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How high-growth companies solve unemployment in Southeast Michigan

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Page 1: Filling the Scaleup Gap

a report from:

FILLING THE SCALEUP GAPHow High-Growth Companies can Solve Unemployment in Southeast Michigan

supported by:

powered by:

EXPANDED&

UPDATED

Page 2: Filling the Scaleup Gap

2 / Filling the Scaleup Gap

SCALEUP COMPANIES drive economic growth around the world. Southeast Michigan is no different, with scaleup firms sitting at the core of the region’s economic renaissance. To explore the relationship between employ-ment and scaleup firms, Endeavor Insight, in partnership with the New Economy Initiative (NEI), initiated an in-depth study of the region’s fastest growing entrepreneurs. We defined scaleup firms as companies with at least 10 employees and 20% or greater annual employ-ment growth over the previous three years. In the process, we analyzed employment and company formation trends since 2007, reveal-ing five key findings:

Despite playing a role in inventing scale-up entrepreneurship, Southeast Michigan’s economy has declined in recent decades. The 2008 Financial Crisis caused a series of busi-ness failures, and sent regional unemployment up by nearly 10 percentage points at its peak. Now, six years after the crisis, the region’s un-employment rate remains above its pre-crisis levels, and higher than that of peer cities like Pittsburgh and Cleveland.

EXECUTIVE SUMMARY

Southeast Michigan has been home to some of the world’s most prolific entrepre-neurs. Henry Ford, John Francis Dodge, Walter Chrysler, and S.S. Kresge are just a few of the entrepreneurs who built world changing com-panies in Southeast Michigan. In the process, they helped usher in an era of high-growth entrepreneurship that contributed to the growth of the American middle class.

FAST-GROWING COMPANIES TRANSFORMED SOUTHEAST MICHIGAN DURING THE FIRST HALF OF THE 20TH CENTURY.

1

SOUTHEAST MICHIGAN IS STILL RECOVERING FROM THE 2008 FINANCIAL CRISIS.

2

Filling The Scaleup Gap / 2

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Between 2007 and 2012, Southeast Michi-gan lost roughly 50% of its scaleup companies. In this same period, the region added 50,000 startups and other lower-growth firms. How-ever, that period also saw an increase of nearly 3% in the region’s unemployment rate, mak-ing it clear that not all types of firms have the same ability to create jobs and value for the local economy

Scaleup companies can return Southeast Michigan’s unemployment rate to pre-crisis levels, and a proven cycle exists to accelerate their growth. Scaleup entrepreneurs need ac-cess to unique resources at each stage of their growth: the ambition to scale, the financial and human resources to grow, the commitment to stay in Southeast Michigan, and the desire to reinvest their success in the next generation. Each successful scaleup entrepreneur who re-invests in Southeast Michigan accelerates this cycle and closes the region’s scaleup gap.

Scaleup firms are larger, create more jobs, and are more durable than other types of company. In 2012, the average scaleup employed 153 people, compared to eight at lower-growth firms and just two at startups. These companies, on average, created 94 jobs per firm between 2009 and 2012. Firms with at least one high-growth period between 1990 and 2012 were more than twice as durable as firms that never experienced high growth.

DESPITE AN INCREASE IN THE NUMBER OF COMPANIES, SOUTHEAST MICHIGAN HAS A SCALEUP GAP.

3THERE IS A PROVEN CYCLE TO ACCELERATE SCALEUPS THAT SOUTHEAST MICHIGAN CAN USE TO BUILD ON LOCAL STRENGTHS.

5

SCALEUP FIRMS CREATE MOST OF THE NEW JOBS IN SOUTHEAST MICHIGAN.

4

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4 / Filling the Scaleup Gap

NYC = ROLE MODEL

HENRY FORD WAS one of the twentieth cen-tury’s most successful entrepreneurs. In 1912, his company produced just 6,000 Model Ts. Six years later, Ford was producing 700,000 cars a year. To meet the demand for its cars, the company grew rapidly, and to keep up, Henry Ford doubled wages to $5 per day for thousands of employees.1 Ford’s workers in turn became Ford’s customers, joining the region’s nascent middle class in the process. In just a decade, Ford created and then dom-inated an entirely new industry, scaling his business and changing the way people moved, worked, and lived in the process.

