Is low unemployment in Minnesota ultimately good?
The unemployment rate in the Twin City metro area hit 3.1%; slightly higher 3.7% in the State of Minnesota. It is much lower than the National numbers. I hear from a number of small and medium size companies that they have openings and cannot fill those vacancies. The latest layoffs at larger companies, like Target, have been quickly absorbed.
Is that good?
My perspective is from the point of view of entrepreneurs and entrepreneurship.
The growth of new ventures, in the Twin City area, that already sucked is going to get worse. It is home to Mega corporations and the #1 reason to start a business is fading. If there are lucrative jobs to be had at Mega Co. why risk your life style and energy? Many MBA students, taking entrepreneurship courses, are taking them because they were at a convenient time or “sounded interesting” rather than as a precursor to an actual launch.
And, there is paucity of seed level capital!
The purveyors of entrepreneurship in the state are mostly clueless of this status. They are happy with the year-over-year growth. ( Math lesson: 1 to 2 is 100% growth. That does not mean 2 out of a zillion is good!).
Other than a few hot spots on the coasts, the growth of new ventures overall in the country has declined substantially in recent decades. Other cities in the midwest like Minneapolis and Milwaukee (home of mega businesses) suck even more on that score, while there are rapid growth in spots like Beijing, Stockholm, Bengluru, etc.
Support for seed level investment, while seemingly greatly increased, is still at pathetic levels. The purported reason is that the ROI at seed level is just not attractive enough. I know of at least one seed level investment group that returned all their capital raised because the return at seed level was not attractive enough. The lofty valuations of Unicorns is a bubble waiting to burst. Will it further erode support for entrepreneurs?
Everyone, including investors are looking for high quality seedlings (a Series A or later offering) to shower them with support. Meanwhile they are expecting seeds will magically sprout into seedlings. Go figure!
A small city like Portland, Maine has turned it around. See How-this-tiny-east-coast-city-is-churning-out-fast-growing-startups . But then, it was spurred by a history of underemployment in Maine. Since then the state has set up a number of institutions to support entrepreneurial endeavors.
Do we have to get in deep trouble to avoid trouble? If the seeds are not being planted, where will the seedlings come from? And the Targets, General Mills and Medtronic were all a seed at one time. The next generation of Megas are not being seeded.
No seed. No seedling. No Trees. No foliage! More CO2. Do we have to get in trouble before we act?
Ultimately is that good?
What are the policy alternatives? Entrepreneurs and their supporters weigh in!
Here is my take:
Entrepreneurs: This could be good for you!
Maybe we should look at the bright side.
It is probably a tremendous time to be an entrepreneur:
- Build while you earn: The openings for jobs are growing and companies are not able to fill them. You can negotiate part time or contract work while you build your business. Like paying for college, while working, in the olden days.
- Minimum Wage is higher: With the new hike in minimum wage, even those jobs can provide decent cash while you work on your deal. New comers like Shutterfly and Amazon are putting pressure for higher wage rates. Surely with your background and credentials you can beat the $15/ hour minimum wage.
- Young People are Checking Out: The work place participation of the 25–34 year olds is Sharply down. They are not willing to work for even the higher minimum wages. Good for you- who wants to work.
- Avoid the Seed Round: The farther you can take your idea to a MVP the better off you are in negotiating with investors for the next round. By pass the seed round and you are way ahead.
- Strong Customer Demand: If the established companies are having difficulty filling slots and customer demand is strong, you would have a better time with getting the product/customer fit refined for your product.
- Downside risk is contained: Let us assume the worst case scenario that your concept does not work out, You can always get a job in this low unemployment scenario!
With the downside risk low, upside potential high the timing may be great!
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Dr. Rajiv Tandon is an Entrepreneur, Educator and Mentor. He facilitates peer groups for CEOs of fast-growing companies in Minnesota. To learn more, sign up to get the email newsletter.
