I have long viewed entrepreneurship as a critical element of Maine’s economic development, particularly in this long era of deindustrialization, which has seen the withering of so many of our state’s traditional sources of employment. We need new sources of jobs to replace the old ones that have been lost. What better way than to start new businesses?
The logic of this argument is sound. And Maine has made great strides in recognizing and working to enhance its entrepreneurial ecosystem – the complex system of people, attitudes and support institutions that constitute the soil in which new enterprises can start and grow.
The recently released 2016 Kaufmann Index of Growth Entrepreneurship ranks Maine 19th among the 25 smaller states, a ranking that’s bounced up and down over the past several years with no clear trend.
It is useful, therefore, to look at Maine’s performance in each of the three components of the index: rate of startup growth, share of scale-ups and density of high-growth companies.
• The first – rate of startup growth – measures the average employment size of newly formed businesses in a given year against the average size of the surviving companies of that cohort five years later.
By this measure, Maine ranks seventh among the 25 smaller states and has maintained slow but steady growth over the period since the end of the Great Recession, rising from an average growth rate of about 25 percent for the five-year survivors in 2006 to about 60 percent for the 2013 survivors.
Terrific! Maine startups are adding employees. But from the perspective of a three- or four-person startup growing to five or 10 employees after five years, this measure announces good but not great news.
• The third element of the Kaufmann Index – density of high-growth companies – is the ratio of high-growth companies, as defined by Inc. magazine, to all employment-reporting companies in a state.
By this metric, Maine ranks 13th among the 25 smaller states and has enjoyed relatively steady growth from 2008 to 2013 before a substantial drop in 2014 (the year used for calculating the 2016 Kaufmann Index).
Again, good but not great news, considering that Maine’s high-growth density score of 32.3 means that for every 100,000 total employment-reporting companies, there are 32 Inc. high-growth companies (firms with “at least $2 million in annual revenue” that have seen three years of 20 percent growth in annual revenue).
• The second (and, from Maine’s perspective, most significant) element of the Kaufmann Index – share of scale-ups – is a measure of the percentage of newly formed companies that survive for 10 years, reach at least 50 employees by year 10 and didn’t start with at least 50 employees.
By this measure, Maine ranks 20th among the 25 smaller states, with a rate of 1.06 percent. More importantly, this measure fell steadily from 2001 to 2009 and has remained around this level since.
In a word, what the Kaufmann Index tells us is that Maine is falling short in the most transformative element of its entrepreneurial ecosystem: the growth of startups into employment-generating dynamos capable of bringing a significant share of the population along on its path of growth. And this fact is precisely why Maine should look not just within its own boundaries when thinking about its entrepreneurial ecosystem.
Consider, for example, our southern neighbor Massachusetts, ranked fourth among the 25 larger states. Its 2016 score on rate of startup growth (59.2 percent) was lower than Maine’s score (62.1 percent), but its rate of scale-ups (1.69 percent) was half again as large as Maine’s (1.06 percent), and its high-growth density score (104.7) was more than triple Maine’s score (32.3).
This is meant neither to accentuate some failure in Maine’s entrepreneurial ecosystem nor to invite comparisons to levels of activity that Maine cannot reasonably hope to match. Rather, it is to call attention to all the experience and energy close at hand.
Welcoming Massachusetts residents to visit our state and spend wads of money at our hotels, restaurants and parks is not saying that we want them all to move here.
Similarly, getting Massachusetts entrepreneurs to think of Maine both as a place to come to learn about entrepreneurship and – just perhaps – as a good place to bring their new companies someday would be a great way to strengthen our entrepreneurial soil without having to spend an inordinate amount of money trying to create our own unique Miracle-Gro.
Charles Lawton is chief economist for Planning Decisions, Inc. He can be contacted at:
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