In just a few decades, Southeast Michigan became home to a newly minted automo-tive entrepreneurship ecosystem. A network of original equipment manufacturers arose to supply Ford, and entrepreneurs like John Francis Dodge and Walter Chrysler built rival

companies that piggybacked on the region’s network or suppliers and accumulated talent. Between 1920 and 1950, these entrepreneurs’ ambitions transformed the city, expand-ing its population fivefold from 286,000 to 1,500,000, and turning Southeast Michigan into a major center of U.S. economic power.2

This culture of fast-growing entrepreneur-ship was responsible for the region’s ascen-dance. As it diminished through the second half of the 20th century, so too did Southeast Michigan’s economy. Punctuated by the 2008 financial crisis, the decline of fast-growing businesses in the region now poses a seri-ous threat to Southeast Michigan’s recovery and rebirth. The next engine of growth in the region may not be automobiles, but it is fast-growing businesses that will revitalize the region’s economy.

gg

Fast-growing companies transformed Southeast Michigan the first half of the 20th century.

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Filling the Scaleup Gap / 5

Page 6: Filling the Scaleup Gap

2008 2009 2010 2011 2012 2013 2014

18.0%

10.0%

16.0%

8.0%

14.0%

6.0%

2.0%

12.0%

4.0%

0.0%

Southeast Michigan Unemployment Rate:December 2007 – December 2014

2015

7.4%

7.7%

6 / Filling the Scaleup Gap

THE 2008 FINANCIAL CRISIS HIT SOUTHEAST MICHIGAN as hard as any metro area in the country. Unemployment peaked at over 15%, Detroit’s largest companies went bankrupt, and the city itself teetered on the precipice of insolvency. Even as the broader U.S. economy finds a new footing, Southeast Michigan con-tinues to suffer from higher unemployment than it did before the crisis. The Financial Crisis is over, but many of the region’s fundamental economic challenges remain unsolved.

UNEMPLOYMENT STILL ABOVE PRE-CRISIS LEVELS. The most troubling symptom of Southeast Michigan’s economic decline is its persistently high unemployment rate. While the broader U.S. economy has returned to its pre-crisis employment levels,

Southeast Michigan’s has not. The region, defined as the Detroit-Warren-Livonia, MI Metropolitan Statistical Area (MSA), has unem-ployment levels that exceed pre-crisis levels by almost a percentage point and its 2004 aver-age by more than 2%.3

The societal impact of long-term unem-ployment cannot be overstated. The long-term unemployed are more likely to earn less when finally employed, have poorer health, and raise children with worse academic per-formance than their employed peers.4 South-east Michigan’s unemployment rate has a deep human impact that will continue to impact the productivity of both the region and its people well into the future.

Data from the Bureau of Labor Statistics demonstrates the persistence of this prob-

Southeast Michigan is still recovering from the 2008 Financial Crisis.

Un

emp

loy

men

t ra

te

Year

Source: Bureau of Labor Statistics (BLS) data for Detroit-Warren-Livonia Metropolitan Statistical Area (MSA).

Page 7: Filling the Scaleup Gap

10.0%

9.0%

8.0%

7.0%

6.0%

5.0%

2013 Unemployment Rate for Comparable Metropolitan Areas

Houst

on

Mia

mi

Pittsb

urgh

Atlanta

Denver

Clevela

nd

Phoenix

Charlotte

SE Mic

higan

6.2%6.6%

6.8% 6.9%

7.4% 7.5%7.9%

8.1%

9.4%

Filling the Scaleup Gap / 7

lem. Between December 2007 and December 2014, Southeast Michigan’s labor force shrank from 2.13 million to 2.02 million, with more than 112,000 people either leaving Southeast Michigan or dropping out of the labor force.5 Despite the shrinking labor force, the number of unemployed people in the region has re-mained roughly the same since 2007.6 Because of the shrinking labor force and increased unemployment, the region needs to create 6,000 new jobs to reduce unemployment to pre-crisis levels.7

SOUTHEAST HAS HIGHER UNEM-PLOYMENT THAN PEER METRO AREAS. The severity and persistence of the region’s unemployment challenge is unique among comparable metropolitan areas. We compare

the average unemployment rate in 2013 for MSAs with a population between two and six million and similar median per capita income and poverty levels. Among these nine cities, Southeast Michigan has the highest unem-ployment rate by more than a full percentage point. On a list of the 49 largest metro areas in the U.S., Southeast Michigan ranks 46th by unemployment rate, ahead of only Providence, Las Vegas, and California’s Inland Empire.8 Peer cities across the US have begun their recov-ery from the recession, and Southeast Mich-igan must find for new engines of economic growth in order to join them.

