Dan Haugen

I had an energizing conversation Thursday with the guys at Element Six Media, a green advertising and branding firm in Minneapolis that builds campaigns around sustainable earth materials and social media buzz. I’ll be unpacking my interview notes in the next couple of weeks for a story on The Line, but I wanted to share one snippet now that particularly lingered with me: This is the New Economy. If we’re waiting for things to turn around or resume to normal, we’re wasting time because this is the new normal. Here’s how co-founder Maikel van de Mortel put it:

“We don’t talk in terms of things turning around. This is the new reality, and we’re at ground zero. The question is: how are we going to build up. The problem is that not everybody has come to peace yet with that new reality, and as long as that doesn’t happen, if you’re not at that point, then you’re going to struggle. The truth of the matter is it’s not going to go back to what it was. We’re not going to see profit margins as high anymore as they used to be. We’re not going to be able to charge those dollar amounts anymore as we were used to. Every single industry is going to have to face some realities, because people are going to object. It’s just part of the new economy. Every day that we talk about how things were, we’re waiting for things to turn around, is time that we spend wasting. That’s what’s really unfortunate. We can’t waste our time. We can’t afford it.”

I’m reading Steve Alexander’s excellent story in today’s Star Tribune about the high-tech vacuum Minnesota faces following the pending sale of ADC Telecommunications, which manufactures hardware and infrastructure for broadband and wireless data transmission.

It may be the last remnant of “a bygone era when the Twin Cities was one of the nation’s top technology centers.” The region has just a few large tech operations left (Lawson, Digital River, Seagate), and venture capitalists say most local software startups are tiny and will never grow into market leaders or large companies.

Gary Smaby, managing partner at Quatris Venture Capital Fund of Minneapolis, tells the newspaper that venture capitalists now expect a tenfold return on their investment and the ability to reach $100 million in annual sales. “I don’t want to leave the impression that there are not good startups,” he says. “It’s just that there are not many good start-ups with that kind of potential.”

So we’re not likely to find the next IBM or Oracle or Microsoft bubbling up from the Twin Cities startup scene, but maybe that’s not the point. Instead of asking who’s going to be the next big tech blockbuster to come out of Minnesota, should we instead be asking who’s going to be the next hundred successful small companies?

Large companies are may be good for the region’s economic stability, and it will take a lot of successful small businesses to replace the up-to-1,000 jobs thought to be at risk because of the ADC sale. But a conversation I had the other day with local entrepreneur/technologist Dan Grigsby has me wondering whether small companies might play a much more significant role in the future tech scene of the Twin Cities.

(Update 9:38am: Just got a phone call from Garrick Van Buren, who wanted to question whether large companies actually are good for a region’s economic stability. I made the comment offhandedly as a way to say I’m not completely writing off the value of large enterprises, and I’m quite certain I’ve heard that point made, but I can’t prove it. So there’s another can of worms: What is the value of large companies? One theory Garrick had is that they have traditionally been a magnet for attracting talent to the Twin Cities.)

Grigsby says the Twin Cities tech economy is already seeing a shift. It’s nothing unique to our region, and it has to do with the cost of computing power. Moore’s law is a prediction made by a Caltech professor in 1970, and it says that computer power basically gets twice as efficient, and thereby half as expensive, about every other year. He’s been almost spot on so far, and for the past 40 years the cost of computing has continued to plunge.

The cost of computing resources has fallen so much that very tiny companies or even individuals can now attack problems and develop ideas that just five or ten years ago would have been too costly for anyone but a large company to pursue.

I’ve written before about the opportunities cloud computing has presented for startups, which no longer need to pay to set up server rooms and hardware before launching a business. Instead, they can contract with a service like Amazon Cloud Services and only pay for the resources they use. Even without leveraging the cloud, things have gotten cheap. Grisby notes that he has a $1,000 server with enough capacity and redundancy to support any business he wants.

“So my cost of running a business has gone to basically zero,” says Grigsby. “That’s not universally true. There are still big, hard problems, but there’s enough problems that have the scope of business that I can make a living, and a very nice living, and at the same time don’t require a huge infrastructure to do it.”

He was talking specifically about software businesses, but other types of freelancers and entrepreneurs that depend on computing are starting to realize the same efficiencies. And the economics are becoming empowering.

“If I can find 2,000 people to pay me $40 a month for a product, I make $1 million a year. The economics of that are liberating. When I can build a company that costs nothing to operate, that changes the way I can live,” Grigsby told me. “Now, instead of having to spend 9-5 in a dull cube, I literally work from my patio. I look across my yard at a lake, and I love it.”

So what I’m throwing out there is that maybe — maybe — there’s less reason to worry about a bygone era if the next era in Minnesota high-tech looks like Dan Grigsby’s patio.

