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Arizona No. 1 for startups, Kauffman study finds

Arizona had the highest entrepreneurial activity rate of any state last year, according to new research from the Kauffman Foundation.

– Phoenix Business Journal

Definitely worth of a major shout-out

When I arrived in Arizona 4 years ago to help them build their entrepreneurship program, I had already spent over 15 years in Silicon Valley – the mecca for entrepreneurship (and venture capital). Needless to say I was cynical and underwhelmed by the scope and quality of the entrepreneurial community, but I wasn’t surprised or disappointed. Most areas outside of the “big 3” (Silicon Valley, NY, Boston) or the up-and-coming-3 (Denver, Austin, LA) lack the culture, critical mass or role models to sustain a vibrant entrepreneurial community. Phoenix was no different, and it wasn’t the fault of the entrepreneurs or other talented would-be entrepreneurs. Again, without a critical mass of role models (successful entrepreneurs), supporting companies, capital and a culture of risk and innovation – it just doesn’t happen. But it did happen in Arizona- particularly in the Phoenix metro area. After 4 years, we hit the top spot in the country for entrepreneurial activity. It wasn’t due to any one silver bullet. It was a combination of simultaneous and independent efforts by many individuals and institutions, all committed to stimulating entrepreneurship in the region. Some of the efforts were predictable – other regions have used similar techniques and failed. If these efforts weren’t buoyed by other activities and other individuals, they might have fizzled in Arizona too. But the synergy worked, and continues to work – primarily due to these influences:

Arizona State University

SkysongFirst and foremost, Michael Crow, the President of ASU deserves a lot of credit for his leadership. He made Entrepreneurship a top priority as one of his tenets of “The New American University”; Entrepreneurship is embedded in every college and in every department. And then of course there’s Skysong – which has been been a leader and catalyst, acellerating entrepreneurship activity in the region ever since Gordon McConnell took the helm last year.

Gangplank and the New Acellerators

Sure, New York and Silicon Valley have acellerators: Programs where they get a half dozen companies to spend a summer hoping to get a prototype they can demo before VCs. Rather than placing a few bets that might enrich a few companies and investors, Gangplank is more concerned with building a solid community and a permanent ecosystem for entrepreneurs. “Gangplanks” are part incubators, acellerators, hackspaces, workspaces, learning spaces, technology centers and community centers. Each one is a multifaceted combination of active partnerships between gangplankhqentrepreneurs, government, university and community. Under Derek Neighbors‘ leadership and tireless hard work, Gangplank has recently opened it’s third location, and has inspired others to start similar hybrid acellerators such as LaunchSpot, AZ Disputors, and Cohoots.

Mentors and Angels

Arizona may be in the desert, but there is no Sand Hill Road, like in Silicon Valley, concentrated with billions of dollars in venture capital along valuable connections and advice – the vital fuel for entrepreneurial startups. In the desert, it takes more than just money and savvy to nurture growth let alone tranform the area into the country’s #1 entrepreneurial region: It takes vision, patience and commitment – embodied by veteran entrepreneur, mentor and angel investor Francine Hardaway and her partners at Stealthmode. Dr. Hardaway sets the pace for committed mentorship and evangelaism among a handful of Arizona professionals who regularly work with fledgling companies and young entrepreneurs – making sure they get the attention and direction they need. Along with others like Jim Goulka of Arizona Technology Investment Form and Dee Harris of Desert Angels, they not only invest, but they organize, connect, and make sure their considerable infuence and expertise benefits the young entrepreneurs of Arizona who need it most.

Government

“We’re here from the government and we’re here to help” is what you’d expect – complete with tax breaks, proclamations, ribbon cuttings and photo-ops – none of which benefit struggling high-tech entrepreneurs. Most politicians and officials would rather take meetings with the CEO of the billion dollar corporation in their district than with a few entrepreneurs still working out of garages. In Arizona, the local officials have been particularly engaged with entrepreneurs in the trenches – not only by creating and supporting entrepreneur friendly programs such as Innovation Arizona, the Arizona Commerce Authority and the Arizona Innovation Challenge that fund entrepreneurship and innovation, but also by interacting with entrepreneurs at networking events and meetings. And like the mentors and angels, these officials really seem to get a sense of pleasure in connecting entrepreneurs with the help and resources they need.

