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Michigan Entrepreneurship Score Card shows good entrepreneurial climate but fewer new businesses start up and survive

April 10, 2017

The thirteenth annual Michigan Entrepreneurship Score Card – 2017 Edition reports the state continues to improve its national ranking in “Entrepreneurial Climate” – the factors that support the entrepreneurial economy. But a significant year-to-year drop in the direction and momentum of Entrepreneurial Change underscores the challenge of maintaining entrepreneurial growth – especially startups and their survival rate – in a dynamic and relatively prosperous economy.

“The robust activity in Michigan’s entrepreneurial economy has shifted from startups and early stage companies to the expansion, hiring, and profitability happening with growing companies,” says Rob Fowler, President & CEO of the Small Business Association of Michigan. “The Score Card 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.” 

But at the same time, this year’s Score Card reports fewer new business establishments even while existing businesses grow and there are improved overall small business resiliency and survival rates. “Having fewer startups impacts our ranking in entrepreneurial change,” Fowler says. “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. For example, nearly a hundred thousand men and women were forced by economic circumstances to become sole proprietors in the 2007-2009 era. They have now left entrepreneurship to become employees. That’s not necessarily a negative development in light of our overall healthy entrepreneurial economy.”

The Score Card collects 137 metrics spanning a wide range of factors from business climate indicators to quality of life measurements that influence entrepreneurship. The metrics are used to develop three composite rankings:

  • Entrepreneurial Climate
  • Entrepreneurial Change
  • Entrepreneurial Vitality

Entrepreneurial Climate combines metrics to measure the underlying supporting conditions for the entrepreneurial economy. Factors include: innovation, capital, and general business conditions. This composite ranking uses 30 of the 137 total metrics gathered and reported upon. Michigan’s rank is now 16, up from 23 in last year’s report and 41 in 2008.

Entrepreneurial Change indicates the direction and momentum of growth in Michigan’s entrepreneurial economy relative to other states. It is a three-year average of variables tracking the direction of entrepreneurial economy and its growth or decline. Michigan’s rank is 46, down from 23 last year and up from 49 in 2008.

Entrepreneurial Vitality measures the relative level of entrepreneurial activity in each state. This composite ranking includes metrics such as University and Research Institution Spinoffs and Federal Grant Awards. Michigan’s rank is 32, up from 35 in last year’s report.

“Entrepreneurial Vitality is a difficult index to impact,” says Graham Toft, PhD, president of GrowthEconomics, Inc., who developed the statistical protocol behind the Score Card and has authored the report each year. “The state’s high level of large industrial and corporate activity overwhelms the activity in the entrepreneurial sector. It will take many years for Michigan to build its structural Entrepreneurial Vitality to match its standing 100 years ago and the slowing down in the rate of net new business formations may negatively impact this index. However, the healthy Entrepreneurial Climate index suggests positive factors are at work.” 

Among the other insights from the Score Card: 
Michigan’s Entrepreneurial Climate has experienced notable gains since 2009, when Michigan ranked among the bottom states for key metrics such as Growth in Establishments Gaining Jobs, Export Growth, and State Business Tax Structure. Michigan now ranks in the Top 10 states for several growth-related metrics, such as Proprietor Income Growth, Favorable Business Taxes, and 5-Year Survival Rate. Among Michigan’s top rankings are:

  • Proprietor Income Growth: #3
  • Favorable Business Taxes: #4
  • State Business Tax Structure: #7
  • Patents per Worker: #8
  • 5-Year Establishment Survival Rate:  #10
  • Growth in New Business Owners: #11

Michigan continues to invest in areas critical to future technology-based entrepreneurial growth. Throughout the 2000s, Michigan’s public and private sectors continued to invest heavily in R&D, innovation (measured by patents filed), STEM education, and job creation in technology fields. The state is especially strong in Workforce Preparedness metrics including Physical Science and Engineering Workers and High Tech Manufacturing Employment. Perseverance continues to pay off as seen in Michigan’s current rankings among the 50 states:

  • High Tech Manufacturing Employment: #2
  • Physical Science and Engineering Workers: #2
  • University R&D Performance: #5
  • 4Y+ Technology Credentials (Percent of bachelor’s and above degrees/certificates earned in technology-related fields): #6
  • Top Ranked Graduate Programs: #7
  • Entrepreneurial Programs: #8

Michigan’s Quality of Life metrics point to several strengths conducive to economic mobility and tech growth, including ranking #2 in Home Ownership. 

The Michigan Entrepreneurship Score Card, analyzing data from 2005 to 2015, was released by the Small Business Association of Michigan, the state’s premier organization for support of and advocacy for Michigan’s small business community, and MiQuest, a Lansing-based nonprofit organization serving Michigan’s entrepreneurial community. 

The Score Card is sponsored by Consumers Energy, Crain’s Detroit Business, DTE Energy Foundation, MiBiz, Michigan Association of State Universities, Michigan Municipal League, Michigan State Housing Development Authority, and Small Business Association of Michigan.

For more information, or copies of the complete Michigan Entrepreneurial Score Card – 2017 Edition, contact Lori Birman, Vice President – Membership & Development, Small Business Association of Michigan, at (800) 362-5461, ext. 205, or by email at lori.birman@sbam.org. Click here for an electronic copy.

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