Wisconsin Again Fares Poorly In Kauffman Ranking of Startup Activity

It’s beginning to sound like a broken record.

For the second straight year, Wisconsin is the worst state in the U.S. for startups, according to a ranking by the Ewing Marion Kauffman Foundation.

Business and political leaders in the Badger State seem to be united in their displeasure with the ranking. But they’re split in the types of spin they’re putting on the news. Startup-focused groups say this outcome shouldn’t come as a surprise, while others counter by pointing to statistics that paint a more positive picture of entrepreneurship in Wisconsin.

Before digging into these reactions, let’s quickly break down the numbers from Kauffman. The foundation factors in three metrics when compiling its “startup activity” ranking:

Startup density: number of startups per 1,000 companies. Startups are defined as businesses that have been around for less than one year and employ at least two people.

Rate of new entrepreneurs: percentage of adults who became entrepreneurs in a given month.

Opportunity share of new entrepreneurs: percentage of new entrepreneurs who were employed before they started their companies.

In all three measures, Wisconsin finished last or second-to-last among the country’s 25 most populous states. (Kauffman separates larger states from smaller ones, rather than ranking all of them together; still, Wisconsin’s combined “index” score trails all states across both lists.)

Montana and Wyoming both had index scores placing them in the top five among all states, following their strong performances in 2015. Bram Daelemans, director of the Wisconsin Angel Network, last month told Xconomy that those two states are not widely thought of as hotbeds for startups.

“The fact that Montana is ranked first is an indication that we cannot use just one index, but have to look at the overall picture,” Daelemans said.

However, states home to robust innovation and investor communities such as California, Texas, and Colorado made the top five among the 25 largest states again this year.

Wisconsin’s 2016 ranking has been called a “wake-up call” in multiple reports, which would make more sense sense if Wisconsin hadn’t earned the same dismal rating a year ago.

A spokesman for Gov. Scott Walker told the Milwaukee Journal Sentinel that Kauffman’s methodology neglects important factors such as wages, and pointed to the fact that Wisconsin’s unemployment rate is at a 15-year low.

One challenge facing the state is that agriculture and manufacturing have historically been major industries here, wrote Wisconsin Technology Council president Tom Still in a BizTimes Media column. Both have barriers to entry that can be high enough to deter early-stage firms, Still wrote. Tim Nott, a software developer who has worked at startups in Madison, in July said those old-line industries are increasingly turning to high-tech hardware and software products that can bring efficiency gains. So there does appear to be more room for young companies to work with large agriculture and manufacturing groups. The key question is whether—and how—the two sides will come together.

Joe Kirgues, co-founder of the Wisconsin startup accelerator Gener8tor, mentioned three areas where he believes changes to policy could help Wisconsin climb out of the cellar: tax incentives for investing in early-stage businesses, making legislation governing corporate noncompete agreements more employee-friendly, and more support for the University of Wisconsin system. On the final point, Kirgues said the state should try to pinpoint specific departments and disciplines, such as STEM, that will be in demand and can help fuel job growth in the coming years.

In an editorial published Friday, the Wisconsin State Journal critiqued Gov. Walker and the Wisconsin State Legislature for cutting higher education funding.

There has been no shortage of policy prescriptions and political potshots following the release of the latest Kauffman ranking. It was the same story in June, when the foundation released its “growth entrepreneurship” rankings, which were also not flattering for Wisconsin.

At the moment it’s hard to envision a bipartisan path forward on some of the suggested changes, especially funding to universities, but there is precedent for Wisconsin Republicans and Democrats working together on entrepreneurship-related issues. In 2013, both parties supported the creation of a “state-leveraged venture capital program,” to name one example.

We’ll see if some of these leaders are singing the same old song this time next year.

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