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Sunday, 07 July 2013 17:00

Rise of the Risk Takers

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Rise of the Risk Takers PHOTO: KIM KIBBY

Capital, talent and good ideas aren’t enough to create a culture of entrepreneurship in West Michigan. People still need overcome their fears of failure and embrace the risks that come with starting new businesses.

It seems that after a decade of economic hardships, more West Michiganders are comfortable doing just that. The change in attitude plays out in a new entrepreneurship report from Grand Valley State University’s Seidman College of Business.

Whether out of economic necessity or overcoming their fear of failure, or both, more people are willing to take the leap into entrepreneurism and the risk that goes with it, said Paul Isely, chairman of the Economics Department at GVSU’s Seidman College of Business. And entrepreneurs have on their side far greater support for their enterprises through universities and community organizations, as well as better access to startup capital from willing investors and the presence of business incubators to nurture them along.

“There has been a mindset change across West Michigan,” Isely said. “People are really wondering, ‘How can we get into the entrepreneurial space? How can we contribute to this? How can we participate? We are now embracing entrepreneurship as a goal.

“I would suspect this is a part of the West Michigan culture that is here to stay.”
One indicator of the change: 63 percent of the new jobs created in Grand Rapids since the recession came from new businesses, a rate that’s well above the national average, Isely said.

The change in attitudes toward the risks of entrepreneurship is the single biggest difference from 2009 when Isely and his colleagues at the Seidman College of Business last examined the entrepreneurial climate in West Michigan.

While all of the public and private investments in the past decade to better support entrepreneurship contributed to the change, the fundamental key to building an even greater entrepreneurial culture is altering how it’s viewed, said Kevin McCurren, executive director of GVSU’s Center for Entrepreneurship & Innovation.

“Culture has to change first. Great enterprises start with culture, and from that, we can build,” McCurren said. “Without that culture, we couldn’t go.”

One anecdotal sign of the change in West Michigan comes in what Isely hears regularly from his students at the Seidman College of Business. In the past, students primarily focused on where they could work after graduation. Now they talk not just about job possibilities but the potential to strike out on their own at some point, whether right out of college or later in their careers.

“I see a lot of my students now talking about ‘not only am I looking at going to work for company X, but I’m also working with my friends on these four ideas. … If I get the job, I probably won’t be an entrepreneur right away,’” Isely said.

The change in thinking is partly the result of a decade of tough economic times in Michigan, a state which “never really” emerged from the 2001 recession before 2008 hit and the entire nation became mired in an economic quagmire, Isely said.

“We figured out that we really needed to stop waiting for the companies that are here to create the jobs,” he said.

Yet that mindset change, along with the increased support for entrepreneurism and data showing an improvement in the access to capital, doesn’t quite translate to the region becoming an entrepreneurial Utopia. West Michigan, in fact, still has plenty of barriers to overcome in fostering a strong entrepreneurial climate.

For one, there remains a perceived lack of capital, even though venture capital in Michigan has grown since 2009 at a rate faster than the national average. Angel investing has grown as well.

Access to capital, in fact, showed the most significant upturn from 2009 to 2013.

“We’re seeing a massive improvement on the capital side,” Isely said.

Despite the growth locally in the access to angel investing, venture capital and private equity, the perception persists that more capital is needed to support entrepreneurship, Isely said. Data show the biggest need in Michigan right now is for second-stage capital, which contrasts with a perception that the largest void is at the early-stage level.

“There’s always a need for more capital. (A)sk an entrepreneur, ‘Is there is enough capital?’ If they ever say yes, I would be surprised,” he said. “What we’re seeing is sort of an asymmetry of what we’d like to see as funding goes, and it might suggest a direction to look for funding in the future or how we want to spend our time worrying about it.”

One way to encourage more investors to put their money into VC, angel or private equity funds is to generate more exits that provide them a solid return.

West Michigan remains in the relatively early stages of building a broader base across the capital continuum, said Jody Vanderwel, president of Holland-based Grand Angels. Once some of the young companies that started in recent years with VC and angel investments reach a successful exit for their backers, then the region can have more success stories pegged to return on investment that will draw the attention of more investors, Vanderwel said.

