Kathleen Gallagher

Milwaukee Journal Sentinel

For the second year in a row, Wisconsin has earned a bottom-of-the-barrel ranking for start-up business activity, a new report says. Whether that’s as bad as it sounds or simply an unfairly skewed way of looking at the state’s economy depends on the beholder.

According to the report released Thursday by the respected Ewing Marion Kauffman Foundation, start-up activity in the U.S. overall rose in 2016 for the second year in a row. But among the 25 largest states, Wisconsin came in either last or second-to-last in each of the three categories the foundation evaluated.

Contributing to the state’s dismal start-up results: Wisconsin’s largest metropolitan area, defined as Milwaukee/Waukesha/West Allis, ranked second-to-last among metro areas nationally, above only Pittsburgh — matching last year’s ranking.

Gov. Scott Walker took exception to the methodology and focus of Kauffman's report.

"It’s important to note that the Kauffman study looks at one factor — start-up activity — and ignores other key indicators of start-up success, including wages, employment and most importantly, the long-term success of start-ups in each state," Walker said through an email from Tom Evenson, his spokesman. Wisconsin’s unemployment rate is at 4.2%, a 15-year low and well below the national rate, Evenson added.

Also, according to Tom Still, president of the Wisconsin Technology Council, there are demographic and economic factors that may hurt Wisconsin's ability to perform better in such a study.

For instance, Wisconsin has a population that is a little older than that of most states. It attracts fewer immigrants, a group that tends to form more start-ups. And it relies more on capital-intensive industries such as manufacturing and agriculture.

Still, when the state is compared to its peers using generally accepted measures of start-up activity, it lags in an area widely believed to be pivotal to economic growth: entrepreneurship and innovation.

"It’s gotten to a point where it’s becoming an economic imperative that we do something about this, and it’s probably teetering on a branding crisis," said Zach Brandon, president of Greater Madison Chamber of Commerce. "We can no longer explain away the metrics and say, well, they measure the wrong things."

The state and its largest city have had consistently poor showings in other Kauffman reports and in studies by other organizations, like the Economic Innovation Group.

The Kauffman findings are bolstered by national rankings for venture capital activity — a measure of how many state-based start-ups are viewed by professional investors as having high-growth potential. Wisconsin companies pulled in less than 1% of all venture capital raised in 2015 and in every year before that, according to the MoneyTree report by PricewaterhouseCoopers LLP and the National Venture Capital Association.

More than three years ago, Lisa Johnson, who was then vice president of entrepreneurship and innovation at the Wisconsin Economic Development Corp., vented the frustration many in the state's start-up ecosystem felt.

“We suck. We’re bad. Do we keep talking about it or do we take action?” Johnson said to the Capital Times, a digital publication based in Madison.

The most recent Kauffman findings are a call to action, Still said.

"We really need to look at some of the fundamental policies that set the tone in Wisconsin and ask ourselves, 'Are they tied to an economy that is bygone?'" Still said.

Wisconsin is working with partners around the state to ensure that new businesses open and stay open for years to come, said Evenson, Walker's spokesman.

Wisconsin ranks 10th in survivorship of businesses formed in 2003, according to the federal Bureau of Labor Statistics, Evenson said. He also pointed to U.S. Small Business Administration data showing that 41% of state businesses opened in 2002 were still open a decade later — the highest rate in the Midwest and 6.5 percentage points above the U.S. average.

Walker is committed to providing tools that ensure businesses' long-term success once they're up and running, Evenson said. Those tools include a tax credit for investors in qualified early-stage businesses, a micro-grant program that helps technology start-ups get federal R&D funding, an entrepreneurial training program on University of Wisconsin System campuses, and seed grant and accelerator programs.

WEDC, the state's commerce agency, also plans to launch a program in the next few weeks to support "entrepreneurial assistance efforts," Evenson said.

State policymakers, however, have drained funding from the start-up tax credits, said Joe Kirgues, a co-founder of gener8tor, which runs training programs for start-ups. They have also pursued additional cuts to the UW System and tried to pass stiffer non-compete legislation to further limit the supply of entrepreneurs, he said.

"The formula to turn around our job-creation performance includes a stronger UW system, the elimination of non-competes in Wisconsin and strengthening start-up tax credits to encourage additional investment in Wisconsin's entrepreneurs," Kirgues said. "Unfortunately, none of those things happened last year, and these rankings reflect the status quo."

With help from American Family Insurance and the Wisconsin Alumni Research Foundation, gener8tor has graduated 22 Wisconsin-based startups from its gBETA program for very young companies.

"We have to think about policy and partnerships that position us for the future, and teach the idea of taking risk to Wisconsin's young people " said Brandon, who advocates the theories in Steve Case's new book, "The Third Wave: An Entrepreneur's Vision of the Future." Case says the U.S. is entering a new chapter in its economy during which entrepreneurs will leverage the internet to challenge and disrupt the world's largest industries.

Categories the Kauffman report analyzed, and Wisconsin's ranking among the 25 larger states, included:

Rate of new entrepreneurs: Wisconsin ranked second-to-last, trailing only by Pennsylvania. In Wisconsin, 190 of every 100,000 adults become entrepreneurs per month, on average. For top-ranking Texas and California, it was 390 of every 100,000 adults.

Wisconsin ranked second-to-last, trailing only by Pennsylvania. In Wisconsin, 190 of every 100,000 adults become entrepreneurs per month, on average. For top-ranking Texas and California, it was 390 of every 100,000 adults. Opportunity share: Wisconsin had 74.2% of its entrepreneurs come from other jobs, rather than from being unemployed. Only Alabama scored lower, with 66.45% of its entrepreneurs in this category.

Wisconsin had 74.2% of its entrepreneurs come from other jobs, rather than from being unemployed. Only Alabama scored lower, with 66.45% of its entrepreneurs in this category. Start-up density: For every 1,000 employer businesses here, Wisconsin had 57.9 start-ups, ranking it last among larger states. Florida, the top performer in this category, had 101.8 start-ups for every 1,000 employer businesses.

The Milwaukee metro area was last for its rate of new entrepreneurs, with 100 for every 100,000 adults. Austin, Texas, the top performer in this category, had 600 new entrepreneurs for every 100,000 adults.

Not to worry, says Dan Steininger, president of BizStarts Milwaukee, which helps create new companies in southeastern Wisconsin. He sees a change for the better on the horizon.

"We’re not seeing a lot of impact, but I’ll guarantee the funnel of start-up companies has been dramatically expanded," Steininger said. "There’s more start-up activity than we’ve ever known in our lifetimes. It just takes time to see the results."