Small Business

Miami still ranks near top in U.S. for startup creation

If you registered a new business last year, you were in good company.

The Miami-Fort Lauderdale metropolitan area again landed near the top of the Kauffman Foundation’s 2016 Index of Startup Activity, which measures new business creation. For the second year in a row, Miami ranked No. 2 of the 40 largest metro areas studied, a report on state and metropolitan data released on Thursday showed.

For the annual ranking, Kauffman’s analysts parsed government data from 2015 to determine the rate of entrepreneurs opening businesses in any given month and whether they are starting businesses because of the market opportunity rather than out of necessity. They also measure density, or the number of newly created businesses that employ at least one person per 1,000 companies. To hold on to its No. 2 ranking, Miami ticked up in opportunity share and down in both rate of new entrepreneurs and density since the year earlier; Miami’s density was second-highest in the nation. Kauffman’s index was significantly enhanced and expanded last year, but over the past decade the immigrant-rich Miami area typically has ranked in the top five nationally for new business creation in Kauffman’s research.

Before uncorking the champagne, know that the index itself is limited in what it shows. Miami may spawn a lot of companies, but how many of them grow? To measure that, Kauffman released its first annual Growth Entrepreneurship Index in June, which measured the rate of growth in companies’ first five years, the share of scale-ups that 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. The results of the growth index for Miami were sobering: Instead of second from the top, the area ranked second from the bottom for growth among the 40 biggest metro areas in that study.

In the 2016 Kauffman Index: Startup Activity released Thursday, Austin, Texas, again ranked No 1. Following Miami at No. 2 were Los Angeles, San Francisco, Las Vegas, New York, Houston, San Jose, Denver and Phoenix. Kauffman’s data is industry-agnostic, so the businesses created range from high-growth tech startups to mom-and-pop shops and eateries and small service businesses in all industries. The Kauffman Foundation, based in Kansas City, develops and funds global research and programs in entrepreneurship.

Nationally, the key finding was that new-business activity was up for the second year in a row, said Arnobio Morelix, research analyst at the Kauffman Foundation and one of the study’s authors. “We as a country had reached the lowest level in two decades two years ago, so this second-year increase is very encouraging,” he said. The recession hit startup activity harder and the “Great Recession hangover” lasted much longer than for well-established companies, Morelix added.

What’s driving this bounce-back? “We are seeing a return of opportunity entrepreneurship in the U.S., and that means businesses turning to entrepreneurship out of opportunity rather that necessity,” he said. The share of opportunity entrepreneurship was 84 percent, up 10 percent from the low during the recession. In Miami, the opportunity share was 78 percent.

Also nationally, Kauffman saw a narrowing of the gender gap, “but it’s still too large,” Morelix said. Females starting new businesses were 40 percent of the total in the 2016 index. More minorities are also joining the entrepreneurship ranks, and four out of every 10 entrepreneurs were minorities in this year’s index.

As for state trends, Florida ranked seventh overall but second among the 25 largest states (Texas was first). Orlando ranked 21st, up from No. 33 a year ago and one of the fastest-growing cities for startup activity. Tampa Bay ranked 19th and Jacksonville ranked 28th.

In addition to the Startup Activity and Growth Entrepreneurship indexes, Kauffman also releases a Main Street Entrepreneurship Index. In that 2015 index released in December, the Miami-Fort Lauderdale metropolitan area ranked No. 6 in the nation for small business activity, but the report also showed the region’s businesses are getting smaller, and nearly two-thirds have fewer than five employees. Together, the three annual reports aim to give a picture of entrepreneurship creation, makeup and growth in the United States.

The new report, as well as the other indexes, are available at kauffmanindex.org.

Nancy Dahlberg: @ndahlberg

Read more: Miami No. 2 for startups – but rides in second to last for scaleups

Read more: Miami area ranks No. 6 in nation for small business activity

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