Two recent reports seem to be telling two different stories about business in Wisconsin.
Back in August, in it’s annual index, the Ewing Marion Kauffman Foundation ranked Wisconsin dead last for startup activity in the country.
But a more recent report published last month, the Main Street Entrepreneurship Kauffman index, found Wisconsin to have the second most robust economy for small businesses among the 25 largest states.
Jon Eckhardt, executive director for the Weinert Center for Entrepreneurship in the University of Wisconsin School of Business, said he was not surprised by the divergence in the two reports. The Kauffman index has consistently ranked Wisconsin last in startup activity since it was initially published, he said.
Jason Wiens, the Kauffman Foundation’s policy director, said the two reports may be reflecting one story after all.
Wisconsin, Wiens said, has what he describes as a very high rate of small business density, where the number of companies that are older than five years but have fewer than 50 employees is high.
“So that’s a good thing, right?” Wiens said. “Once people start a business in Wisconsin, they have a good chance of that business surviving. The survival rate we found in the most recent report in locally owned small businesses in Wisconsin was almost 51 percent.”
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One theory, Wiens said, is the strong staying power of small businesses in Wisconsin makes the threshold to enter the market in Wisconsin that much higher, which is potentially depressing startup activity.
But, at the same time, while startups seem to struggle to establish themselves in Wisconsin, they consistently outlast small businesses in other states once they hit the five year mark.
A dynamic economy is one with wealth creation and increased productivity, Wiens said.
“People are moving from job to job and finding their most productive use and value,” Wiens said. “A dynamic economy needs some churn. The higher the survival rate, the less churn there is.”
Despite the implications the reports seem to have, Eckhardt and Wiens said they don’t capture the whole picture.
Eckhardt said he takes issue with the reports because measuring this kind of activity by state is arbitrary. Economies can bleed across geographic boundaries, among other of the index’s limitations.
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Some argue the U.S. is a collection of regional economies which don’t necessarily respect state lines. Wiens said indexing economies by state, or these accepted political boundaries, makes it easiest to evaluate the impact of certain policies on economic growth from state to state.
“There’s probably no perfect measure,” Wiens said. “But I still think it’s a good measure because each state, through the laws and regulations that it passes, creates an environment that can differ in terms of the on-the-ground conditions in which entrepreneurs are trying to start and grow the companies.”
To build and maintain a dynamic economy, Weins said policymakers in each state need to consider the different factors that encourage business creation or business sustainability.
While the Kauffman indexes strive to capture the current state of economic activity in each state, Wiens said they currently can’t explicitly say why some states perform better on the index and others do worse.
Come February, Wiens said, the Kauffman foundation intends to put out a report that takes each of its individual reports: startup, main street and growth. The goal is to synthesize similarities between the similar economic environments to find the common themes, elements or policies across these different states.
In Madison, Eckhardt stressed that the entrepreneurship ecosystem has blossomed in recent years — from coworking spaces like 100State, to networking community Capital Entrepreneurs, to Startup Block, a new makerspace in downtown Madison. Incredible efforts have been made to create a sense of cohesion across startup activity in Madison.
Eckhardt agreed those efforts need to be made to foster startup activity in Wisconsin.
But, in general, Eckhardt said he doesn’t believe Kauffman’s rankings are very useful, citing a lack of research as to whether or not the indexes predict meaningful economic outcomes.
“For example, California is ranked number eight in the Kauffman Index of Startup Activity this year, while Montana is ranked number one,” Eckhardt said. “I suspect that most [people] view California, which hosts Silicon Valley, as more entrepreneurial than Montana.”