Unlike the accolades I've enjoyed writing about Kingsport, both here and at LaunchPin.com, this is a painful article to write. Kingsport has won numerous awards, but the community must decide how to address the recent receipt of an erroneous award, finding our voice before others speak for (or, more likely, against) us.
Significant interest has been generated in Kingsport's status as a small business hotbed, based on CNN Money's designation of Kingsport as the USA's fastest growth area for small businesses between 2004 and 2007.
Once CNNMoney.com posted the list, the news quickly spread, including a mention in the widely read Kingsport! blog and several articles in the Kingsport Times-News (October 13 and October 15). I blogged the news, via DevelopedEconomy.com, which I heard in London, where I and another Tri-Citian were speaking at a new media/marketing convention. (Brits at the conference coined the term "Digital Hollow" in our honor, which we Tri-Citians morphed into "Digital Holler".)
The number-one ranking was welcome confirmation of northeast Tennessee's potential as a whole, and of Kingsport's role specifically, especially for those of us who love Kingsport and trumpet it as a great place to live and work.
Yet something didn't seem right with the numbers.
A hunch may be the basis for questioning a statement, but it means nothing without confirming data. Since returning home to Kingsport, I've spent several hours combing CNN and local data to understand whether the "gut feel" was unfounded or accurate.
Unfortunately, the answer is that CNN Money's calculation, boosting Kingsport to the number one spot, is highly flawed. The proper calculation yields a growth rate of 1.21%, not 43.7%, meaning that CNN Money overstated the Kingsport area's true business growth by over 3600%.
To understand how this error occurred, here's a look behind the numbers.
Improbable growth rate. According to CNN Money, 5.0% was the national average in small business growth for all US mid-sized metro areas from 2004-2007. Yet Kingsport's metropolitan statistical area (MSA) grew by 43.7%, to a total of 6,087 small businesses in early 2008?
Considering that the growth rate of St. George, Utah, number 2 on the CNN Money list, was 29.8%, the 43.7% growth rate that CNN Money cites for the Kingsport metro area implies a superheated business climate.
CNN Money's other business statistics for Kingsport yield an economic snapshot that isn't so flattering as the purported small business growth. During the years in question, the Kingsport MSA lagged behind the national average for all mid-sized metro areas in vital economic indicators:
- Population growth (2% versus 5.73% nationally)
- Percentage of 25-34-year-olds with bachelor's degrees (18.9% versus 26.9% nationally)
- Per capita income ($29,730 versus $35,547 nationally)
- GDP growth (17% versus 32% nationally)
To put some perspective on those increases, note that the increase in Kingsport's property crime—not something the area would be proud to claim—is approximately 4% over the national average.
Kingsport's small business growth, on the other hand, is reported to outstrip the national average by 880% (43.7% growth versus 5% growth) for 2004-2007.
Improbable number of startups. CNN Money correctly reports that the Kingsport MSA had 6,087 businesses by the end of 2007.
A growth rate of 43.7% in four years means that the Kingsport would begin 2004 with only 4,235 small businesses (6087 ÷ 1.437) and would add 1852 businesses in four years' time.
Does it seem plausible for an MSA with only 4,235 small businesses to add almost half as many companies again to its rosters in a four-year period?
If so, where did those entrepreneurs come from? Rough estimates from the Kingsport Office of Small Business and Entrepreneurship (KOSBE) show that KOSBE helped approximately 350 businesses during the 2004-2007 timeframe, about half of which were start-ups. This means KOSBE can account for about 175 new small businesses, or less than 10% of Kingsport's growth as reported by CNN Money.
The local incubator, Holston Business Development Center (HBDC), can account for around another 20 startups in that timeframe, leaving 1,647 business startups unaccounted for.
The HBDC and KOSBE numbers assume that no existing small businesses shuttered during that same four-year period, so a more accurate reflection might be to say that 100 small businesses were added during that time, leaving an approximate 1,750 small business gap.
Flawed methodology. What about the other 1,750 new businesses?
While 1,750 new businesses don't exist, based on the CNN Money error in deriving growth numbers for the Kingsport MSA, they are real: prior to 2004, at least 1,750 additional small businesses existed in the same geographic region, but were not counted in CNN's 2004 baseline.
In its methodology section, CNN Money explained how it compared MSAs. "We began our search with the U.S. Census Bureau's 363 Metropolitan Statistical Areas. Each MSA includes at least one urbanized area of 50,000 or more inhabitants." It then gathered information from standard government and industry sources. For data about small business populations, it cited U.S. Census Bureau 2007 County Business Patterns. "This tally is for the number of businesses in the MSA with 1-49 employees. We measured three-year [sic] small business growth from 2004-2007."
