Entrepreneurial Density

Last week I co-hosted a lunch for Jared Polis with Kyle Lefkoff at Boulder Ventures which Jud Valeski covered nicely in his post titled Luncheon with Jared Polis.  Jared was one of the first people I met when I moved to Boulder (thanks to an introduction from my long time friend Dave Jilk) and we’ve been great friends and partners on a number of fronts ever since.

The attendees at lunch were a bunch of Boulder entrepreneurs in three areas – software / Internet, biotech, and natural foods.  While I spend almost all of my time focused on software / Internet, it’s always interesting to hang out with some of the Boulder entrepreneurs in other segments to hear what they are thinking and working on.

During lunch, I reflected some on the number of times I’ve heard in the past year from people outside of Boulder about how Boulder has become a nationally known entrepreneurial center.  The comments come from all over and are often followed by the question “how can we do what you guys have accomplished in Boulder in our city?”

While I was listening to everyone and being proud of the little 100,000 person town I call home, I thought of a new phrase that I hadn’t used before: “entrepreneurial density.”  I wondered out loud if Boulder was the “highest per capita collection of entrepreneurs in the US.”  I have no idea if this is true but from my travels around the US it feels like something that might be true.

On Saturday morning as I was filling my car up with gas, I ran into someone I know that works at Rally Software.  This kind of thing happens all the time – I’m constantly running into, sitting next to, or just saying hi as I wander down the street to people that work at startups in Boulder.

Entrepreneurial density isn’t just the “number of entrepreneurs per capita”, but it’s the “number of people that work at entrepreneurial companies per capita.”  It gets even bigger when you include students and calculate the “(number of people that work at entrepreneurial companies + the number of students) per capita.

As ED = ((entrepreneurial_emps + students) / adults) approaches 1, you get complete entrepreneurial saturation.  I’m going to guess that Boulder’s Entrepreneurial Density using this equation is somewhere between 0.50 and 0.75, but this is just a guess.  I’m curious if anyone out there has a real way to calculate this.

  • An interesting question I've often thought about. If your definition of entrepreneurial includes anyone with an idea, perhaps you can reach above .50, but if you include the big employers in Boulder proper – U.S Gov't, CU, Ball, Covidien, I don't think you get close to .50 with them in the mix. For ED to be a usable metric we would need to have a definition like a "non-public legal entity paying employees". While perhaps entrepreneurial in substance a single programmer with an idea writing code would be impossible to track. Also to consider is at what point do companies cease to be entrepreneurial. If there there such a metric to compare cities it would be very useful.

    • Boulder is a great place, but I suspect its sense of wealth is distorted because of government money. There is a boatload of cash flowing through here by way of the state of Colorado (CU), NASA, NOAA, NCAR etc.

  • Jim Pollock

    If I can use an anecdotal method of density derivation, while living in the Bay Area I always looked forward to every flight in and out of SFO and San Jose. Whether my seat-mate liked it or not I knew I was about to get a 2-hour conversation about some interesting high tech company. Way more often than not, I would end up with a high-tech seat-mate.

    While living in Dallas, I had a high percentage of corporate seat mates, not necessarily high tech. In and out of Denver, it seems a mix of mostly general business, pleasure and some hi-tech.

    Not a quantitative technique, but one that I've conciously noticed. I love that Boulder has developed a high entrepreneurial quotiont over the last decade, but man, it would be hard to convince me that even with the much larger population numbers of SV, that there still wasn't a higher density there. I would rarely see someone I knew at a coffee shop, but if you tuned your ears, you could hear conversations about 4 new storage devices being designed over lattés.



    • You are right about Denver Metro. You'd have to look specifically at the City of Boulder. Quick math on 10-yr old census data says 100,000 pop, 22% <18 and >65, 29,000 students at CU – equates to roughly 53,000 at a .50 ED. Feels high.

