College & Workforce Readiness

Education Fuels Growth of Urban Entrepreneurs, Study Suggests

By Michele Molnar — February 25, 2014 5 min read

Startup and entrepreneurial growth in small to large cities is fueled more by high school diplomas and college degrees than by venture capital, government funding, or the presence of research universities, a study concludes.

The study, conducted by the Ewing Marion Kauffman Foundation, examined business activity in 356 U.S. metropolitan areas. Researchers found that investment levels of financial organizations, primarily venture capitalists, did not correlate with high startup activity, and that billions of dollars in federal government research expenditures and the presence of research universities were not associated with higher rates of entrepreneurship.

Instead, the authors say, education is the most significant factor correlated with entrepreneurial growth. “A substantial high school completion rate will further increase the area’s startup rate,” they write.

It was a finding that surprised Yasuyuki Motoyama, a senior scholar in research and policy at the Kauffman Foundation, a Kansas City, Mo.-based philanthropy that works to foster economic independence by advancing education and entrepreneurship. He is a co-author of the new study, “Beyond Metropolitan Startup Rates: Regional Factors Associated With Startup Growth.”

Contrary to conventional understanding in the research literature, the study found that there are few significant factors that the public sector can affect to influence startup rates and growth in metropolitan areas. For the new report, released last month, a team of researchers examined the subject from three angles: the startup rate for all industries, for high-tech sectors, and for high-growth firms.

Among other findings, the research showed that metropolitan areas with more college graduates will produce more startups, and that greater high school completion rates will further fuel startup activity.

What Correlates to More Entrepreneurs in an Area

Education

A high ratio of college graduates, coupled with a substantial rate of high school completion

Size of Metro Area

Large areas tend to have higher entrepreneurial rates than smaller ones

But just because a city has a high college-completion rate does not necessarily mean that it has a high rate of high school completion, according to the study.

“Until I looked at the data, I assumed that if a city has a high level of college-completed adults, that city would also have a high level of high school-completed adults. But that is not true,” said Mr. Motoyama, an expert in city and regional planning.

Expanding Skill Sets

Promoting high school completion would seem a logical outgrowth of the study. But states are “already all over high school completion,” said Kathy Christie, the vice president of knowledge/information management and dissemination for the Denver-based Education Commission of the States. “That train’s been out on the tracks for a long time.”

What Doesn’t Promote Business Startups and Growth

Research

Billions of dollars in government research expenditures don’t translate into more startups

Venture Capital

Investment levels of financial organizations, primarily from venture capitalists, do not correlate to high startup rates.

High-Tech Sectors

These only generate more high-tech startups

Rather, she said, the biggest “aha” from the study is the fact that college graduation is not the only significant educational factor generating startups.

In fact, the study cites older data from 2008 showing that 53 percent of entrepreneurs had actually not attained four-year college degrees."We’re starting to hear from communities, ‘Quit simply talking about four-year college completion, and recognize that there are lots of skills and credentials out there that make a difference for the earning power and long-term future for young people,’ ” Ms. Christie said.

Katherine Lucas McKay, a senior policy analyst for the Corporation for Enterprise Development, a Washington-based nonprofit that is dedicated to expanding economic opportunity for low-income families and communities in the United States, said the Kauffman study did not focus sufficiently on “microbusinesses,” which are essentially self-employed individuals who have up to five employees. Inclusion of those businesses might have affected the results of the study, she said, by showing that a four-year college degree could be even less vital to entrepreneurial success.

“These are striving, successful ‘Main Street’ businesses that may not ever become Google, or even a firm that grows to 100 employees,” she said, “but they add more than $1 trillion in economic activity every year.”

Ms. McKay, who co-authored a January 2014 report called “Enhancing Support for Lower-Income Entrepreneurs Through Major Public Systems,” said it’s important for education policymakers to look at the skills that entrepreneurs want help with—such as how to forecast earnings—as part of the financial education taught in secondary schools. Learning those skills, she said, should be in addition to personal financial literacy, such as “how to create a budget” or “how to handle a bank account.”

David T. Conley, the chief executive officer of the nonprofit Educational Policy Improvement Center in Eugene, Ore., and an education professor at the University of Oregon, based in the same city, added: “Why not have all students do a business plan? That would be kind of cool.”

Pathways to Success

Mr. Conley also said the finding that students with a high school education contribute significantly to the startup economy doesn’t surprise him.