CNN Money missed the fact the Kingsport MSA's composition changed between 2004-2007. It's easy to see why they missed this: no other MSA in the top 25 list changed in this time period.
In the census data used to by CNN Money create the Kingsport MSA baseline, the MSA contained only three counties. For those three counties, a total of 4,235 small businesses existed. Data from the Census Bureau website (published on June 10, 2003) shows what CNN Money used as its baseline for the MSA 28700, the Kingsport MSA:
Kingsport-Bristol, TN-VA Metropolitan Statistical Area
47073 Hawkins County, TN
47163 Sullivan County, TN
51169 Scott County, VA
Beyond the mid-2003 baseline numbers, though, the Kingsport MSA composition changed. At least according to the Census Bureau website. Data for Kingsport's MSA (28700), in early 2008:
Kingsport-Bristol-Bristol, TN-VA Metropolitan Statistical Area
47073 Hawkins County, TN
47163 Sullivan County, TN
51169 Scott County, VA
51191 Washington County, VA
51520 Bristol City, VA
The "new and improved" MSA "added" the city of Bristol, VA, and Washington County, VA. (Bristol, TN is included in the Sullivan County portion of the MSA, but Virginia recognizes cities as separate from counties for both state and federal census models.)
For those four counties and Bristol, VA, a total of 6,087 small businesses existed.
The math that CNN used took the correct final number (6,087) for all four counties and Bristol, VA, and subtracted the faulty baseline number (4,235) from the first three counties in the Kingsport MSA.
This change in composition means that CNN Money derived inaccurate small business growth (6,087 - 4,235 = 1,852 new businesses) with an errant growth rate (43.7%) that made Kingsport the number-one growth area in the nation.
Actual Results. In reality, in the mid-2003 Census Bureau data, Bristol, VA, already had 647 small businesses and Washington County, VA, already had 1132 small businesses.
This means a total of 1,779 businesses need to added to the 2004 baseline to derive an accurate growth rate. The true growth calculation, then, would be to compare 6,014 businesses in 2004 (4,235 + 1,779) to 6,087 businesses in 2007.
The corrected MSA numbers would show that the Kingsport MSA gained 73 total small businesses for the 2004-2007 timeframe, a 1.21% growth rate.
CNN Money's calculation would be correct if Bristol, VA, and Washington County, VA, had zero small businesses in mid 2003, but added 1,779 small businesses in four years.
If that were true, the supergrowth in Bristol and Washington County, VA, would be huge news. Yet is as inaccurate as the errant 43.7% growth rate for the Kingsport MSA.
Interestingly, the corrected model shows Bristol, VA, moved into the negative column, losing small businesses between 2004 and 2007. Small business gains were mainly in Hawkins County, TN, perhaps thanks to the HBDC's joint effort with the Tennessee Small Business Development Center, which started offering courses at HBDC in 2007 on how to start a small business.
Interestingly, the corrected model shows Bristol, VA, moved into the negative column, losing small businesses between 2004 and 2007. Small business gains were mainly in Hawkins County, TN, perhaps thanks to the HBDC's joint effort with the Tennessee Small Business Development Center, which started offering courses at HBDC in 2007 on how to start a small business.
Sullivan County gained a total of 15 businesses for a .45% growth rate. That's 0.45%, not 45.0%.
What if CNN Money had chosen a different set of Census Bureau data for its baseline? Data from Census website for late 2003 (published to the web on Feb 25, 2004) yield proper MSA composition for MSA 28700:
Kingsport-Bristol-Bristol, TN-VA Metropolitan Statistical Area
47073 Hawkins County, TN
47163 Sullivan County, TN
51169 Scott County, VA
51191 Washington County, VA
51520 Bristol City, VA
Why CNN Money chose the mid-2003 data rather than the more recent late-2003 data is unknown, but it led directly to the calculation error of 43.7% growth.
Unfortunately, for those of us who want to champion Kingsport's small business potential, correcting the CNN Money calculation mistake will destroy Kingsport's standing in the growth rankings, pushing us far out of the top 10, 25, and even 100.
Does this incorrect calculation mean that Kingsport itself is not growing? Of course not. Look at downtown's "overnight success" which was planned long before new business and property owners came on to the scene. Going as far back as the 1999 economic development summit, the city has held a proactive approach to small business growth and diversity of business types. And our MSA growth rate appears to be higher than our direct neighbor to the south.
