Wisconsin Technology Council Talking points: 2017 Ewing Marion Kauffman Foundation Index on Startup Activity
- Wisconsin has historically ranked among the bottom five states in startups. It’s not a new phenomenon. It is a state dominated by capital-intensive industries (manufacturing and agriculture) and the barriers to entry can be higher.
- It’s also a matter of demographics. Wisconsin skews slightly older than the U.S. average; many entrepreneurs are younger. Our proportion of immigrants is lower. Immigrants are twice as likely as native-born Americans to start a business.
- The fact that Kauffman data is normalized by population creates inherent bias in the results. For example, four of the top 10 states are among Kauffman’s 25 “small states.” That doesn’t necessarily make those four states hotbeds for startups. It just means startups in those states are spread over a smaller base.
- Wisconsin’s unemployment rate is lower than the U.S. average. Entrepreneurs are often driven by making their own jobs when the marketplace isn’t otherwise providing jobs for them.
- Preliminary data collected for the Tech Council’s annual “Wisconsin Portfolio” shows that more companies are raising angel and venture capital. There were 136 angel or venture investments in Wisconsin companies in 2016, compared to 128 in 2015 and 74 in 2012.
- Survivability of Wisconsin businesses is above average. Kauffman ranked Wisconsin second best in its “Main Street” entrepreneurship survey in 2016, which measures the percentage of the adult population that owns a business as their main job. As noted in the 2016 “Kauffman Index,” 6.46 percent of adults in Wisconsin own a business, roughly one in 16 adults. The percentage of firms that remained in operation through their first five years is also high at 50.77 percent, based on the latest reporting year.
- Minnesota, a neighboring state to which Wisconsin is often compared, showed up with similar rankings in the Kauffman Index. It ranked 21st in startup activity and 1st in “Main Street” ownership, with 7.75 percent of Gopher state adults owning a business. The five-year survival rate is in Minnesota is very similar to the rate in Wisconsin: 50.76 percent.
- Other large Midwest states studied by Kauffman included Illinois (19th in startups and 10th in Main Street ownership), Michigan (11th and 13th); and Indiana (22nd and 11th). Each state has a strong five-year business survival rate. Conversely, some states with higher startup rates also lose more companies after five years. Texas, Florida and California are ranked first, second and third in startups but statistically lose more of them over time.
- It’s not just about startups. It’s about jobs in emerging sectors. The 2017 “Cyberstates” report from CompTIA, the nation’s largest leading tech association, showed Wisconsin cracking the 100,000-job barrier in 2016 for the first time. The report, which draws upon a mix of public and private data, counted 101,542 state tech workers last year compared with 97,633 in 2015. The Cyberstates report does not include workers in the life sciences, such as biotechnology and medical devices. That’s another 30,000 or so Wisconsin workers, depending on how they are counted.
- Wisconsin ranked 20th nationally in tech employment. Better yet, it stood seventh among the states in percentage growth of tech workers (behind Utah, North Carolina, Michigan, Washington, Montana and California) and 15th in the raw number of tech workers added.
- Wisconsin tech workers earned an average of $79,500 in 2016, reported Cyberstates, a figure 74 percent higher than the state’s overall average wage of $45,600. Wisconsin’s average tech wage was good for 35th among the states and within a cluster of a dozen or states roughly equal in tech wages. California, as might be expected, led a top-tier group of a half-dozen coastal states that skew the U.S. tech salary average.
- Good news for women looking for tech jobs: Wisconsin ranked fifth in the ratio of female tech sector workers to male techies with 36.5 percent of the total tech workforce. That compares to 33.7 percent nationally.
- Wisconsin ranked 11th among the 50 Cyberstates in percentage growth of tech establishments and 15th in the actual total of new tech companies with 194. All but one of the top 14 states are larger than Wisconsin.
- Wisconsin also ranked 25th in tech startups, a Cyberstates figure that suggests Wisconsin’s startup problem may well rest in other industry sectors.
- The state’s tech-related gross state product now accounts for 5.1 percent of the Wisconsin economy, Cyberstates concluded. That’s good for 21st among the states in actual dollars and 29th in percentage terms, a solid standing given the size of the agriculture and manufacturing sectors in Wisconsin.
- Total tech gross state product stood at $15.4 billion with roughly equal shares in tech manufacturing, telecom and internet services, software, engineering research and development and testing services.
- The Cyberstates report correlates with other findings collected in January by the Tech Council. Those included the latest “State Technology and Science Index” from the Milken Institute, a national research group that studies 79 specific indicators within five larger categories every two years. While Wisconsin didn’t crack into the top 10 in any of five major Milken groupings for 2016, it ranked between 17th and 38th in all five.
What can Wisconsin do to improve?
There’s plenty of room to improve, no matter if you believe the Kauffman Index or figures from Cyberstates or the Milken Institute. However, the infrastructure to support entrepreneurs in Wisconsin is stronger than ever, based on a variety of sources.
The Tech Council’s 2017 report, “Investing in Wisconsin’s Future,” made six major recommendations to the Governor and Legislature for improving Wisconsin’s tech-based economy. They are:
- Raise the $8 million cap on credit-eligible investments for Act 255 firms to $12 million, which will help existing, state-based companies poised for growth.
- End tax on capital raised by C corps deemed “foreign corporations,” making sure changes are targeted to firms of a certain size, age and other factors.
- Accelerate investments, where possible, in broadband deployment. This can be done by leveraging federal Connect America Fund 2 and similar grants in Wisconsin with state support.
- Make it easier to succeed as an entrepreneur in Wisconsin. Barriers to success may 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.
- Re-invest in higher education. This is a core recommendation in the Tech Council’s spring 2016 report, “The Value of Higher Education to Wisconsin’s Economy.”
- Invest in emerging clusters unique to Wisconsin, which are often tied to regional or industry sector strengths. Some of these clusters were first identified in the Tech Council’s 2003 report, “Vision 2020: A Model Wisconsin Economy.”
Other ideas from the Tech Council’s “white papers” report:
- Rethink non-compete agreements.
- First, do no harm: Avoid state restrictions on research.
- Create a state-leveraged “Grameen Bank” micro-loan program.
- Create a WEDC “Welcome Wagon” for companies that acquire, merge or establish strategic partnerships with young companies in Wisconsin.
- Increase prize support for the Governor’s Business Plan Contest.
- Raise the Act 255 credit from 25 percent to 40 percent for the first $1 million in eligible investments.
- Eliminate state capital-gains taxes on investments held three years or longer in a Wisconsin business.
- Re-examine professional and occupational licensing.
- Enhance access to out-of-state power.
- Embrace innovation in transportation.
- Get behind appropriate local efforts to compete for major grants, private and public.
- Monitor best practices by leading “think tank” organizations that chart the entrepreneurial and tech-based economy.
- Consideration of a “benefit corporation” status for Wisconsin.
Read Tom Still’s Inside Wisconsin column here.