(Editor’s note: This is the second of a two-part series focusing on findings in the GVSU “Empowering Entrepreneurship” quadrennial report.)
Business begins with culture.
This was the conclusion Paul Isely, professor and chair of economics at Grand Valley State University’s Seidman College of Business, came to after a long assessment of Grand Rapids’ entrepreneurial and economic data.
Isely, who co-authored this year’s “Empowering Entrepreneurship,” a quadrennial report on the state of West Michigan’s entrepreneurial community, said that culture — the shared values, beliefs and norms of the local community — is the primary factor in West Michigan’s development of local businesses, particularly the entrepreneurial element.
“We certainly think that the culture has to be there. Without all the business pieces in place, if you still don’t have culture, it won’t go. But if no one has the culture … then no one’s going to take advantage of the business pieces in the first place,” he said.
“Certainly in West Michigan it’s the story, because we have a decent business climate in West Michigan. You need that culture to really start driving the start of new businesses.”
According to Isely’s report, commissioned by GVSU’s Seidman College of Business and the Richard M. and Helen DeVos Center for Entrepreneurship and Innovation, this year’s numbers, when compared to the first Empowering Entrepreneurship report in 2009, revealed it was risk-taking entrepreneurs who kept the West Michigan economy’s head above water during “the depths of the recession.”
West Michigan, like most of the state, wasn’t always a friendly place for entrepreneurs, Isely said, describing a business culture that didn’t accept financial risk-taking or failure, instead relying heavily on major industries, which crashed hard with the economy. When that happened, the entrepreneurial culture finally emerged.
From 2009-2011, West Michigan added jobs, 63 percent of which came from firms that didn’t exist prior to 2009, Isely said, causing West Michigan to actually grow at about twice the rate of the U.S. economy since coming out of the recession.
The recession created a new culture that supported entrepreneurs, he said, and entrepreneurs changed the recession.
“People started to realize that they couldn’t wait for the businesses we were used to going back to, that they needed to start something themselves,” Isely said. “Culture moves first, particularly for Grand Rapids. Part of it is, we’ve had to rebrand West Michigan and there’s certainly been major efforts with that, such as ArtPrize and LaughFest and Pure Michigan.”
Culture change was something Isely had marked as necessary since his first snapshot report in 2009. On the opening page of that report, H. James Williams, who was the Seidman College of Business dean at the time, advised Grand Rapids to “develop and enhance a culture that encourages entrepreneurship.”
Four years later, John Reifel, Seidman’s current interim dean, wrote in the 2013 report that the progress Williams had urged had been made in the form of entrepreneurial supporters like Start Garden, GROW’s microloan program, Michigan Accelerator Fund I, Huron River Venture Fund, Business Accelerator Fund, Muskegon Angels and the mezzanine fund at Blackford Capital.
“Michigan is making strides in the right direction,” said Rick DeVos, founder of Start Garden and ArtPrize. “I think we're seeing attitudes slowly shift toward broader support for entrepreneurs in Michigan, whether it’s making the state more welcoming to risk-taking, creating a more favorable small business environment, or attracting the private capital required to sustain this culture long term.”
With culture headed in the right direction, it’s time for the other pieces of the economic puzzle to follow. West Michigan’s changes have been good, Isely said, but not as good as many think, especially when it comes to business climate.
In the report’s survey, many said they were highly satisfied with West Michigan’s business climate, noting essentials such as small business support, government support and the cost of doing business. Ironically, these are all areas Grand Rapids actually ranked low in, Isely said, noting that from 2009-2012, in the national cost of doing business ranking, Grand Rapids moved only from 31st to 29th place.
“I would have expected a larger move in the cost of doing business in those years. Think about the change we’ve seen in manufacturing wages on the east side of the state and the changes in taxes,” he said. “It seemed like an awful lot. It only bumped us two notches.”
Isely said the perception is skewed because many mistake the cost of living — in which Grand Rapids is competitive — for the cost of doing business, in which Grand Rapids is not as competitive.
He also noted that Grand Rapids, compared to its benchmark cities, tied with Greensboro, N.C., as having the most sluggish progress in H-1B visas, which allow for aliens to work in specialized fields in the U.S. He called the visas a mark of “how willing a community is to import specialized labor” and a sign the business community still needs to do more to attract talent.
“When we look at the data, our cost of doing business is below average and we’re not bringing in outside workers. The perception is we’re doing better than we are,” Isely said.
“Wages across West Michigan, on average, are below average. The average worker is paid about $2 an hour less than the national average, but part of that is the mix of jobs. If I compare the same jobs, many of those jobs are more expensive in Michigan.”
A major issue still facing Grand Rapids is talent retention, Isely said.
“We’re one of only two cities in all of our benchmark cities where the number of people who were 15 to 25 years old in 2000, who would now be 25 to 35 years old — that group shrank,” he said.
“I think we’ve made some gains there in the past few years, but we’re losing young workers, not bringing in outside talent, and we’re not increasing our rate of patenting. … All of that tells us that what we’re missing right now is the mix of talent.”
Lifestyle is important to younger workers, Isely said, and the area needs to promote that if young talent is to be attracted and retained. In addition, Grand Rapids needs to have more affordable technical education, he said.
On a positive note, the number of venture capital firms in Michigan is growing at about three times the rate of the rest of the country, he said, and the average venture capital fund size is increasing at twice the rate at the rest of the country.
“Those are big numbers and that’s an important thing to realize. It’s growing because we have a lot of resources here to take advantage of,” he said. “We have a work force highly talented in manufacturing, we have excess manufacturing capital that is around, and we have a business environment relatively favorable for business.”