Un

emp

loy

men

t ra

te

Metropolitan area

Source: Bureau of Labor Statistics (BLS) data for Detroit-Warren-Livonia Metropolitan Statistical Area (MSA).

Page 8: Filling the Scaleup Gap

Total Southeast Michigan Firms, 2007 vs. 2012

2007

Legend:

10,000 Lower-growth firms

10,000 Startup firms

Note: Startup firms are three or fewer years old. Lower-growth firms are greater than three years old and did not have at lest one three year period of employment growth greater than or equal to 20% between 2007 and 2012.

Source: Endeavor Insight analysis based on 2012 NETS Database data for the Detroit-Warren-Livonia MSA.

2012

279,000 firms

331,000 firms

8 / Filling the Scaleup Gap

PEOPLE ARE LEAVING SOUTHEAST MICHI-GAN because they can’t find jobs, and those that stay confront one of the most challenging labor markets in the U.S. The total number of companies in Southeast Michigan has actu-ally increased, but these new companies are not creating new jobs, and many are in fact destroying them. Persistent unemployment is a symptom of a much more important prob-lem: the decline of scaleup firms in Southeast Michigan.

MORE STARTUPS HAVE NOT LED TO MORE JOB GROWTH. We look at a dataset of over 600,000 Southeast Michigan compa-nies in existence at some point between 2007 and 2012, and divide these companies into three categories: startups, scaleup firms, and lower-growth firms. In any given year, startups are companies founded within the last three years and still operating, while scaleup firms are those that are more than three years old, have 10 or more employees, and had annual employment growth of at least 20% over the preceding three years.

By these definitions, there were nearly 3,500 more startups in 2012 than in 2007, an increase of almost 4%.9 In the same period, the number of lower-growth firms increased by almost 49,000, or 27%.10 Combined, South-east Michigan has added over 50,000 new firms in just six years. Yet in the same period, the region saw its unemployment rate jump from 7.6% to 10.1%. Neither startups nor low-er-growth firms are making a dent in South-east Michigan’s stubbornly high unemploy-ment rate.

SOUTHEAST MICHIGAN NEEDS SCALEUP FIRMS. The region suffers not from a lack of companies, but rather from a lack of scaleup firms. Their decline corre-sponds to the region’s increased unemploy-ment rate: between 2007 and 2012, the same period in which unemployment jumped more than 2%, the number of scaleup firms in the region declined 52%, from 674 in 2007 to just 323 in 2012.11 With more than 300 fewer fast-growing firms, it is no surprise that South-east Michigan has been unable to close its unemployment gap.

Despite an increase in the number of companies, Southeast Michigan has a scaleup gap.

Page 9: Filling the Scaleup Gap

Change in the Relative Number of Southeast Michigan Companies by Type, 2007-2012

-100%

2007

+100%

+50%

-50%

2008 2009 2010 2011 2012

SCALEUPFIRMS

LOWER-GROWTH

FIRMS

STARTUPFIRMS

Note: Scaleup firms are greater than three years old, have more than 10 employees, and have at least one three

year period of employment growth greater than or equal to 20% between 2007 and 2012.

Source: Endeavor Insight analysis based on 2012 NETS Database data for the Detroit-Warren-Livonia MSA.

Per

cen

t o

f fi

rms,

20

07

bas

is

Year

Filling the Scaleup Gap / 9

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10 / Filling the Scaleup Gap

WHY IS THE DECLINE of scaleup firms in Southeast Michigan so problematic? It turns out that fast-growing firms not only generate lots of revenues, they also do most of the job creation. In the U.S., scaleup firms create most new jobs, with the top 2-3% of fastest grow-ing companies creating almost all new jobs.12 These jobs, in turn, tend to be higher quality, with more opportunities for professional ad-vancement, and last longer than jobs at slower growing companies. It is therefore unsurprising that Southeast Michigan’s unemployment rate has increased as the number of regional scale-up companies has declined. These companies not only employ more people on average, but also create more jobs and last significantly longer than either startups or lower-growth companies in the region.

