IQ Magazine - Summer Fall 2012

3rd Quarter, Summer/Fall 2012

Economy

BankAbility – Charting the new lending landscape. Pg 28

Community

Bare Market – Rural grocery stores: Can they be saved? Pg 32

Philanthropy

Graduated Generosity – The power of permanent endowments. Pg 10

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Art of Attraction The Economic Forces of Air Travel

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Initiative Foundation Quarterly 3rd Quarter, Summer/Fall 2012

Table of Contents Features 20 Art of Attraction

The economic forces of air travel.

28 BankAbility

With stricter regulations on community banks, a good balance sheet usually trumps a good idea.

32 Bare Market

Rural grocers offer wealth, wellness, and aisles of community connections.

But can they be saved?

36 Double Bottom Line

Enterprising charities measure success by both purpose and prosperity.

departments 6 Initiatives The Foundation’s Regional Investment Highlights.

10 Philanthropy

Graduated Generosity – Through the power of permanent endowments, new school foundations unite donors with student experiences.

14 Community

Twister of Fate – From the ruins of a devastating tornado, Wadena finds ways to invest in itself.

16 Economy

Challenges – What was your biggest business challenge and how did you overcome it?

46 Home Made

Water Works, Cambridge Products made right here in central Minnesota.

48 Where is IQ? Photo by Ellen Meiselman

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3rd Quarter 2012

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Dear Friends, My husband, Neal, and I have been married for nearly 36 years. Last year, he “retired” from a 27-year law enforcement career. I thought this meant hours of hunting, fishing, vacuumed floors, clean dishes, folded laundry—you know, the inevitable changes that you’d come to accept.

Of course, that’s not quite how it went.

Evidently, our electric stove wasn’t up to snuff. A gourmet gas cook-top was required to evenly heat chili. So, Neal and our son, Mark, ripped up our kitchen.

Evidently, the yard was an embarrassment. There was no play-set for the grandkids, and we needed a more extensive lawn. So, Neal ripped up our yard.

Evidently, “retirement” didn’t provide enough challenge or mental stimulation. He ran for County Commissioner, and the bugger won. So, Neal ripped up our desk (with stacks and stacks of paper).

Change can be hard sometimes, kind of like our brand-new IQ Magazine.

During our first nine years, we dissected big topics like future workforce, rivers, rural revitalization, healthcare and methamphetamine. We were pretty darn good at what we did, and we thank you for your many years of loyal readership and support.

After hundreds voiced their opinions in surveys and focus groups, the Initiative Foundation refocused its five-year plan on economic growth and recovery. No surprise, IQ is changing along with us. Through a razor-sharp business lens, our magazine articles will now cover the connections between economy, community and philanthropy. We will feature more stories, more people and more places in an effort to inspire leaders and unearth solutions.

Case in point: the issue you’re now holding crisscrosses central Minnesota to explore the economic impact of airports, the community challenge of rural grocery stores and the philanthropic efforts of school foundations. Economy, community, philanthropy—it’s all connected.

And just like new cooktops, new yards and new jobs, change is often unexpected. But in the end, it’s well worth the wait.

Vo lu m e 10, 3rd Quarter Su m m er /Fall 2 0 1 2 in itiative fo undati on President | Kathy Gaalswyk Vice President for External Relations | Matt Kilian Grants & Communications Specialist | Anita Hollenhorst EDITORI AL Managing Editor | Elizabeth Foy Larsen Writer | Sarah Colburn Writer | Laura Billings Coleman Writer | Maria Surma Manka Writer | Mike Mosedale Writer | Rachel Reabe Nystrom Writer | John Reinan Writer | Lawrence Schumacher Writer | Andy Steiner ART Creative Services Coordinator | Eric Rittmann

Enjoy the (new) magazine!

