It’s not about the amount of wealth you can accumulate, it’s about the impact and change you can create.
Neil Blumenthal, Warby Parker Founder and Co-CEO
The power of the American Dream Composite Index research is found in understanding the 5 sub-indexes and 35 dimensions that comprise the ADCI.
The American Dream Entrepreneurial Spirit dimension measures the level of resident satisfaction with the “pursuit of new ideas and progress in life”.
Bottom 10 Ranked States
Here are the 10 lowest scoring states:
- North Dakota
- Rhode Island
- South Dakota
Read the above as residents in these locations have the lowest degree of satisfaction with the entrepreneurial spirit in their state.
Top 10 Ranked States
On contrast, here are the 10 highest scoring states:
- South Carolina
- New Mexico
Read the above as residents in these locations have the highest degree of satisfaction with the entrepreneurial spirit in their state.
Entrepreneurial Spirit is Important to Economic Performance
Why are some locations more conducive to entrepreneurism than others? In an article entitled “Mapping the Entrepreneurial Spirit” authored by Martin Obschonka, the author concludes “Psychology matters a lot.” Research on regional patterns of entrepreneurial activity is starting to focus on the region’s psychological make-up. A recent such study of over 500,000 U.S. residents was conducted by the author with researchers from the Friedrich Schiller University in Germany. Their findings are highly interesting:
- There is a regional clustering of entrepreneurial personalities.
- The psychological map of entrepreneurial spirit matched the economic map of business start-ups.
- A region’s psychological makeup and the region’s business climate interact.
- Entrepreneurial vitality might not just depend on external factors (like infrastructure), it might also depend on the region’s prevalent personality.
Note, the top 10 states cited in the Obschonka study are not completely aligned with the resident sentiment of the American Dream Composite Index study. This simply means that in some states with a high concentration of entrepreneurial characteristics, residents feel there is yet room for additional improvement to fully realize the entrepreneurial spirit. If economic development professionals and elected officials can figure out a way to reduce barriers in these states, they will likely unlock the resident population’s psychological potential for entrepreneurial success.
In addition, there have been a number of studies that suggest strongly that location has an impact on the potential for entrepreneurial success. Research findings have been published in both the State Entrepreneurship Index published by the University of Nebraska-Lincoln and the 2010 State New Economy Index , produced by the Ewing Marion Kauffman Foundation and the Information Technology and Innovation Foundation. Consequently place matters.
My take-away from everything I have read to date is – the greater the risk tolerance of the residents in a location, the better the odds an entrepreneurial start-up has of succeeding. Therefore, to the extent entrepreneurial spirit is important to the long-term success of your business, having your operations in places where residents indicate a greater satisfaction with the location’s entrepreneurial spirit makes perfect sense.
Some Interesting Facts
The Kauffman Foundation found that 72% of entrepreneurs come from middle class families. Source: The Kauffman Foundation, “The Anatomy of an Entrepreneur: Family Background and Motivation” (July 2009)
Based on the 2009 Census data, there were 5.8 million employer firms in the U.S., and firms with less than 20 workers made up 89.7% of these businesses. See the Census Bureau’s Statistics of U.S. Businesses at http://www.census.gov/econ/susb/, and http://www.census.gov/econ/nonemployer/index.html.
Small firms accounted for 65% of net new jobs created between 1993 and 2009. Office of Advocacy’s “Frequently Asked Questions” publication at http://www.sba.gov/advocacy/7495/29581.
35% of employed Millennials have started their own business on the side to supplement their income. Source: Dan Schawbel reports based on Iconoculture
What Do The Data Tell You?
The ADCI data reflect the sentiment of residents. If you think about it, these are the people in the best position to assess how easy it is to achieve their American Dream, and as a consequence their perspective is worth paying attention to. Resident sentiment is measured through a validated questionnaire. To produce the Report, the data collected from residents in each state throughout calendar 2013 have been compiled to create a 12-month snap shot. The intent of the Report is to help economic development professionals and elected officials better understand where the state might have opportunities to better enable residents to achieve their American Dream. This can be done by comparing one state’s dimension scores with other states that might be seen as competitive for capital investment or attraction of top talent. It is important to note the data inform HOW residents are feeling, but do not explain the sentiment drivers behind WHY they feel that way. Answering the WHY question requires additional local market research.
How Were The Dimensions Determined?
In general, the Xavier University team did an exhaustive literature review along with both qualitative and quantitative market research to identify an initial list of dimensions that make up the American Dream. Questions or statements were generated to measure each dimension. Then two separate large-scale quantitative studies were used to statistically validate and refine the questionnaire. Finally, three nationally representative samples were used to validate the ADCI, and factor analysis was used to verify that each dimension was sound. The result of all this work was 35 dimensions that are grouped into five statistically sound and validated sub-indexes.
A more complete description of the process is available on the Xavier University website.