“What does it take to be an entrepreneur? It takes perseverance, a willingness to take risks, some social skills to work with people.” he said. “But does it take Algebra 2? Not necessarily.”

The fact that roughly half of entrepreneurs do not hold four-year college degrees didn’t faze Brian K. Fitzgerald, the CEO of the Business-Higher Education Forum, a membership organization of Fortune 500 chief executives and research university presidents that seeks to advance innovation in education and the workforce and bolster U.S. competitiveness.

“Look at Bill Gates. They had to give him an honorary degree. Steve Jobs dropped out of college, too,” Mr. Fitzgerald said.

What’s important, Mr. Fitzgerald said, is building talent pathways between colleges and employers in areas such as cybersecurity, risk analysis and management, and sustainability.

“We’re working on seeding new high-school-to-college pathways that don’t exist now,” he said.

Not every student needs a college degree, he added. “We’re saying every student should have a pathway to go as far as he or she sees fit,” Mr. Fitzgerald said. “If they have the technical skills and knowhow with an associate’s degree, then God love ‘em. Go and be an entrepreneur.”

But that may not be as easy as it sounds, because the vast majority of startups fail, according to experts.

Plus, the study points out that more research needs to be done to assess the correlation between educational attainment and entrepreneurial success.

Coverage of entrepreneurship and innovation in education and school design is supported in part by a grant from the Carnegie Corporation of New York. Education Week retains sole editorial control over the content of this coverage.
A version of this article appeared in the February 26, 2014 edition of Education Week as Grad Rates Seen as Fuel for Startups

Events

This content is provided by our sponsor. It is not written by and does not necessarily reflect the views of Education Week's editorial staff.
Sponsor
Student Well-Being Webinar
A Safe Return to Schools is Possible with Testing
We are edging closer to a nationwide return to in-person learning in the fall. However, vaccinations alone will not get us through this. Young children not being able to vaccinate, the spread of new and
Content provided by BD
This content is provided by our sponsor. It is not written by and does not necessarily reflect the views of Education Week's editorial staff.
Sponsor
Teaching Webinar
Meeting the Moment: Accelerating Equitable Recovery and Transformative Change
Educators are deciding how best to re-establish routines such as everyday attendance, rebuild the relationships for resilient school communities, and center teaching and learning to consciously prioritize protecting the health and overall well-being of students
Content provided by Campaign for Grade-Level Reading
This content is provided by our sponsor. It is not written by and does not necessarily reflect the views of Education Week's editorial staff.
Sponsor
Reading & Literacy Webinar
Addressing Learning Loss: What Schools Need to Accelerate Reading Instruction in K-3
When K-3 students return to classrooms this fall, there will be huge gaps in foundational reading skills. Does your school or district need a plan to address learning loss and accelerate student growth? In this
Content provided by PDX Reading

EdWeek Top School Jobs

Teacher Jobs
Search over ten thousand teaching jobs nationwide — elementary, middle, high school and more.
View Jobs
Principal Jobs
Find hundreds of jobs for principals, assistant principals, and other school leadership roles.
View Jobs
Administrator Jobs
Over a thousand district-level jobs: superintendents, directors, more.
View Jobs
Support Staff Jobs
Search thousands of jobs, from paraprofessionals to counselors and more.
View Jobs

Read Next

This content is provided by our sponsor. It is not written by and does not necessarily reflect the views of Education Week's editorial staff.
Sponsor
College & Workforce Readiness Whitepaper
Prepare Students with Work-Based Learning
Download this toolkit to learn how your school or district can build community partnerships to provide students with access to real-world...
Content provided by Naviance
College & Workforce Readiness Opinion An Economist Explains How to Make College Pay
Rick Hess speaks with Beth Akers about practical advice regarding how to choose a college, what to study, and how to pay for it.
6 min read
Image shows a multi-tailed arrow hitting the bullseye of a target.
DigitalVision Vectors/Getty
College & Workforce Readiness What the Research Says College Enrollment Dip Hits Students of Color the Hardest
The pandemic led to a precipitous decline in enrollment for two-year schools, while four-year colleges and universities held steady.
3 min read
Conceptual image of blocks moving forward, and one moving backward.
Marchmeena29/iStock/Getty
College & Workforce Readiness Letter to the Editor How We Can Improve College-Completion Rates
Early- and middle-college high schools have the potential to improve college completion rates, says this letter to the editor.
1 min read