The Kauffman Foundation is interested in how geography affects entrepreneurs these days (here, here, and here), so when I came across a paper about entrepreneurs’ location choice, it piqued my interest.
"Home sweet home: Entrepreneurs' location choices and the performance of their ventures," a fascinating paper by Michael S. Dahl and Olav Sorenson (available here), looks at Danish data to determine if where entrepreneurs choose to start their businesses affects how well the new business performs.
Entrepreneurs, more so than employees, tend to live in the area of their birth, or to start companies in places they have lived for a long time. As we might expect, Dahl and Sorenson discover that "Ventures perform better – survive longer and generate greater annual profits and cash flows – when located in regions in which their founders have lived longer." Logically, as they know the area well and have numerous connections that help their new businesses, most importantly with raising capital and staffing the venture.
There were a few additional findings also of interest that arose from the examined data. Companies tended to perform better when founders were:
- Had higher levels of education
- Had wealthier parents
- Around the peak age of 42
That fact raises interesting implications for the understanding of agglomeration. In general, the literature on agglomeration has assumed that firms must cluster to benefit from collocation. Our results, however, suggest that rational entrepreneurs would enter the industries in which they have employment experience and locate their businesses in the regions in which they have lived. Since acquiring experience at some existing firm in the industry generally implies living in close proximity to it, the implication of these constraints is that entrants in an industry will disproportionately emerge in regions that already have dense populations of firms in the same industry even if co-location itself offers no advantages [author emphasis] (Sorenson and Audia 2000).So yes, start your business wherever "home" is for you. Being well-educated and having prior experience in your company’s industry would also help.