“We haven’t been doing this long enough to do that many exits,” she said.

Vanderwel believes the region also could help itself by creating greater public awareness of investments that seeded successful companies.

“In West Michigan, we’re not very good at blowing our own horn. We just go about doing our work,” she said. “We need to celebrate those successes.”

The region also needs to get better at applying for federal grants available to entrepreneurs through the Small Business Innovation & Research and the Small Business Technology Transfer programs, according to the GVSU report.

In other areas, data show that the Grand Rapids area is less ethnically diverse than the national average, that the region ranks below the national average in patent generation and in the number of people with college degrees, and that it suffers from the inability to keep young talent.

Grand Rapids has a minority population of 20.4 percent, lower than five of the seven comparison cities GVSU examined in the Empowering Entrepreneurship report, including Louisville, Ky.; Tulsa, Okla.; Greensboro, N.C.; Little Rock, Ark.; and Huntsville, Ala. Of the peer group, only Albany, N.Y. and Des Moines, Iowa had a lower minority population.

The report found Grand Rapids also ranked low in retaining young workers. There were fewer 25 to 34 year olds in Grand Rapids in 2010 than there were 15 to 24 year olds in 2000, which reflects an outward migration of young talent, Isely said. Albany was the only peer city that experienced the same trend.

Talent and know-how, Isely said, is “still our biggest weakness.” He called talent retention “an area that is a little sad” for Grand Rapids.

“We haven’t quite gotten to the point where we are nailing down those young people and keeping them here,” he said. “So we’re losing that cohort, the group of young people who can really bring the energy to the workplace.”

The change two years ago in the state business tax structure helped to improve Michigan’s business climate overall, GVSU said, although the Grand Rapids region’s cost of doing business remains high. Grand Rapids also has fallen behind the seven cities to which it was compared in recruiting new talent to supplement the local labor force.

Those issues, however, are tempered somewhat by the creation of new companies at a faster rate than the national average, the GVSU report said.

Overall, “Grand Rapids has made significant progress in attracting entrepreneurial firms to the area. The availability of capital and the business climate has improved, but it still needs to do a better job of educating its workforce and retaining young workers. Future policies to attract specialized talent from abroad and attracting more capital will help foster the growth of entrepreneurship in the region,” the report concludes.

Despite those barriers, and the general risk-adverse outlook of the West Michigan populous, the data that GVSU gathered, as well as the results of a survey of 700 business leaders, point to a better entrepreneurial climate in Michigan compared to four years ago.

The environment is one that Isely believes will prove sustainable into the future.

“I don’t think you’re ever going to see us take a step away from this direction. Entrepreneurship is going to become part of the culture to a much greater extent than it has been in the past because those stable industries that we relied on in the past are still producing a lot of things, but they don’t need as many people to do it,” Isely said. “So in order to take that wealth they are bringing into our region and spread it around the region, other people need to come in and think of ways to provide a service or product that people need. I don’t see that going away soon, because the economy has become so dynamic.”

The permanence of the culture change in West Michigan, in turn, begins to breed serial entrepreneurs, he said.

“Once you get it in your bloodstream to do these types of things and start to understand what a calculated risk is, you’re much more likely to do it a second time,” Isely said.

One more possible hindrance toward greater entrepreneurship is related to the success of past generations and the presence of large, legacy employers. The report’s authors noted Grand Rapids has a far greater proportion of production employees than it does engineers and architects, particularly when compared to the seven other cities cited in the report.

Creative workers such as architects and engineers are more apt to start their own business at some point, Isely said.

“Conversely, the higher proportion of production workers to architects and engineers, the less likely the community will be to generate new entrepreneurs,” the GVSU report states.

“(When) you put that much resource into production, there’s not a lot of energy left to be entrepreneurial,” Isely said. “There are a lot of good companies to work for, and then you have to decide, ‘Do I want to work for a company, or do I want to take risks?’”

Read 4588 times Last modified on Friday, 19 July 2013 11:55

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