How this Midwest state has developed a unique business ecosystem where enterprises and small businesses work together
Home to 17 Fortune 500 companies, it’s no surprise Minnesota has been referred to as a “headquarters economy.” Target is headquartered here, and so are General Mills and Best Buy.
The state’s headquarters economy is diverse, with enterprise companies representing a cross-section of industries, including healthcare, retail, agriculture, manufacturing, financial services, medical devices, food production, bioscience, energy, and more.
“You see a pretty healthy industry mix. It’s part of the reason that for the last half-century-plus, we’ve been a very steady region in terms of our economic growth,” says Matt Lewis, vice president of strategic initiatives at Greater MSP, an economic development organization focused on job creation, business growth and retaining and attracting talent to the Twin Cities.
But many of Minnesota’s business giants aren’t just focused on their own bottom line — they’re investing in smaller and mid-sized companies, too. They’re helping to fuel the state’s business growth by providing access to capital, mentorship and by sharing their industry knowledge and connections.
In Minneapolis alone, there are 10 accelerators. General Mills has its own venture capital arm, 301 INC. Target has an accelerator for retail startups. Cargill and Ecolab have partnered with TechStars to create a Farm to Fork Accelerator. Land O’Lakes has a dairy-focused accelerator. Allianz Life Ventures and Securian Financial recently partnered to form an insurance accelerator. TreeHouse Health, which has a partnership with Blue Cross Blue Shield of Minnesota and other enterprise companies in the area, functions as an accelerator, venture firm, and innovation center. WeWork Labs, a global innovation platform for early-stage startups and corporations, also has launched in Minneapolis to empower small and enterprise companies. The platform, which has over 57 spaces in 32 cities and 15 countries, offers local and global resources. These resources include a custom curriculum for each member company, the ability to connect with and learn from other businesses of all sizes through a global network, and various programming, mentorship, and networking tools. WeWork also has recognized the growing business needs of the state and opened three locations in Minneapolis, providing a home for over 400 companies.
“There wasn’t the same kind of ecosystem as there is now. It’s very vibrant now. We have multiple venture capital groups and a thriving angel community. People really want to support each other. It’s part of the general ethos here,” says Lisa Crump, co-founder of the Minnesota-founded, publicly traded 3D printing company, Stratasys, and managing partner at Sofia Fund, a Twin Cities fund that invests in high-growth, women-led companies.
Enterprise companies have good reason to invest in upstarts. Partnerships between big businesses and small ones can drive innovation that otherwise may happen more slowly in these large companies — think of it as the 21st-century version of R&D. And not only are the state’s big corporations investing in startups — venture firms are, too. VC investment in Minnesota reached a record $786 million last year.
“The community in Minnesota as a whole is adamant about supporting success. We love local companies and everyone is willing to support [them], from retailers and suppliers to bigger companies that are willing to pitch in and give advice,” says Dan Bastian, co-founder of Minnesota-founded popcorn disruptor Boomchickapop, which was sold to food giant ConAgra in 2017.
Minnesota has forged a union between enterprise companies and growing startups that could drive innovation and serve as a model for how other states can strengthen and create a more diverse business ecosystem.
Creating a city where businesses thrive
Minnesota’s headquarters economy emerged because of several factors, as University of Minnesota professor J. Myles Shaver outlines in his book of the same name. Post-war, the region educated people at very high rates, creating a highly-skilled workforce and an explosion of managerial and executive talent. These workers moved from company to company within the region. Some of them went on to start their own businesses. These early companies, including Control Data Corporation and Medtronic, laid the groundwork for Minnesota to create a thriving business environment.
Today, several things fuel the state’s business growth. Minnesota has a high 69.9% labor force participation rate. Unemployment is 3.3% compared to 3.6% nationally, and more people are flocking to the state.
Minnesota was one of the only states in the Midwest with a net-positive migration population last year, meaning more people moved to Minnesota than leftSteve Grove, Commissioner – Minnesota Department of Employment and Economic Development (DEED)
State government also has supported businesses. Two of Minnesota’s main economic development tools are the Minnesota Investment Fund and the Job Creation Fund, Grove says. Both programs offer financial incentives to new and expanding businesses that meet specific benchmarks for job creation and capital investment.
