Austin slips from top spot on national startup activity index

Posted May 18th, 2017

Austin’s rapid growth of entrepreneurs and new businesses with employees eased a bit last year, opening the door for Miami to take the top spot on an annual index of startup activity released today.

According to the Ewing Marion Kauffman Foundation’s 2017 Startup Activity Index, Austin slipped to No. 2 among the country’s top 40 metro areas after two consecutive years atop the rankings. Miami had ranked second in each of the prior two reports.

While the Austin metro area continued to spawn new entrepreneurs at one of the fastest paces in the country, its rate slowed in 2016 — to 510 entrepreneurs for every 100,000 adults in the region, down from 600 the prior year.

Meanwhile, the growth of new entrepreneurs in Miami accelerated in 2016, the primary reason the two metros swapped positions.

“There’s less people starting up and trying their hands at entrepreneurship, but overall the metro is still doing incredibly well," said Arnobio Morelix, a senior research analyst at the foundation and co-author of the report. 

Morelix and his colleagues found a modest increase in startup activity throughout the country’s top 40 metro areas during 2016, marking a third consecutive year of entrepreneurial expansion after the measures hit a 20-year low in 2013.

Traditional entrepreneurial hubs performed fairly well again, he said, but gains in startup activity were fairly widespread across regions.

The top spots remained stable — Austin, Miami and Los Angeles again took the top three positions — but a few metro areas took wider swings on the 2017 index.

San Antonio was one of the largest gainers, jumping eight spots to No. 6 in the latest report. Houston dipped to ninth from sixth, while Dallas edged one spot up to No. 11.

According to the report, Austin continued to post some of the country’s highest rates of startup density, a measure of new businesses with employees. While such firms make up a small share of all newly created companies, they tend to have a larger impact on job creation and economic growth.

In fact, Austin ranked second last year on a related Kauffman Foundation index that measures growth companies.

“One big difference between Austin and Miami is that Austin does well in both startup and growth entrepreneurship,” Morelix said. “Miami does well on startup but does not do well at all on growth entrepreneurship.”

Both Austin and Miami have improved their scores on the Main Street Index, the third of Kauffman’s small-business gauges and a gauge of older, sustained small businesses. Austin rose to ninth last year — up from 15th on the 2015 index— but it had ranked in the bottom half of the top 40 metros as recently as three years ago.

The disparity on the Main Street rankings appears to stem in part from Austin’s tendency toward faster-growth companies. While small in overall numbers, the region posted a high share of “scale-ups” — startup companies that grow beyond 50 employees in their first 10 years.

That could suggest a higher percentage of Central Texas startups expand beyond the 50-employee small business threshold Kauffman uses in its Main Street report.

“Austin works as one of America’s best supportive environments for small, high-growth companies,” said Drew Scheberle, senior vice president at the Greater Austin Chamber of Commerce. “But to continue to work, Austin must constantly identify and refresh capital to support new company creation, transfer our best ideas from our universities and medical research into creating new companies and developing and keeping the risk takers and talent here in Austin.”

Central Texas draws many of its companies and workers from outside the metro area. However, the region lags far behind many of the most-entrepreneurial metros in its share of immigrant entrepreneurs, Morelix noted.

In San Jose, for example, about 42 percent of new businesses are started by immigrants, he said. Four in 10 Miami startups are founded by immigrants. That figure was 38 percent in Los Angeles.

In Austin, it was just 12 percent. That leaves the region without the new jobs immigrant-led firms might create, Morelix said, but also limits the international and trade connections that those businesses can build around the globe.

“It’s not a problem now, because evidently Austin is doing well,” he said. “But if you’re thinking longer term and (about) growth opportunities for Austin, this is one of the things I’d be thinking about.”