For the past few years, the prestigious Kauffman Index of Startup Activity has ranked Wisconsin at dead last for new business creation. It’s gotten so bad that some economic development officials have taken to calling it the “Coffin Report.”
But that study is flawed, data guru Tom Chapman of the Startup Champions Network told a “Madwaukee Talks” event Wednesday afternoon at the Foley & Lardner office in Madison. Chapman also runs a consulting firm in Omaha and teaches at the University of Nebraska.
“The Kaufman Index says Wisconsin is 50th, but I don’t think that’s correct,” he said.
But he added Dane Stangler, the person who came up the index, isn’t entirely wrong.
“He’s really smart, but it’s just that he used a small segment of data from unemployment surveys. And it has gaps,” he stated.
Chapman was skeptical of the Index, so he created what he believes is a more accurate model. This model surveyed every SBA loan in the country for the last eight years. He then compared it to Badger State figures.
When he crunched the numbers, Wisconsin ranked sixth nationally from 2010 to 2017, creating $1.4 billion more than expected within the SBA program.
“That is awesome and definitely not 50th in startup activity,” he said.
Chapman also had high praise for Madison’s efforts to support entrepreneurs and he lauded the Wisconsin Alumni Research Foundation for its efforts to turn university spawned technology into new companies.
Milwaukee, he noted, is a different kind of city, but “it’s working on” giving more backing to entrepreneurs.
“Madison really sparkles when you look at the data,” he said, noting that software and healthcare are the area’s strong points. “Whenever I look at models for Tier 2 and 3 cities, Madison always shows up at the top of the lists” with cities like Austin and Boulder.
Of the top 52 cities ranked by population for new businesses in a Startup Champions Network list, Madison came in at No. 8 for 2017, he said. San Francisco was the leader, and Seattle came in third. He also praised Madison for the number of female entrepreneurs, but said the city is lacking in new businesses run by people of color.
Chapman said Small Business Innovation Research grants, venture capital, angel networks and other sources of funding, as well as efforts connecting startups to potential customers, are important.
“But the entrepreneur is at the center of all this,” he said. “Unfortunately, there aren’t very many of them who are good at starting high-gross companies.
“Gallup says from 1976-2000, the U.S. increased GDP by $8 trillion. Some 90 percent of that was created by 1,000 people, and 522 of them were immigrants… We should be paying more attention to that.
“But at the end of the day, the real competitive advantage for cities like Madison and Milwaukee is to unlock one, two or five more (high-gross) entrepreneurs.
“It’s not enough to get 10,000 people to start small businesses. That’s not bad, but singular metrics of how many businesses you started doesn’t always indicate the vibrancy of your entrepreneurial ecosystem.”
Chapman said Madison has many things going for it when it comes to helping scientists and others starting companies, but both Madison and Milwaukee fall down when it comes to sustaining jobs. Madison came in at 14th (behind Des Moines) and Milwaukee 26th.
And he lamented figures that show that when Madison startups become successful, they often leave the state and take jobs with them.
He also said new companies tend to focus on selling their products and services within the state. Instead, he argued, they should be connecting with customers outside the region to be more successful.
Though Madison and Milwaukee are different economically and culturally, he said the cities need to cooperate to foster economic growth and entrepreneurship.
“You need to work together and be humble,” he told his Madison audience. “Because if Milwaukee sparkles, everyone wins.”