About half of the new businesses that open in Michigan are running five years later, and the state’s rate beats all but four others in the country, according to a new study.
Michigan posted a five-year business survival rate of 54.7%, according to a report from ecommerce platform Build Your Store, which analyzed U.S. Bureau of Labor Statistics data on establishments that opened between 2018 and 2020.
While that’s good news about the state of entrepreneurship in the Great Lakes State, experts caution that behind the recognition is a state climbing back from a pandemic-era dip in business survival rates, initiatives to encourage entrepreneurship in Metro Detroit and a handful of nuances that make the difference between closing and surviving.
“It’s always better to be higher than lower. … I think it’s hard to say whether it’s indicative of long-term success … the trend is heading in the right direction, though,” said Alex Rainville, assistant professor of strategy at the University of Michigan-Dearborn. “There could be all sorts of confounding things happening in other states. But all in all, I would say it’s a positive sign, speaking to a number of factors that tend to drive business survival.”
Those factors, he said, include institutional quality, predictable infrastructure and the caliber of the workforce. As for factors that work against business survival, he said it’s those that foster uncertainty and unpredictability: “It could be policy choices, changes in policy for no clear reason that make it harder for businesses to know what’s coming.”
Rainville added: “My suspicion is, especially in southeast Michigan, there’s been a pretty heavy focus on entrepreneurial growth with a push from policy funneling resources to these types of businesses in Detroit over the past number of years.”
Other Great Lakes states fared well in the study too: Minnesota ranked first in five-year business survival at 56.2%, with Pennsylvania tied with West Virginia for second at 55.9%, followed by Illinois at 55.2%. Washington posted the lowest five-year survival rate in the nation, 41.8%, despite having the best one-year survival rate at 82.5%.
Nick Joe Kelley is among Michigan entrepreneurs who have opened businesses this decade and seen them survive to the five-year mark.
Kelley painted homes on the side before he turned Elite Paint Home Renovations into a full-time venture in 2020; 55% of businesses established that year were still active in 2025, according to BLS data.
For Kelley, 2020 looked like this: working with a team of three and marketing the Roseville-based business on Facebook to generate year-end revenue of $500,000. In his second year, he tripled revenue by adding staff and implementing processes, though it was a tough go, he said.
“In my second year we did like $1 million more because I hired like eight guys,” Kelley said. “(But) I was still doing the answering of the phones, I didn’t have an office admin, I was still project managing, I was still selling jobs, but I wasn’t actually painting any more.
“I built systems. I built exactly how I wanted my painters to paint, spray,” he said. “Every aspect of the company I basically broke down into a step-by-step process because that’s what we seen that successful companies were doing.”
In Elite Paint’s third year, the company opened a brick-and-mortar shop and hired an office administrator and a project manager. Fast forward another three years, and Elite Paint is projected to generate $6 million in revenue this year. It operates from a new, 4,000-square-foot shop and has grown to 53 employees, with services including tile installation, cabinet refinishing and wallpaper removal.
Kelley, whose business is a part of the Southeast Michigan Chamber of Commerce, attributes the growth of Elite Paint to business coaching, finding and training the right talent, developing key performance indicators and providing insurance, paid time off, and a 401(k) plan with a 3% match to retain employees.
“There’s different challenges based on different ladders. When you’re at $1.5 (million), the challenge is getting enough cash flow that you need to hire the positions that you need to scale and grow,” he said. “That’s why I was doing a lot of the sales and the project managing.
“The $3 million mark is about building a team, so now, instead of everything being ran through me I have to delegate a lot of things I was doing for the business to each one of these positions,” he said. “I need our average job site to be at least over $6,000, so developing those KPIs … to know that when I’m not fully in everything, as long as I stick by these numbers, these numbers say that our company is successful and profitable.”
The company’s recent jobs included painting accent walls in downtown Detroit’s Indigo Hotel, and Kelley aims to do more such projects.
“We’re going to do a lot more work in downtown Detroit. … We’ll probably do an extra $500,000 to $750,000 in commercial work in downtown Detroit by the end of 2028.”
Efforts in Michigan to help entrepreneurs start and succeed in business include financing, mentorship programs and worker recruitment and training initiatives.
With help from business hubs like TechTown, Goldman Sachs 10,000 Small Businesses via Wayne State University and $100,000 in interest-free financing from the Jewish Federation’s Hebrew Free Loan program, Zach Berg started Monger’s Provisions in 2017.
“We were amazed at how many resources existed when we touched down and tried to take this idea we had in the Bay Area and do it here,” Berg said. “It just seemed like there was such an array of resources if you looked for them.”
The business began as a roughly 500 square-foot pop-up inside a Ferndale butcher shop employing one person part-time, then moved into Detroit’s Cass Corridor from 2018 to 2025 and opened the location in Berkley around 2021. The Berkley location includes a full-service restaurant, The Rind, and together employs 24 people.
Berg said the cost of doing business in Michigan is among the challenges operators face.
“People love to say how inexpensive Michigan is compared to somewhere like the Bay Area. That’s true of a lot of factors, but it’s not that Michigan’s so cheap … Our rent is no longer quite as cheap as it used to be 10 years ago,” he said. “Those Midtown rents on Cass were much closer to big-city prices. I think downtown Birmingham or downtown Detroit prices are much more in line with Chicago or New York than people perceive them to be.”
Inflation is a major hurdle for businesses as well as hiring workers at an affordable cost, said John Long, chief operating officer of the Southeast Michigan Chamber of Commerce.
He also hears from plenty of entrepreneurs who want to see the state government cut down on red tape.
“In the southeast Michigan area, the business owners have been vocal about Michigan having burdensome regulations in comparison to other states. … I’m glad to hear that whatever we have in place is working,” Long said, adding that he thinks the state could get to No. 1 in business survival with more alignment between owners and regulators.
He said the chamber has been focused on connecting businesses with AI solutions to automate administrative processes so as “not get let behind.”
“They really do need to be looking at how to develop AI into their business because even if the relationships are really good, you can still ultimately end up running a very, very efficient business from an internal standpoint if you have the right technology,” Long said.
Wayne Fu, an associate professor of decision science at the University of Michigan-Dearborn who reviewed the study data, cautioned against reading too much into the state’s current business survival ranking. Michigan’s rank among states for five-year survival swung from 11th in 2015 to 27th in 2020, to sixth in 2023 and back to 11th in 2024, he said.
Fu said there’s not necessarily a straightforward link between a state’s rate of business survival and longer-term success.
“If there’s a state that’s super friendly for entrepreneurs, you can go there and easily set up a small shop — there’s a possibility that you’re going to see that state has a very low survival rate. And vice versa. If a state is very detailed, regulatory about setting up a new business … the people who do start one there are more cautious and more serious, and you’re probably going to see a higher five-year survival rate,” he said.
His takeaway from Michigan’s solid survival rate?
“The percentage is higher, that’s it,” he said. Doesn’t mean it’s easier or good to run a business.”
mjohnson@detroitnews.com