Lead Photographer | John Linn Photo Technician | Justin Wohlrabe ADVERTI SING / S UBS CRIPTIONS

Kathy Gaalswyk President

Advertising Director | Brian Lehman Advertising Manager | Lois Head Advertiser Services | Eric Rittmann Subscriber Services | Katie Riitters 405 First Street SE Little Falls, MN 56345 320.632.9255 | www.ifound.org IQ Magazine unlocks the power of central Minnesota leaders to understand and take action on regional issues.

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AITKIN

Area Student Recognition 2012 WINNERS BERTHA-HEWITT

Brenna McKnight

Skylar Voge

MENAHGA

Allyson Ohlgren

Drake Anderson

SEBEKA

Megan Lillquist

BRAINERD

Justin Dudley

Cody Hoheisel

NORTHLAND COMMUNITY

Wayne Brown

Samantha Meacham

Michelle Pachan

Mike Hoemberg

Ashley Olson

CROSBY-IRONTON

Katherine Bender

PEQUOT LAKES

Erika Schwalbe

STAPLES-MOTLEY

Thomas Houle

BROWERVILLE

Andrew Moe

Riley Gutormson

Neil Zimmer

Alex Julich

Cory Rauch

UPSALA

Andy Clear

Denver Kortuem

Cole Brooks

Jacob Levig

VERNDALE

Israil Pundsack

Ariana Sandberg

LITTLE FALLS

Ashley Strom

Tyler Zak

Halbert Barrett

Fran Ellestad

Rachel Bachmeier

Jose Rodriguez

ROYALTON

Hunter Olson

WADENA-DEER CREEK

Paige Schiller

Dylan Brostrom

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PINE RIVER-BACKUS

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Nicole Hammond

Lexie Lehrke

Jeremy Grittner

WALKER-HACKENSACK-AKELEY

Mason Lohmiller

Clairissa Mekola

Tanner Josephson

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3rd Quarter 2012

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Initiatives Regional Investment Highlights

Welcome, Wayne!

Wadena County

Wayne Wolden, City of Wadena mayor and new Foundation trustee: “Private sector employment is a major issue in our region. The Initiative Foundation plays a crucial role in economic development and workforce. I’m excited to be a part of that.”

Lake Legacy Cass County

The Whitefish Area Property Owners Association and Pine River Watershed Alliance partnered with the Foundation to establish the “Land & Waters Trust,” a endowment fund. Lakes define our quality of life and keep Minnesota’s economy afloat.

Staple Resources Todd County

A community fund partner of the Initiative Foundation, the Staples Motley Area Community Foundation (SMACF), held their annual awards event on October 4 to recognize the outstanding contributions of local businesses, organizations and individuals. Next year, SMACF will celebrate its 20th year of local philanthropy.

Photo Credit: Staples World.

Trailblazing Morrison County

Royalton and Pierz will be better connected with support from a Foundation grant. Leaders are hatching a plan for connecting both cities to the Soo Line Trail, a 274-mile path that extends all the way to Wisconsin. Paths like this are a recreational amenity that’s important for tourism and livability.

Gold’n Opportunity

Early Investors

Time for Celebration

Special thanks to CEO Mike Helgeson for Gold’n Plump’s $20,000 investment in the Initiative Foundation Endowment.

President Kathy Gaalswyk presented Mike with a special plaque, made of the same material as the 25th Anniversary Commemorative Wall that honors more than 300 Foundation donors.

A grant to the Sauk Rapids-Rice Public Schools will support training for early childhood professionals as they help children with special needs.

Although long term, their investment in quality early childhood care is proven to be directly connected with quality workforce development.

The Annandale Area Community Team (ACT) recently celebrated the 10th year of having an active community planning team. Having that core group of volunteers has allowed them to complete a multitude of projects, including the recent opening of Clock Tower Park.

Stearns County

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Benton County

Wright County

Improved Efficiency Crow Wing County

A business loan helped Stern Industries relocate their manufacturing facilities to Brainerd, resulting in energy and production efficiencies and additional equipment to expand their product line. Other partners in the financing included Bremer Bank, Region 5 Development Commission and City of Brainerd.

