Delaware, Kansas, Montana, and South Dakota.
Probably not what you were expecting. Yet those four states lead the nation on four different indicators in the new Shopify Entrepreneurship Index, released by the company today.
To be fair, three of those four states top the growth rate of different indicators (since 2021) in the Index: direct job growth (Kansas); business activity growth (Montana); and export growth (South Dakota). Put that way, perhaps less surprising. In overall numbers and volume, California is the number one state in each of those three categories. Again, less surprising.
Delaware is, in fact, the number one overall American state in the Shopify index. California’s overall rank is third.
Does the World Really Need Another Entrepreneurship Ranking?
As long as that ranking is an index based on administrative data and objective indicators based on business performance—yes.
Fortunately, that is the case with the Shopify Entrepreneurship Index. Based on data from millions of Shopify entrepreneurs from the world, the new index compares countries and, within the U.S., states on various measures of those entrepreneurs’ performance. In addition to an overall ranking, there are measures of “direct jobs” created, “jobs supported,” GDP impact, exports, and “business activity.”
The methodology overview notes that the analysis, done with Deloitte, uses a “single country input-output framework” to measure impact. The indicators try to capture the multiplier effect of entrepreneurs using Shopify’s platform. “Business activity,” for example, includes “not only merchants’ revenues but also the revenue of merchants’ suppliers” and revenue from “induced” supply among households.
In some sense, the Shopify index joins the recent Intuit QuickBooks Small Business Index in the synthesis of proprietary data and large-scale public data. Surveys of entrepreneurs and small business owners are of course useful, especially when they’ve been running for long periods of time, have dedicated sampling populations, and can reach large numbers of American firms. (For what it’s worth, the Intuit index for April shows a ninth consecutive monthly decline in small business employment growth.) Yet an index that can combine those types of data is particularly valuable.
Shopify president Harley Finkelstein, in a statement provided by the company, said: “To shape the future of entrepreneurship, we need to gain a deeper understanding of its impact on local communities and its role in driving economies forward. We power millions of businesses around the globe, and we’re excited to tap into our data and network to break down barriers to entrepreneurship and give leaders the insights they need to help entrepreneurs grow and succeed.”
So, About Those State Rankings
Let’s dig into some of the individual indicators in the Shopify Entrepreneurship Index and see how states fared and how the index compares to other data.
The top five states in the Shopify ranking for “direct job” growth are:
- New Hampshire
- District of Columbia
The top five states for “business activity”—ranked, again, by growth rate—are:
- New Hampshire
On the exports indicator, the top five states for growth rate are:
- South Dakota
- South Carolina
(Montana, which clearly performs well on growth rates of these indicators, ranks fourth overall in the index.)
When comparing states on growth rates, it’s tempting to discount performance because of different baselines. South Dakota, for example, ranks 39th overall on the export volume of Shopify entrepreneurs. Yet the relationship is not so simple. Utah and Nevada both rank in the top 10 in export volume and have maintained rapid growth rates.
How do the Shopify rankings compare with other state-level entrepreneurship data? The Kauffman Indicators of Entrepreneurship, based on a variety of Census datasets, also provide state-by-state rankings on several dimensions. The Kauffman-Census data are focused on the very earliest stages of business performance. If we do a very rough scatterplot comparison of the overall Shopify state rankings and Kauffman’s “rate of new entrepreneurs” rankings, there is a mildly positive relationship. A strong relationship shouldn’t necessarily be expected, of course; they’re measuring different facets of entrepreneurship.
Looking at individual states, we do find some consistency. Let’s take those top four Shopify states: Delaware, Kansas, Montana, and South Dakota. Where do they fare well, and not so well, in the Kauffman Indicators?
- Delaware does well on “startup early survival rate” but not “rate of new entrepreneurs.”
- Kansas does well on “opportunity share of new entrepreneurs” but less well on “startup early job creation.”
- Montana looks strong on “startup early job creation” but not the opportunity share.
- South Dakota has a high opportunity share but low rate of new entrepreneurs.
A more in-depth comparison of these rankings and datasets is warranted and should include sources such as Thumbtack’s Small Business Friendliness survey. A topic for another column or two.
What About Globally?
In addition to U.S. states, the Shopify Entrepreneurship Index provides data and rankings on 40 countries. On sheer volume, the United States tops the table on every indicator; this is not surprising given that it is Shopify’s largest market.
Measured by growth rates, the picture is more interesting. The Czech Republic and Poland have the highest rates of “direct jobs” growth. China, by contrast, has seen contraction in “direct jobs.” Business activity has grown the fastest in Slovenia, Japan, and Argentina while again shrinking in China. Export growth by Shopify merchants is growing most quickly in Romania, Chile, and Brazil.
Programming note: This Thursday, a Shopify executive and merchant—along with two members of Congress—will be at the Bipartisan Policy Center. The event will explore the index as well as small business policy more generally.