EDSR INFORMATION #3 12-13-1999 ,
HOT SPOTS ` . . . .
Where the action is
High-tech hot spots are emerging in some unexpected places
BY STEPHEN DUPONT Ardell C.Paulson,president of Diamond
Tool."We had more than 300 job applicants
from this area before we actually made the
If you're traveling to the headwaters of the move.But what's been nice is this communi-
" Mississippi at Itasca State Park,the best way ty really wants us,and that's everything:'
to go is Hwy.71,a road that will take you Sebeka's story is echoed in towns and
past dairy farms,pine forests and resort cities throughout the state.Technology-
ir.., towns.Along the way,you may want to stop based businesses are emerging in areas bet-
�� ` off to see an interesting sight.It's not an ter known for turkey farms,lake resorts and
I* eelpout farm or the world's largest ball of mines.The message from Sebeka.is dear:If
.'. " dryer lint.It's the town of Sebeka,population you want the business,you re going to have
rui='" 642,which has gained a new lease on life as to earn it,and that takes vision,planning,
host to a new generation of businesses. infrastructure,cash—and guts.
Alarmed by the decline in the dairy and "We hada lot of people sitting around in
, farming industries and recognizing that , the coffee shop moaning and groaning
°�
.• companies needed good employees,Sebeks about the future of our town:'Hodgden says.
'" h: leaders began persuading businesses to relo- "It's especially sad to see the young people
,�" ' ' cate or open offices there. move away,but what can you do when you
;' In April 1998,Mayor Bill Hodgden,who have no opportunities to offer them?Well,
fi ' " owns the Sebeka Motel,responded to a Star we decided to do something about it.It's
L. : ` Tribune article about Minnesota's low hard.Still is.But,if we can do it,any town
`u unemployment rate and challenged the can do it:'
''` paper to write about his town's most valu-
a able asset—its people.The day after the Where it's at
story ran,Hodgden s phone started ringing. In the past four years,more than 1,700
Today,Eagan-based Cross Consulting manufacturing jobs,4,200 service related
J`, t{ffi Group Inc.,a 50 person firm that offers jobs and 2,400 new retail jobs have been cre-
ated mainframe programming at reduced rates, ated in Greater Minnesota thanks to start-up
t `'- - : and Northwest Financial Group Inc.,a businesses and expansions by existing ones,
. - 'l ' Minneapolis-based mortgage company,have according to the state Department of Trade
satellite offices in Sebeka employing 53 peo- &Economic Development(DTED).Since
n
le Meanwhile,Meanwhile,12 employees followed 1991,outstate Minnesota has gained or gen-
,,'
en-
r Diamond Tool Inc.,a manufacturer of metal erated more than 30,000 manufacturing
and plastic assemblies,when it relocated jobs,compared to 8,000 in the Twin Cities.
. ' from Hanover.Now Sebeka faces new chat-
'. "It's no secret;'says John Feltl,principal
gin,'? x l` lenges:It only has one empty building left, investment banking of regional investment
C5 'f` °t and it's facing a housing shortage.More than firm RJ Steichen&Co.in Minneapolis."The
t` 100 more jobs will be added by its three new action is where the good people are and
companies in the next two years. where there are those who are willing to take
"The people here are a big benefit:'says a risk:'
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s" ' Ventures November 1999
t • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • II
•The emergence of these hot spots isn't Web-based training for Fortune 1000 corpo- organization,launches the Itasca Technology
entirely due to Twin Cities firms looking for rations.The firm has offices in Michigan, Exchange,a for-profit incubator in a former
labor.Companies such as Hunt Texas,India—and now Chisholm. movie theater in downtown Grand Rapids.It
Technologies,a$125 million manufacturer Another example is Entronix Inc.,a will be wired with high-speed Internet "•.
of remote electronic meter reading devices Plymouth-based firm that was encouraged access for companies such as Ssesco Inc.,a
in Pequot Lakes,and Morton-based to open a new manufacturing plant in Twin Cities-based firm that designs software
Altimate Medical Inc.,a 30-person medical Eveleth that could employ as many as 100 to analyze air quality.The 17-person firm
devices manufacturer,are proving that rural- people by year's end.Entronix is a$20 mil- will have a satellite office in the incubator.
