Bredesen’s energy initiatives.

Thanks to the Small Business Foundation of Michigan for making these data available for everyone.

Here is a link to the 2008-2009 Entrepreneurial Score Card:

https://www.sbam.org/Contact/Foundation/

For a link to the Tennessee results of the score card:  Tennessee Rankings - Entrepreneurial Score Card