Action. Now we come to the hard part: what action to take. We didn't ask for or seek the award; nothing we could do as a community would have affected the outcome; and the error is certainly not "our fault" in the sense that Kingsport had nothing to do with the skewed results.
While "do nothing" may seem an appropriate action, my professional experience in crisis management PR suggests that it is a short-term, self-deluding action, as in "waiting for the other shoe to drop." The shoe is poised; I am comfortable others have also discovered this error, and will probably publish it as well.
While "do nothing" may seem an appropriate action, my professional experience in crisis management PR suggests that it is a short-term, self-deluding action, as in "waiting for the other shoe to drop." The shoe is poised; I am comfortable others have also discovered this error, and will probably publish it as well.
Acknowledging the error to CNN, then, appears the best way to avoid a potential crisis. Why?
First, if Kingsport business leaders let the accolade stand, knowing that we didn't earn it, we can't broadcast our ranking with integrity and self-belief. It's like knowing your grade-school teacher transposed a test score from a 79 on your paper to a 97 in the grade book. Is the A deserved?
Second, anyone really considering Kingsport on the basis of the ranking will see the disconnect when reading the less-favorable snapshot numbers.
Third, if someone else points out the error to CNN—perhaps #2, Provo, UT, or would-be #10, Las Vegas—the ensuing publicity will lead to shame and humiliation for Kingsport.
Fourth, shaping a message to market ourselves as the number one "most improved" spot in the nation is extremely difficult; marketing ourselves as an emerging spot to watch is more effective.
Finally, if CNN opts to change the rankings, there's the possibility they will publicize the change. The publicity we will gain from being seen as an "honest" small city is much better than the publicity that any "most improved" award could ever generate. Probably not, as it becomes CNN's crisis to manage, but we've got a better chance at it if we're the ones who bring it to their attention.
[Update, 3 Nov 2009 4:30pm: Apparently CNN Money miscalculations have happened before, with communities in a neighboring state proactively addressing the issue.]
[Update, 3 Nov 2009 5:15pm: One of confirming data sources sent new data correcting my "neighbor to the south" statement. MSA 27740 grew at 4.0%, versus national average of 4.1%.]
[Update, 4 Nov 2009 8:15am: Asked why I didn't include this Times-News article; only comment is that the commenting seemed to be more sniping than constructive, and jokes about adding meth lab businesses seem to be a bit out of place when a real issue is at hand.]
[Update, 4 Nov 2009 11:10am: As mentioned in the main article, and as can be seen on blog post comments in multiple locations other than DevelopedEconomy.com, several others also had that "huh?" moment when hearing about the win. It's taken a bit longer for me to figure out the true error (the process of which I'll address in a subsequent post) and even longer to choose to publish it.
I did so once I confirmed that an editorial in next week's Business Journal will note that at least one economic development entity had this information shortly after the initial ranking announcement.
The editorial will state the entity chose to ignore the error, going forward with plans to broadcast the errant win. Whether they felt they were doing their community a service by withholding information, or whether it was a move of self-preservation, the facts are clear.
We have less than a week to address this before the loudest voices heard come from outside the region.
Update, 20 Nov 2009 10:24am: Had a rather unbelievable call with a City of Kingsport representative a few days ago. Ugh.]
[Update, 4 Nov 2009 8:15am: Asked why I didn't include this Times-News article; only comment is that the commenting seemed to be more sniping than constructive, and jokes about adding meth lab businesses seem to be a bit out of place when a real issue is at hand.]
[Update, 4 Nov 2009 11:10am: As mentioned in the main article, and as can be seen on blog post comments in multiple locations other than DevelopedEconomy.com, several others also had that "huh?" moment when hearing about the win. It's taken a bit longer for me to figure out the true error (the process of which I'll address in a subsequent post) and even longer to choose to publish it.
I did so once I confirmed that an editorial in next week's Business Journal will note that at least one economic development entity had this information shortly after the initial ranking announcement.
The editorial will state the entity chose to ignore the error, going forward with plans to broadcast the errant win. Whether they felt they were doing their community a service by withholding information, or whether it was a move of self-preservation, the facts are clear.
We have less than a week to address this before the loudest voices heard come from outside the region.
Update, 20 Nov 2009 10:24am: Had a rather unbelievable call with a City of Kingsport representative a few days ago. Ugh.]
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