Who's Hot? : Entrepreneur List Led by Salt Lake City

By VICKI TORRES

Feb. 6, 1997 12 AM PT

TIMES STAFF WRITER

The Salt Lake City area topped a ranking of 50 entrepreneurial hot spots last year, while Los Angeles and other California cities placed in the bottom half of the list.

Atlanta, the Birmingham-Tuscaloosa metropolitan area in Alabama and Phoenix ranked behind the Salt Lake City-Provo region, which has been No. 1 on the list for the last two years. The annual ranking by economist David Birch compares the number of young, growing companies with the total number of businesses in a metropolitan area.

The Los Angeles region, including Orange County, ranked 30; the Bay Area, 31; San Diego, 33; Sacramento, 43. They received similar rankings in 1995.

Although a variety of studies show California outperforming other regions because its economy is varied and immense, the state ranked lower in Birch’s study because he looked strictly at what proportion of businesses in an area are start-ups.

“California has twice as many growing companies as any other state, but what I’m trying to figure out is what percentage of people are having an entrepreneurial experience,” said Birch, an economist who heads the Cambridge, Mass.-based research company Cognetics Inc.

The hot-spots study attempts to identify where the next Silicon Valley will be. Entrepreneurial centers appear to be taking root in the nation’s Southern and Western states, according to Birch.

“Relatively speaking, California will be losing ground and other places will be stealing market share from the East and West coasts,” he said.

Those who track California’s economy said Birch’s study underestimates the state’s entrepreneurial strength.

Birch’s “methodology puts all of the metro areas in California at a disadvantage,” said Jack Kyser, chief economist for the Economic Development Corp. of Los Angeles County. “If you want to grow a business, California is the place to be because there’s so much to build from.”

Kyser pointed out that Salt Lake City has been buzzing ever since a single company, WordPerfect Corp., helped spark a high-tech boom there. In a smaller business environment such as Utah, each growing company has a greater impact on business activity, Kyser said.

But start-up businesses may actually fare better in California’s giant established economy, he said.

Growing companies may be a smaller percentage of businesses here, Kyser said, but they have more opportunities to expand with the help of networking organizations, business support and training programs, and greater opportunities to win contracts from large businesses.

Scott Hauge, chairman of the California Small Business Assn., also took issue with Birch’s conclusions because they omitted the growing ranks of home-based businesses. In 1995, the full-time self-employed made up 1.4 million of the state’s 2 million firms, according to federal statistics. Family-run businesses with no employees were also omitted in the study.

Birch countered that these businesses do not typically evolve into the entrepreneurial successes he calls “gazelles,” such as Intel Corp., Southwest Airlines or Microsoft Corp. These types of firms make up only 3% of all companies, yet account for 80% of growth nationwide, he said.

Birch’s study focused on what he calls “baby gazelles,” the tiny but fast-growing precursors to those companies. The study counted firms less than 10 years old that employ at least five people, and those that added significantly more employees within the last four years. The study did not take into account revenue increases or other growth factors.

Mid-size cities in the South and West, such as Orlando, Fla., Charlotte, N.C., Richmond, Va., San Antonio and Memphis, Tenn., ranked higher than older industrial and manufacturing cities such as Buffalo, N.Y., Hartford, Conn., Detroit and Philadelphia.

The report found that Utah, Arizona, Nevada, Alabama and Virginia were the states with the highest rate of entrepreneurial growth in 1996. In the state listings, California came in at 18.

Birch said the rankings reflect the rise of a new breed of business owners called “knowledge-value entrepreneurs,” who are attracted to regions with universities, a skilled labor pool, a major airport and an attractive environment.

“The knowledge-value entrepreneur is not principally concerned about land, transportation and energy costs or large pools of unskilled labor,” the report said. “His and her primary need is for skilled, knowledgeable people, and his or her location preferences are the location preferences of such people--who can now live where they please.”

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Growing Concerns

These are the metropolitan areas with the highest percentage of fast-growing small companies in 1996. The Los Angeles-Orange counties area placed in the bottom half of the list of 50:

Rank and metro area

1 Salt Lake City-Provo

2 Atlanta

3 Birmingham-Tuscaloosa, Ala.

4 Phoenix

5 Washington

6 Orlando, Fla.

7 Raleigh-Durham, N.C.

8 Minneapolis-St. Paul

9 Indianapolis

10 Nashville

30 Los Angeles-Orange counties