What’s the best way to assess quality entrepreneurship?

Not all entrepreneurship is good entrepreneurship, but how do you measure, evaluate, assess a new enterprise? How do you identify which are destined for success—and which are headed for failure? Catherine Fazio, SF ’14, Managing Director of the MIT Lab for Innovation Science and Policy is working to get real answers to those questions.

Part of the Institute-wide MIT Innovation Initiative (MITii), Fazio’s lab convenes faculty and students from across campus to study innovation systematically and identify factors that create effective outcomes. “We’ve made terrific progress on developing new metrics for entrepreneurial quality and innovation ecosystems,” says Fazio. “Now the challenge is to turn our evidence-based research into effective policies and programs.”

Fazio, MIT Sloan doctoral student Jorge Guzman, and MIT Sloan professors Scott Stern and Fiona Murray put their collective insights into a 2016 policy briefing, A New View of the Skew: A Quantitative Assessment of the Quality of American Entrepreneurship. The idea is to help regional and national government agencies improve their performance in stimulating economic growth.

Fazio notes that the two most common methods for measuring entrepreneurship have polarized public policy debates in recent years. “One approach, which tracks the sheer quantity of new businesses, shows a three-decade decline in U.S. startup dynamism. The other method uses performance outcome post-mortems that end up conflating startup potential at founding with other factors that contribute to later success, such as regional ecosystems, the supply of capital, and luck. Some analysts look at that data and say we have too much entrepreneurship.”

Predicting winners

What’s needed, Fazio says, are indices that gauge the potential of startups for exponential growth at the time of founding. “Equipped with such metrics, regional and national policymakers can make much more precise decisions about how to support high-potential startup activity at inception. No single strategy fits every locale, and our indices can help leaders understand the policy implications of promoting a mix of innovation-driven enterprises (IDEs) alongside small and medium-size enterprises (SMEs).”

The MIT team’s policy briefing received broad media attention following its presentation to the National Academy of Sciences. Coverage in The Atlantic, The Wall Street Journal, 538.com, and Harvard Business Review led to an invitation from the White House Office of Science and Technology Policy (OSTP). “OSTP officials asked us to host a roundtable of thought leaders from federal agencies concerned with innovation and economic development,” says Fazio. “It was a great opportunity to explore how we might extend the application of our indices into the policy realm. Now we’re working on an interactive tool that stakeholders can use to understand their existing entrepreneurial ecosystems more clearly.”

With funding from the Kaufman Foundation, Fazio and her team are now developing prototypes for interactive mapping and web-based APIs (application programming interfaces) that will enable regions to tailor economic stimulus initiatives to their particular needs and objectives. The result: a win-win situation for entrepreneurs and the communities in which they operate.