How Minneapolis Became Start-Up City
Thriving new companies include light-bulb crusher
C-R-U-N-C-H!: Workmen at Recyclites Inc. shove bunches of four-foot-long fluorescent light bulbs into a machine's maw, crushing the lamps and extracting, at a nice profit, droplets of glistening quicksilver.
The work at the new start-up company is a fitting symbol for the systematic way the Minneapolis area takes crude entrepreneurial ideas and turns them into sterling businesses.
On a per capita basis, Minneapolis has the largest number of companies listed on the NASDAQ, a stock exchange dominated by small- and mid-size firms. Statewide, entrepreneurship is catching on quickly. Of the 306 publicly traded companies in Minnesota, 106 have gone public since 1992, according to a state tally.
New enterprises are rife because of a potent mix of factors: ready cash, tight networking, and high levels of trust founded on a strong sense of community, say entrepreneurs and venture capitalists.
The entrepreneurship buoys the fortunes of more than the enterprises' maverick risk-takers. Unemployment fell to 2.4 percent in the twin cities of Minneapolis and St. Paul, Minn., for a few months late last year, thanks to new jobs. Minnesota is creating jobs at a rate 60 percent faster than the rest of the country, says Jay Novak, commissioner of the Minnesota department of trade and economic development.
"This hasn't been planned by central planners. It is free enterprise pure and simple," Mr. Novak says.
The steady stream of fresh firms - especially high-tech, medical, and environmental companies - sometimes confounds the tipsters, short sellers, and speculators on Wall Street. Regional investors, while seizing on risks, are willing to put down their money for the long haul, riding out downturns, say entrepreneurs and venture capitalists.
"There is a high degree of patience in the area, especially among people who invest at an early stage," says Daryl Erdman, former director of the center for entrepreneurship at the University of St. Thomas in Minneapolis.
Business innovation thrives because, comparatively speaking, capital is there for the picking. Minnesota is dotted with 528 commercial banks, the highest number per capita of any state. It also has the oldest federally registered venture-capital company, Novak says.
Close networking also energizes idea-driven executives. An organization called the Collaborative, where executives and investors regularly exchange ideas, has helped spawn many ventures. The program at the University of St. Thomas is also a hothouse for entrepreneurship. Its start-ups have a 90 percent success rate.
Primarily, though, the region fires up business creativity by using the reliable tinder of community trust. Investors in the area are generally more willing than their counterparts elsewhere to back local companies, say entrepreneurs and venture capitalists.
"You can cut a deal here and not worry like you would elsewhere," says Alan (Bud) Rubelson, founder of First Midwest Ventures, a venture capital company. "A handshake means a great deal in Minneapolis," says Mr. Rubelson: "Everyone knows everyone else's mother and father."
"Investors and entrepreneurs are very clannish, a tight group, and that is an important part of the business infrastructure," says Mr. Erdman, who heads the Papajohn Entrepreneurial Center at the University of Iowa in Iowa City.
Local investors recognize that everyone has a shared interest in the community's good. "Many entrepreneurs in the area help emerging companies out, and we don't ask anything for it. All we ask is [that] when they succeed, they help others out because the whole area will be better off if we do well," says Keith Thorndyke, president of Recyclites.
The clubbish sense of community can work against outsiders, however. "If you don't have the connections of family and friends in Minneapolis, it's very hard to get early seed money," says Erdman. Outsiders can more readily drum up venture capital in Silicon Valley, he says.
Initially at least, Mr. Thorndyke - a Minneapolis native - found it difficult rallying money for his company beyond his family and friends. But the environmentally correct concept of extracting mercury from fluorescent light bulbs helped win the financing.
Company performance then helped nab the rest of the $2 million capitalization. Revenues have ballooned from $15,000 in the last three months of 1992, to $250,000 in 1993, $1.8 million in 1994, $2.6 million in 1995, and an estimated $3.2 million this year. Six percent of revenue is profit, and the company has been in the black since 1994, Thorndyke says. Recently glass-crushing facilities in Columbus, Ohio, and Tallahassee, Fla., have opened.