Two fresh statistics from the U.S. Labor Department underscore the importance of small business creation to the American economy. The feds reported last week that 192,000 jobs were added nationwide in March; meanwhile, the U.S. manufacturing sector lost 1,000 jobs for the month.
A thousand jobs are a rounding error when spread over a nation of 330 million people, but it illustrates continued employment consolidation within a vital sector. It also begs the question: If not manufacturing firms, what kinds of businesses are creating those 192,000 jobs?
Mostly smaller, newer firms representing a mix of industries and professions, according to trends reported over time. Small businesses account for 65% of net, new private-sector jobs, according to federal figures, and businesses between 1 and 10 years old create 40% of all jobs. The Ewing Marion Kauffman Foundation in Kansas City, Mo., which follows entrepreneurship nationally, has also attributed most net new jobs to young companies.
It’s why the debate over company creation in Wisconsin will command attention as the election year gathers steam.
In her economic growth plan released in late March, Democratic candidate for governor Mary Burke cited the importance of small business creation and growth to Wisconsin’s economy.
“Every giant corporation was once a small startup — and, in Wisconsin, nearly all of our largest Wisconsin-based businesses got their start right here in the Badger state … and stayed. That’s why entrepreneurship matters so much to our state’s long-term future,” Burke said.
Her report noted Wisconsin is 48th among the 50 states in new business startups, a figure that has popped up from time to time in other reports. Other studies have shown Wisconsin ranking somewhat higher by related measures, such as net new startups — in short, startups that endure over time.
A December 2013 report by the University of Nebraska’s Bureau of Business Research ranked Wisconsin 41st in “establishment births per person,” up four notches from the prior year. The same report ranked Wisconsin 21st in the percentage rate of establishment growth and 15th in growth in establishments per person.
“The numbers suggest that Wisconsin is doing well when it comes to nurturing those companies that do get launched there,” said Eric Thompson, who launched the Nebraska index about six years ago. “Your entrepreneurs tend to be good at staying in business.”
A January 2014 report by Economic Modeling Specialists International showed Wisconsin 13th among all 50 states from 2009 to 2012 in “net new business establishments,” with an increase of 3,733 during that time — somewhat surprising given it came during the depths of the Great Recession.
Those aren’t top-tier results, but they’re not tail-end metrics, either.
Economists generally struggle with company creation figures because states can report data in different ways. In many states, Wisconsin among them, the birth of limited liability companies doesn’t necessarily translate to new, jobs-creating companies. Many LLCs are pass-through entities, especially in real estate.
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Most economists agree, however, that business survival rates can be as important as startup rates. One reason why new companies in Wisconsin have high survival rates is the existence of a support system that is far more extensive today than a decade ago. A number of organizations share in training and connecting entrepreneurs to investors, mentors, and other resources. While access to investment capital is still limited — especially for emerging companies — other resources, events, and tools exist to help them bootstrap their way to success.
Ten years ago, there was no Governor’s Business Plan Contest (by the way, three-quarters of its finalists are still in business), no Center for Technology Commercialization, no Wisconsin Angel Network, no BizStarts Milwaukee, no MERLIN Mentors, no investment tax credits, no Wisconsin Entrepreneurs’ Conference, no private accelerators such as gener8tor, and precious few regional economic development groups. The rise of that infrastructure has extended many a helping hand.
Entrepreneurship was a bureau in the former Wisconsin Department of Commerce, but it commands division-level status in the Wisconsin Economic Development Corp., its public-private successor. In the UW System, where teaching students how to start businesses was confined to a few lonely programs a decade ago, it is now a trend on most campuses and within the UW-Extension.
Could Wisconsin be cranking out more startups? Of course, but what happens to those companies after they launch is no less important.
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