(Update 12:08: Twin Cities Business Senior Editor Gene Rebeck wades into the same territory on his BTW blog. See my comment over there, too.)

Way too much on my plate this morning, so I need to keep this brief. I’ll be unpacking my thoughts/notes today on last night’s Policy & A Pint on “Cities, Bicycling and the Future of Getting Around.” I’m also going to be talking/playing phone tag with a few more entrepreneurs I want to feature in next week’s issue of The Line.

I’m going to get straight into the links now:

SUSTAINABILITY
The Seward Co-op celebrated its new 32-kilowatt rooftop solar photovoltaic system with a “commissioning party” on Thursday. The array was installed by Solarflow Energy, a Seward neighborhood company that is trying to prove a solar leasing model. I wrote about ‘em this week for The Line.

MEDICAL DEVICES
ProUroCare , an Eden Prairie medical device startup, announced an extra infusion of cash from its existing investors. The company makes an imaging product that it believes can help doctors diagnose and document prostrate cancers. Thomas Lee wrote late last year that the company may have a hard time convincing reimbursers that the product is necessary. I was humming the Yeah Yeah Yeahs after reading this story in the Star Tribune this morning: an airline worker in Arkansas came across a container of human heads and head parts on their way to Medtronic that were apparently not packed or labeled properly. The state confiscated the body parts until it can confirm they were obtained legally.

ECONOMY
The Minnesota Department of Employment and Economic Development announced May job numbers on Thursday. Minnesota employers created a net 5,600 jobs during the month while unemployment fell to an even 7 percent from 7.1 percent in April. It was the second consecutive month of job gains — a first since Jan.-Feb. 2008. U.S. Census hiring is responsible for a large chunk of the increase, but private employers in the state still created 2,600 jobs. Construction and financial services were the only sectors that didn’t see growth. I spoke with an official from an IT staffing agency in the Twin Cities, who told me that it’s placing a lot more web and app developers than it was a year ago, although much of the activity is temporary contract work.

Jumping back into full-time freelance writing has been a chance to reinvent my routine. I’m still tweaking it, trying to find a flow that will be productive, stimulating and sustainable. One aspiration: one blog post per morning, a quick, daily round-up to share interesting links, let you know what I’m working on, and focus my thoughts and energy for the day ahead. So here’s a trial run. I can’t promise it’ll be back tomorrow, so enjoy, and lemme know what you think.

Today, I’ll be reading, digesting and starting to write something about the Minneapolis Chamber’s new 2010 MSP Business Vitality Index (PDF here). Thoughts/impressions?

I’m also following tips and tracking down companies to cover in next week’s issue of The Line. If you know of local startups that are growing or doing something cool, lemme know.

Here’s some links:

TECHNOLOGY

TEKSystems, an IT staffing firm in Minnesota, has filed a lawsuit against a former employee alleging her LinkedIn connections violate a non-compete agreement (Wired/Computerworld)

SUSTAINABILITY

Cap and Trade will burden the rich, but ease energy costs for the poor (Fast Company)

More push back against wind power. A group called Goodhue Wind Truth has put up a billboard accusing T. Boone Pickens of giving residents “the shaft.” (Finance & Commerce)

Advanced Bioenergy, a Wayzata ethanol company, disclosed Wednesday that it’s seeking to raise $10.35 million in equity. (SEC Edgar)

ENTREPRENEURSHIP

Pine Technical College in Pine City is using a federal grant to set up a $2.4 million entrepreneurship center and technology business incubator. (Finance & Commerce)

ABRA’ Auto Body & Glass is touting CEO Rollie Benjamin’s Entrepreneur of the Year award. I had the chance to interview Benjamin a couple of weeks ago about how he grew the company from a single repair shop in Fridley to a 100-location chain. You’ll be able to read my story in the August issue of Twin Cities Business magazine. (BusinessWire)

JOBS/ECONOMY

The Federal Reserve Bank of Minneapolis predicts Minnesota might not return to pre-recession employment levels until 2013. (Finance & Commerce)

mono, a branding agency I wrote about for The Line a couple of weeks ago, continues to grow. It just added two more creative hires. (PR Newswire)

I’m attending the launch event this afternoon for a group called MOJO Minnesota, an “innovation advocacy force” that wants to “reignite Minnesota’s culture of innovation.” I met with co-founder Ernest Grumbles a few weeks ago, and he explained they’re not going to be about putting out more studies and white papers. They’re going to be about action, he said. This will include state policy advocacy, “fostering dialogue,” and putting on events that connect like-minded entrepreneurs, investors and others.

A study showed up in my inbox this morning that suggests the MOJO team will have their work cut out for themselves. The Kauffman Index of Entrepreneurial Activity (PDF) is an annual survey of new business starts. This year’s report shows U.S. entrepreneurial activity in 2009 was at its highest level since 1996. More new companies were formed in this country last year than during the 1999 or 2000 tech boom years. Minnesota, however, is singled-out for having one of the lowest rates of entrepreneurial activity.

