LITTLE FALLS, Minn. -The enormous ceiling lights flash on as Tom Elbert walks through the 260,000-square-foot former Crestliner plant in Little Falls, and they turn off as he leaves each area. He installed the energy-saving lights soon after he bought the shuttered factory about a year ago and wanted to cut an electric bill that can reach $10,000 a month. Elbert hasn't made many other changes to the property, which still contains vestiges of the old boat maker, including a room-sized air compressor and a boat washing bay. Yet the place has been transformed.
The facility where 180 or so workers built boats until mid 2010 is now half filled with more than a dozen mainly manufacturing outfits. Elbert has turned the plant into a business incubator, offering cheap rent, shared phone and Internet services and a community conference room and forklift. "I'm nurturing companies to get to the next phase," he said.
I'm nurturing companies to get to the next phase
In a two-level space that used to house Crestliner's research and development, Karl Sjoberg's company, Road Dog, now fashions sleek trailers for motorcycles. Sjoberg moved here in early 2011 from a shop that was so small, he had to lug his inventory outside each morning just to make room to work. Now, he's doing well enough that he's set to expand again. "Tom did a good job of coaxing and persuading me that we were crammed over there," said Sjoberg. "He saw our potential sooner than I did."
Cities and counties in Minnesota are doing what they can these days to encourage entrepreneurism. Especially in rural areas, small startups are viewed as the best hope for economic growth in a sluggish economy that may keep bigger, established companies from building a new plant or opening a new office. The goal is to nurture existing and would-be businesspeople at home rather than looking outside for jobs, often a futile endeavor. Fostering that entrepreneurial spirit can be difficult. A January report by the Federal Reserve Bank of Minneapolis, in fact, suggested that self-employment in the region has declined since the start of the recession.
Startup capital is hard to come by, especially from larger banks. Even those who can scrape together the cash to begin have a tough slog when it comes to establishing a market and selling enough widgets to earn a living. The U.S. Small Business Administration estimates that only about half of new companies with employees make it past the first five years. That said, it's undeniable that self-employment is a crucial economic engine in outstate Minnesota, according to a December 2010 report from the Department of Employment and Economic Development. Close to a quarter of the jobs in Clearwater, Cook, Lincoln and Grant counties were self-employment jobs, it said.
There are myriad strategies for encouraging startups, including mentorship programs and assistance with business plans. Some private foundations offer microloans of up to $50,000 to new businesses. And many communities have built incubators, places where fledglings can get cheap rent and engage in those important water cooler discussions with other businesspeople. In the latest twist, cities like Mankato have begun offering incubator programming without the physical buildings, calling them "accelerators" or "virtual incubators."
Willmar has fostered a high-tech campus in an old state hospital, offering a central cafeteria and auditorium. Fergus Falls is positioning itself as the state's telework capital complete with a rentable "telework hotel." Harmony co-op in Bemidji is building an incubator kitchen, where would-be chefs can make salsa or pies in an FDA-approved setting. In Northfield, a group is helping Latinos become independent businesspeople through its agripreneur program, which will include two incubator sites where farmers can raise chickens to sell.
Incubators have a long and mixed track record, but Mark Spriggs, chairman of the University of St. Thomas' entrepreneurship department, said communities are turning to them because, "As you look at what the economic development strategies are, there aren't very many.
WE DON'T WANT YOU TO CHASE SMOKESTACKS
We feel we'll have more long-term impact by helping the one-man shops get started and grow
Minnesota ranked 25th in entrepreneurial factors like patents, partnerships and business formation, according to a recent report from the University of Nebraska. North Dakota ranked 11th, South Dakota 27th, Wisconsin 32nd and Iowa 38th.
Similarly, the Kauffman Foundation, which researches entrepreneurship, has found activity in Minnesota substantially less than elsewhere, citing a lack of local venture capital and a slowed home-building industry as factors.
"It's the culture," said Spriggs. While other parts of the country were moving into fields like high tech, "we were still tied to a lot of smokestack industries. We were tied to manufacturing and particularly large-scale manufacturing."
Some think this may be changing as food carts, brewpubs and other food-related businesses proliferate across the state, thanks to changes to local and state law. Historically high prices for corn and soybeans also are buoying some parts of the state and fostering inventiveness.
Pam Lehmann, executive director of the Lac qui Parle Economic Development Authority [EDA], says a strong agriculture market helps but credits an emphasis on entrepreneurism for helping southwestern Minnesota improve. "When I started in January 2007, my board said, 'We don't want you to chase any smokestacks. We don't want you to chase the big company that will employ a couple of hundred people.' If they want to come here, we won't turn them down, but we're not actively recruiting them. We feel we'll have more long-term impact by helping the one-man shops get started and grow."