The Drive to Thrive Pine County

Sandstone is among 19 active communities in the Foundation’s community development program. Through Thriving Communities Initiative, public and private sector leaders create action plans to spur the economy, develop community assets and invest in future workforce.

Forces at Work Kanabec County

A grant to the East Central Regional Development Commission will help businesses find financing, locate available sites, access tax incentives and explore export options – all in the name of creating quality jobs.

It Starts Here Mille Lacs County

The Foundation awarded a grant to support “It Starts Here,” a partnership between the City of Princeton, Chamber of Commerce and EDA. Goals include downtown revitalization and finding new businesses to fill vacant store fronts.

RoboClass

(Hydro)Forming Jobs

Welcome, Traci!

The Foundation funded the Becker High School robotics program to encourage students (especially young girls) to explore the fields of science, technology, engineering and math. Skilled STEM careers are expected to fuel future innovations, especially in core industries like manufacturing.

A business loan to Water Works in Cambridge provided the necessary capital to expand their manufacturing facility, resulting in the creation of 20 new jobs. Financing partners included Premier Bank, the City of Cambridge and MN Department of Employment and Economic Development.

Traci Tapani, co-president of Wyoming Machine (Stacy, MN) and new Foundation trustee: “As a business owner in Chisago County, I believe that investing my time and energy in the community is important. I’m excited to have the opportunity to serve.”

Sherburne County

Isanti County

Chisago County

Charles W. Mooty CEO, Faribault Woolen Mill Company Interim CEO, Fairview Health Services Thursday, January 24, 2013 11:30 a.m. – 1:00 p.m.

River’s Edge Convention Center Charles “Chuck” Mooty has more than 30 years of business and civic leadership experience. He earned both his bachelor’s degree and a Masters of Business Administration degree from the Carlson School of Business at the University of Minnesota. After graduating, Chuck worked for SuperValu in the Finance and Treasury departments before transitioning to International Dairy Queen, where he served in a variety of leadership roles for more than 21 years. During his last eight years of service with International Dairy Queen, Chuck held the titles of Chairman, CEO and President.

Currently, Chuck is President and CEO of Faribault Woolen Mill Company. He is also serving as interim CEO of Fairview Health Services—a large, integrated health system headquartered in Minneapolis. Chuck has volunteered at Fairview for more than 12 years in various governance capacities. He is the current chair of the board of directors for Fairview.

Chuck is a life-long resident of Minnesota, and he is active in a variety of organizations and community activities.

He and his wife Elizabeth reside in Minneapolis and have three grown children—John, Paige and Will.

For more information or tickets, call Eric Jungels at 320.251.5420 Corporate Sponsors

www.anderson-center.org 8 Initiative Foundation Quarterly

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Philanthropy

Graduated Generosity Through the power of permanent endowments, new school foundations unite donors with student experiences.

By Sarah Colburn | Photography by Justin Wohlrabe

Living over two hours from the Twin Many school foundations are raising funds Cities, most of Jennie Planer’s students in for permanent endowments, the long-term the Crosby-Ironton schools had never been strategy of building charitable investment inside a true concert hall or seen a full accounts. The principal is never spent, but orchestra take the stage. annual earnings fund student opportunities Planer wanted to inspire her fifth and for generations. sixth-grade students and show them exactly Endowment funds are the financial backwhat the world of music has to offer. The bone of many colleges, universities and prichallenge was that she didn’t have the budvate schools, and Minnesota school districts get to do anything beyond encouraging her appear to be catching on. While endowstudents to watch the Minnesota Orchestra ments are in no way replacements for district on YouTube. tax levies, they do offer alumni—often area That’s when the music and band teachresidents and business leaders—a chance to er turned to the Cuyuna Lakes Education give back to their local schools.

