Michigan’s entrepreneurial economy is fading in its strength over time, including relative to its Midwest neighbors, according to the 21st edition of the Entrepreneurship Score Card released today by the Small Business Association of Michigan (SBAM) Foundation.
The annual analysis combines dozens of metrics and measures to create a comprehensive evaluation of Michigan’s economic strength, with an emphasis on the entrepreneurial economy, according to the foundation.
The term “entrepreneurial economy” refers collectively to sole proprietorships as well as small and midsized for-profit businesses. This segment is known for its dynamism — lots of establishments forming, merging, surviving, failing, expanding, contracting, moving, and growing. According to SBAM, research confirms that around 50 percent of net new jobs are created by this segment of the economy.
“In recent years we have noted that the condition and strength of Michigan’s entrepreneurial economy has somewhat faded, and unfortunately it has slipped even further in this year’s report, which is alarming because half of all net new jobs are created by this segment of our economy,” says Brian Calley, president and CEO of SBAM.
While the economy in general is becoming increasingly tenuous, Michigan’s position is becoming less competitive as compared to other states, the report states.
“As the national economy becomes increasingly unstable, the ability for the state to quickly adjust to a rapidly changing environment will be crucial to small business success in the years ahead,” Calley notes. “There is still reason to think we can right this ship, as the Score Card shows Michigan has improved its five-year establishment survival rate.”
Report highlights include:
- In the last 20 years, the self-employment and Stage 1 small businesses (1-9 employees) have grown in number by 33 percent and 43 percent, respectively, far outpacing growth in the number of Stage 2, Stage 3 and large businesses.
- Stage 1 small businesses (1-9 employees) and Sole Proprietors provide an employment base that is more stable than larger businesses, dipping far more mildly during recessions, followed by a subdued up-turn in the post-recession recovery phase.
- Michigan has become a top performing state in the Five-Year Establishment Survival Rate.
- Sole proprietors now account for 17.7 percent of all private sector employment, and their income growth has mostly exceeded the U.S. average among sole proprietors since 2011.
- Women ownership of businesses in Michigan has increased from 29.6 percent to 35.5 percent of all businesses over the last 20 years, and now slightly exceeds the US percentage.
The report’s negative findings include:
- Since the pandemic, new business openings have trended downward and closures are trending up.
- The percentage of Michigan businesses expanding employment is now less than those contracting.
- Michigan experienced a spike in new business starts with planned wages (businesses who report an intention to hire employees) following the pandemic. Since 2023, Michigan Small Business formation activity levelled off and then turned downward.
- While minority ownership of businesses in Michigan has increased from 10.5 percent to 18.3 percent of all businesses in Michigan over the last 20 years, Michigan is still only slightly more than half of the national rate.
- While Michigan has seen an increase in the number of businesses in all stages, our rate of increase badly trails the US over the last 20 years.
The full Score Card is available at sbam.org/scorecard.