based businesses are capable of competing lion company specializing in manufacturing Sandy Lehman,president of Itasca
in a global marketplace.And the business and repair in several industries,including Development Corp.,says the incubator will
dusters being created today may lead to new space and telecommunications. be complemented by a venture capital fund
ventures five or 10 years down the road.If "The issue for Entronix was finding quali- formed by local investors and the Minnesota
Mankato is today's center for cell phone fled people:'says LaVoy."It's a story we're Investment Network Corp.(MIN-Corp.),a
technology;nearby towns such as St.Peter or hearing a lot these days from Twin Cities Minneapolis nonprofit that promotes eco-
New Ulm may prove to be fertile soil as companies,which are discovering that the nomic development through investment in
technology and trained minds gather along Iron Range and other places throughout rural Minnesota companies.
the Minnesota Riven Greater Minnesota have Meanwhile,the Mankato area is gaining
Today,the action is hot in Duluth qualified people who are an international reputation as a telecommu-
and the Iron Range in the north, ready to go to work." nications hub.Companies such as EI
ti
Alexandria and Fergus Falls in ` 1 Microcircuits Inc.,a 150-employee firm that
west,Fairmont in the southwest, z manufactures electronic corn-
Mankato in the south and Winona in _ ! • ponents for traf-
the southeast.In between are regional _
fic monitors,
centers such as Rochester,St.Cloud and � ', GPS units and
rainerd.And the fastest-growing Indus- ,
' ' ; , , _
� rother devices,and
ies are information technology,the 1 , Midwest Wireless _
Internet,telecommunications,medical - Communications LLC,which man-
devices and biotechnology Bak. , , clown ages cellular calls within 36 Minnesota
Duluth is leading the pack with its moves ; . counties as part of a nationwide cellular
to diversify from taconite and shipping into ' Fes. ' - j.- network,now call Mankato home.
software.The city and private investors have Brian Fazio,executive director of Valley
poured$33 million into Soft Center,a ..__ ,
„, Industrial Development Corp.,a Mankato-
r.
firms from and ot home verses software a , based nonprofit,says the areas success is due
�' to cooperation between business,the cities
MinnesotaP �« .. P
MIn"ea 1fF°'°` i ' of Mankato and North Mankato,and local
Hies that want to get a foothold in the United � a
States.The center,which is opening this universities and colleges
month,is networked to three other Soft F°rl4°°k \ It all started when AT&T and edu-
.
Centers in Europe.The key to the concept is cation officials developed the
linking businesses with local students,saysillimiii*,..h..._____t...w*
Institute for Wireless Education,
.rte ° °'°�� �
Mike McNamara,its president.`This system � which educates engineers,techni-
provides a seamless entry into the workplace cians and management.Several
for these students,helps Duluth hold on to hundred trainees have gone through
those taxpaying citizens,attracts new talent Technical schools on the Iron Range have the courses,induding employees of AT&T.
to our area and provides an affordable pool emphasized careers in manufacturing tech- Local companies have created 200 telecom
of highly qualified workers for firms that nology.Combine this with new fiber optic jobs in the past three years and expect to add
locate to the Soft Center:'he says. networks in the Arrowhead region and the another 175 over the next few years.
To the north,Jack LaVoy,director of the commitment of venture capital firms such as
technology-based Economic Development Northeast Ventures,you have all the ingredi- A new identity
Initiative for the Iron Range Resources and ents for growth,La Voy says. Southwestern Minnesota,best known for
Rehabilitation Board(IRRRB),reports brisk its cornfields and turkey farms,is also devel- r
Iltusiness.A number of Twin Cities-based In the incubator oping a new identity,says Diane Knutson,
ch firms are building a home on the The rural technology economy will economic development specialist for the
Range,including LearningByte receive another boost when the Itasca DTED.Its nickname of`Agri Alley"comes
International,which develops customized Development Corp.,a business development from the number of companies working on
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Ventures November 1999
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--- ,,,,,,v,,# {, I-;e-, k` ..
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z
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solutions to the challenges of modern farm- Genesis center in Columbia Heights.For
ing.For example,in Welcome,Easy Systems example,SolarAttic Inc.,a four-person start-
Inc.makes computer-controlled feed pro- y up in the Elk River incubator,has a product
cessing systems for pigs and poultry that automatically transfers heat from the
Steve Mercil,president of MIN-Corp., IMMIMMI attic into the home's heating system,water
Harlan Jacobs of Genesis Business Centers:
says other Minnesota towns should study heater or the pool
"I'm tired of Boston and Silicon Valley venture
how Crookston and St.Cloud seized an In the west and south,Plymouth,Eden
capital firms tapping our people."
