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Sunday, 12 May 2013 22:00

‘More work to do’ — SBAM scorecard shows state’s entrepreneurial climate improves

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Compared to a decade ago, Michigan is a far better place to start and run a small business.

But comparatively, Michigan has a lot more progress to make to become one of the top entrepreneurial states in the nation.

Those conclusions come from an annual scorecard issued by the Small Business Association of Michigan that tracks data to gauge the state’s entrepreneurial climate, vitality and change.

Despite having “a lot more work to do,” the progress since the first scorecard came out in 2004 has positioned Michigan well for the future, said Rob Fowler, president and CEO of SBAM.

“I’m really optimistic about the future of our state,” Fowler said.

Amid that optimism, Fowler urges caution about any temptation to ease up. To continue progress, and to better compete nationally, the state must continue unabated in its work to improve the entrepreneurial economy in Michigan because other states are seeking to do the same, Fowler said.

“That’s probably as (important) as anything. You have to make hay when the sun is shining,” he said. “Now that we are making progress, what are some of the great decisions that we (could make to) keep it going?”

The scorecard, in fact, notes that “the time is now ripe for Michigan to build upon the foundation of entrepreneurship and to initiate a period of sustained accelerated entrepreneurship.”

For now, the 2012/2013 scorecard from SBAM concludes that “entrepreneurship is alive, well and more prevalent across all sectors of the economy” than it was years ago.

The scorecard noted that universities across Michigan now support and teach entrepreneurship more than ever before, that the number of small businesses grew 18.1 percent between 2009 and 2010, and that a decade-long decline in jobs at second-stage businesses has “slowed noticeably.”

Gains in recent years are reflected in two of three key scores that compare Michigan to other states.

Michigan ranked 16th in the U.S. in entrepreneurial climate as of 2011, versus 33rd two years earlier. The state was 14th in 2010, although one of the study’s authors does not view the decline of two spots from 2010 to 2011 as statistically significant.

Using dozens of metrics, the scorecard ranked Michigan 31st in entrepreneurial change in 2011, compared to 46th in 2010 and 50th in 2009. The ranking reflects changes that have occurred in the three previous years.

The state’s entrepreneurial vitality held at 36th, the same as 2010 and down one position from 2009. The ranking is consistent with Michigan’s score for a number of years and takes into account how other states have made progress in improving their business climates.

“It isn’t static. It isn’t like everybody’s standing still and we’re going past them,” Fowler said.

SBAM started the annual entrepreneurial scorecard nine years ago to gauge how Michigan compares to other states and with a goal of seeing the state move into the top five nationally.

At the time, Michigan was in the early stages of one of the worst economic periods in the state’s history, and the three key indicators were “near the bottom” and “scoring very poorly” nationally, said Graham Toft, a co-author of the scorecard who’s with GrowthEconomics Inc. of Elkhart Lake, Ind., and Longboat Key, Fla.

In discussing the annual scorecard, Toft noted how business leaders and economic development groups, especially during the worst of the Great Recession, “never gave up” in working to repair the state’s economy, improve the business climate and foster entrepreneurial activity. Toft cites an “attitudinal change” across state government and elsewhere with helping to drive progress and improvements in annual rankings beginning in 2009.

“It’s been pretty remarkable,” Toft said of the change in the state’s entrepreneurial rankings that he sees improving further in the years ahead.

“The energy level is still there and, I think, it’s starting to show up,” Toft said.

And it’s not just economic initiatives that help. Toft cites, for instance, the formation of ArtPrize in 2009 as contributing to Grand Rapids’ upward economic swing.

“Those kinds of initiatives foster creativity,” he said. “Entrepreneurship is not just about small business entrepreneurship. It’s dependent on the culture of creativity and innovation, and things like that kept plugging along (during the recession).”

Still, Toft said, data embedded in the annual report suggest Michigan still has to do much more to improve. Cultural changes in how people view entrepreneurism and work by state government to reduce the complexity of regulations and improve the efficiency of the permitting process are still needed to further lift Michigan’s scores, Toft said.

“There are still a lot of improvements to be made,” Toft said. “The data that we see, you still would not regard Michigan as a highly entrepreneurial state.”

Toft also points to a slip in rankings in the percentage of businesses gaining jobs, university business spinouts and the high school graduation rate.

One of the key factors in driving further improvements of late is the adoption of the Corporate Income Tax in May 2011 that replaced the much-maligned Michigan Business Tax. The Corporate Income Tax is paid primarily by large corporations and eliminated the double taxation that occurred on small business owners when they had to pay the MBT and the personal income tax.

Under the Corporate Income Tax, small business owners now pay taxes just on what they earn from their business. The change elevated Michigan’s position in an annual ranking of state business tax climates by the Washington, D.C.-based Tax Foundation from 49th in 2011 to 7th in 2012.

Noting that much of the data in this year’s scorecard was based on conditions just prior to and as the Corporate Income Tax took effect, SBAM’s Fowler believes subsequent reports will show further gains in Michigan’s national ranking.

“The next couple of years will reflect what we’re feeling today,” Fowler said.

Read 4482 times Last modified on Friday, 10 May 2013 12:45
Mark Sanchez

Senior Writer

msanchez@mibiz.com

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