By Tom Still
MADISON – With a fresh crop of winners in the Governor’s
Business Plan Contest, some enthusiastic out-of-state investors and more than
500 people buzzing about the latest trends, you would never have guessed from
last week’s Wisconsin Entrepreneurs’ Conference that the state lags in company
startups.
The anecdotal evidence of Wisconsin’s progress as a place to
start a company, especially high-growth companies, is persuasive:
–
Forbes contributor Joel Kotkin recently ranked
Madison as one of the nation’s five fastest-growing cities when it comes to
“information” jobs, which includes broad categories such software, computer
system design, Internet services and data science.
–
Outside investors at the Entrepreneurs’
Conference talked about the rise of the Midwest and Wisconsin as a place to put
money into emerging companies. “We believe there will be more technology
companies built in the Midwest in the next 10 years than there have been here
in the past 50,” said Chris Olsen, who left the Silicon Valley to help start
Drive Capital in Columbus, Ohio. Drive has already invested in two Wisconsin
startups. New York-based Great Oaks Capital, represented at the event by John
Philosophos, has invested in 15 Wisconsin companies so far.
–
Emerging clusters in Wisconsin includes
educational software, health information technologies, medical imaging, medical
devices, water technologies and innovation around human resources, especially
in the Milwaukee area.
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
located here.
Finally, while the rate of business creation in Wisconsin is
lower than in most states, the survival rate appears to be higher. Maybe
that’s a credit to Midwestern work ethics combined with stubbornness, but it’s
more likely that a support structure exists today that wasn’t in place a decade
or so ago.
Building on Wisconsin’s company startup rate is likely to be
a source of debate during the fall election campaign. Attendees at the
Entrepreneurs’ Conference got a taste of that when Gov. Scott Walker addressed
the crowd Wednesday, and Democrat Mary Burke paid an impromptu visit later in
the day.
The focus should remain on high-growth startups, the
so-called “gazelles” that are the most likely to create large numbers of jobs.
Within that focus, Wisconsin already has a head start in sectors that fit
within national and even global market trends.
All startups may be created equal, at least in terms of the
number of initial employees, but some grow a lot faster than others. That’s
where the policy debate should concentrate – and could have the most effect.
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