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Kauffman and Dallas Startups Disagree on Startup Definition

Posted by User Not Found on Jun 17, 2015
If we want to precisely measure true startup activity, we can’t use the Kauffman Index as published. This Index is a broad measure of business formation. The report’s authors use the term “startup” for all new businesses. Most startup advocates and founders probably have something more specific in mind. The diversity of businesses included in Kauffman’s study make it difficult to tell what is happening to any metro area’s startup population.

At least in local conversations, if not throughout the U.S., when someone mentions startups, they seem to have a specific kind of business in mind. Startups typically are founded to: 1) commercialize a new idea that creates a new market or disrupts an existing market, 2) scale (grow deliberately and rapidly) and, 3) because of these, are interesting to investors. This definition does not include most new businesses such as: main street “mom and pop” retailers, restaurants, construction trades, nail salons, donut shops, self-employed professionals and creative people. These are mostly traditional small businesses. They are crucial for the life of our economy, but they are not normally considered startups.

The Kauffman Index includes all these business categories, not just dynamic, growth-oriented, innovation-led firms. In every metro area, true startups will account for only a tiny fraction of new firms. There are 700,000 business establishments in DFW. Annually, tens of thousands of new businesses start locally. All the local accelerators and coworking spaces account for only a few hundred business establishments. This number could double several times and still not be noticeable using Kauffman’s Index.

The DFW startup scene has been growing at a significant and exponential rate. Accelerator and coworking activity and event attendance has undoubtedly doubled since 2013. Our overall business competitive advantages should push DFW into further prominence through the next business cycle. Most entrepreneurs are not going to choose or reject Dallas by reading Kauffman’s Index. Still, studies like Kauffman’s, and the policy and public response can have an indirect and cumulative effect over time.

The community discussion over the Kauffman Index is our opportunity to begin a new, regular treatment of ecosystem research and policy. Our assessments in these areas will appear in this blog, alongside local community activity and curated business practice content. Our intent is to promote a broad, inclusive entrepreneurial community in Dallas. At the same time, we will make sure we are clearly distinguishing the needs and interests of different types of small companies. Our content and commentary recognizes three major categories of small firms: startups, traditional small businesses and self-employed workers. We will work with our partners in the community to make sure Dallas has a great support system for each type. We also want to inform the discussion in ways that avoid the recent confusion over Kauffman’s Startup Index.

Daniel Oney, is the Business Ecosystem Champion in Dallas’ Office of Economic Development. He was senior economist for the Virginia General Assembly but returned to his native soil to found the City’s Economic Research group. Now he wants to make small business and entrepreneurship a cornerstone of local economic development. These remarks are his own and may not reflect official policy or opinions of the City Council or City Management.

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