Milwaukee Biz Blog: Why Wisconsin is a bottom-feeder in startup index

And how it can improve

 

There are some specific steps Wisconsin policymakers can – and should – take to improve its business startup rate, which once again anchored the bottom of the Ewing Marion Kauffman Foundation’s annual Index of Startup Activity.

The real reasons for Wisconsin’s quasi-permanent status as a Kauffman bottom-feeder, however, likely have more to do with who we are as a people versus what state or local government can do.

The latest Kauffman Startup Index has unleashed the usual amount of hand-wringing about Wisconsin’s startup production, even though other national studies have cast the state in a more favorable light; investments in Wisconsin early stage companies have nearly doubled in five years; and high-growth companies are popping up well outside the confines of the Dane County startup zone.

Here are reasons why Wisconsin may not escape Kauffman’s startup cellar for quite some time:

We’re older than most states: Reports from 2016 rank Wisconsin’s population as the 15th oldest among the 50 states with a median age of 38.7, about a year and a half older than the U.S. median. Entrepreneurs are statistically more likely to be younger, although there has been a trend toward more “gray ‘treps” of late.

We have fewer immigrants than most states: While the share of foreign-born Wisconsin residents has grown and nearly doubled since 1990, it stood at 4.8 percent in 2015. The U.S. percentage of foreign-born residents was 13.5 percent for the same year. Immigrants are statistically twice as likely to start a business as a native-born American. The “glory days” of Wisconsin business creation in the early 20th century came at a time when about 25 percent of the state’s population was born overseas.

We’re more “inbred” than other states: In 2012, 72 percent of the people who lived in Wisconsin were born in Wisconsin, a rate exceeded by only five states. About 15 percent of the people who live in Wisconsin come from Illinois, Minnesota or other Midwest states. That reflects well on the state’s ability to retain its natives and neighbors but also suggests we’re not reaping the benefit of a more diverse talent pool. No West Coast, Rocky Mountain or Great Plains state stood higher than 66 percent state-born, and most were around the 50 percent mark. States west of the Mississippi are among those with the highest startup rates.

Most of us already have jobs: Wisconsin’s estimated unemployment rate last month dropped to a 17-year low of 3.2 percent, down from 3.4 percent in March and well below the 9.2 percent peak during the darkest days of the Great Recession. The U.S. jobless rate is 4.4 percent. Historically, Wisconsin’s unemployment rate is lower than the national average – good times and bad. While some entrepreneurs pursue opportunity regardless of whether they currently hold a job or not (a fact measured by Kauffman), many people are too risk-averse to do so. That may be imbedded in Wisconsin’s culture.

Those demographic and cultural factors are baked into Wisconsin’s startup cake, but the flavors can vary by community. The Madison area is a prime example of a younger, more diverse economy. Milwaukee continues to struggle in some ways but has a growing cadre of entrepreneurs. The Chippewa Valley in western Wisconsin and the Fox Valley in northeast Wisconsin are producing more young companies, as well.

What can be done to help? Whether you believe the Kauffman Index or more favorable figures from Cyberstates or the Milken Institute, there’s plenty of room for improvement. Some examples from the Wisconsin Technology Council’s policy papers:

  • Continue to improve the state’s infrastructure to support entrepreneurs, which most observers agree is far stronger than five, 10 or 15 years ago.
  • Accelerate investments in broadband deployment, which will dramatically improve the startup and business climate in rural Wisconsin.
  • Make strategic changes in the state’s early stage investment tax credit laws and remove other investment barriers, such as the state tax on investments in Wisconsin companies organized in other states.
  • Re-invest in higher education, which is the source of most young talent.
  • Make it easier to succeed as an entrepreneur in Wisconsin. Barriers to success include employment non-compete agreements; certain professional and occupational licensing requirements; local or state rules that “fence in” older economic models; and a lack of flexibility regarding new types of corporate structures.

In time, progress on those points will help attract and retain risk-takers who start companies. Don’t expect Wisconsin to crack the top 10 or even the top 45 next year, but the time to lay the groundwork is now.

Tom Still is the president of the Wisconsin Technology Council.

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