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A Primer on Startups

The stereotype of American entrepreneurial success has evolved beyond recognition. The 20th century image of a polished, suit-clad citizen making phone calls or knocking on doors has made way for the uniform of the 21st century: a hoodie, faded jeans, and a laptop computer. Welcome to the Age of Startups.

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The word "startup" has nearly become a cliché from overuse, but what does it really mean? Forbes (2013) has ascribed the following characteristics to these fledgling businesses:

  • A culture of innovation focused on solving pain points within existing systems
  • An ability to scale quickly, irrespective of geographical constraints
  • A single office (if any)
  • Revenues less than $20 million
  • Fewer than 80 employees, and less than five people on the board

Startups also tend to follow a typical growth trajectory. Max Marmer, the co-founder of the "Startup Genome Project" has outlined six phases of the startup lifecycle called the Marmer Stages:

1. Discovery (5-7 months)

2. Validation (3-5 months)

3. Efficiency (5-6 months)

4. Scale (7-9 months)

5. Maximizing Profits

6. Renewal

There are several features of metropolitan areas that tend to ignite the formation of startups. Education is arguably the most important consideration, as urban areas with more college graduates tend to produce higher rates of startups. Additionally, higher high school completion rates in an area are associated with increased startup activity. The size of a metropolis also influences entrepreneurialism; larger metros with diversified economies tend to have higher rates (Ewing Marion Kauffman Foundation, 2014).

In 2011, 0.32% of American adults created businesses per month in 2011, one of the highest rates of entrepreneurialism in the past 16 years. The rates of new business creation are the highest in the West, and the lowest in the Midwest.

The Ewing Marion Kauffman Foundation (2014) reported on the number of adults per 100,000 who created businesses in 2011 by state:

Highest rates of business creation (2011):

  1. Arizona: 520
  2. Texas: 440
  3. California: 440
  4. Colorado: 420
  5. Alaska: 410

Lowest rates:

  1. West Virginia: 150
  2. Pennsylvania: 160
  3. Hawaii: 180
  4. Illinois: 200
  5. Indiana: 200
  6. Virginia: 200

Currently, these are the top 10 metro areas for high-tech startup density:

  1. Boulder, CO
  2. Fort Collins-Loveland, CO
  3. San Jose-Sunnyvale-Santa Clara, CA
  4. Cambridge-Newton-Framingham, MA
  5. Seattle, WA
  6. Denver, CO
  7. San Francisco, CA
  8. Washington-Arlington-Alexandria, DC-VA-MD
  9. Colorado Springs, CO
  10. Cheyenne, WY

The infographic below explores some of factors that play a key role in startup success, as well as the White House's "Startup America," an initiative designed to inspire and facilitate the development of high-growth entrepreneurship throughout the country.

Please see the visual for a full list of sources.

A Primer on Startups
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