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Numbers don't tell whole story about entrepreneurship

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Lammert Building

The Lammert building on Washington Avenue in St. Louis is the new home of the TREx incubator, which rents low-cost space to more than 60 early-stage technology companies.

St. Louis is trying hard to be more entrepreneurial, and folks in Columbia and Kansas City seem to be doing the same.

It was disappointing and a bit puzzling, therefore, to learn that startup activity in Missouri is actually on the wane. The state fell to 35th place last year on the Kauffman Foundation’s index of entrepreneurial activity, down from a respectable 18th the year before.

That’s a sharp drop, and it means that Missourians launched one-third fewer businesses in 2013. We were once a standout among neighboring states, but now we look like the rest of the risk-averse Midwest. Missourians would much rather find 9-to-5 jobs than hang out their shingles as entrepreneurs.

In part, the Kauffman figures reflect an improving state economy. Some people stayed in the job market instead of becoming self-employed.

“What we’re seeing is that the marginal entrepreneurs, people who are actually making a decision between salaried work and starting their own business, are having an easier time finding that salaried job,” says Dane Stangler, Kauffman’s vice president of research.

Why do people make that job-over-startup choice more often in Missouri than in places such as California or Colorado? Stangler says it seems to be related to a state’s mix of industries. The Midwest has historically had a high concentration of manufacturing jobs, and manufacturing is dominated by large firms. We also don’t have many immigrants, who are far more entrepreneurial than native-born Americans.

“Missouri has always been a big-corporation sort of place,” says Jerome Katz, a professor of entrepreneurship at St. Louis University. “If companies are hiring, there are a lot of people who would opt out of the entrepreneurial economy to go for the jobs.”

So, while we should support and encourage startups in Missouri, we shouldn’t be too concerned about year-to-year fluctuations in the numbers. When someone who wants a regular paycheck manages to get one, that’s good news.

The dreamer — the person who has always wanted to be his or her own boss — matters far more than the necessity-driven consultant or freelancer. Dreamers have the potential to create jobs.

Katz describes the entrepreneurial economy as an inverted pyramid. The self-employed form a wide layer at the top, and traditional small businesses such as stores and restaurants fill the middle. In the triangle at the tip are high-potential startups such as a new software firm or medical device manufacturer.

That triangle is small but important. The St. Louis Regional Chamber counts about 200 startups that have raised outside capital or participated in a program such as the T-Rex technology incubator. The St. Louis area accounts for roughly 40 percent of Missouri’s economy, so let’s estimate that the state has perhaps 500 young companies with the potential for rapid growth. That’s just 3 percent of the 17,100 new businesses that the state says were formed last year.

By all indications, that small triangle is doing well. The companies tracked by the Regional Chamber raised $380 million last year, and programs such as Arch Grants keep luring new firms here. St. Louisan Jim McKelvey, co-founder of mobile-payments company Square, remarked last week that entrepreneurs get more support here than in Austin, Texas, which has long been a technology hotbed.

It would be nice to see more risk-takers in other segments of the local economy, but that kind of change will take time. Until that happens, Missouri will have to evaluate its entrepreneurial economy on measures of quality, not just quantity.

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David Nicklaus is a business columnist for the St. Louis Post-Dispatch.

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