The Entrepreneurs

And of course, it’s the entrepreneurs themselves that make Arizona the #1 place in the country for entrepreneurial activity. This isn’t some obvious, trivial point. It’s not easy being an entrepreneur in a region isolated from the major tech and financial hubs; these vital aspects of the Silicon Valley-like ecosystem than many take for granted simply did not exist here until a few short years ago. Networking events, acellerators, coworking spaces, the informal collaboration networks that entrepreneurs in other regions take for granted all had to be created in the past few years – often by the busy entrepreneurs themselves. In most other regions where these support systems don’t exist, the talent entrepreneurs simply relocate to Silicon Valley, New York or Boston. The Arizona entrepreneurs stuck it out and worked hard to make it work. And it bears repeating: The highly respected Kauffman Foundation’s annual report on the state of Entrepreneurship found that Arizona has the highest entrepreneurial activity in the United States.

I am not surprised. These days, it’s like living in Silicon Valley during the days when Steve Jobs and Bill Gates were getting started, and attending “home brew club meetings”, or during the early dotcom days when Jim Clark was walking around the Stanford campus looking for a student who had heard of a “web browser.” I am not surprised. And I am proud and excited to be in Arizona, at this time in history.

While fewer Americans started their own businesses last year, 520 out of every 100,000 adults in Arizona started a business in 2011. That was the top rate in the country and well above the national average of 320 out of every 100,000 people launching a startup.

Nationwide, roughly 543,000 businesses were created each month last year — still one of the highest formation rates in the past 16 years.

Texas, California, Colorado and Alaska were next behind Arizona. West Virginia was the worst state for startups — only 150 out of every 100,000 adults formed businesses there. Other laggards included Pennsylvania, Hawaii, Illinois, Indiana and Virginia.

The Kauffman Foundation uses census data to track business formation.

Startups are important for economic growth, since Kauffman has found that most net new jobs are created by companies less than five years old.

 

 

Written by CJ Cornell

CJ Cornell

Serial Entrepreneur. University Professor. Software Engineer. Media Executive. Venture Capitalist. Researcher. Marketer. Advisor. Mentor. Author and Speaker. Founded or co-founded nearly a dozen companies in software, digital media and television.

For the past few years I’ve been Co-Director of the Knight Center for Digital Media Entrepreneurship and Professor of Digital Media & Entrepreneurship at Arizona State University, and the university’s first full time Entrepreneur-in-Residence. Currently Visiting Professor of Entrepreneurship & Innovation at New York Institute of Technology and Managing Director at Propel Ventures LLC.

 

12 Responses to It’s Official: Phoenix is the New Silicon Valley

  1. I’ve lived in Phoenix for the last 6 years (29 years in AZ) and a lot has changed in that time in the tech and startup space. Most of it has been positive, but are we the new Silicon Valley? No.

    A measure of entrepreneurial activity seems like a vanity metric. If we want more meaningful numbers let’s look at the revenues, jobs, investments, acquisitions and IPOs of all these new startups in AZ. Then let’s stack that up against the goals we have for AZ, not against other cities. We’re not competing with them, we’re competing with ourselves.

    • CJ Cornell says:

      Actually I very much agree with you (though there is nothing wrong with celebrating even some vanity metrics). But yes, as is often the case with the non-silicon valley regions there are way too many meaningless metrics, activities and events lauded as major meaningful milestones. Most often with these entrepreneurial success stories, “the emporer has no clothes” No one wants to be the one to say it. Woese, when only one or two call-out the meaningless metrics and showcase stories, their voice of reality is immediately drowned out by the chorus of those who want the fantasy to be true.

      To be fair though, all the influential players I mentioned in the article are having a tremendous positive impact on Phoenix’s entrepreneurial ecosystem. While the Kauffman report touting Arizona’s #1 level of entrepreneurial activity means little as a metric – we have to start somewhere. Rome wasn’t built in a day, nor was Silicon Valley. Before we have the same level of outcomes as Silicon Valley, we at least need to stoke the entrepreneurial activity first. And the Kauffman metric shows Arizona and Phoenix are getting good at the stoking part.

  2. Paul Kenjora says:

    CJ,

    Great post, I’ve been working out of CoHoots Phoenix for a few months and I can see it. The community id here and growing organically. Lots of entrepreneurs are coming out of the woodworks to participate.

    Some big things in the works, I can see at least a half dozen startups emerging here in downtown. They’re not exactly silicon valley, but then again nothings a perfect copy, thats what makes it so cool.