  • Where were the cleantech entrepreneurs? All of the sectors represented were so last decade. Should there also be a corollary to entrepreneurial density that addresses the concentration of emerging technologies when looking at overall economic health?

  • Creating new venture hubs for investors and entrepreneurs is very important since the state of California has been so difficult to do business in lately ; startups can have a new destination to launch their dreams with lower costs and mentors like you to guide them.

    • schwarzrules

      Just curious why you include students as part of the entreprenuer group. Are we to assume that all students have some entrepreneurial spirit in them? Based on my university experience, this wasn't inherently the case – I would discount the number by at least half.

  • This is a great concept Brad. As far as I am aware, the only time "entrepreneurial density" has appear in the world of academic literature is in an article in Research Policy in 2005 (Powers and McDougall). Their conceptualization of the construct is a bit different than yours and includes the following five measures; the level of R&D activity (per SQ Mile), the number of patents (per SQ Mile), the amount of venture capital commitments in a given state (per SQ Mile), the number of SBIR and STTR grants (per SQ Mile), and the number of scientist and engineers with PhD's. This measure is quite a bit more complex, but it served their purpose as they were trying to find out how states could increase regional economic development through technologies generated at research universities. The thought being that the more fertile the entrepreneurial context surrounding the university (focusing on "potential entrepreneurs" and resources), the more likely the university would be able to spin off the technologies into startups…I have my own thoughts about this assumption, but I will save that for another time.

    I like the simplicity of your measure better actually and think they overlooked the "currently employed in a startup" aspect of the environment. That said, I think your measure would be better if you included populations that would qualify as "potential entrepreneurs" as well. Students are a great first step at this. Who knows though…broadly defined that could include anyone I guess. How about ED = ((entrepreneurial_emps + students + number of scientists and engineers [excluding those already counted in startups of course]) / adults). Not sure this adds a lot to your measure, but it was at least fun to think about. I will have to look around some more as well.

    Happy to send along the article if interested.

  • DaveJ

    Not sure why you include students, which has little or nothing to do with entrepreneurship per se. Lots of college towns (e.g., Alamosa CO) have a high student population but no startups. Also, I don't think it makes sense to count the dry cleaners and restaurants even though they are small businesses and vaguely entrepreneurial. It's an interesting idea to try to measure it but I think it's fraught with peril.

    That said, the subjective metric is high in Boulder, for sure!

  • sigmawaite

    "I’m curious if anyone out there has a real way to calculate this."

    Sure: Your equation is just

    ED = ((entrepreneurial_emps + students) / adults)

    where presumably 'ED' abbreviates 'entrepreneurial density'. So you are just trying to estimate a 'population proportion'.

    So, get something that is approximately a 'simple random sample' of the denominator and ask them one or a few questions to see if they are in numerator.

    It's an exercise in Stat 101 to say how big a sample you need to get a 'confidence interval' on your estimate as small as you want. If getting the sample is really expensive, then might want to do that exercise. Else, ballpark, ask 500 people and call the result exact or close enough.

    For how to get a simple random or representative sample in Boulder and how to ask the question, ask some marketing or political polling firms.

  • Brad- this is a major research topic [global conference being held in DC in October. Wanna go?] but the word "entrepreneurial" is highly problematic.
    * Is a place "entrepreneurial" because it has a lot of existing entrepreneurs?
    * If so, are they lifestyle,necessity or opportunity-driven growth entrepreneurs? (Self-employed is probably not an entrepreneur.)
    * Is it entrepreneurial if there'a lot of wannabes? (If so, how 'wanna' are they?)
    * Does it have to be 'tech'? (OK, we know the answer to that is decidedly…no.)
    * Is it some measure, objective or subjective, of the supporting ecosystem?

    We have global data on existing and nascent entrepreneurs – not perfect but decent enough – but mostly by country. (Note: opportunity-driven [growth potential] entrepreneurs have been in decline since 2005.. pretty much globally. Gross job creation comes from startups and growing businesses (duh) and that has declined horrendously. (See the 4th graph [slide 6] at http://bit.ly/cUjzCo ; the following slide is instructive too).

