Miami No. 2 for startups – but rides in 2nd to last for scale-ups

Miami is a hotbed for startups. Problem is few of them grow up.

That was the conclusion of a Kauffman Foundation study and ranking released Thursday that showed that the Miami-Fort Lauderdale metro area ranked second from the bottom out of 40 metro areas in growth of so-called scale-ups, or fast-growing companies. This comes a year after Miami ranked No. 2 in the nation for startup creation and six months after ranking No. 6 in the nation for small business activity.

The new 2016 Kauffman Index of Growth Entrepreneurship used data on employment and revenues to rank states and metro areas on the rate of startup growth in first five years, the share of scaleups that have reached at least 50 employees by year 10, and high-growth company density, or the number of private businesses with at least $2 million in annual revenue and three consecutive years of 20 percent annual revenue growth. By contrast, the No. 1 ranked area, Washington, DC, performed three times higher than No. 39 Miami in every category. In Florida, Jacksonville (No. 23), Tampa (No. 26) and Orlando (No. 35) all ranked higher than Miami. Only Detroit ranked lower.

“Miami is a place that does very, very well on startup activity – a lot of people are becoming entrepreneurs and starting companies,” said Arnobio Morelix, senior research analyst and program officer in Research and Policy at Kauffman, which studies and supports entrepreneurship. “But when we look at how firms grow after they start, we don’t see Miami doing very well.”

The good news is that while some places have both low startup creation and low growth, Miami already has a good density of startup companies, said Morelix. “We just need to find out how to help those companies scale better,” he said.

He said there are four factors that play a key role in growth entrepreneurship: density (how close startups are to one another), connectivity (how connected they are to one another and to resources), fluidity (how effectively startups can assemble resources locally to grow, including money and talent) and diversity (including diversity of skill sets.) He said one thing communities can do is to look closely at connectivity. “What we often see are silos,” he said.

Florida ranked 24 out of the 25 largest states ranked for growth entrepreneurship, which included all industries. “High tech is not a prerequisite for high growth,” said Morelix. One bright spot in the Florida data: the state ranked in the top five for health entrepreneurship.

The study comes as Miami has been working to develop a robust entrepreneurial ecosystem. In the past 3 1/2 years the Knight Foundation has committed more than $20 million to more than 160 entrepreneurship projects and organizations in the city. Several several organizations focused on scaling up companies have recently expanded to Miami, including Goldman Sachs 10,000 Small Businesses, Endeavor and the WIN Lab for women-led companies.

The ranking did not include venture capital because Kauffman wanted to look at broader measures. Indeed, most growing companies never tap venture capital, particularly outside of technology, Morelix said. Still, the Miami area has produced anemic VC results. Florida ranked 14th in the nation for venture capital in 2015, despite being the third largest in population. Typically, the metropolitan Miami area attracts less than 1 percent of the national venture capital pie. (See attached list for more recent reports)

Overall, the Kauffman Index of Growth Entrepreneurship found that U.S. entrepreneurial growth, while still in a long-term decline, is happening well beyond the typical entrepreneurial hubs. Following the national trend, business growth across industries and geographies edged upward in most states and metro areas; Miami’s growth inched up about half a percentage point over 2015, according to the index.

Most of the metro areas considered “usual suspects” for growth, including Austin, Boston, San Diego, San Francisco and San Jose, performed very well in the index. But top performers also included Washington, D.C.; Nashville, Tennessee; Columbus, Ohio; and other metros not typically noted for entrepreneurship. Nationally, entrepreneurial business growth rose for the third year in a row, indicating that business growth largely has recovered from the Great Recession slump.

“Growth entrepreneurship directly contributes to the economy through creating jobs, innovation and wealth,” said Morelix. “The fact that 39 states and 34 of the United States’ 40 largest metro areas experienced an increase in growth entrepreneurship holds promise for a return to economic vibrancy after the long-lasting impact of the Great Recession.”

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Nancy Dahlberg; 305-376-3595; @ndahlberg