SCALEUP FIRMS ARE ENGINES OF GROWTH. Between December 2009 and December 2012, Southeast Michigan’s firms added 42,450 jobs.13 In this period, the handful of scaleups in 2012, 323 in total, created over 30,000 new jobs, 71% of the region’s new jobs and five times as many jobs as are currently necessary to bring unemployment back to its pre-crisis levels. In aggregate, neither startups nor lower-growth firms have the job creation power of scaleups. These are the firms that drive the growth of the economy and can fun-damentally change the employment outlook in Southeast Michigan.

SCALEUP FIRMS ARE DURABLE. Scale-up firms last longer than other types of firms, and the jobs they produce are more stable as a result. We look at all firms in existence between 1990 and 2012 in Southeast Michi-gan, and find that firms that had at least one period of high-growth lasted on average 19 years, while those firms that did not have a high-growth period survived just seven years.14 A 2008 study from the U.S. Small Business Administration found similar results: only 3% of scaleup firms failed in the four years after they experienced high-growth.15 These firms last two and a half times as long as lower-growth companies, and, throughout their lifecycle, employ more people, create more jobs, and are less likely to fail than their peers.

SCALEUP FIRMS ARE JOB-CREATORS. Between 2009 and 2012, the average scaleup firm created 94 jobs over the preceding three years, while the average startup created two. Lower-growth firms barely registered. On average, they did not create a single full-time job.16

Southeast Michigan’s scaleup firms employ large numbers of people. In 2012 alone, the average scaleup firm employed more than 25 times as many people as the average low-er-growth firm, and 76 times as many as the average startup.

Scaleup firms create most of the new jobs in Southeast Michigan.

Page 11: Filling the Scaleup Gap

Note: Scaleup firms are greater than three years old, have more than 10 employees, and have at least one three year period of employment growth greater than or equal to 20% between 2007 and 2012.

Source: Endeavor Insight analysis based on 2012 NETS Database data for the Detroit-Warren-Livonia MSA.

Percent of Southeast Michigan firms

0%

40%

Other firms

10%

50%Scaleups

80%

20%

60%

90%

30%

70%

100%

Percent of jobs created in previous 3 years

Less than 1%

99%

71%

29%

Filling the Scaleup Gap / 11

The Impact of Scaleup Firms on Job Growth, 2009-2012

Page 12: Filling the Scaleup Gap

12 / Filling the Scaleup Gap

TO REDUCE UNEMPLOYMENT to 2007 levels, Southeast Michigan will need to create more than 6,000 new jobs. Entrepreneurship is an important vehicle for closing this gap, but only if the companies themselves are fast growing. Scaleups employ more people, create more jobs, and last longer than other types of firm. They have a unique potential to create jobs, and finding ways to support them and the en-trepreneurs who lead them can yield outsized benefits for Southeast Michigan.

THE ENTREPRENEURSHIP GROWTH CYCLE. Scaleup firms are distinct from av-erage companies, and at each stage of their growth, they have unique requirements. En-trepreneurs must have the ambition to scale their companies and access to the resources to make them grow. Once they have become successful, these entrepreneurs and their companies can accelerate the growth of other companies by staying engaged in the local en-trepreneurship ecosystem and reinvesting their success in the next generation. This growth cycle is one that has been repeated all over the world, from Silicon Valley’s information tech-nology sector to Nashville’s healthcare com-panies. Southeast Michigan now has a unique opportunity to spur the growth of this cycle, supporting scaleup firms and creating thou-sands of jobs in the process. The cycle has four stages, as illustrated on the opposite page.

1. AMBITION: The process begins with am-bitious, new entrepreneurs who seek to build large, scalable businesses in the local area due to their desire to grow and their appreciation for the local quality of life.

2. GROWTH: Next, these founders grow their firms by acquiring the resources their companies need to expand—access to talent, finance and customers—and possessing the ability to put them to use.

3. COMMITMENT: Once they succeed, these founders make a commitment to support the next generation of entrepreneurs. This requires that they wish to continue living in the local area and have the desire to reinvest their capital, knowledge, and connections into others.