Foundation for The Initiative help—requestFoundation ing $500 to take Many school foundations are raising w o r k s with her students to funds for permanent endowments, Cuyuna Lakes, see the Minnesota the long-term strategy of building allowing them to Orchestra perform make grants for charitable investment accounts. The everything from in Minneapolis.

T h r o u g h o u t principal is never spent, but annual field trips to parMinnesota, fami- earnings fund student opportunities ticipation schollies and alumni arships to afterare investing their for generations. school clubs and financial resources activities. “Our and volunteer hours to form independent primary goal is to build thriving comschool foundations. Supporting academics, munities and a strong economy, and it all activities and athletics, the goal is to provide starts with quality early childhood and K-12 education,” said Tricia Holig, one experiential learning opportunities that of the Initiative Foundation’s Turn Key would only be possible with external funds.

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Clark Marshall: Cuyuna Lakes Education Foundation

AN ENGAGED COMMUNITY Community Engagement is a cornerstone of a St. Cloud State University education—at all levels.

Our professors, like Mark Springer, dean of the College of Liberal Arts and the School of the Arts, teach their students that getting involved is an opportunity and an expectation. Dr. Springer is the principal trombonist with the St. Cloud Symphony Orchestra and deeply involved in the St. Cloud arts community. He truly leads by example.

More than 45 percent of the musicians in the St. Cloud Symphony Orchestra have ties to St. Cloud State, and the University is pleased to serve as host for Orchestra performances.

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“We all remember a special field trip or a classroom experiment that changed our perspective and maybe even our career path.

School foundations are helping to make those things possible.”

Fund liaisons. “We all remember a special field trip or a classroom experiment that changed our perspective and maybe even our career path. School foundations are helping to make those things possible.”

The Initiative Foundation partners with central Minnesota schools to host foundations and manage endowment funds.

Generally, a school foundation advisory board can begin making grants one year after the establishment of the endowment.

As the fund grows over time, boards generally limit giving to five percent of their average endowment balance, so that the endowment can continue to grow.

“In the Initiative Foundation we have somebody pushing us, keeping us on task,” said Clark Marshall, secretary and treasurer of the Cuyuna Lakes Education Foundation.

His board began a fundraising effort in July targeting graduating classes from the 1940s to the 1970s. Initial efforts have garnered more than $20,000.

In addition to establishing these endowments, the Initiative Foundation also assists with planning, consulting and accepting donations for the foundations—including gifts of stock, real estate and other vehicles that have unique tax advantages for donors.

“We make it simple for them,” Holig said.

“They don’t have to form their own nonprofit organization or worry about financial management and administration. Their job is to raise funds and recommend grants that have the greatest impact.”

For Planer, the $500 grant she received from the endowment meant her students were able to travel two hours south to hear the sounds of the Minnesota Orchestra 12 Initiative Foundation Quarterly

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reverberate through the Minneapolis Orchestra Hall. “Anything I can find to help motivate them on another level helps to keep them practicing,” she said.

“These are world-class musicians, and it was great to see the kids pointing out their instruments.”

The Initiative Foundation also helped the Sauk Rapids-Rice School District launch a school foundation. In September 2012, the Sauk Rapids-Rice Education Foundation kicked off its fundraising efforts by raising $15,000—money personally given by the district’s administration team, school board members, teachers and staff who have opted to donate through payroll deductions. After hosting community meetings facilitated by the Initiative Foundation, the advisory board decided their funding priorities should include classroom grants for learning opportunities, activity fee scholarships for low-income families, family engagement initiatives and support for early childhood development.

The funds are separate from those of the school district and can’t be used to cover the district’s operating expenses. District leaders must continue to seek voter approval for operational levies needed to manage day-to-day costs. Grant money is available to teachers and nonprofits that want to provide programming for kids and families within the district.

