Michigan’s small businesses were disproportionately harmed compared to other industries during the pandemic with significant declines in revenue and the number of businesses operating, but experts remain optimistic about a strong post-pandemic recovery.
That’s according to the 2021 Michigan Entrepreneurship Score Card, released today by the Small Business Association of Michigan, that details the state’s “entrepreneurial economy” during the COVID-19 pandemic.
SBAM President Brian Calley said this year’s scorecard is drastically different from reports over the previous 17 years to account for pandemic-related dynamics like state-ordered business closures and government relief programs.
“We felt we really needed to speak directly to the intricacies of the pandemic, the interventions taken, the differences between the top-line economic statistics and what’s happening between different verticals within the economy,” Calley told MiBiz. “So we had to reimagine the entire report.”
The scorecard, which has been released annually since 2004, shows that while the state’s economy overall has rebounded since the depths of the pandemic-induced recession last year, small businesses — particularly those in the entertainment and hospitality sectors — have fared worse than industries like construction and manufacturing.
As of April 28, 2021, the number of open small businesses in Michigan declined by 39.3 percent compared to January 2020, while total small business revenue decreased by 31.3 percent in that time. Those percentages are slightly higher than the national average, according to the scorecard.
Meanwhile, labor force participation remains “substantially behind pre-pandemic levels,” Calley said. “This has quickly emerged to be the top concern among small businesses: the availability of workers. This is something I expect will continue.”
Although the state’s economy would have fared far worse without interventions like individual stimulus payments, enhanced unemployment benefits and the Paycheck Protection Program, Calley said “disincentives to work” and rising costs from inflation threaten a robust recovery.
“While Michigan’s economy is recovering overall from the pandemic, the recovery is uneven and many industries dominated by smaller businesses are still struggling,” according to the report. “Also, even as we headed into the pandemic Michigan’s Entrepreneurial Climate, Change and Vitality indexes all showed deterioration.”
New business growth, looking ahead
Last year’s scorecard released in August 2020 revealed an economic upside during the pandemic: The number of new business applications skyrocketed in Michigan and nationwide. That rise in new businesses, along with pent-up consumer demand, are reasons to be optimistic, according to the report.
“The bottom line … is that Michigan small businesses have been losing steam in recent years and were badly hurt in 2020,” according to the Entrepreneurship Scorecard. “However, new business startups provide an encouraging indication that entrepreneurs are ‘gearing up.’”
While Calley said it will “be a while” before the success rate of these startups are realized, “the new business starts have still continued to happen at levels that give us some optimism for the future.”
As Michigan emerges from the pandemic, SBAM notes six trends to watch, including business formations, the breadth of job creation, business expansion and contraction rates, and the expansion of later-stage venture capital.
However, Calley noted an ongoing need for state policies that are “growth focused,” such as incentives for employees to return to work, “robust” up-skilling and training and childcare support.
The availability of COVID-19 vaccines and the fact that “we’ve learned so much more” since the beginning of the pandemic about virus transmission and prevention should prevent the need for future business closures, Calley said.
“The No. 1 pro-growth strategy is to not restrict businesses from operating in the future,” Calley said. “If vaccines are unavailable, as they were early in the process, I think that’s a wholly different argument compared to when they’re readily available and frankly we’re begging people to take them.”