This year was unexpected to say the least. As the Founder and Managing Director of EntryPoint, a nonprofit research institution that delivers comprehensive research insights and implements effective data-driven programs to promote entrepreneurship across the Midwest, I’ve seen the data on where the Detroit entrepreneurial community stands before and after the many curveballs small businesses and startups have encountered over the course of the year. And while I am not surprised by the data, I can say that I am very encouraged and enthusiastic about the resiliency of the Midwest high-tech entrepreneurial ecosystem.
Detroit, in particular, has shown great promise as a thriving entrepreneurial ecosystem despite the pandemic, economic downturn, and more. To start, more than 26% of high-growth companies in Michigan are located in Detroit. Over the last six years, the Detroit entrepreneurial community has created a robust foundation of resources for startup companies, and a key part of its success is its ample community support. In fact, there has been a 58% increase in the number of high-growth companies in Detroit over the last six years alone. As entrepreneurs are growing their businesses, they have access to top-tier talent, research institutions, and funding to reach their next critical company milestone. This trend has continued as this year has forced many, if not most, companies to work exclusively remotely while still managing expectations for growth and success.
The Midwest’s Lower Cost of Living Helps Stabilize Its Economy
Attracting and retaining top talent is key to any economic ecosystem, so many individuals who originally thought they need to be on the Coasts to build a startup company or career in tech are finding the Detroit entrepreneurial community to have the necessary resources to launch and grow businesses while having a high quality of living. In fact, the cost of living in San Francisco is nearly double that of Detroit’s – you would need to make $2.02 equivalent salary dollars to have the same standard of living as Michigan’s largest city. As a result, building a business in the area is less capital-intensive.
The Detroit Entrepreneurial Community and Broader Midwest Region are Ideal for Scaleups
For entrepreneurs in particular, cities like Detroit and other Midwest cities offer ample opportunities for scaleups, i.e. companies that have at least 20% return and a minimum of 10 employees. As Diana M. Callaghan, Managing Director of Endeavor Detroit notes, “A small number of scaleups employ more people and account for more job growth than any other type of company. In fact, in 2018, 10% of the scaleup enterprises operating in Southeast Michigan created more than 74% of the jobs in the community.
Callaghan also points out that “If Southeast Michigan could create 60 new scaleups, it would increase local GDP by over $5 billion annually. Additionally, earlier stage scaleups are more likely to hire diverse groups of people including those from low income communities, those without college degrees, or formerly unemployed individuals.”
This data indicates that the Midwest is the ideal economic environment for entrepreneurs that can scale revenue because they have the economic flexibility to transcend the startup phase of their business. The area can also support talent in underserved communities.