Kauffman Study: Weaker Entrepreneurship Spells Stronger Job Market

4/9/14Follow @XconomyWI

The U.S. saw slightly fewer businesses created last year, but there’s a silver lining: the poorer numbers nationwide likely indicate that a stronger job market relieved some of the pressure on people to start companies out of necessity.

That’s among the takeaways from the latest Kauffman Index of Entrepreneurial Activity, an annual study from the Kauffman Foundation.

An average of 0.28 percent of adults nationwide, or 280 per 100,000, started new businesses each month in 2013. That was down from 300 per 100,000 adults nationwide, or 0.3 percent, the previous year. The 2013 entrepreneurial rate is a return to the pre-recessionary level of 2006, which is more in line with historic rates, the study says.

The Kauffman study also found that 78.2 percent of new entrepreneurs last year had not recently been fired from a job, 4 percentage points higher than at the end of the recession in 2009. While it’s not a flawless link, the study says this measure can suggest that the overall jobs market is improving and forcing fewer people to take the entrepreneurial leap.

Entrepreneurship rates decreased across all U.S. regions last year, with the highest entrepreneurial activity in the West and the lowest in the Midwest. (It’s important to note that the study looks at manufacturing, construction, trade, services, and “other” industries—not just the high-growth tech companies often associated with entrepreneurship.)

Wisconsin’s entrepreneurship rate tied with Washington for 46th in the country, at 170 new entrepreneurs per 100,000 adults last year, or 0.17 percent. Wisconsin’s ranking improved from last year’s study, when it tied with Michigan for 48th place, but its entrepreneurial rate declined from 180 per 100,000 adults, or 0.18 percent, in 2012.

Wisconsin also saw one of the largest declines in entrepreneurial activity over the past decade, with a decrease of 0.08 percent. That’s despite plenty of talk by Wisconsin politicians about the importance of entrepreneurship, a surge in angel investment groups, and a flurry of new organizations and publicly funded initiatives aimed at fostering startups.

“The good news is you can’t fall out of a well,” joked Joe Kirgues, who co-founded the Wisconsin-based startup accelerator gener8tor in 2012. “From the venture perspective, we see promising signs of new growth in this state, but this is a fresh reminder that we have a very long way to go until we consider these efforts a success.”

He sees promise, however, in the “money for minnows” strategy by the state and venture capital communities, which means making small investments in a lot of early-stage companies. “Like a baseball farm system, it will take a few years to pay off, but the major league results should be there,” Kirgues said.

Ryan Murray, deputy secretary and chief operating officer of the Wisconsin Economic Development Corp., pointed out that the Kauffman study is “simply a snapshot of where things stand now based on a very limited set of federal data.” He emphasized the state-sponsored programs that have been enacted in recent years to … Next Page »

Jeff Engel is the editor of Xconomy Wisconsin. Email: jengel@xconomy.com Follow @XconomyWI

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