4. REINVESTMENT: Successful founders can best support new entrepreneurs by reinvesting their resources through working as mentors and investors, by supporting spinoff businesses, and through acting as an inspiration to others. These actions help new generations of ambitious entrepreneurs grow companies and repeat the cycle, which accelerates the development of local industries.

We have illustrated this framework on the opposite page. It is important to note that even though entrepreneurs are at the center of this process, other stakeholders can still play critical roles.

There is a proven cycle to accelerate scaleup companies that Southeast Michigan can use can use to build on lo-cal strengths.

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Filling the Scaleup Gap / 13Filling the Scaleup Gap / 13

The Four Steps & Sub-Components of the Cycle:

Examples of Ways Local Leaders Can Support Each Step of the Cycle:

Support the Next Generation...

Go Big & Scale...

New Entrepreneurs Successful Entrepreneurs

2. GROWTH

4. REINVESTMENT

3. COMMITMENT1. AMBITION

Source: Endeavor Insight analysis.

• Provide security and ame-nities that make your local area a great place to live for early-stage founders.

• Recognize fast-growing, early-stage firms in your area to inspire new founders.

• Fund programs and organi-zations that specifically target fast-growing companies and evaluate these initiatives based on participating com-panies’ growth.

• Eliminate protectionist regulations and subsidies that make it difficult for new companies to win customers from established firms.

• Offer loan and contract guarantees to qualified, fast-growing firms.

• Create job fairs and job boards specifically for local startups and entrepreneurs.

• Establish public-private partnerships and events to attract outside investors to your area.

• Provide security and ameni-ties that make your local area a great place to live for older, successful founders.

• Recognize successful entre-preneurs who reinvest in the next generation of found-ers by acting as mentors or investors.

• Recruit successful founders to help lead and guide entre-preneurship programs and initiatives in your area.

• Create channels that con-nect successful entrepre-neurs with high-potential, early-stage founders who can benefit from mentorship.

• Offer tax incentives to suc-cessful founders who make angel investments.

• Reduce enforcement of non-compete agreements for employees who leave entrepreneurial companies.

• Promote successful en-trepreneurs as local role models.

The Growth Cycle of Successful Entrepreneurship Ecosystems.

1. AMBITION

Local quality of life

Mentorship

Angel & VC investing

Desire to grow Desire to reinvest

Inspiration

Spinoff businesses

2. GROWTH 3. COMMITMENT 4. REINVESTMENT

New entrepreneurs seek to build scalable companies in

the local area due to:

Entrepreneurs are able to grow their companies

and reach scale based on:

Successful entrepreneurs stay in the local area & engage

with new companies due to:

Successful entrepreneurs reinvest in the next

generation through:

Local quality of life

Access to talent

Access to financing

Access to customers

Entrepreneurial ability

Page 14: Filling the Scaleup Gap

Note: Scaleup firms are greater than three years old, have more than 10 employees, and have at least one three year period of employment growth greater than or equal to 20% between 2007 and 2012.

Source: Endeavor Insight analysis based on 2012 NETS Database data for the Detroit-Warren-Livonia MSA.

14 / Filling the Scaleup Gap

SOUTHEAST MICHIGAN SCALEUPS ARE CONCENTRATED IN SPECIFIC IN-DUSTRIES AND GEOGRAPHIES. This growth cycle tends to take place within spe-cific industries, as local industry expertise and capital accumulates. Focusing on these indus-tries can enable a region to find its competitive advantage in a globalized economy, and do so while creating opportunities for thousands. Between 2009 and 2012, several Southeast Michigan industries have been responsible for a significant percentage of the high-growth companies in the region. Based on the North American Industrial Classification System (NAICS) with the greatest number of scaleup firms between 2009 and 2012, we have iden-

tified three such industries. Broadly defined, information technology, logistics, and light manufacturing accounted for nearly 30% of all regional high-growth firms in 2012.18 These firms are seizing important market opportu-nities, and initiating some of the dynamics of the entrepreneurship growth cycle, in which entrepreneurs become successful and rein-vest in the next generation. Combined, these industries represent an opportunity to do more than create thousands of jobs; they create a pathway for a more vibrant scaleup economy in the future.

