After the large gains made coming out of the recession nearly a decade ago, Michigan’s small business climate shows signs of losing momentum for continued improvement.
In an annual entrepreneurial score card released this month by the Small Business Association of Michigan and MiQuest, Michigan slipped in two of three key indexes when compared to other states in 2016.
Using 128 metrics to gauge performance and compare states, Michigan dipped to 22nd from 24th in entrepreneurial climate, which measures the environment for starting and growing a small business, and dropped six places to 36th in entrepreneurial vitality, a measure of activity relative to the rest of the nation.
The state improved five spots to 32nd in the ranking of entrepreneurial change, an index of Michigan’s small business climate versus other states.
The score card overall shows Michigan’s progress slowing the last few years as other states made gains and improved their climates for small business.
“Making progress but it seems as though we maybe slowed down a little bit or leveled off a little bit would be the way we would describe this,” SBAM CEO Rob Fowler told state lawmakers during a presentation of the Michigan Entrepreneurship Score Card.
“In some places we’re actually losing a little bit of ground, even though it doesn’t feel like we’ve done anything that would set us back,” Fowler said. “It’s a reminder that the other states aren’t standing still, either. That there’s a lot of competition out there for early-stage businesses.”
Compared to other states, Michigan continues to have “real strength” and remains a top 10 state in areas such as university and industry R&D, patents per innovation worker, private business profit growth, graduate programs, science and engineering workers, business tax burden and tax structures, and business liability costs.
Tony Stamas, vice president of government affairs at SBAM, noted that Michigan ranked first among the states in business tax burden, a finding he called “striking” given that “we were very close to the bottom in that area” at 48th place when the annual report began 14 years ago.
Business tax reform the state Legislature enacted years ago “made a big difference” to small business owners, Fowler said.
“I believe a big part of what’s going on with our member companies today is the wind in their sails that was given to them by vastly improving the business climate in Michigan,” he said.
At the opposite end of the score card, Michigan ranks in the bottom 10 for growth in new business owners, bank and industrial lending, unemployment insurance costs, small business health premiums, medical malpractice costs, highway quality, and broadband internet connections.
New business ownership is something to watch, Stamas said.
The U.S. has seen a lag in recent years in new business startups, partly due to a national economy that’s performed well and driven down unemployment, resulting in fewer people venturing out on their own, he said.
“When we look at our legacy companies here in Michigan, they all started out as a small business. So how do we rejuvenate that and give opportunities for that next generation?” he said.
Fowler told lawmakers that Michigan is one of just two states in the top 10 for both university and industry R&D, ranking fifth and sixth, respectively. Yet the state ranks “in the middle of the pack” in commercializing R&D.
“Is there more that we can do to encourage the commercialization of technology in our state?” Fowler said of opportunities for Michigan’s growth.
Other concerns the 2018 SBAM Score Card raised are education, talent and infrastructure.
Access to talent remains an “urgent” issue for small businesses, Fowler said. Education, particularly K-12, is “an area that we are falling further and further behind in.” Education reform is “on the radar screen in the business community in a pretty serious way,” he said.
“I frankly think the business community is poised to rally around this issue like we haven’t in many years and really take a serious look at what we’re doing in that area and trying to be a part of the solution,” Fowler said.
Michigan ranks 31st in the nation for K-12 education and 40th in public high school graduation.
In infrastructure, the state was 47th for highway quality and 37th for bridge quality. It also ranked 42nd for broadband quality and 38th for broadband coverage.
Access to broadband is the “lifeblood to businesses,” and the state has been falling behind, especially in rural areas, Fowler said. He urged lawmakers to focus more on infrastructure.
“Infrastructure continues to be an Achilles heel for us. If we don’t get after this, it will threaten our business climate, our entrepreneurial climate, and ultimate entrepreneurial growth,” Fowler said.