In 2009, Minnesota recorded 220 new businesses per 100,000 adult residents, just beating out Alabama (210 per 100,000), Pennsylvania (200 per 100,000) and Nebraska (200 per 100,000). Mississippi was last with 170 new starts per 100,000 adult residents. I’m admittedly still learning this beat, but the numbers surprised me. I’d have guessed we’d be in the middle of the pack somewhere — not the bottom five.

Maybe it’s just that I’m better tuned in to the conversation, but it seems like there’s an awful lot of talk lately about how to make Minnesota more entrepreneurial. Can we do it? There’s excitement about the angel investor tax credit passed by the Legislature this session. I’ve also heard concerns that it’s not enough, that we need to do something bigger to overcome our cultural resistance to risk-taking.

Guessing I’ll hear some ideas later today.

Twin Cities telecommuters have a new option for getting out of the house, and it doesn’t require buying a cup of coffee.

A pair of “co-working” centers opened this week in St. Paul, one in downtown and another in the St. Anthony Park neighborhood.

The centers are independent of each other, but both were inspired by similar hubs on the East and West coasts. The idea is to create a place where self-employed and telecommuting professionals can come together to work, and also benefit from some of the socializing, networking and collaborating that happens in a conventional office.

“It’s not really an office, and it’s not really a coffee shop, but it’s this other, third place and we go there to get work done plus socialize,” said Garrick Van Buren, a Twin Cities web developer who has followed the co-working movement on his blog.

The economy makes it an especially good time to experiment with co-working because many workers are in transition and there’s a surplus of commercial office space, he said. Read the rest of this entry »

The budget forecast delivered by state finance officials on Wednesday is perhaps the bleakest outlook in Minnesota’s history.

“This is the worst, without a question,” said Jay Kiedrowski, a senior fellow at the University of Minnesota’s Humphrey Institute of Public Affairs.

As the state’s chief financial officer under Gov. Rudy Perpich in the 1980s, Kiedrowski dealt hands-on with the fallout from another major recession.

What’s compounding the current shortfall is that it comes on the heels of already deep budget cuts and under a governor who refuses to raise revenues, he said.

The trends, if left unchecked, will have widespread consequences, from larger K-12 class sizes and higher college tuition rates to bumpier roads and fewer police officers.

“It’s a sad day for Minnnesota,” said Kiedrowski. Read the rest of this entry »

He did it before. Will he do it again?

A year ago this week, state finance officials broke the news to lawmakers about a projected $426 million budget deficit facing the state. The report set the table for a round of controversial budget cuts by Gov. Tim Pawlenty, who used a once-obscure administrative power called unallotment to take back millions of dollars previously promised to state programs and local governments.

Today, the state’s budget office released this year’s edition of its fall budget forecast, and it showed another looming deficit, $1.2 billion for the current budget cycle. Early this afternoon, Pawlenty confirmed the worst fears of cities and counties, saying that he would prefer to work with the Legislature but that he may need to address the deficit problem this month by unalloting local government aid again.

“The worry is that it will be very large again,” said Steve Peterson, senior policy analyst for the Coalition of Greater Minnesota Cities. Read the rest of this entry »

A panel of Republican candidates for governor on Wednesday painted a dire portrait of a state in fiscal crisis.

Speaking at a private forum for Medtronic employees, the five GOP contenders described a state budget broken from unsustainable spending. And they spoke about an alarming migration trend they see in which businesses are fleeing the state due to taxes and regulation while indigents flock here to take advantage of overly generous social programs.

The solution, according to former State Auditor Pat Anderson: Be more like South Dakota, a state which has no personal or corporate income tax and fewer public services and amenities.

Minnesota should do “the exact same thing,” Anderson said. “I think the key is to have a good South Dakota-style business climate and then get out of the way.”

But state Rep. Marty Seifert said calling for the elimination of income taxes is “pandering” to voters and that state government needs to use certain subsidies in order to accomplish its goals.

The exchange was one of a couple barbs traded between Seifert and Anderson in what was otherwise a friendly and uncontentious forum, sponsored by Medtronic’s employee political action committee and moderated by Rick Kupchella of BringMeTheNews.com. Read the rest of this entry »

Minnesota’s economy—and identity—have been linked for decades to the strength of its life science community, from groundbreaking research at the University of Minnesota to global Fortune 500 companies like Medtronic and General Mills.

But the state is losing its competitive edge, and staying above average is going to require targeted planning and investment in key areas, according to a recent report by the BioBusiness Alliance of Minnesota and Deloitte Consulting.

“Destination 2025 Roadmap: Recommendations To Grow Minnesota’s Life Science Industry” is a 20-year strategic plan based on input from more than 600 public, private and academic experts. (Continue reading…)