By Tom Still
MADISON – During his “Rise of the Rest” tour stop in
Madison, venture capitalist and AOL.com founder Steve Case said Wisconsin’s
capital city would rank among the top 20 communities for startups in the United
States — “barely” — and if entrepreneurs continue to work hard, it could be
among the top 10 within a decade.
While that’s encouraging news for a city such as Madison,
which has been working on its tech-based startup culture for 35 years, what
does it mean for other communities in Wisconsin that are just heading down the
path toward building an entrepreneurial foundation?
For most cities in Wisconsin, that notion can be daunting.
They don’t have 35 years to create an ecosystem to support emerging companies.
They need to show progress soon if not now. Is that possible?
The answer is a qualified “yes,” but some core
characteristics about Wisconsin and its long-term strategy for economic growth
will need to change.
Let’s start with Milwaukee, which is roughly where Madison
stood on the tech-based development continuum 10 years ago. Milwaukee can point
to a solid higher education base, academic research strengths and, most
important, a number of major companies that have a stake in technology and
innovation. The list includes GE Healthcare, Rockwell Automation, Johnson
Controls and many more.
Until recently, however, it lacked enough homegrown
resources for entrepreneurs to make a difference. That is changing with accelerators
such as Gener8tor (which also has a big presence in Madison), BizStarts
Milwaukee, Startup Milwaukee, Scale-Up Milwaukee and the UW-Milwaukee Research
Foundation. The latter four were featured Oct. 9 at a meeting of our own
Wisconsin Innovation Network, which meets regularly in Milwaukee.
Milwaukee is also getting its arms around what it’s good at
doing and what it’s not. The energy, power and controls sector is a regional
strength, and so are water technology and advanced manufacturing. Life sciences
research and company formation in that sector is on the rise, and the city’s
Third Ward is a hotbed for software and information technology. It may not be
one of Steve Case’s top 20 cities – yet – but it’s a start that can be
accelerated by partnerships that will involve some forward-looking major
So, why does Wisconsin still trail in most 50-state
comparisons of business startups? There are a number of possible explanations.
Demographics in general don’t work in Wisconsin’s
favor in terms business startups. The state’s population skews slightly older
and it attracts fewer immigrants, who are much more likely to start a business
than native-born Americans. Mom-and-pop businesses, often in service or retail,
account for the bulk of all startups – even if they are not high-growth
businesses that create a lot of jobs.
Wisconsin’s relatively low unemployment rates also
work against more people here starting a business. If you already have a job,
you’re statistically less likely to quit and create your own.
Some industries, such as construction, have high
rates of entrepreneurship during boom times. Wisconsin sees fewer construction
startups for several reasons, not the least of which is the “prevailing wage”
requirement that sometimes comes into play. The national entrepreneurship rate
in construction is 12 times the startup rate in manufacturing.
And speaking of manufacturing, the national startup
rate for that sector is low. Wisconsin is still a manufacturing dominated
state, with about 16 percent of its private workforce engaged in manufacturing
versus 9 percent nationally. Those are excellent jobs and companies for the
most part – but the sector simply doesn’t spawn a lot of startups.
There are some regulatory and tax hurdles, as well.
Wisconsin treats startup companies pretty much the same as major firms when it
comes to unemployment compensation, workers’ compensation and even taxes on
paid-in capital for companies that are incorporated in another state but
Faced with the fact that Wisconsin is among the bottom five
states in company startup rates, one might think policymakers would be falling
over one another to foster a climate to help the state pull ahead. Instead,
there’s still a lot of status quo thinking about tax breaks that may benefit
major companies but do little for younger, pre-revenue companies.
This is not a call to walk away from Wisconsin’s Big Three
sectors: Manufacturing, agriculture and tourism. Rather, it’s to suggest that
innovation can be fostered in all three by investing in tomorrow versus
yesterday – and by paying attention to newer tech-based clusters, as well.
If Madison can make the top 20 list for a visiting venture
capitalist and tech legend like Steve Case, other Wisconsin cities can aspire
to forge ahead, too.