John McDonald: We need to turn around entrepreneurism in Indiana

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John McDonaldThe Indiana Chamber of Commerce released “Indiana Vision 2025” in 2012, born of a statewide task force of leaders, and recently updated it with a progress “report card.” Our numbers concerning entrepreneurism come directly from the Kauffman Foundation.

The update is not good. As the report card notes, “The overall Kauffman ranking for new entrepreneurs declines once again—with Indiana’s rank falling from 44th to 47th.” Indiana is now nearly last in America in entrepreneurism and also 47th in total employment in firms less than 5 years old—better known as startups. We’re not doing enough to encourage entrepreneurism and startups here, and it is getting worse.

Why does it matter? Kauffman notes that it is startups that create all net new job growth. On average, there are roughly the same number of jobs available in established companies today as there were in 1977, as jobs are created at roughly the same rate others are destroyed. But startups have no gross job destruction—they only create. No startups, no net new jobs.

Availability of venture capital is certainly one of the reasons for our troubles. Kauffman reveals that less than 2% of all startup financing went to women founders, 1% went to African American and Latino founders, and less than 1% went to rural areas. Worse, in 2016, 78% of all venture capital went to just three states: New York, Massachusetts and California.

But that’s not a complete answer. Bill Gross, founder of Venture Studio Idealab, did research on the reasons startups fail to take flight. Surprisingly, lack of funding was the least likely problem, accounting for only 14% of the difference between success and failure. The most common reason was timing (42%), including a bad launch, insufficient market demand or a failed expansion. The second most common reason was the team (32%), including lack of skills or passion, or disharmony.

The shocking thing is that these problems are completely preventable. All of my fellow entrepreneurs can tell you stories about failing to listen to customers, the bad hires they made, or missing the market with their initial product.

We need far more mentorship and guidance for startups. Wouldn’t it be great if all of our state’s experienced entrepreneurs would take budding leaders under their wing and help them avoid the avoidable? Maybe that would begin to turn around a key metric for Indiana’s future that’s going the wrong way.

I asked the researchers from our Indiana Chamber Foundation how many startup jobs we’d need to add to go from 47th to 46th. The answer is 5,977. Just a little less than 6,000 new jobs and we’d move the needle. To get to the middle of the pack, or 25th, we’d have to add 58,171. Top 10? Just a little less than 100,000.

A big hill to climb, but, just like putting together a vision for our state for 2025 way back in 2012 was ambitious, I think this should be our goal: 100,000 new startup jobs by 2030.•

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McDonald is a venture partner at Boomerang Ventures and chairman of the Indiana Chamber of Commerce’s Technology and Innovation Policy Committee. Send comments to ibjedit@ibj.com.


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2 thoughts on “John McDonald: We need to turn around entrepreneurism in Indiana

  1. This is why Innovate WithIN exists. Building the pipeline now- when they are in high school. Taking the risks, building the networks, and having our schools offer time and support to inspire these young innovators, entrepreneurs into action.

  2. Thanks for your comment, Don. The Chamber has led the way in holding the State accountable to objective metrics, and in this case, these metrics are nothing short of the future of our economy. Starting in HS we have a chance to light up the ambitions of our children to carry us to the new digital world in spite of our lack of understanding. What you are doing, with the support of the IEDC through Innovate WithIN is amazing and we should all seek to see how we can help!

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