“As business leaders and community leaders we often spend a lot of time reacting to what needs to happen now,” said Dan Bittman, Sauk Rapids-Rice superintendent.

“We also have to provide opportunities for children in the future.”

Dan Bittman: “We have to provide opportunities for children in the future.”

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Community

Twister of Fate

From the ruins of a devastating tornado, Wadena finds ways to invest in itself.

By Mike Mosedale | Photography by John Linn

Under the bright skies of a recent September afternoon, Wadena Mayor and Initiative Foundation trustee Wayne Wolden toured some of the construction projects in this central Minnesota city of about 4,000. There was plenty to take in.

With its handsome brick storefronts and art deco movie house, the old downtown looks the same as it did before disaster struck two years ago. But just a few blocks away, the story is very different. The most conspicuous new addition in this quarter of town: the gleaming Wadena-Deer Creek Public School.

After the mayor expounded on the virtues of the $38 million complex’s geothermal climate control system, rain gardens and silver LEED certification, he pointed to an even more unusual feature of the design: a gymnasium that doubles as a storm shelter rated to weather winds of 250 mile per hour.

“That thing is built to withstand an EF-5,” said Wolden, referring to the Enhanced Fujita Scale, which ranks the severity of tornados. Wolden’s familiarity with such meteorological terminology stems from June 17, 2010, when an EF-4— the second most powerful category on the scale—ripped through Wadena and surrounding areas.

The mile-wide twister, which was part of the largest one-day tornado outbreak

in state history, caused widespread carIn September, the city received a big nage. In Wadena, the hardest hit city, it boost when the state’s Department of destroyed about 100 buildings—including Employment and Economic Development the school, the community center and the announced that it selected the proposed fairgrounds—and damaged another 400.

Wadena Regional Wellness Center for a Fortunately, no lives were lost. $4.2 million grant. One of just nine projects At the time, the disaster and its immedipicked from a broad field of applicants, a ate aftermath was the subject of plenty of new community center had been on the news reports and even an episode of “Storm city’s agenda for a dozen years.

Chasers” on the Discovery Channel. After Ironically, the tornado that wreaked so the cameras left, however, came the commuch havoc helped pave the way for the plicated and sometimes nettlesome matter project because it destroyed the existing of planning and rebuilding.

While the school construction costs were cov- “The new center will be a point of community ered by insurance (plus a connection as well as a rural health and $985,000 grant from FEMA economic driver.” for the storm shelter), Wadena was left with a raft community center. With assistance from of challenges. City leaders scrambled to save the Initiative Foundation, volunteers have the businesses that suffered the most, even already raised more than $3 million in pridonating land to help Leaf River Ag rebuild. vate donations for the $10 million plan.

The recovery effort has involved extensive collaboration between public, pri“We administer a fund so that volunteers vate and nonprofit parties, including the don’t have to get mired in the administrative Initiative Foundation. Through a combidetails,” said Kilian. “The new center will be nation of grants, online fundraising and a point of community connection as well as an emergency business loan fund, the a rural health and economic driver. We are Foundation has contributed about a half also able to accept non-cash gifts like stock million dollars to Wadena recovery efforts, that provide more tax advantages to donors.” according to Matt Kilian, vice president for Although Wadena has suffered some external relations. loss of population, Wolden said the amenities at the new wellness center may help reverse that trend. The 50,000 square foot, city-owned facility will house the only public lap pool in the county. The center will also boast a warm water therapy pool, or, as the mayor referred to it, “a hot tub on steroids.” The Tri-County Hospital will contribute $47,000 annually for access to the therapy pool. That arrangement, the mayor said, illustrates the value of actively seeking partners to help pay for public projects.

“This is finally coming together,” Wolden gleefully added. “And it’s been a 24/7 party Wayne Wolden, Wadena Mayor in this town since we got the news.”

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Economy

Challenges What was your biggest business challenge, and how did you overcome it?

