Are Startups Back?

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Is entrepreneurship everywhere, or is economic dynamism dead? With competing information afloat, that’s the question we sought to answer with newly-released Business Dynamics Statistics (BDS) data

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from the Census Bureau. We found a couple of things in a new report with The Kauffman Foundation. First, as the U.S. economy belatedly recovered in 2011, so did business creation--the first time in five years. Second, this growth in new business formation was geographically dispersed throughout the United States.

From a 30-year peak of over 560,000 new businesses in 2006, firm formation fell 30 percent to a nadir of fewer than 390,000 new firms in 2010. And job creation fell too. But 2011 was a turning point: new business creation rose for the first time in five years, with the largest annual increase in nearly a decade. This is critical because new businesses are an important driver of job creation in the U.S. economy.

On top of that, we found that firms with 1-4 employees had a stronger rebound in 2011 compared to new businesses overall -- and this is most evident in job creation. While job creation at all new firms increased by 4.3 percent, job creation in new companies with 1 to 4 employees increased by five and a half percent, reversing four consecutive years of decline.

It is these new and small firms that have created, on average, over one million jobs per year over the past three decades. Those with five to nine employees have also added, on average, half a million jobs per year. This represents the largest number of jobs created by these two classes of new businesses since 2008.

Job Creation in New Small Firms

Job Creation in New Small Firms

Moving to our findings on geographical diversity, the data show that growth in new business formation reached far more states than in 2010, when it was still falling across most of the country. Sparsely populated states such as Wyoming and West Virginia saw the largest percentage increases in new firms, albeit from low bases. At the other end, Louisiana and Mississippi experienced the largest declines.

Share of State and Metros with Increased in Business Creation, 2010 and 2011

Share of States and Matros with Increases in Biz Creation

Percent Change in New Business Formations by State and Metro

percent change in new biz formations by state

Take a look at this infographic to get a sense of all the findings.

As entrepreneurship has grown in popularity, and as interest has spread over the past two decades, 2011 was a move in the right direction, and new, small businesses have made the biggest contribution. Perhaps just as important, this growth in new business formations reached a clear majority of geographies around the country, bringing the benefits of entrepreneurship to communities throughout the United States. A new report we’re releasing in August confirms that 2011 was indeed a good year for new firms, and then goes on to highlight the role that high-tech startups play in the process of business formation and job creation. Stay tuned.