Last week's almost $1 billion sale of Eden Prairie-based Compellent came right on the heels of a new report showing the Twin Cities was among the biggest losers of high-technology jobs during the most recent recession.
Combined, the two news items provide the perfect backdrop for another round of unproductive hand-wringing about Minnesota falling behind in the digital economy.
Face it: Information technology will never have the same dominant role in Minnesota's economy it did during the Big Iron era of the 1960s and 1970s, and for one simple reason: Many of the jobs from that era were in the making of hulking machines. Those jobs are gone forever. With the exception of chip engineering, high tech now is almost all about the application or the service, not the making or even the designing of hardware.
Which brings us to SPS Commerce, a story that, in its own way, is even more remarkable than Compellent's. SPS provides supply-chain management solutions for retailers and their vendors. In April, it raised $49 million through an initial public offering, and earlier this month, it completed a secondary offering that allowed some longtime investors to cash out.
Just how patient were those investors? Consider that SPS was founded way back in 1997, and that by 2001 investors already had pumped $33 million into the company.
Then again, those were the halcyon dot-com bubble days, when investors threw money at anything. At the time, a lot more ink and, in many cases, investor money was spilled on the likes of companies with hotter business models and cooler names than SPS Commerce. Who could forget NetPerceptions, Wwwrrrr, University.com, Shopforschool.com and Interelate?
They are all gone, but SPS Commerce just reported its 39th consecutive profitable quarter.
Not that it wasn't touch and go. Archie Black, who was hired as SPS's chief financial officer, earned a battlefield promotion to CEO in 2001. The company, which employed 200 at the time, would ultimately shrink to 75.
Black quickly focused all of SPS's efforts on developing the company's supply chain management software. Instead of packaging a program that customers would have to buy and install, SPS offered a subscription service delivered over the Web.
This was long before "cloud computing" became a megatrend, but thousands of vendors who work with the nation's retailers were quick to grasp both the importance and convenience.
Today, 12,000 customers pay a monthly subscription to use SPSCommerce.net, a central hub that enables them to link their supply chain systems with major retailers like Target, Wal-Mart, Macy's and Safeway.
"They've been able to build the business slowly over time, but with high retention rates with people who really value their business," said Michael Gorman, a board member and investor since 1998.
Black recently opened a 15-person office in Beijing, but most of the actual work for Asian customers is performed in the Twin Cities, where SPS employs 325. Black said he's never had to consider relocating the company to lure more tech talent. His senior management team includes former high ranking employees at Microsoft and Oracle who were based in Minnesota. The company's chief financial officer came from Amazon.com.
Black also rejects the notion that something in Minnesota's water or air -- the so-called cabin culture -- makes us less inclined to take the entrepreneurial plunge. If so, how to explain Compellent or Digital River, an Eden Prairie-based firm with more than 1,200 employees and a market cap of $1.3 billion?
"I don't buy it at all," Black said.
Gorman, a managing partner at the venture firm Split Rock Partners who has been investing in Minnesota technology companies since the mid-1990s, sees an increasingly fertile sector at the moment, with the likes of Alvenda, which has developed an e-commerce platform for Facebook and other social media.
"Regions can be dramatically changed by one or two companies," Gorman said.
Sound crazy? Look at Chicago, home to Groupon. A year ago, the company had 124 employees. Now it has more than 3,000, and earlier this month it turned down a $6 billion offer from Google.
Corporate acquisitions are one of the most sincere forms of flattery, so in this light Compellent's sale is encouraging. It proves that Minnesota can still be relevant in technology circles, and it means there's a new group of technology millionaires with money to invest.
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