    Stop by when you get a chance. I’m with you on this one.

    -Paul

    • CJ Cornell says:

      Thanks Paul. I actually had a brief chance to interact with Cohoots when I was Co-Director of the Knight Center for Digital Media Entrepreneurship at ASU (at the Cronkite school just down the road)… this was last year when Jenny was running it – from the looks of things there have been big changes and lots of great progress. I should indeed stop by and check it out.

  3. Jack Irving says:

    The landscape of entrepreneurship and innovation is growing. For the entrepreneur the breadth of resources and choices really tell the tale of opportunity. Co-work spaces, accelerators, and incubators all play a vital, yet very different role. Check out the work of the Arizona Business Incubation Association and members like the Northern Arizona Center for Entrepreneurship and Technology (NACET.org), and The Center for Entrepreneurial Innovation (CEIGateway.com) among them.

    • CJ Cornell says:

      I agree! I should have mentioned the ABIA prominently – they (and their members) have done an outstanding job of creating productive environments for entrepreneurship and entrepreneurs!

  4. FYI: the study was state-by-state and mentions that LA has the highest per-city average, 12% higher than AZ.

    • CJ Cornell says:

      Actually the report has a listing by MSA (Metropolitan Area) where LA/Long Beach/Santa Ana) does indeed score highly. Just FYI, MSA can be a subjective measure (unlike “State” or “City”) … which is why Kauffman and other reports don’t cite it in the press releases of their study. For instance – while Arizona scored #1 in the nation for entrepreneurial activity, which the Phoenix MSA scored #2 (behind LA) is because, oddly, they did not include seem to include the city of Tempe, AZ which is not only definitely in the Phoenix metro region, but also is one of the city/state’s most active entrepreneurial cities.

      Either way – congratulations to LA too. A great area for entrepreneurship and innovation.

      • Thanks for the clarification, CJ. So of the top 15, LA was #1, and Phoenix (without Tempe) was #2?

        • CJ Cornell says:

          Well, since you want to be precise – the LA *metro* area – apparently defined as LA/Long Beach/Santa Ana – is #1. And yes, to be more precise our headlines should read “Arizona is #1 for Entrepreneurship” – since on a state by state basis (less arbitrary than metro areas) Arizona wins hands down. Kudos to LA too ! I lived there for a few years and the creative element (and lay-back lifestyle) is enviable. Here’s the thing – most are not surprised to see LA or CA (or NY or Mass) high on list, but Arizona is a real surprise – even to many of us who live and work here.

  5. Anil Jain says:

    Hi CJ – Thanks for the shout-out on AZ; I know this was posted some time ago, but it’s great to read.

    I do want to mention that the growth of entrepreneurial activity in Arizona has been underway for some time now… It has blossomed recently and still has a long way to go, but what we’re seeing now is the culmination of over a decade of effort by a legion of people who understood the following:

    1) Phoenix (metro) is an unique geography and thus cannot be compared to Silicon Valley or Route 128 or Silicon Alley… but instead must be understood on the basis of its own characteristics.

    2) Growing into and becoming the vibrant entrepreneurial ecosystem we all believe it can be is not a 4 year or even 10 year journey, but a 30-40 year journey. We will have success stories and garner our share of recognition, but a continuous stream of these things will be what’s required to engender the formation and sustainability of an ongoing and thriving ecosystem.

    3) To make it happen, what is most necessary — more than successful financings, company exits, government programs, transplanted companies (all of which are good) — is the continuous, collective efforts of a community of people that recognize that “we need to build the sandbox we want to play in”…. That is the effort that I have witnessed firsthand over the last 15 years since I moved to AZ… There have been many incarnations and iterations of groups and movements and events that have played their role, and all of them have helped get us to where we are today. (a few early ones worth mentioning: AZIPA, AZSoft – now the Tech Council, TiE Arizona, AVCC – now Invest Southwest, etc.)

    Kudos to everyone past and present that are part of this community effort.

    Anil

    • CJ Cornell says:

      Hi Anil.

      I agree with you (though I have not been here long enough to witness the long hard fought victories)
      I look at the recent success, as both the culmination of all those efforts you mentioned to the point that they are now visible and obvious to the press, and to all the others who never noticed the Phoenix/Arizona entrepreneurial Juggernaut.

      Kudos to everyone, and to you personally, as well.

      CJ

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