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Recent Research: Indicators for a vibrant entrepreneurial ecosystem

February 23, 2017

For academics and practitioners involved in economic development, quantifying the vibrancy of a regional innovation system can be a challenging experience.  To support these efforts, new research by authors from Cleveland-based venture development organization Jumpstart and Cleveland State University’s Center for Economic Development seeks to do two things: identify key indicators – a grouping of measures representing a broader concept – for describing a vibrant entrepreneurial ecosystem, and establish which of these indicators are most valuable for entrepreneurs. Ultimately, the authors find that three broad indicators – innovation, centers of commerce, and small business hubs – can help measure entrepreneurial ecosystem vitality in a region.

To inform their analysis, the authors start with a framework developed in Kauffman Foundation research on “Measuring an Entrepreneurial Ecosystem.” This theoretical framework identifies 12 measures across four indicators: density, fluidity, connectivity, and diversity.

The authors interviewed 31 entrepreneurs to determine the importance of these four indicators. From the interviews, the authors find that entrepreneurs consider connectivity and density to be strong and important elements to entrepreneurial ecosystem vibrancy. Although it is hard to define with data, connectivity in particular spurred the most discussion among entrepreneurs and received unanimous positive support. Entrepreneurs interviewed, however, have mixed attitudes toward fluidity and diversity. Approximately half of comments on these indicators suggested that they were an important factor in entrepreneurial system vibrancy.

Overall, through their literature review and interviews, the authors identified 12 measures that relate to entrepreneurial ecosystem vitality. The interviews with entrepreneurs revealed four measures (bachelor’s degree attainment, business environment, entrepreneurial finance, and, patents) as a proxy for innovation. The authors’ research helped to modify three measures from the original framework: connectivity and quality of network, traded industries, and university presence. Finally, five measures carried over from the original framework: immigrants, high-growth firms, high-tech density, population flux, and share of employment in new and young firms.

The authors place these 12 measures across three indicators: innovation, centers of commerce, and small business hubs.  The table below details these indicators:

To determine which of these indicators describing entrepreneurial ecosystems had the closest relationship with regional economic growth, the authors conduct an empirical analysis of the largest 150 metropolitan areas. Four output measures are used to define regional economic growth: employment, gross regional product, productivity (gross regional product per employee), and per capita income.

The authors found a strong association between the innovation indicator and productivity and per capita income. The centers of commerce indicator has a strong association with measures of employment and gross regional product. The small business hubs indicator was not significantly associated with measures of regional growth. Although the authors identified this indicator through their qualitative analyses, they did not find a strong relationship between the indicator and measures of economic growth.

The report concludes with recommendations on how practitioners can use this research to inform their regions’ next steps. First, the authors recommend measuring entrepreneurial ecosystems and comparing results with other similar regions around the country. Second, the authors recommend that practitioners use the results of this analysis to complement content for marketing and communications, suggesting that data on the vibrancy of an entrepreneurial ecosystem may make it easier to attract additional capital, talent, and customers into a region. Third, the authors recommend aligning the measures that contribute to entrepreneurial ecosystem vitality with the region’s development priorities. Having data on the status of the entrepreneurial ecosystem may help to provide practitioners with a common language that informs their communications with the many stakeholders across the system such as funders, policymakers, and entrepreneurs.