By: Tom Still
MILWAUKEE- The hard truth about the startup economy is very few people, not even those who study it for a living, are exactly sure what works and what doesn’t.
Evan Absher, a policy program officer for the Kansas City-based Kauffman Foundation, cheerfully confessed to that fact this summer when he spoke at the Wisconsin Entrepreneurs’ Conference. Absher said state-by-state startup rankings – including the annual Kauffman Startup Index itself – should be taken with a grain of salt.
He noted Montana was the No. 1 business startup state in the same Kauffman report that ranked Wisconsin dead last, almost entirely for per capita reasons. Read the full Journal Sentinel article here.
“There are eight people in Montana and Jeff just started a company,” Absher dead-panned.
After years of study and investment, however, Kauffman is reasonably sure what elements are essential to a healthy startup economy. However, the list doesn’t always match conventional wisdom.
Risk capital is vital, Absher said, but it’s not always clear if venture capital investments induce company growth or are drawn to it. Incubators may simply extend the life of already dying companies, he added, and there’s no conclusive research yet on the proliferation of startup accelerators. While some analysts question how many startups spring from research grants, Absher said, there’s broad agreement that higher education produces the kind of workers young companies need.
What’s certain is that young companies create almost all “net” new jobs in the United States.
Kauffman calculated that companies in their first five years of life have created net jobs every year between 1988 and 2011, including the peak recession year of 2009. Older companies spawned net new jobs in eight of those 24 years.
Intangible elements may be just as important to a strong startup economy as conventional direct inputs.
Kauffman research shows fostering connections between entrepreneurs, investors and customers is essential, whether through organized events or random social collisions. Immigrants are twice as likely to start a business as native-born Americans, so rational federal policies matter. States and cities should focus on boosting economic dynamism, which means avoiding what Kauffman calls “scared-lawyer laws” and regulations that give a competitive advantage to incumbent firms.
Here is a summary of ideas for Wisconsin drawn from policy reports by the Wisconsin Technology Council, which routinely examines the state’s tech-based economy and high-growth entrepreneurism with an eye toward advising policymakers.
Rethink non-compete employment agreements. Most entrepreneurs have prior industry experience they can leverage to create or join a new company. Employee non-compete agreements disrupt entrepreneurship by erecting barriers to the free movement of talent.
California has never enforced non-compete clauses in contracts and it’s often cited as a reason why the Silicon Valley is as vibrant as it is today. A bill that died in a past session of the Wisconsin Legislature would have hardened the state’s non-compete law, a step in the wrong direction.
Reduce “fence-me-in” occupational licensing. Nearly one-third of American workers are required to have a government-issued license to do their jobs and Wisconsin is no exception. Occupational licenses can act as a barrier to entrepreneurs.
It’s time to revisit licenses that hamper competition and small business creation. Consumers can often be protected just as well by certification and registration standards that don’t fence out new entrants to the marketplace.
Re-invest in higher education. Study after study concludes that entrepreneurial rates are higher around university and college campuses, not only for faculty and staff engaged in research but for students. Wisconsin is no exception to the rule.
Those same campuses produce the talent so desperately needed in Wisconsin’s workforce, which is flattening out in sheer numbers. There’s room for more efficiency in higher education, but it’s also an asset that cannot be allowed to wither away.
Accelerate broadband deployment. This is the most important factor in turning around the loss of rural population and jobs, given the importance of broadband to commerce, culture, public safety, health, education, tourism and more.
The demographic hollowing out of Wisconsin’s North Woods and parts of rural Wisconsin will continue unless broadband coverage is improved, most likely by wireless technologies.
Double-down on the state’s commitment to attracting angel and venture capital. In 2005, the state’s investment tax credit law took effect and it prompted a steady increase in deals that continues to this day. About $18.3 million in credits were paid in 2015, a total that reflects private equity investment of at least four times that amount in companies that earn Qualified New Business Venture status from the Wisconsin Economic Development Corp.
That law (commonly called the Act 255 tax credits) has worked and even become a national model. Wisconsin’s high-growth startup rate would be even worse without it. It’s time for some strategic follow-ups.
These are five strategies; there are others. A starting point is needed, however, and the coming elections and legislative cycle will provide that forum.