To say that 2020 has been a challenging year for the Minnesota economy would be an understatement. In the first three months of the COVID-19 pandemic, we lost a stunning 385,000 jobs. We've paid over $8.5 billion in unemployment insurance benefits to Minnesotans — 10 times more than we ever have in a single year. And consumer confidence hinges on the trajectory of the coronavirus, which continues to spread at an alarming rate.
But from recession will come renewal. While a lot of work remains to protect our workforce and economy from the COVID-19 pandemic, we cannot wait to begin the work of making Minnesota's economic recovery strong, smart and equitable.
One of the most important things we can do in the coming year is to foster the growth of new businesses and start-ups. Small businesses account for a whopping 47% of the jobs in the state — a trend that's mirrored nationally. What's more, new businesses are responsible for nearly all net new jobs and 20% of gross job creation in our economy, according to a study published by MIT.
Growth from new businesses always accelerates during recessions. Entrepreneurs see possibilities for disruption in the market, and layoffs force people into thinking creatively about their future. According to the Global Entrepreneurship Monitor 2020 report, while 65% of start-up founders say they are building businesses because they "want to make a difference in the world," over 40% also say they're starting something new "to earn a living because jobs are scarce."
It's vital that Minnesota capitalize on the creative energy that comes with recessions to create successful businesses and great jobs for those who've lost them.
One of the most promising sectors to focus on is technology. During the Great Recession 2007-09, America saw the creation of WhatsApp, Instagram, Venmo, Uber, Slack — just to name a few. During the stagflation of the 1970s, Microsoft was born. And General Electric (a technology company for its time!) started in the middle of a six-year recession way back in the 1870s.
Here in Minnesota, our last recession saw new tech companies launch that went on to make national news. Miromatrix, a regenerative medicine startup from 2009 that seeks to eliminate the waitlist for organ transplants, recently won an innovation award from the U.S. Department of Health. Sports Engine, a youth sports startup, started in 2008 and was acquired eight years later by NBC Universal.
However, Minnesota faces some headwinds. According to data from the U.S. Labor Department, Minnesota ranked 48th in the rate of new entrepreneurs per capita in 2019 — and has only exceeded the national average for four years of the last 20. We also rank low on start-ups that lead to early job creation, coming in 40th last year.
Where we're above average — way above average — is in how many of our new businesses survive. That same Labor Department study ranked Minnesota fourth in the country for the five-year survivability rate for new companies, at almost 55%.
People who start stuff here tend to stick at it. It's that Midwestern work ethic — something we should be proud of. It's also a key to the future of new business growth in our state. Minnesota has always been a state of problem-solvers — innovators who care about what they're building because it contributes to society in a positive way.
If the start-ups that came out of Silicon Valley in the last recession found new ways to capture our eyeballs on mobile devices, then the startups coming out of Minnesota during this pandemic-fueled recession should focus on solving our most important problems.
Minnesota is well-positioned to be an epicenter of that kind of business growth.
With a strong corporate community and excellent business clusters in health, medical technology, agriculture and retail, we can be a national hub for creating great new businesses that will shape America's post-pandemic future.
But we're going to have to work together to make it happen.
Last year, our Department of Employment and Economic Development developed Launch Minnesota, a program designed to encourage entrepreneurs to take the leap by providing business incentives and educational opportunities to get started on their journey. It includes an angel tax credit to increase venture capital investment, and mentorship opportunities for early stage founders.
All of these programs have equity provisions designed to help entrepreneurs who might otherwise be overlooked. If we're going to get this recovery right, we have to include everyone.
This week we're celebrating the anniversary of Launch Minnesota, and are looking ahead to the future. Already, there are some promising trends.
In the third quarter, business starts in Minnesota kicked up nearly 60% compared to a year ago. So far in during the pandemic, we're above the national average in incorporated business starts, ranking 21st nationwide. And startups in our medical technology sector known as "Medical Alley" have raised a record $1 billion in capital this year — a promising sign that investors are beginning to turn to Minnesota to look for solutions.
The opportunity we have to define Minnesota as a hub of problem-solvers who build job-creating companies that matter to the world will define the next chapter of our state's economy.
It's an opportunity that we must seize — the renewal of our economy depends on it.
Steve Grove is commissioner of the Department of Employment and Economic Development.