"If you help 100 small guys get started, you've created 100 jobs," Lehmann said. "If one or two fail, that's not the impact of one big employer failing and losing all the jobs." She provides advice and technical assistance. "If they need my help every day for the next five years, so be it."
Similarly, when Elbert offered to buy the old Crestliner plant in Little Falls, Carol Anderson, executive director of Community Development of Morrison County, leapt into action. Though the property was considered a steal at $1.3 million, Elbert had trouble raising all the necessary capital, a common theme among entrepreneurs. "My organization and the Little Falls EDA put together a $400,000 loan package," Anderson said. "We put it together in about 30 days."
The investment is paying off, said Anderson. Elbert has more businesses signed up than anticipated at this point and was able to secure permanent financing and pay back half the loan in January. "Considering that a year ago today it was empty, it's coming along very well," Anderson said.
VIRTUAL IN RED WING
Another approach to the same goal unfolds inside a partially-demolished storefront on Old West Main Street in Red Wing. Scott Kolby and William Norman are building a brewpub that will feature recipes from the city's bygone breweries, such as Remmler's, that existed in the 1800s. Venting dangles from the ceiling and a wall has been wildly perforated by hammers. Norman and Kolby are doing most of the work themselves and hiring local contractors to do the rest.
"Brewing has been a hobby for both of us," said Kolby. "Five years ago we thought, what can we do to make it a profession?" The longtime friends went to beer school in Chicago, got a boiler license and took second and third jobs to save startup money. The incubator they found to help them is a virtual one, and it provided assistance with the permitting process and loaned them $2,500, paving the way for a local bank loan. They expect to open Red Wing Brewery by summer.
Red Wing's virtual incubator, which launched late last year, offers assistance with business plans, patents and other logistical matters, along with small loans, all without a central, physical location. Rather, its ultimate goal is to fill the existing empty commercial space downtown, which has a vacancy rate of between 10 and 20 percent.
The city has placed entrepreneurship at the fore and hopes to make the most of attributes like its striking natural setting. "Rather than trying to attract people and get them to bring their businesses with them, you should think of everybody who lives in your community already as a potential business owner," said John Becker, a fine print shop owner who runs a nonprofit called Red Wing Downtown Mainstreet, which championed the incubator. "It's a total change in strategy."
There is no point in trying to fill a pipeline that's draining when the kids aren't coming back
The incubator started with a $20,000 grant from the Southern Minnesota Initiative Foundation, which was matched by the city and local business community. "We like that idea, that it's virtual," said the foundation's president, Tim Penny. "Then more of our money goes to actually delivering technical assistance or consulting services and not to rent."
More communities are going the virtual route, including Mankato. "Space is all well and good and so is access to a common fax machine and used furniture," said Jonathan Zierdt, president of Greater Mankato Growth. "But the reality is most businesses need to be enveloped by all sorts of other business support and guidance and council before they ever need space. I'm talking about business plans, marketing, how to develop a customer base and relationships. They might have concept issues still. None of that stuff requires physical space."
Though Mankato still has an incubator, Ziert says these facilities, like industrial parks, can become a "financial albatross for a community. You spend all your time trying to fill the space and then you're aiming at the wrong targets."
In 2009, the city of Long Prairie built an incubator that today stands unoccupied, its lone tenant--a maker of bedding and pillows--having moved out last summer. It was paid for with a federal grant matched by a private contribution, so the city doesn't owe money on it, but it still picks up the tab for heat and electricity.
"Prior to building it, four years ago, we had people coming in and saying, 'Is there a building we could rent to get started?'" recalls Lyle Danielson, director of the Long Prairie EDA. "The economy fell apart on us, but we were already in the get-go. There is the old saying 'Build it and they will come.' That's not necessarily true. But if nothing is built there is no reason to come. I don't regret what we did."
ATTRACTING YOUNG PEOPLE
Kyle Mehrkens grew up waterskiing and wakeboarding on Lake Pepin near Red Wing. So it was only natural that after obtaining a physics degree from Hamline University, the 28-year-old would invent a contraption related to water.
With the help of the Red Wing virtual incubator, he's developing the third iteration of an electric winch that pulls a wakeboarder or skier across the water toward shore for 25 seconds, all without a boat or another person around. "I set out to change the way you participate in wakeboarding and waterskiing," said Mehrkens, noting that the latter was invented on Lake Pepin. He began development of the specialized winch with his high school shop teacher and now has filed for a patent. He's moving ahead with guidance and a $4,000 loan from the incubator. "Throughout the whole process, they've been willing to work with me and push me and support me," said Mehrkens. "It's been very inspirational."
"Kyle is the poster child for what we want to do," said Becker, noting that Red Wing's population as a whole is getting older. "He's young and ambitions and aggressive." If the city can burnish its credentials as a sports Mecca, perhaps more young people will want to live there. "There is no point in trying to fill a pipeline that's draining when the kids aren't coming back," said Becker. "They need reasons to stay."