Below right is a density map of Southeast Michigan scaleup firms, based on the reported zip code of these firms’ headquarters. Darker

General Freight TruckingNAICS4: 4841, 3.4%

Machine Shops; Turned Product; and Screw, Nut, and Bolt ManufacturingNAICS4: 3363, 2.1%

Plastics Product ManufacturingNAICS4: 3335, 3.0%

Motor Vehicle Parts ManufacturingNAICS4: 3363, 3.4%

Management, Scientific, and Technical Consulting ServicesNAICS4: 5416, 2.6%

Architectural, Engineering, and Related ServicesNAICS4: 5413, 4.3%

Computer Systems Design and Related ServicesNAICS4: 5415, 6.4%

Machinery, Equipment, and Supplies Merchant WholesalersNAICS4: 3363, 1.7%

Information Technology

13.3% of all scaleup firms

Logistics3.4% of all scaleup firms

Light Manufacturing

10.2% of all scaleup firms

Value-Add Industries in Southeast Michigan with the Most Scaleup Firms, 2009-2012

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Note: Scaleup firms are greater than three years old, have more than 10 employees, and have at least one three year period of employment growth greater than or equal to 20% between 2007 and 2012.

Source: Endeavor Insight analysis based on 2012 NETS Database data for the Detroit-Warren-Livonia MSA.

Filling the Scaleup Gap / 15

Percent ofscaleups

2.8-3.4%

2.4-2.8%

2.0-2.4%

1.6-2.0%

1.2-1.6%

0.8-1.2%

0.4-0.8%

0.0-0.4%

No data

Percent of Total Scaleup Firms by Zip Code, 2009-2012

Lake Erie

Detroit River

Lake St. Clair

St. Clair County2% 5.5%

Oakland County42% 38%

Macomb County15.5% 11.5%

shades of blue represent zip codes with higher densities of scaleups. We review this data over time, and uncover the changing landscape for scaleup firms between 2009 and 2012. In particular, Washtenaw and St. Clair counties have seen an increase in the relative percent of scaleups, while Oakland and Macomb have seen a decline. Overall, between 2009 and 2012, the number of regional scaleups de-clined by 16%.

SOUTHEAST MICHIGAN CAN SUP-PORT SCALEUP FIRMS ACROSS INDUS-TRIES AND GEOGRAPHIES. Even at their highest concentrations, scaleups tend to be found across ALL industries and geographies.

Even the most succesful local industries con-tain less than a third of all scaleups. South-east Michigan leaders have an opportunity to build on these strengths, and create new ones by understanding the drivers and barriers to scaleup firms’ growth.

We interviewed over 50 regional scaleup entrepreneurs, and found that there are many opportunities to promote Southeast Michigan’s strengths, as well as challenges preventing more entrepreneurs from following in their path. As part of a forthcoming assessment, we analyze these strengths and weaknesses, recommend pathways for improvement, and highlight six of these entrepreneurs in case studies to demonstrate the human face of scaleup entrepreneurship.

Washtenaw County 7% 9%

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16 / Filling the Scaleup Gap

PARTICIPANTS

Representative from the following compa-nies and organizations generously contributed their time to participate in focus groups:

Apjohn Ventures, Arboretum Ventures, Arctaris, AutoHarvest, Belle Capital, Benzinga, Bizdom, Blackstone LaunchPad, Center for Empowerment and Economic Development, Detroit Development Fund, Detroit Dirt, Detroit Labs, Detroit Regional Chamber, Detroit Ven-ture Partners, Digerati, Diversified Restaurant Holdings, Eastern Market, FoodLab Detroit, Fontinalis Partners, The Front Door, GAPro System, GM Ventures, GrowDetroit, Inforum InGAGE, Invest Detroit, Just Baked, Lawrence Technical University, Michigan Economic Development Corporation, Mission Throttle, Movellus Circuits, North Coast Technology Investors, Renaissance Venture Capital Fund, Resonant Venture Partners, RTI Laboratories, Samuel Zell & Robert H. Lurie Institute for Entrepreneurial Studies, Shock Engine Works, Startgrid Detroit, TechTown Detroit, Vector-form, Venture for America, and Wayne State Tech Transfer.

