The first tech entrepreneur to describe the Twin Cities as a “company town” for me was Jamf co-founder Chip Pearson of St. Paul, and since then the term seems to come up a lot when talking to startup founders. It may not seem quite right, as the Twin Cities isn’t so small one employer or industry really runs things, but it can’t be easy here for founders competing for water and sunlight when trying to grow amid some awfully tall, mature trees.
Even the most optimistic entrepreneurs will talk about how hard it is to compete for technical employees in a region with employers like Target or C.H. Robinson. If candidates only focus on salary, they likely lose.
Yet the bigger complaint is having to compete against the received wisdom about the state’s economic success, how our big and diversified corporate community is the economic engine. The economy is just too dynamic to count on these headquarters being here forever. And didn’t every company on the list start out life as a startup with no employees?
“The problem for long-term economic viability is that the net new job growth is highly concentrated in high-growth startups, not large Fortune 500s or small businesses,” explained Rob Weber, co-founder of Great North Labs, an early stage venture-capital company that also offers programs for startups and entrepreneurs.
Minnetonka-based UnitedHealth Group is the biggest company on the Star Tribune 50 list, with about 18,000 Minnesota employees as of the last ranking by the Minneapolis/St. Paul Business Journal. It’s not big enough to make this a company town, not in a state that has nearly 3 million people working at last count. There’s also no industry here comparable to something like the automobile business in metropolitan Detroit, either, but that’s only if you think of it in traditional ways.
What dominates here is really corporate headquarters, a point made really well by author and business professor Myles Shaver at the University of Minnesota’s Carlson School of Management.
Please don’t get the impression that entrepreneurs only complain about these big companies. These companies and their well-paid staffs pay a lot of the bills in a great quality of life for entrepreneurs and their employees and bring a lot of talented people here, including some who may one day want to try working for a startup.
The founder of workplace software startup Branch, Atif Siddiqi, thought the company would return to Southern California after finishing a Techstars program associated with Target here. Once he got here, he thought maybe the Twin Cities would be a good place for some presence. Then he decided to relocate his headquarters in downtown Minneapolis. It has now been three years, and the workplace software company’s staff is up to 45.
“For a business-to-business software company, it’s a pretty good place, right?” Siddiqi said. “Some of those things other entrepreneurs might struggle with in terms of the big company culture is actually helping us. There’s a lot of Fortune 500 companies here that we can target for our product. There’s also these ecosystems built around these companies, good engineering talent and sales talent, that understood how to sell into these organizations.”
Corporate development and marketing staff with big companies also will insist that they have become easier for startups to work with. But there really is something to this persistent concern that a lot of big companies in the market can stifle innovation, both the success rate of upstarts as well as the willingness to even give it a try.
The academics who have examined whether big companies stifle innovation have noted a long, nationwide decline in business dynamism, tracked by startups, exits, worker flows and so on. One explanation is that bigger and bigger companies have enjoyed the benefits of scale, getting to introduce new products under brands everybody already knows and widen a cost advantage over upstarts as a big company keeps getting bigger.
And so the barriers for anybody new just get higher. Good luck to the ambitious entrepreneur today who aspires to knock out Facebook with a new social media app or Medtronic with a new insulin pump.
What’s even more interesting is what happens to the desire to start companies in regions with a lot of very large employers. It has been suggested that as the percentage of the workforce that goes to work for big companies increases, there’s a lower rate of people who even want to give entrepreneurship a try.
This seems a little like what has been known to happen in resource rich regions: Everyone knows the right path is a stable job in the mines or oil fields, so why work long hours at no pay trying to start a company?
Entrepreneurs like Rob Weber of Great North Labs find themselves selling entrepreneurship as a good career path. He pointed out that the single biggest factor in choosing entrepreneurship as a career is growing up with business owners or entrepreneurs as parents.
Not long ago, Weber agreed to speak to eighth-graders at the St. Vincent De Paul school in Brooklyn Park. The school has an annual career project to get kids to start thinking ahead, randomly assigning careers to kids to research and talk about, except in the past no student was asked to think about starting a business.
To the students, Weber said, he talked about his own background, how he and his brother Ryan as teenagers spent hour after hour at North Hennepin Community College on computers, experimenting with internet businesses. It’s pretty well understood that it takes 10,000 hours of practice to develop a skill, and if someone wanted to be the next Bill Gates (and one kid did) it’s going to take all of that plus a willingness to not make money for a while.
About one out of five of the kids later expressed an interest in starting a business.
“About a third of the students grabbed a business card when I offered free advice,” Rob Weber said in a follow-up e-mail. “Not sure what kind of questions I’m going to get.”