Does Wisconsin have the ingredients for startup success?
Maybe it helps that Evan Absher, one of the top policy officers for the Ewing Marion Kauffman Foundation in Kansas City, has a background in theater. It prepared him to dodge rotten tomatoes tossed on stage.
Absher works on Kauffman Foundation programs to spur entrepreneurism in states, regions, and cities, a process that often begins with ranking those places on factors such as startup rates, high-growth economies, and “Main Street” businesses.
Kauffman scored Wisconsin 50th among the 50 states for startups a year ago, so it took some gumption to stand before 300-plus people and explain to them why their state could stand some improvement when it comes to company creation.
“Even my Uber driver complained about that ranking on the way from the airport,” Absher joked during a June 8 luncheon at the Wisconsin Entrepreneurs’ Conference in Madison.
He quickly followed up that, while such rankings and reports are extremely useful for states, regions, and cities that hope to analyze what works and what doesn’t, the actual rankings should be taken with a grain of salt. For example, the leading startup state in the same Kauffman report that ranked Wisconsin 50th was Montana, almost entirely for per capita reasons.
“There are eight people in Montana and Jeff just started a company,” he dead-panned.
The serious issue facing Wisconsin, however, is the need for better strategies for creating companies. Other rankings suggest Wisconsin does a solid job of keeping young companies alive, and that it has a higher proportion of smaller “Main Street” businesses than most states. The biggest challenge is launching enough young companies of all descriptions — from bakeries to biotechs — to keep the economic pipeline full.
Most of the reasons for Wisconsin’s low startup rate are easily explained: manufacturing and agriculture are capital-intensive and therefore not always startup-friendly; the labor force is slightly older and less educated than the U.S. average; rural Wisconsin is barely recovered from the Great Recession; and a low immigration rate works against Wisconsin because newcomers are twice as likely to start a business as native-born Americans.
The past week in Wisconsin featured forums that examined startup trends and practices that work through the eyes of outsiders and homegrown citizens alike. Those included visits by the Atlantic Council and Kauffman, which also took part in a Mayor’s Summit on Entrepreneurship in Madison, as well as the annual Entrepreneurs’ Conference. Some broad takeaways:
- States, cities, and regions that focus on entrepreneurship and building companies from the ground up are more likely to succeed than those that spend time and money on “smokestack chasing.”
- Tax incentives aimed mostly at incumbent industries don’t work, especially if those industries are mature in terms of job creation.
- Fence-me-in government regulations or “scared-lawyer laws” stifle economic dynamism by erecting barriers to competition.
- Attractive, safe, and affordable places to live, work, and play really do matter.
Kauffman data underscored the fact that young companies create most net new jobs in the United States and have done so for decades. Since 1988 there have been only eight years in which older U.S. companies added net new jobs and 16 years in which those companies lost jobs or barely broke even. In stark contrast, new companies (five years or less) added at least 1 million jobs collectively in every year since 1988 but one, the peak recession year of 2009.
States, cities, and regions that focus too much on raiding companies from elsewhere or cutting taxes without strategic goals in mind “are simply taking away dollars that can be used to support entrepreneurship,” Absher said.
Absher, an attorney himself, also criticized what he described as “scared-lawyer laws” that make it harder for young companies to compete for contracts, customers, and other business in jurisdictions where such laws are passed. In Wisconsin, where there is tension between the state and local governments over the sharing of control, that’s an emerging issue. State laws that would restrict certain types of research or make it harder for workers to move within companies have been defeated in Wisconsin — for now — but the threat remains.
So, what’s the secret sauce? While there’s no single make-or-break factor, healthy entrepreneurial communities exist in places where there’s a mix of talent, financial capital, early customers, support services, public policies that promote company creation, and a culture that tolerates risk and failure while rewarding innovation, networking, and wealth creation.
Depending on where you live in Wisconsin, many of those ingredients exist. Instead of throwing tomatoes, we should save them for a better startup stew.
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