By John Reinan | Photography by John Linn

Manufacturing is a key growth industry for small business. In central Minnesota, more than 32,000 people are employed in manufacturing, with a median wage of around $16 an hour—well above the median wage for other occupations in the region. Manufacturers in the region rang up more than $3.3 billion in sales in 2010, according to the Minnesota Department of Employment and Economic Development (DEED). And each manufacturing job creates 1.9 additional jobs, both in the supply chain and through additional employee spending.

Unfortunately, when it comes to entrepreneurial businesses - like many in the manufacturing industry - failure is common.

Roughly one-quarter to one-third of small businesses close in their first two years, according to the U.S. Bureau of Labor Statistics. The manufacturing businesses profiled here (all of which are Initiative Foundation loan clients) faced significant challenges. We asked them to share their biggest business challenge and how they solved it.

Ken Barros Owner, CEO – National Precision Machining & Engineering, Sebeka

My Greatest Challenge Bringing new purpose and direction to a struggling business.

This company had been through three owners since 1998. The most recent owner passed away and the family wanted to sell. If they hadn’t found a buyer, they were going to close the doors.

The Initiative Foundation financed the building and Bremer Bank in Alexandria financed the rest of the corporate assets. We finally closed the deal in June 2011, and there I was with a skeleton staff of 12. Sales hadn’t grown in years. So my challenge was to mentor these people and bring them into a new mentality. Here’s what we did: Processes We had to break away from systems where information is passed on informally and often known only to a few. We established processes and procedures. That’s important—you need processes that ensure your operation runs smoothly and you meet the standards you’re trying to achieve.

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Build Morale A lot of manufacturers make components and the workers don’t even know what the end product is. One of the products we manufacture is a component that’s used in the “flash doors” that protect aircraft carrier crews when the F-18 fighter jets are taking off. I use media and other outlets as training tools to show my employees examples of what they’re making and how it’s used. That’s what builds morale.

Results Employment is up from 12 to 19. Sales bookings for 2013 are projected to more than double. I want to expand and build this to be the largest employer in Wadena County with the best employees and best benefits – that’s my ultimate goal.

Shawn Hunstad

Joe Glenn

Owner – Stern Industries, Baxter

President – Glenn Metalcraft, Princeton

My Greatest Challenge Restructuring the business while adapting to changing customer needs.

My Greatest Challenge Opening export markets while planning for succession in a thirdgeneration business.

I started at Stern Rubber Co. as a salesperson more than 20 years ago. After I became an owner, my partner Terry Stern and I created a number of different divisions to handle various aspects of the business.

When the recession hit in 2007, we lost a big chunk of business.

Meanwhile, some of our customers were looking for different services and methods of product sourcing. We brought in a consultant, and ultimately decided that it made the most sense to split up the business.

Terry took back the rubber company and I went forward with the parts brokerage and the rotational molding business. Here’s what I learned: Be Open Anybody that does business with us, we try to be very open about what’s going on in our business. That’s very important. People inherently want to help. Don’t try and hide the struggles. We sat down with each supplier and told them how we planned to weather the storm. They were patient, and they all got paid.

This company was started in 1947; I’m the third generation. My father, Dennis, passed away in 2005. The succession planning had been ongoing since 2000, but it moved very slowly and was difficult.

We see major opportunities in the export market. There are very few companies that can do what we do, both in the U.S. and overseas. But figuring out how to break into foreign markets is a very daunting task for a small business. Here’s how I addressed these challenges: Bring In Experts Valuing the business is a difficult process. We talked it out with accountants and attorneys, and they helped everybody through the process. I’m thankful that I have a great accounting firm, KDV in St. Cloud.

Plot Your Course We put together a new business plan for the new companies. We worked very hard on our projections. We got with our customers, talked to them about what we could be doing for them.

Roll Up Your Sleeves There is no silver-bullet solution to exporting. A few of us have been taking classes thru DEED and doing other things to get more well-versed. We’re not big enough to have anyone solely devoted to exports. It is trial and error, taking classes, networking with people who have done it to find out what works.

