Editor’s note: This post was republished with permission from the Ewing Marion Kauffman Foundation’s Growthology blog.
The Madison Mayor’s Summit in May was one of four regional summits that the Kauffman Foundation is organizing this year leading up to the national Mayors Conference of Entrepreneurship in December. These regional summits bring together policymakers and city officials with entrepreneurs, so both parties can learn how to create a stronger entrepreneurial ecosystem in their city.
I attended the Madison summit, hosted by Mayor Paul Soglin, and found four hot topics from the event particularly interesting.
“Scared Lawyer” Policies
During the summit, there were a number of discussions around policies that favor incumbent firms. These act as frictions toward building a prosperous entrepreneurial ecosystem. Some examples of these types of policies present in Wisconsin are:
• Non-compete laws: A thoroughly researched topic by the Kauffman Foundation and other scholars, non-compete laws can be prohibitive to spinoff companies and slow innovation. Wisconsin currently has relatively strong non-compete laws and there is legislation under consideration that could make them stronger. Enacting stronger laws against skilled individuals starting a company in their field will only lead to fewer innovative companies and more skilled workers leaving your state, like the case in Wisconsin’s neighbor,Michigan, in the 1980s.
• Procurement Policy: One revenue source for entrepreneurs that is underutilized is government contracts. When governments issue very specific and detailed requests for products or services, they necessarily shut out young firms that don’t have the flexibility or scale to fulfill these requests. Meanwhile, old firms have an advantage having fulfilled previous contracts and government misses out on potential innovative solutions that startups can imagine. Nationally, state and local government procurement represents $450 billion of spending each year. This can offer young firms a great opportunity for growth if procurement reform lessens the requirements to participate, deemphasizes a prescriptive process, and allows the most innovative and efficient company solve it.
• Tax Incentives: Attendees at the summit were frustrated with government giving tax incentives to companies they don’t consider entrepreneurs. But tax credits and incentives aren’t golden tickets for entrepreneurial communities. Research has shown that tax credits don’t positively affect entrepreneurship, but they can negatively impact it by not dedicating that money directly to young and growing firms.
Human Capital and Connections
Two of the most important factors for improving entrepreneurial ecosystems are the overall level of human capital and network connections. Wisconsin has an excellent asset in the University of Wisconsin System. There are 13 four-year universities, 13 freshman-sophomore UW Colleges campuses spread across the state that enroll 180,000 students each year. Universities are critical in developing the human capital necessary to start innovative companies. Leveraging a strong university system that can facilitate and strengthen connections and expertise will be key to a flourishing entrepreneurial environment in Wisconsin.
The Power of Spinoffs
During the summit, Rhett Morris of Endeavor Insights told the evolution story of Silicon Valley through the eyes of Fairchild Semiconductor as compared to Texas Instruments. Even though Fairchild Semiconductors started in an agricultural valley, the founders grew an ecosystem around them by becoming the first venture fund in the area, encouraging employees to spin out companies and investing in those companies. Research has shown that 92 companies have direct ties to Fairchild with a valuation of $2.1 trillion. Silicon Valley today is known as the technology and innovation Mecca. Meanwhile Dallas, although a powerful economic region and still home to Texas Instruments, has seen relatively little growth in computers and technology in comparison.
But Wisconsin hasn’t seen spinoffs become an important force of entrepreneurship. Part of this is a result of behavior by existing firms that don’t have a culture of encouraging spinoffs. The health tech behemoth Epic Systems, headquartered in Verona, Wisconsin, is a particular example of where these kinds of spinoffs can come from but haven’t. Zach Brandon, president of the Greater Madison Chamber of Commerce, sees cities like Madison and Milwaukee as key in building the connections and trust to allow spinoffs of successful companies to emerge.
Legacy Company Involvement
In Wisconsin, there many legacy companies (Kohler, Harley Davidson, Kimberly Clark). The mayor, city government, and economic development agencies all play a crucial role in encouraging the legacy companies to involve themselves in building an entrepreneurial ecosystem. It’s important to re-tell this generation of legacy company CEOs about the entrepreneurial founding of their companies to get them excited about helping other entrepreneurs.
Some of the CEOs can be far removed from the original entrepreneur and not see the need or point in helping other entrepreneurs. However, disruption is happening all around them and it’s better to be closer to the disruption than try and stifle it. These legacy companies can best leverage their assets by mentoring companies in the same sector, becoming angel investors, or starting a fund. American Family Insurance is a great example of a Wisconsin company that has strong ties to the entrepreneurial community with their American Family Ventures, Dream Bank, and more. Badger Meter is equally as involved in Milwaukee with the founding of the Water Council, which helps water tech companies start, validate and grow.
At the end of the summit, Mayor Soglin announced a succession meeting to start discussing the issues present during the meeting. It’s the Kauffman Foundation’s hope that these groups of policymakers, entrepreneurial supporters and entrepreneurs continue to meet and discuss how they all play their own part in making a stronger entrepreneurial ecosystem by working on these issues.
For any inquiries or requests about Mayor’s Summits, contact Evan Absher.
Colin Tomkins-Bergh is a research analyst in Research and Policy for the Ewing Marion Kauffman Foundation, working to evaluate the effectiveness of entrepreneurial ecosystems following the Great Recession and performing research around the Ag Tech sector.