Last year, DEED tracked 226 expansion projects and found that they created 8,800 new jobs and brought $2.4 billion in new investment to Minnesota — in large part thanks to these incentive programs.
And though Minnesota doesn’t have the most favorable tax climate for business — its corporate income tax rate is 9.8%, making it one of only six states that levy business taxes above 9% — Minnesota has launched tax incentive programs. In 2010, it enacted the angel tax credit to allow investors from inside and outside the state to invest in Minnesota startups. The result has been over $421 million in private investment from angel investors, Grove says. Unfortunately, the program ended in 2017 but may be reinstated at the end of the 2019 legislative session.
How enterprises and startups partner
Enterprise companies have stepped up, too. As examples, Cathy Connett, CEO and managing partner of Sofia Fund, points to the MN Cup, the largest statewide business plan competition and the Itasca Project, which involves “a group of 50 CEOs of some of the largest companies in town and other nonprofits and organizations that have focused on a variety of issues that really impact the competitiveness in the Greater Twin Cities area,” Connett says. The project actually led to the formation of Greater MSP.
Companies like General Mills are also doing their part. John Haugen, founder & managing director of 301 INC, the company’s venture arm, says 301 INC started as an internal innovation unit but evolved to focus on emerging companies.
“It just made sense to start looking externally and leverage the strengths — the passion, vision and nimbleness — of entrepreneurs with the expertise and resources that we as a company could provide,” Haugen says. “What sets 301 INC apart from other VCs is that we have General Mills’ + 150 years of expertise and leadership to help guide our entrepreneur partners in actual food issues and opportunities.”
Though 301 INC has yet to invest in any Minnesota-based companies, it does sponsor and participate in the MN Cup and Grow North’s Food Ag Ideas Week, which focuses on sustainable agriculture.
Atif Siddiqi, founder and CEO of the mobile technology company, Branch, says accelerators can play a critical role in helping new companies thrive. He should know — Siddiqi was a member of the inaugural 2016 class for Target’s Techstars Accelerator.
After the three-month program, Siddiqi relocated his business from Los Angeles to Minneapolis and has scaled the company to more than 50 employees in the last three years.
“When we first moved up here — me and three other engineers — we were working with companies like Target and other Fortune 1000 companies in the area, so we thought, ‘let’s see if we can grow our team here.’ What we found was, for a B2B software company, it was a really good place to be because there was a lot of good engineering talent that understood how to implement software in these large organizations.”
Ryan Weber of Great North Labs, a VC firm that focuses on Midwest companies, says early-stage companies in Minnesota really benefit from being part of an ecosystem anchored by enterprises.
“For some startups, they target large corporations as customers. Those that go through the accelerators often get pilots with the large corporations, though it isn’t guaranteed,” Weber says. “This is a big change from 10 years ago. The big companies understand that tech is causing accelerating changes and they need to better embrace a startup mindset and part of the way they can do so is to provide support to early-stage companies in their region that could down the road be good acquisition targets or partners.”
If you’re looking for proof of this, Boomchickapop is a shining example. Co-founder Angie Bastian says several big companies supported her family’s business as it was growing. Target took a meeting with the company while it was still small and several large, local grocery chains embraced the brand.
“One of the things I’m most proud of is the way we built the company,” Bastian says. “It felt like a community. People enjoy working together and helping each other. I think that’s also a reflection of how Minnesota works.”
Lewis of Greater MSP says what makes Minnesota such a great place to build a company is that it offers something hard to find on either coast — a thriving business ecosystem in a place that’s actually affordable.
“There are a lot of amazing economic hubs across the country and around the world, but most of them aren’t convenient places to live. There are a lot of other places where life is quite convenient and affordable, but those don’t tend to be places that grow globally leading companies,” Lewis says. “This is a community that’s figured out that healthy balance. You can have this world-class quality of life or you can work for or start the next big thing.”
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This article is part of the “The Way We Work Today” series brought to you by FiveThirtyEight in partnership with WeWork. Together, we are exploring the best places to base your business in 2019.