Entrepreneurship is a link between new knowledge and economic growth, and of great consequence because new and young firms are the principal sources of net job creation in the United States. As the economy becomes more new knowledge based, the importance of entrepreneurship grows. The Michigan and Metro Detroit challenge is to forge an economic model built more on entrepreneurship and innovation.
The Kauffman Foundation Index of Startup Activity is a measure of entrepreneurial outcomes, as opposed to inputs. It has three components: the Rate of New Entrepreneurs, the Opportunity Share of New Entrepreneurs, and the Startup Density. Other measures of entrepreneurship will be added in the future.
Reported below is the Rate of New Entrepreneurs for Metro Detroit, Michigan, and the largest 15 Metro areas in the United States. The Rate of New Entrepreneurs measures the percentage of adults that become entrepreneurs in any given month. It is a broad measure of business ownership, including both incorporated and unincorporated businesses, with or without employees. Because this measure of entrepreneurship tracks the number of new entrepreneurs, it provides the earliest documentation of new business development.
The Rate of New Entrepreneurs in the Detroit metro area was 220 per 100,000 adults in 2015. It ranked last among the 15 largest metropolitan regions. Metro Detroit did increase in 2015, reversing a downward trend that started in 2009. The Rate of New Entrepreneurs in Metro Detroit increased about 15 percent, from 187 out of 100,000 adults in 2014 to 220 out of 100,000 adults in 2015. This translates into approximately 7,000 new business owners each month during the year.
The Chart shows that the Rate of New Entrepreneurs in Metro Detroit is substantially below the level for the United States and the average of the 15 largest metro areas since 2009, and fell below the State of Michigan in 2012. The Kauffman Foundation data on the Opportunity Share of New Entrepreneurs and Startup Density also show Michigan and Metro Detroit lagging behind other regions.
The Kauffman Foundation data on entrepreneurship that shows Michigan and Metro Detroit considerably behind other regions is at odds with the Michigan Entrepreneurship Score Card 2015. The Michigan Entrepreneurship Score Card concludes that "encouraging signs of entrepreneurial activity and growth began emerging in 2010 and positive trends have been dramatic over the past four years." The Kauffman Foundation uses outcomes data while the Michigan Entrepreneurship Score Card uses 30 input measures and 80 secondary metrics contributing to Michigan’s broader entrepreneurial economy. Examples of input measures are patents per worker, SBIR financing, and GPD growth while secondary measures include unit labor cost, educational attainment, digital connectivity, and quality of life measures.
An indication of Metro Detroit’s challenge to foster an economy more focused on entrepreneurship and innovation is Ford’s decision to open a research and innovation center in Palo Alto instead of Southeastern Michigan. Ford’s efforts to incubate innovation in the area of mobility including research on electric-assist bikes, car swapping and sharing, parking assist, and wearables are important and can generate new businesses and opportunities for job creation. Locating the Innovation Center in Palo Alto is to take advantage of the technology ecosystem in San Jose, to be part of a community of thinkers, and to have partnerships with other technology efforts.
Metro Detroit has further to go to become an entrepreneurship and innovation hub.
Laura Tack, Research Assistant
Jonathan Silberman, PhD