Study links ideas and taking risks to growth.

• Position: ECONOMIC OUTLOOK - Interview

The Cassopolis, Mich.-based Edward Lowe Foundation and the U.S. Small Business Administration's Office of Advocacy recently studied the link between innovation and entrepreneurship for 394 Census Labor Markets. Researchers found those rich in both traits were more likely to have strong economies. Raleigh ranked No. 2 and was the only North Carolina region in the top 20. (Lower rankings in the study were not made public.) But some other Tar Heel labor markets got high rankings for the number of business startups, says Washington-based Office of Advocacy economist Brian Headd.

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BNC: What was this study trying to determine, and how did it measure innovation and entrepreneurship?

Headd: Certain areas have innovation; certain areas have entrepreneurship. But you really need both to get good, solid economic growth. Variables were used to measure both of them between 1990 and 2001, and then they were modeled against economic growth to find out determinants of growth. The combination had a synergistic effect.

What were the variables?

One was average annual new-business births--new companies with new employees--per capita from 1990 to 2001. What that's really trying to capture is: Per person, does your area have new companies? The second variable was average annual change in new-business births from 1990 to 2001. What we're trying to measure there is. Is there an increase in entrepreneurial activity or a decrease in entrepreneurial activity? The third variable was percentage of companies growing rapidly. For this, entrepreneurial growth was measured by the proportion of businesses launched in 1991 that had grown to more than five employees by 1996. Are the companies that you have growing?

How does growth figure into the mix?

If you just have a bunch of new companies that go out of business and don't hire and don't grow, then you've really just got this spinning and churning without any kind of momentum. New companies tend to struggle to survive for a couple of years. Sure, they grow a little. But to grow rapidly, you often need experience and networking and solid customers. In the first year or two, percent-agewise, you actually have a lot of growth. But numberswise, you may not. You often start very small. But once you get to 10 employees, you've been around three or four years, you can really grow.

How do you distinguish entrepreneurship from innovation?

Entrepreneurship you can think about as individuals, risk takers...