METHODOLOGY The region’s economy extends well be-

yond Detroit, and for the purposes of this report, we define Southeast Michigan as the Detroit-Warren-Livonia Metropolitan Statis-tical Area (MSA). The regional MSA is defined as the six-county region of Lapeer, Living-ston, Macomb, Oakland, St. Clair, and Wayne counties.19 This region had a population of 3.7 million people as of the 2010 Census.

We draw data for this report from three sources. Firm-level data comes from the Na-tional Establishment Time-Series Database, a longitudinal database of job creation and destruction from over 900,000 establishments in the Detroit-Warren-Livonia MSA from 1990 to 2012. Unemployment statistics for South-east Michigan and peer cities come from the Bureau of Labor Statistics (BLS). Data relating to the needs of Southeast Michigan’s high-growth firms comes from interviews and sur-veys with over 100 high-growth entrepreneurs, investors, policymakers, and other entrepre-neurship stakeholders conducted in Southeast Michigan between June and September 2014.

ACKNOWLEDGEMENTS

This report was funded through the gen-erous support of New Economy Initiative (NEI) and created in April 2015 by Michael Goodwin. He wishes to thank Devon Breton-Pakozdi, Ali El Azhary, Matt Lerner, and Stefan Schmidt for excellent research assistance, as well as Lau-ren Bigelow, Joanna Harries, Pam Lewis, and Rhett Morris who provided critical input and feedback during the research process. Special thanks to the entrepreneurs, investors, support organizations, and local universities who par-ticipated in roundtable discussions.

For more information regarding this report, please contact Michael Goodwin at [email protected].

Page 17: Filling the Scaleup Gap

Filling the Scaleup Gap / 17

ENDNOTES1. “Henry Ford’s $5-a-Day Revolution.” Ford Motor Company. Accessed 1 December 2014. <http://corporate.ford.com/our-

company/heritage/company-milestones-news-detail/677-5-dollar-a-day>.

2. “Population of the 100 Largest Urban Places: 1950.” U.S.Census Bureau. 15 June 1998, accessed 1 December 2014. <http://

www.census.gov/population/www/documentation/twps0027/tab18.txt>.

3. 6.7% unemployment in January 2004. “Detroit-Warren-Livonia, MI Metropolitan Statistical Area.” Bureau of Labor Statistics. 1

December 2014, accessed 1 December 2014. <http://data.bls.gov/cgi-bin/surveymost?la+26>.

4. Austin Nichols, Josh Mitchell, and Stephan Lindner. “Consequences of Long-Term Unemployment.“ Urban Institute. July 2013,

accessed 1 December 2014. <http://www.urban.org/uploadedpdf/412887-consequences-of-long-term-unemployment.pdf>.

5. 2,131,351 people were in the Southeast Michigan labor force in December 2007, and 2,018,920 people in December 2014, a

decline of 112,431 people. “Detroit-Warren-Livonia, MI Metropolitan Statistical Area.” Bureau of Labor Statistics. 31 March 2015,

accessed 31 March 2015. <http://data.bls.gov/cgi-bin/surveymost?la+26>.

6. 156,949 people were unemployed in Southeast Michigan in December 2007, and 155,054 people in December 2014, a

decrease of 1,895 people. “Detroit-Warren-Livonia, MI Metropolitan Statistical Area.” Bureau of Labor Statistics. 31 March 2015,

accessed 31 March 2015. <http://data.bls.gov/cgi-bin/surveymost?la+26>.

7. Currently 155,044 people are unemployed. To reduce unemployment to 7.4%, 149,400 people would need to be unemployed.

“Detroit-Warren-Livonia, MI Metropolitan Statistical Area.” Bureau of Labor Statistics. 31 March 2015, accessed 31 March 2015.

<http://data.bls.gov/cgi-bin/surveymost?la+26>.

8. “Unemployment Rates for Large Metropolitan Areas.” Bureau of Labor Statistics. 2013, accessed 1 December 2014. <http://

www.bls.gov/lau/malrgrank13.htm>.

9. 3,447 more startups existed in 2012 than in 2007, an increase of 3.48%. Endeavor Insight analysis based on 2012 NETS

Database data for the Detroit-Warren-Livonia MSA.

10. 48,999 more lower-growth firms existed in 2012 than in 2007, an increase of 27.39%. Endeavor Insight analysis based on 2012

NETS Database data for the Detroit-Warren-Livonia MSA.

