Business Startups
The number of new businesses relative to the size of the population in the Hampton Roads region has generally been rising in recent years.
Why is This Important?
Entrepreneurship is often viewed as an engine of economic growth. While the number of new business startups typically corresponds with economic expansions, the role of entrepreneurship in job creation is less clear. One view of the relationship between startups and economic growth is that entrepreneurs breed innovation. However, low rates of survival and the limited growth of most small businesses suggest that business startups do not significantly contribute to employment growth.
How is Hampton Roads Doing?
Within Virginia, the Hampton Roads region has the lowest rate of business startups per 10,000 population. In 2008, the rate for the Hampton Roads region (3.56) was lower than the Northern (6.78), Central (5.35), Southwest (4.47), West Central and Southside (4.01), Eastern (3.66), and Valley (3.58) regions, and Virginia (6.20) as a whole.
What Influences Business Startups?
Low cost of capital and high unemployment rates can serve as catalysts for new business startups. Lower cost of capital reduces the expense and risk involved with starting a business. Higher rates of unemployment encourage jobless individuals to opt for self-employment. Additional factors that influence the rate of business startups are the educational attainment level of the population, physical infrastructure, access to finance, the business climate, and the existence of networks that may encourage clusters of similar startups.
Data Definitions and Sources
Population estimates: U.S. Census
Virginia Employment Commission
New small business startups were firms that had at least one employee and matched the following criteria:
- Setup Date and Liability Date occurred during the same year and quarter.
- Establishment had no Predecessor UI Account Number.
- Business is privately owned.
- Average employment is less than 250.
- No other accounts with the same UI Account Number existed that did not match the above criteria. [The fifth criterion ensures that there were no other previous establishments by the same enterprise.]
Mata, Jose, Small Firm Births and Macroeconomic Fluctuations, Review of Industrial Organization 11, (1996): 173-182.
Audretsch and Acs, New-Firm Startups, Technology, and Macroeconomic Fluctuations, Small Business Economics 6, (1994): 439-449.
Schumpter, J., The Theory of Economic Development, Oxford: Oxford University Press, 1934.
Popkin, Joel and Company, Small Business During the Business Cycle, (PDF) Small Business Administration, Washington, D.C., 2003
Firm Startups, Technology, and Macroeconomic Fluctuations, Small Business Economics 6, (1994): 439-449.
See the Data Sources and Updates Calendar for a detailed list of the data resources used for indicator measures on Hampton Roads Performs.
