Crain’s Detroit Business
Nov. 16, 2022
Michigan’s entrepreneurial economy continues to grow while small businesses have been resilient in the post-COVID pandemic era, a new report shows.
The 18th Annual Small Business Association of Michigan Entrepreneurship Score Card, released Tuesday by the SBAM Foundation, analyzed the state’s economy to assess Michigan’s entrepreneurial climate.
Michigan small businesses since 2020 have outperformed the U.S. as a whole in terms of percent growth in businesses open and business revenue, according to the report. Michigan from January 2020 to Feb. 6, 2022, has seen small businesses open at a rate of 8.5% vs. 3.1% for the U.S., according to the report. That means that nearly 1 in 10 businesses that open in Michigan is a small business, vs. about 3 in 100 across the rest of the country. The Michigan rate represents an increase in small business revenue of 24.2% compared to 8% for the U.S., the report stated.
“Though many challenges persist, it’s safe to say Michigan’s small businesses have experienced significant improvement since the pandemic began and over the last 18 years since the Score Card was developed,” SBAM President and Chief Executive Officer Brian Calley said Tuesday. “While inflation and worker shortages are threats to the future, small business revenue trends and startup trends give reason for optimism.”
There is optimism, Calley said, but some lingering issues remain.
The labor force still hasn’t caught up to pre-pandemic levels. As of July, there were 324,000 job openings in Michigan and 202,130 unemployed workers, the report states. The percentage of workers age 25-54 declined by 2.6% from 2010 to 2020 from nearly 40% to 37.3%, the report found. That means more Michigan residents in the prime of their employment lives are electing to not work.
“The labor force isn’t likely to catch pre-pandemic levels,” Calley said. “It’s difficult to scale up the workforce with the changes that have come up.”
Those changes include more than 500,000 Michigan residents working as independent contractors. In total, about 4.66 million Michigan residents are employed, according to the U.S. Bureau of Labor Statistics. Calley said entrepreneurship has become more important to Michigan’s economy. The amount of the state labor force that operates in the gig economy shows staying power for those who decided to leave more traditional roles, he said. In addition, the increase in remote work and the flexibility it provides may have led to an increase in independent contractors and more people starting small side hustles, the report states.
That was born out of necessity, according to Graham Toft, president of GrowthEconomic Inc. Toft, who authored the score card, said the coronavirus pandemic, like the Great Recession of 2007-09, pushed Michigan residents to look at alternatives for employment.
“People have been forced to make changes,” Toft said. “It’s part of the cycle. It’s a move for the state to become less reliant on large companies and more reliant on mid-size and small companies, sort of like things were a century ago.”
Those changes also include increased labor, energy and health care costs. Those costs are up across the country, but Michigan’s rate of increase in recent years falls below the U.S. number, according to the report. Inflation is a major sticking point, with nearly 42% of small businesses in Michigan facing major price increases, slightly higher than the 40.6% of small businesses across the country having the same issue.
Even with the pitfalls still facing entrepreneurs, Michigan’s reputation as a good spot for independent workers has improved, according to Calley.
“While Michigan is solidly a middle-performing state now, and that might not be inspiring, but when you consider a couple decades ago we were a bottom feeder as far as being an entrepreneurial state, we’ve made progress,” Calley said.
“That doesn’t mean there aren’t hard times in some regions and industries. There’s been a huge shift in where the market is for certain types of businesses, with the move to remote work as an example. It’s decimated growth in some areas and facilitated growth in others. Traditional downtowns areas are some of the most impacted. I suspect that over the long-term there has to be a look at land-use and planning. The market didn’t go away. It just went to a different location. Economic activity didn’t go away. It moved to a different place.”
Some policy issues could affect the labor market, Calley said.
That includes legislative proposals that could limit the status and use of independent contractors, the upcoming decision on changes to minimum wage and paid leave rules, labor force participation rates, and inflation.
“While Michigan’s small businesses have clearly played a large role in Michigan’s economic growth, we cannot take their success for granted,” Calley said. “Our policy makers must be careful not to throw a wet blanket on small business success with policies that stifle new business starts with limitations on independent contractors or further exacerbate cost increases with additional government mandates.”