11. 351 fewer scaleup firms existed in 2012 than in 2007, a decrease of 52.08%. Endeavor Insight analysis based on 2012 NETS

Database data for the Detroit-Warren-Livonia MSA.

12. Zoltan J. Acs, William Parsons, and Spencer Tracy, High-Impact Firms: Gazelles Revisited, (Washington: Small Business

Administration Office of Advocacy, 2008) 2.

13. All firms employed 1,768,012 in December 2009 and 1,810,462 in December 2012, an increase of 42,450 jobs. 323 firms were

scaleups in 2012. Detroit-Warren-Livonia, MI Metropolitan Statistical Area.” Bureau of Labor Statistics. 31 March 2015, accessed

31 March 2015. <http://data.bls.gov/cgi-bin/surveymost?la+26>.; In December 2009 they employed 19,115 people and in

December 2012 they employed 49,385, an increase of 30,270 jobs. Endeavor Insight analysis based on 2012 NETS Database

data for the Detroit-Warren-Livonia MSA.

14. Firms with at least one high-growth period between 1990 and 2012 on average survived 18.82 years, while those without a

high-growth period survived 7.33 years. Endeavor Insight analysis based on 2012 NETS Database data for the Detroit-Warren-

Livonia MSA.

15. Zoltan J. Acs, William Parsons and Spencer Tracy. “High-Impact Firms: Gazelles Revisited.” Small Business Administration

Office of Advocacy, (2008).

16. Scaleups created 93.72 jobs, lower-growth firms created .01 jobs, and startups created 2.10 jobs between December 2009 and

December 2012. Endeavor Insight analysis based on 2012 NETS Database data for the Detroit-Warren-Livonia MSA.

17. Information technology NAICS4 5413, 5415, 5416; Logistics NAICS4 4841; Light manufacturing NAICS4 3261, 3327, 3363.

18. “Revised Delineations of Metropolitan Statistical Areas, Micropolitan Statistical Areas, and Combined Statistical Areas, and

Guidance on Uses of the Delineations of These Areas.” Executive Office of the President, Office of Management and Budget.

28 February 2013, accessed 1 December 2014. <http://www.whitehouse.gov/sites/default/files/omb/bulletins/2013/b13-01.

pdf>.

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ENDEAVOR is leading the global high-impact entrepreneurship movement to catalyze long-term economic growth. Over the past fifteen years, Endeavor has selected, mentored, and accelerat-ed the best high-impact entrepreneurs around the world. To date, Endeavor has screened more than 30,000 entrepreneurs and selected 1,000+ individuals leading 600+ high-impact compa-nies. These entrepreneurs represent over 400,000 jobs and over $6.8 billion in revenues in 2013 and inspired future generations to innovate and become entrepreneurs too.

ENDEAVOR INSIGHT, Endeavor’s research arm, studies high-impact entrepreneurs and their contribution to job creation and economic growth. Its research educates policy makers and practitioners on how to accelerate entrepreneurs’ success and support the development of strong entrepreneurship ecosystems. In 2013, Endeavor Insight joined with the Kauffman Foun-dation and the World Bank to co-found the Global Entrepreneurship Research Network (GERN).

ABOUT US

THE NEW ECONOMY INITATIVE is a special project of the Community Foundation for South-east Michigan. It is the largest economic development initiative of its kind, and is working to make thousands of ideas the next economic engine by building a network of support for entrepreneurs and small businesses. This unprecedented initiative is supported by the following national, re-gional and local foundations: the Community Foundation for Southeast Michigan (Detroit), the William Davidson Foundation (Southfield), the Max M. and Marjorie S. Fisher Foundation (South-field, Michigan), the Ford Foundation (New York), the Hudson-Webber Foundation (Detroit), the W.K. Kellogg Foundation (Battle Creek, Michigan), the John S. and James L. Knight Foundation (Miami), The Kresge Foundation (Troy, Michigan), the McGregor Fund (Detroit), the Charles Stew-art Mott Foundation (Flint, Michigan), the Skillman Foundation (Detroit), and the Surdna Founda-tion (New York). The Community Foundation for Southeast Michigan, which initiated the collabo-rative, is serving as its administrative home. For more information, please visit:www.neweconomyinitiative.org.

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