Solving Wisconsin’s startup puzzle — one piece at a time

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 are 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 has a good start that can be accelerated by partnerships that will involve some forward-looking major companies.

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 of business startups. The state’s population skews slightly older and attracts relatively few 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.

(Continued)

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% of its private workforce engaged in manufacturing versus 9% 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.

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.

Click here to sign up for the free IB ezine — your twice-weekly resource for local business news, analysis, voices, and the names you need to know. If you are not already a subscriber to In Business magazine, be sure to sign up for our monthly print edition here.