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Entrepreneurship slows in Michigan as economy continues to recover

BY Tuesday, April 11, 2017 09:57am

Between 2007 and mid-2012, with Michigan’s economy in the grips of the Great Recession, more than 100,000 residents went to work for themselves either as sole proprietors or operators of small businesses.

By 2015, with the state’s economy back on track and unemployment low, the situation is different. Fewer people were opting for entrepreneurship and instead were inclined to go back to a payroll job.

“That was a really bad economy. Starting a business during that period of time might have been total desperation. It might have been the entrepreneurial edge they needed,” said Rob Fowler, CEO of the Small Business Association of Michigan. “A lot of these people went back to work or back to the industry they came from.”

That resulting shift was one of the key findings this year in an annual scorecard from SBAM and MiQuest that gauges Michigan’s entrepreneurial climate.

Using data from 2015, the most recent year available, the 2017 scorecard looks at 137 metrics and found “a slowdown in the robust positive trends that were at work in the Michigan entrepreneurial economy during the post-2009 economic recovery,” according to the report’s executive summary. That’s since been replaced by a shift “from startups and early stage companies to the expansion, hiring, and profitability happening with growing companies,” Fowler said.

“In the early years of the economic recovery, business growth accelerated because of new companies and early-stage startups entering the market. That momentum is now being driven by a wider range of small businesses in a broad spectrum of industries,” he wrote in the 2017 scorecard that SBAM and MiQuest released Monday. “Where the state has lost ground on entrepreneurship metrics when measured against other states, it has gained in indicators of the overall vitality of our small business economy.”

That shift is seen in how Michigan’s ranking among the 50 states declined sharply to 46th in entrepreneurial change, which measures the direction of the state’s entrepreneurial direction and takes into account new business formation. The 2017 ranking declined sharply from 23rd in last year’s scorecard but remained three spots above the 2008 ranking.

The drop reflects how more people these days are apparently opting for a job over entrepreneurism. As fewer people decide to go into business for themselves, the lower ranking is a natural result, Fowler said.

“In a healthy economy, entrepreneurship competes with other career and employment options. With Michigan’s low unemployment and many growing firms, those opportunities become more numerous and attractive,” he said. “The scorecard results mirror what we hear from entrepreneurs — we have a good entrepreneurial climate, businesses are growing and hitting new levels of sales and there’s a high demand for technical talent.”

The trend of fewer startups is not unique to Michigan. The rate of new business formation has been on the decline nationally for 30 years, Fowler said.

State lawmakers setting public policy need to keep in mind the need to cultivate a state business climate that supports both the growth of existing businesses and entrepreneurship and startups, he said.

“If you don’t plant seeds, the harvest is slow down the road,” Fowler said.

Elsewhere in the scorecard, Michigan ranked 16th nationally for entrepreneurial climate, which gauges factors affecting the entrepreneurial economy of the state. That compares with 23rd in last year’s report and 41st in 2008.

The state was 32nd for entrepreneurial vitality that gauges relative activity, versus 35th a year ago.

Individual metrics where Michigan ranked in the top 10 nationally include proprietor income growth, business taxes and tax structure, patents per worker, and one- and five-year new business survival rates.

Since emerging from the Great Recession, “Michigan has done a good job establishing a business climate conducive to all business enterprises,” said Graham Toft, the president of Growth Economics Inc. and co-author of the annual scorecard.

The state lags in areas such as unemployment taxes, medical malpractice costs, and broadband connectivity, Fowler said. Unemployment taxes on employers are higher because of action taken by lawmakers in 2011 to erase a $1 billion in state’s unemployment trust fund. The higher tax expires in 2019 and should generate an improvement in that area, said Tony Stamas, SBAM’s vice president of government relations.

“In a couple of years, you’ll see a pretty dramatic change,” Stamas said.

Fowler also echoed a top concern of many business owners the last couple of years: the ability of companies in the state to attract qualified workers.

“Talent is a big issue for growing companies today,” Fowler said.

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