It’s out: Wisconsin is No. 2 nationwide for scaling up companies

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Wisconsin has emerged as No. 2 in the United States in its “mid-market” business sector in the inaugural Dun & Bradstreet/American Express Power Index survey of 19 million American businesses released last month, outshining entrepreneurial superstars New York, California and Texas. This may be particularly surprising in light of past reports that Wisconsin fares poorly among such measures as number of startups and access to venture capital (although Wisconsin is not bad; high in private equity). In fact, ranking so high in mid-market companies is a likely leading indicator of growth that impacts the wider Wisconsin community, and bodes well for Wisconsin’s entrepreneurs, business owners and labor force.

Though it is oft-repeated that most new jobs are created by startups, the research is much more ambiguous. What matters for Wisconsin is that mid-market companies (between $10 million and $1 billion in annual revenues) are leading the way to post-2008 growth in the U.S., creating 92 percent of the net jobs in all commercially active businesses, despite being less than 1 percent of the number of businesses. These dynamic companies are typically privately owned, community-based, and more than 25 years old—neither the stereotypical tech startups, nor the stereotypically stagnant smaller businesses. Further, compared to the small businesses in the Power Index, fully one-third of which earn less than $10,000 per year, these mid-market ventures have a disproportionate presence in manufacturing, wholesale trade and natural resources, all of which play to Wisconsin’s strengths.

Comparing East Coast, Midwest, and West Coast is also interesting: Wisconsin has 50 percent more mid-market companies, proportionately, than California (3,037 vs. 16,391 in absolute terms), where small firms predominate. New York, on the other hand has more larger firms than Wisconsin. But Wisconsin punches well above its weight in the mid-market.

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These findings bolster and write large the guiding thesis of Scale Up Milwaukee, a Greater Milwaukee Committee initiative supported by the Wisconsin Economic Development Corporation, American Express OPEN, and private donors: Ambitious entrepreneurs drive companies to scale, and scale up companies drive local economies by adding dignified jobs, bolstering tax revenues, creating wealth, and, let’s admit it, pumping up local pride.

Scale Up Milwaukee has eight ongoing programs stimulating all aspects of the scale up “ecosystem” (e.g., helping local banks increase their loans to growing entrepreneurs, connecting larger local corporations such as Strattec and A.O. Smith with growing companies and partnering with UW-Milwaukee to train the next generation of growth-oriented entrepreneurs.) Last month, Scale Up Milwaukee graduated the 27th company in its nationally recognized Scalerator program. These 27 Scalerator companies reflect a cumulative $65 million in revenues, 12-month growth rates ranging from 10-50 percent, 265 new jobs, 464 new business customers, and numerous new financings and other concrete “growth events.”

Take Raphael Industries, for example, a precision powder and paint coating company in West Allis. CEO and owner Steve Cronce is tapping into a multi-billion dollar medical equipment refurbishing market the Scalerator helped him realize. Ninety percent of the Scalerator graduates have similar stories: Lori Zindl of OS-Healthcare recently won contracts with two nationally recognized medical centers, Johns Hopkins in Maryland and John Muir Health in California, to manage their billings; Ricardo Trinidad, who moved his company Telcom and Data from Chicago to Milwaukee, is now exporting IT solutions to the court system in Mexico. All of these accelerating companies– in fact, more than 90 percent of them– name Scalerator as a driver of these growth activities.

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Experience with Scale Up programs around the world teaches us that between 15 and 20 percent of mid-market companies in any region can enter into similar, more rapid growth trajectories: If their forecast was to grow at 5 percent, the Scalerator and surrounding “ecosystem” can help them achieve 10-15 percent growth. If their forecast was 20 percent, then 30 percent is a realistic stretch.

What is not a stretch is for Wisconsin to be able to scale up the existing stock of 3,000 mid-market companies in the state, and thousands more just below the mid-market threshold. In Scale Up Milwaukee, we now see a straight line to more than $1 billion in cumulative revenues for present and future Scalerator companies within three years, revenues which are largely put to work in local salaries, local suppliers and service providers and local capacity expansion. And growth begets growth, inspiring both larger and smaller business owners and start up entrepreneurs in Wisconsin to strive for greater heights.

As Jerry Jendusa, Scale Up Milwaukee co-chair and founder of $100 million EMTEQ from New Berlin, put it: “Scale Up Milwaukee is helping the next generation of Wisconsin entrepreneurs get to scale much faster than I did. That is good for them, and good for Wisconsin. This is the place to grow.”

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Dan Isenberg is former Harvard Business School professor and founding director of the Babson Entrepreneurship Ecosystem Project. Brian Schupper is director of policy for the Greater Milwaukee Committee.

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