Oil has helped create some surprising startup states, but on the metro level Seattle faces very tough competition for talent and capital.

Share story

I present to you the top state for startups: Montana.

Before you snicker, this is coming from the respected Kauffman Foundation’s new report on state and metro startup activity. Following the Big Sky State are Wyoming, North Dakota, Colorado and Vermont. Washington ranks 38, down from 34 in 2014.

Alaska is No. 7, followed by Idaho No. 8, and Oregon No. 33.

Among metropolitan areas, Seattle came in at only No. 16, down one notch from the previous year and below Las Vegas and Phoenix. Portland ranked 26 out of 40.

The leading startup metros, according to Kauffman, are Austin, Miami, San Jose, LA, Denver, San Francisco, New York, Houston, San Diego and San Antonio

This is startling performance compared with Seattle’s usual high ranking. For example, in 2012 Seattle ranked fourth in the world for its startup “ecosystem.”

Kauffman Foundation Research Analyst Arnobio Morelix told reporters Wednesday that the report takes “a big tent approach to entrepreneurship.” When I questioned him on Montana, he said it and three others in the top five benefited heavily from the fracking boom. “Very high real GDP growth” played a role in the calculations.

The rankings included the rate of new entrepreneurs: the percentage of adults becoming adults in a given month; the “opportunity share” of new entrepreneurs, defined as people previously unemployed starting enterprises because they “saw market opportunities;” and  startup density, the number of startups per 100,000 people.

The report says, “It includes the venture-backed startups of Silicon Valley as well as the new restaurant down the street; for many, entrepreneurship includes independent franchise owners and those who might take over and transform a century-old bank.”

I’m a bit skeptical beyond the distorting elements of oil and GDP growth. We can’t know how many “entrepreneurs” are really people scraping by in the so-called gig economy and would much rather be on a payroll with benefits. How many are creating real companies that will provide jobs (the Census Bureau reports the number of “nonemployer” outfits is on the rise).

Phoenix and Las Vegas are laggards in almost every element of what we would consider the foundations to make startups into real comers, especially capital and tech talent. Boston as No. 22 — seriously?

On the other hand, most of the leading startup cities are genuine competitors and must be taken seriously.

The report may offer more serious fodder for the state at large considering how many counties still have very high unemployment rates. The percent of Washington’s adult population becoming “entrepreneurs” was 0.24, compared with 0.54 percent in Montana. The state’s density is 146, down from 350 in 1977.

The overall national index, which goes back to 1997, reinforces the difficulty of starting businesses today. It fell below zero in 2011 and remains below zero, but has been growing its way back.

As for Seattle, follow Andy Grove’s advice: Only the paranoid survive.


Today’s Econ Haiku:

They can Dish it out

But where will headquarters land

T-Mobile on hold