2}'opportunity to attract the U.S.manufactur- Prairie and Eagan are lighting up the boards
division of New Flyer Industries Ltd.,a with telecommunications and information
based school bus manufacturer. exchange
for equity technologycompanies.In Plymouth,many
Ym
New Flyer arrived in Crookston in the early Tenants in the Columbia Heights incuba- eyes are on Optical Solutions,a$5-million,
'90s with a 130-employee assembly plant. tor include First Cirde Medical,an eight- 50-person manufacturer of applications for
:When the company needed to expand,it person company whose board of directors broadband access systems.And a growing `
chose St.Cloud for a 300-employee manu- includes the former U.S.Surgeon General C. semiconductor duster is emerging in '
# facturing plant It's not really high tech,but Everett Koop.It manufactures a whole-body Bloomington,including VTC Inc.,a 600-
New Flyer"offers an excellent illustration of suit used to raise the core body temperature employee designer and manufacturer of
companies recognizing rural Minnesota as a to help kill off bacteria and viruses. integrated circuits for data storage. #
good place to do business,and of Minnesota This"tremendous duster"of medical "What's fundamental to all of this new
communities working to build their own device companies"provides a critical mass growth is the willingness of people to ply
futures;Mercil says. that's necessary to attract the industry-spe- their entrepreneurial spirits to seize oppor-
cific talent that's needed to drive and lead tunities"says Rick Krueger,CEO of Eagan- 1"
Metro moves new and existing businesses,"says Tom based start-up KeyTech LLC,a Web design,
The action isn't limited to rural Meskan,president of Medical Alley,a marketing and e-commerce firm,and recent
Minnesota,of course.In the Twin Cities Minneapolis-based trade association whose president of the Minnesota High Tech
metro area,much of the activity is focused members indude more than 220 such firms. Association,a 750-member group represent-
on suburbs such as Plymouth,Eden Prairie, Minnesota's health care industry comprises ing high-tech businesses. ,it
Shakopee,Eagan and Elk River.One of the more than 8,000 manufacturers,health care "People are finding each other;Krueger
most famous hubs of suburban economic service providers,insurers,wholesalers and adds."They're no longer waiting for the ven- ,
'>." activity is the I-694 corridor,known as retailers.Nearly 228,000 people were ture capital firms to generate the activity.
Medical Alley,and its best-known tenant is employed in health care in 1998—about 10 They're investing their own wealth and per-
Medtronic Inc.,the world's largest manufac- percent of the state's work force. suading individuals to invest in Minnesota
turer of pacemakers.Seeding Medical Alley In Anoka and Sherburne counties,anoth- companies,wherever they maybe:'
is one of three for-profit incubators operated er industry duster is emerging."Energy
iiiGenesis Business Centers Ltd.Harlan City"is a group of companies oriented to Funky town
bs,Genesis president,says the incubator energy conservation products.Most of the A growing number of dot-com compa-
x f now hosts 10 businesses,five of them start- action is centered around two incubators— nies are making their homes in the Twin
ups.Genesis offers young companies one in Elk River,operated by the Elk River Cities'downtown areas.For example,in the '
-reduced rent and administrative services in Economic Development Authority,and the Warehouse District of Minneapolis,
56
Ventures November 1999 <'
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4
humbo.com,a$12 million,50-person Greater Minnesota." ' is a win-win strat- though,argues Jacobs of Genesis Business
online software retailer,is generating a lot of egy;'Knutson says." metro area head- Centers."I'm tired of Boston and Silicon
buzz.Across the river,St.Paul is starting to quarter companies can continue to expand, Valley venture capital firms tapping our peo-
feel the benefits of Lawson Software,a$270- Greater Minnesota is strengthened with ple;'he says."Once they get their fingers into
million,1,700-employee firm which is mov- diverse industry,and Minnesota retains its them,our people wind up on one of the
ing into new headquarters downtown. best companies." r coasts.We need to take more action.Like
St.Paul's Lowertown area has Cyber Funded 67 percent by the State of developing a strong,cohesive,statewide pro-
Village,so called because of its growing Minnesota,24 percent by the federal govern gram for growing business along the lines of
number of Internet-based companies.Phil ment and 9 percent by ether sources, Pennsylvania's Technology 21 Initiative"—
Platt,who does the marketing for Agiliti- Minnesota Technology;Inc.has taken an Pennsylvania Gov.Tom Ridge's comprehen-
gofast.net,a 60-employee application service assertive role with emerging high-tech com sive,industry-led strategy that has catapult-
integrator and business-to-business Internet panes."Our original charter was helping ed the state into the top 10 for high-tech
service provider,says roughly 40 Internet- Minnesota businessesccess and apply tech businesses.
