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June 17, 2015 – The New York Times, By Stacy Cowley

Silicon Valley gets all the glory, but the real hotbed of American entrepreneurship appears to be a few hundred miles to the northeast: Montana.

The state leads the nation in business creation, according to a new report from the Kauffman Foundation, which produces an annual analysis and ranking of start-up activity in every state. This year, the organization expanded its study to include the 40 largest metro areas. Austin, Tex., took the top spot in that ranking, followed by Miami. San Jose, Calif., a tech industry epicenter, came in third.

Travis, Eva and Emily Peterson pictured inside the taproom
Travis Peterson, holding daughter Eva, and Emily Peterson (expecting the couple's second child) pictured in the upper taproom of Meadowlark Brewing & Public House. The taproom is visible through the arches behind them. (Lynn Donaldson for The New York Times)

Kauffman’s data shows a heavy concentration of new business creation in the northern Mountain and Midwestern states. Why? Researchers point to the oil boom. The three states at the top of this year’s ranking — Montana, Wyoming and North Dakota — all touch the Bakken region, where a drilling frenzy brought a rush of development and thousands of new workers to once-sleepy towns, spawning entire industries in its wake. Oil- and gas-related start-ups are piling into the region, but so are restaurants, day care centers, breweries, equipment makers, clothing retailers, transportation businesses and an array of other ventures.

To create its ranking, Kauffman combines several economic measures, including the number of adults in an area who start businesses each month. In Montana, that rate is 540 for every 100,000 residents, nearly twice the national average.

One who recently took the plunge is Travis Peterson, the owner of Meadowlark Brewing in Sidney, Mont., a town whose population hovers around 6,000. Like many entrepreneurs in the region, Mr. Peterson, a Sidney native, sees Montana’s economic explosion as a mixed blessing. He started making plans for his brewery four years ago — just as the oil boom began, and local real estate prices skyrocketed.

“Everything became three times more expensive,” he said. “That was one of our biggest hurdles. I started cold-calling people out of the blue and asking them if they wanted to sell.”

View of customers seated in the brewpub
Customers enjoy a beer in the taproom on the main floor of Meadowlark Brewing & Meeting House. (Lynn Donaldson for The New York Times)

That approach eventually turned up an affordable site — Mr. Peterson notes with amusement that the building his pub is in last housed a Christian bookstore — and Meadowlark opened its doors in May 2014. The staff of around 30 runs a business that includes a craft brewery, a restaurant, a coffee shop and an event space.

Mr. Peterson says sales have been better than he expected: Meadowlark draws around 120 customers a day, and twice that on the weekends. He is delighted that the town has embraced the kind of artisanal venture not usually found in such small, rural areas.

“We’ve found that we can actually change people’s palates,” he said. “Nobody ordered poutine for the first week it was on the menu. Now, it’s one of our best sellers.”

But as oil prices plunge, will the region’s entrepreneurial zeal also drop off? Kauffman’s researchers say that is the kind of question they are looking to answer with a new data collection and analysis program.

The organization, a nonprofit foundation in Kansas City, Mo., that works to foster entrepreneurship, has been calculating an annual “Kauffman Index” ranking of state and local start-up activity for the last decade, but this year it significantly revised its methodology and extended the project’s scope. The goal, the researchers say, is to give civic development planners and other officials more accurate local data to work with by detecting business creation indicators more quickly and on a more detailed level.

One thing the new approach makes clear is just how uneven America’s economic activity can be.

“We’ve been surprised — at least, I was surprised — in the city report at the amount of variation,” said Dane Stangler, the Kauffman Foundation’s vice president for research and policy. “We tend to talk about a national economy, but when you drill down to the local level, it’s a reminder that there’s massive variation even within the same region, or the same state.”

As an example, he points to Florida, where Miami’s rate of new entrepreneurship is three times as high as Orlando’s.

Some development officials plan to use Kauffman’s research to help shape regional programs and measure their success. In Pittsburgh — which landed in the bottom spot in Kauffman’s metro rankings — the efforts to foster more entrepreneurship include FortyX80, a nonprofit created four months ago to connect out-of-town investors with promising local tech ventures.

“I would like to say it was a surprise for us to be last, but … ,” Julien Scranton, a senior director at FortyX80, said, trailing off. “We look at the numbers and we think, O.K., now we have a starting point to go somewhere.”

On paper, Pittsburgh has a crucial element found in most entrepreneurial hot spots: major universities. One, Carnegie Mellon, is among the most acclaimed technical schools in the country, but it has not been a catalyst for a local start-up scene the way universities have in the Bay Area or Boston.

Why does entrepreneurship take root in some areas and not others? Local economic growth appears to play a big role, Kauffman’s research suggests. But those seeking answers cite both quantitative data and harder-to-measure intangibles. Ask Claire England, the executive director of the Central Texas Angel Network, about Austin’s entrepreneurial scene, and she rattles off a long list of advantages and resources, including low taxes, affordable real estate and a plethora of local investors, incubators, co-working spaces and mentors.

But after a pause, she adds: “It’s just such a friendly, welcoming place, with such a creative spirit. People who come here are shocked by how collaborative everyone is.”

Greg Gianforte, one of Montana’s best-known entrepreneurs, has similar feelings about his adopted home state. Raised near Philadelphia, he moved to Montana in 1995 and started RightNow Technologies, an early pioneer in cloud-based enterprise software. The company had 1,100 employees at its peak, and it was sold to Oracle in 2012 for $1.4 billion.

“I think the thing that’s best about Montana is the work ethic,” he said. “Most of the young people coming out of school have grown up on a farm or a ranch. When the tractor breaks, you don’t form a committee. You don’t call a consultant. You just fix the tractor.”

Mr. Gianforte is quick to note that entrepreneurship isn’t an economic panacea. The average worker’s salary in Montana is among the lowest in America, and when jobs are scarce, starting a business can be a desperation move by those who cannot find other employment. (In Nashville and Pittsburgh, four out of every 10 new entrepreneurs was previously unemployed, Kauffman found.)

When new businesses take hold, though, they often spread. Daren Nordhagen once worked for Mr. Gianforte’s company; he and others started Foundant Technologies, which sells software for grant-making foundations, in 2006. It is now one of the largest private companies in Bozeman, Mont., with 40 employees and 800 nationwide clients.

Mr. Nordhagen says Foundant’s business model was influenced by RightNow, which he credits with sowing the seeds of several other technology businesses in the area.

“It’s nice to have a couple of anchor folks in the community that can share their knowledge,” he said. “We’re getting to the point now where we can hopefully play that role and help give some of that back.”

 

The information above is for general awareness only and does not necessarily reflect the views of the Office of Economic Adjustment or the Department of Defense as a whole.