Entrepreneurial climate gets D-
Michigan's ranking slips from previous year's report

By Tom Henderson

6:00 am, April 15, 2007

A report being released today by the Small Business Foundation of Michigan says that Michigan is on the verge of a failing grade for "entrepreneurial dynamism," slipping to a D-minus for 2006 from the D it earned in 2005.

Mike Shore, chief communications officer with the Michigan Economic Development Corp., sharply disputed the report's findings, saying its data was at least two years old and that the report ignored recent state efforts to bolster startups and young tech companies.

Shore said the 229-page report contrasted sharply with the 2007 State New Economy Index released in February by the Kauffman Foundation and the Information Technology and Information Foundation, which ranked Michigan No. 19 in the U.S. The introduction to that index said that it measured the degree to which state economies "are knowledge-based, globalized, entrepreneurial, information-technology driven and innovation-based."

According to today's report, titled the "Michigan Entrepreneurship Scorecard," Michigan ranked 44th among the states for entrepreneurial dynamism, a combination of 42 measures of entrepreneurial activity, including the growth in the number of small businesses, startup activity, university spin-offs, patents per worker, amount of federal and industry research and development, venture capital funding, federal grants, capital investment in manufacturing, building permits and private lending to small businesses.

"Our economy is still dominated by risk-averse thinkers, including business leaders, the governor and politicians. It's not enough to say we've turned the corner or to say the future of Michigan will be determined by entrepreneurs," said Mark Clevey, one of the study's authors, executive director of the Small Business Foundation of Michigan and vice president for entrepreneurship of the Small Business Association of Michigan. The foundation is a charitable foundation affiliated with the association.

"We don't have a tax policy in the state. We don't know what our tax policy will be next week, next month, next year or in five years. No one knows, and that uncertainty hammers entrepreneurs," Clevey said. "We're six years into economic uncertainty, and we're still wondering what large corporation will come in and save us."

"I think everyone would acknowledge that Michigan needs to improve its entrepreneurial culture. But ... what's frustrating is the Small Business Association is telling the world that Michigan is a terrible place to do business," Shore said.

Jim Epolito, MEDC's president and CEO, was unavailable for comment.

Shore said that according to the New Economy Index, Michigan has shown the greatest improvement in the nation since 1999. "We've moved up 15 places since then," he said. According to the index, Michigan ranked third in the Midwest. Minnesota was No. 11 and Illinois No. 16.

"In the last year, we've added more than a quarter of a billion dollars to entrepreneurial efforts through competitive awards and to venture capital funds that will invest in new technology companies," Shore said.

This year, two state-backed funds, the $95 million Venture Michigan Fund and the $109 million 21st Century Investment Fund, began making investments in venture capital companies. In September, the 21st Century Jobs Fund announced winners of the first round of competitive awards of about $100 million, much of it in the form of loans to entrepreneurs that can be converted to state-owned equity in their startup or young businesses.

Clevey said that despite the tenor of the report, "Michigan is not in crisis. It is in transition. It has a lot of economic distinctions."

"Our entrepreneurs are doing well even though we go out of our way to hobble them," Clevey said. "It wouldn't take a lot for us to be a world leader in entrepreneurship but it will take a conscious decision by policy makers to show leadership."

Massachusetts was ranked No. 1 and received the only A-plus. Maryland was second with a B-plus, with Idaho, New York and Colorado following in order with Bs. Twenty-seven states got grades of D-plus or lower.

Those states ranking behind Michigan, in order, were Kentucky, Missouri, Mississippi, Louisiana, Nebraska and West Virginia. The last two got Fs.

Rankings for Midwest states were No. 27 for Minnesota, 28 for Wisconsin, 32 for Ohio, 34 for Illinois and 42 for Indiana.

The entrepreneurship scorecard was a joint effort by the Small Business Foundation and Florida-based GrowthEconomics Inc. Graham Toft, founder and president of GrowthEconomics, was co-author.

Sponsors included the Edward Lowe Foundation, the Michigan State Housing Development Authority, Next- Energy of Detroit, Troy-based Automation Alley, SBAM and several state universities.