based companies have set up shop in the nology within their manufacturing systems' "While we certainly don't have to recover
area.Startups are encouraged to join and are says Jon Freeland,its manufacturing special from the loss of a major industry like steel,it
supported by Agiliti-gofast.net,which rents ist."We came to realize that if other elemen. would be prudent if our state would provide
one-and two-room Internet Office Suites of a business aren't in place,applying and more investment seed capital for Minnesota
for$400 per month. leveraging new technology in a business businesses;'Jacobs says.For Pennsylvania's
"The Lowertown area was originally built won't make much of difference.Today,we 1999-2000 budget,Gov.Ridge proposed
by railroad baron James J.Hill,a pioneer tend to take a holistic approach to business more than$35 million for technology tax
who connected people and places;'Platt es,helping them look at all of their needs cuts and$228.5 million in state and federal
says."I think it's really interesting that more and matching them to the appropriate investments in technology,e-commerce and
than 100 years later,this space is being used resources:' biotechnology
by pioneering companies using the Internet Freeland used to run a company that "Regardless of whether a particular indus-
e°nnect people all over the world:' made parts for construction equipment,and try sector or a geographic area is hot;'says
�In downtown St.Paul,Jacobs of Genesis says that many of the people who work for Feltl of RJ Steichen,"the smart money will
Business Centers has joined with Randy and Minnesota Technology"have walked in the always be invested in management,people
Todd Geller,owners of the Victory Capital same shoes as the people we're helping:' and market potential:'
Corp.,and John Bergstrom,president of Minnesota Rural Partners,which has an
Riverpoint Investments,to launch the St. annual operating budget of$137,000,gener
Paul Business Development Center,an incu- ates connections between government agen Dan Carr,The Collaborative:
bator for software and Internet companies. cies,legislators,investors and companies.In 612-338-3828
It's aiming to attract more companies like its August the organization held its second Bill Hodgden,City of Sebeka:
first tenant,Net Briefings.com,a five-person annual Rural Summit,which brought 218-837-5773
start-up that offers real-time audio and together this diverse group of interests to John Feltl, RJ Steichen: 612-341-6200
video conferencing via the Internet. network and discuss technology. Jon Freeland, Minnesota Technology Inc.:
"The growth of Internet companies is "A strong rural economy is vital to the 612-991-5599
undeniable;'says Dan Carr,president of The state's long-term health;'says Marcie Harlan Jacobs,Genesis Business Centers:
Collaborative,a 750-member Minneapolis- McLaughlin,director."By identifying barn- 612-782-8576
based network of entrepreneurs,investors ers and impediments and bringing people Roger Jensen,Anoka County Economic
and advisers."More organizations are taking together to discuss those challenges,we're Development Partnership: 612-786-0869
advantage of the capabilities the Internet creating phenomenal changes:' Diane Knutson, Department of Trade and
offers:' "Communication is crucial;'agrees Carr Economic Development: 651-296-4236
of The Collaborative."We try to help com- Rick Krueger, Key Tech:651-688-1000
The glue that binds panies learn from one another by facilitatin: Jack LaVoy, I RRRB:800-765-5043
Behind all this activity is a network of networking and encouraging them to sh. : Marcie McLaughlin, Minnesota Rural
economic development agencies and other their experiences.When they do that,the Partners:320-255-3834
groups helping businesses connect with learning curve goes right off the charts,an. Mike McNamara,Soft Center Duluth:
resources and each other.Notable players that helps feed growth:' 218-727-9309; 800-652-5524
dude the DIED,Minnesota Technology One of Minnesota's strengths,say Carr Tom Meskan, Medical Alley:
c.and the Rural Development and others,is its rich tradition of building 612-542-3077
Commission. companies."It's unique to our state and it Steve Mercil, MIN-Corp.: 612-672-3403
The DTED helps companies grow by will put us ahead of other states for a long Phil Platt,Agiliti/gofast.net:
finding opportunities for expansion in time Carr says.More could be done, 612-918-2022
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Ventures November 1999