    However, the wannabe count varies widely — where do you draw the line? The consensus is at nascency (committed to venture, taken at least 1 concrete action toward launching). BTW, globally that isn't doing so hot either. In any event, just because you have an idea does NOT make you an entrepreneur (nor having a spiffy business plan)

    Inclusion of employees of entrepreneurial ventures is useful, though, and that hasn't seen much rigorous attention (in part because so many are partly or totally off the books, LOL) However, we do have pretty good stats on employment by firm size and age (www.youreconomy.org is a good place to start). They suggest that small firms employ a LOT of people everywhere – so it's hard to discriminate between cities on that.

    My old Buckeye chum, Mike Camp did a rigorous MSA-level analysis computing an index of "Innovation Assets" [ideas & resources] and an index of "Entrepreneurial Assets" [people] and found that cities varied widely but the raw scales showed that even the worst MSAs might score 90 out of 100 on both scales. Every community is entrepreneurial at some level- it's the nature of the economy (well, not in DC where they don't believe any of this, alas). Let me know if you want a copy.

    The feds have at least 7 different metrics for "rural" – the one that works the best is essentially "does it FEEL rural?" Don't try to parse it out further. Just ask that simple question. Let people fill in the blanks for themselves.

    If you must get analytical, let me take a cue from Mike C & others — do an in-depth social network analysis to see just how many experts you have to mentor/support entrepreneurs (at whatever stage) and how they are connecting. Karen Stephenson has done stellar (if spendy) work on this front. http://bit.ly/dskMUe .) The key is the quality & quantity of connectors or 'bridging assets' and they are a bitch to measure without network analysis (the best connectors are informal, not paid for it).

    My thought: Is it a place where it's safe to fail? [In Finland, 10 year olds are more innovate than even Boulderites but if start a venture & fail.. you may never get a 2nd chance..] Business exits lead business formations by ~2 years (yes, exits lead entries..) So do Boulderites keep trying –does the ecosystem support that? (You can count the re-tries.)

    But if you asked my mentor, Al Shapero, he'd ask this — any place has its entrepreneurs. Do your entrepreneurs breed the next generation of entrepreneurs (whether local or migrate in)? And the proof is in the pudding…
    Do you have a resilient,self-renewing local economy? Then you have an entrepreneurial community.

    p.s. I do think you've got Boise beat – we may have more self-employed but we are way behind on growth-oriented entrepreneurs. You definitely has us beat at the 2nd/3rd/4th generation of e's (and the size/richness of the supporting ecosystem)

    And why do you inspire such long responses? How dare you ask provocative Q's? LOL (But I have forwarded this blog post to all of the experts on the data (GEM, Census, PSED, NETS/BITS, KFS, etc.) I hope they will read this & chime in!

  • Alicia

    Rob Fairlie did some work for the Kauffman Foundation using data from the Current Population Survey and calculated the Kauffman Index of Entrepreneurial Activity. Here is the link to the full report: http://www.kauffman.org/uploadedfiles/kiea_2010_r

    While there are not data on Boulder specifically, there are data for the largest 15 MSAs and all of the states. Colorado ranks about 12th in terms of entrepreneurial activty. An exerpt:" Entrepreneurial activity rates follow strong geographical patterns. Entrepreneurial activity generally is highest in Western and Southern states, and lowest in the Midwestern and Northeastern states. Figure 8 illustrates variation in
    entrepreneurial activity levels across the United States, and Figure 9 ranks states by levels of
    entrepreneurial activity, with 95 percent confidence intervals for each state. The five states
    with the highest entrepreneurial activity rates were Oklahoma (470 per 100,000 adults), Montana
    (470 per 100,000 adults), Arizona (460 per 100,000 adults), Texas (450 per 100,000 adults),
    and Idaho (450 per 100,000 adults)."