Results We’re moving into a new facility in Brainerd and we just closed on a $450,000 loan for a new piece of equipment that will enable us to do larger parts. Going forward, we will be a pretty substantial player in the rotational molding industry. We will end 2012 around $15 million in sales and we’re projecting $17 million in 2013.

Results We’ve grown revenue more than 600 percent in the last decade, to about $20 million. We employ 45 people and we have a profitsharing plan that averages $8,000-$10,000 a year per employee.

We’ve grown exports by shipping for our clients to their sister companies overseas.

3rd Quarter 2012

17

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Art of Attraction The economic forces of air travel.

By Laura Billings Coleman | Photography by John Linn

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B

rainerd’s Andy Larson is a frequent flier, having logged more than 88,000 miles since the start of the year— more than three full rotations around the circumference of the earth.

Though he serves as chairman of the Brainerd Lakes Regional Airport commission, he rarely departs from his home airport, which doesn’t have the flights he needs to reach the East Coast by the start of the business day. Instead, he drives to the Twin Cities the night before, pays for parking and a hotel, and loses nearly a day of productivity for every trip he takes. “For business travelers, it’s about timing and convenience,” Larson said. “And at this point in Brainerd, it’s just not there.”

Brad Goskowicz, the CEO of St. Cloud’s Microbiologics, Inc., is also a globetrotter, spending more than $100,000 on business travel every year to reach customers in 132 countries. Though 40 percent of his revenue comes from outside the U.S., his international customers have had a much harder time getting to St. Cloud since Delta Airlines pulled the only commercial service to the St. Cloud Regional Airport in December 2009. “I’ve got a gentleman coming from Japan next week, which means he’s going to have to fly into MSP, and we’re either

Andy Larson: “For business leaders, it’s about timing and convenience.”

going to have to hire a limo service to drive him here, or I’ll have to assign an employee to go and get him,” said Goskowicz. “As a business, you lose more of what you don’t have—enough time in our day.”

When it comes to central Minnesota’s economy, airports matter. Industry statistics show that every daily flight represents $4 million in annual economic impact for a community. When customers who could have boarded planes in their own region fly out of Duluth or Fargo or the

Minneapolis-St. Paul International Airport (MSP) because of price, timing, inconvenience or simple lack of service, millions of dollars in revenue and other opportunities are lost. “Better air service is a hidden piece of our economic development,” said Kathy Gaalswyk, president of the Initiative Foundation. The Foundation brought together business and community partners from both cities to brainstorm how both regional airports can attract airlines and sustain better service.

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Missed Connections Airports are the front door for business, according to Al Kremers, former CEO of Sartell-based DeZURIK Companies and current chair of the Greater St. Cloud Development Corporation’s Air Service Business Corps. They are a practical means for moving people, supplies and freight and a connection to an increasingly global economy. They’re also a critical calling card that tells potential businesses and skilled employees that your region has the resources to compete. “When you’re talking to a company about doing business here, you can talk till you’re blue in the face about the benefits of outstanding health care and a great educational system, because if you don’t have great air service, it just doesn’t get through,” he said.

Bill Towle

St. Cloud’s airport manager

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That’s why Kremers agreed to lead the “Let’s Go” campaign, a community-wide partnership uniting the City of St. Cloud, the St. Cloud Regional Airport and the Greater St. Cloud Development Corporation behind the shared priority of securing air service from St. Cloud to Chicago’s O’Hare International Airport by January 2013.

He’s also one of a chorus of civic leaders who argue that improved air service is

a benefit not just to business travelers but to everyone in the region—from the more than 3,000 consultants who have brought their home-based businesses to the Brainerd Lakes region, to retirees who fly south for the winter, to the nearly 35,000 college students living in the St. Cloud region, to the second- and third-generation summer cabin and second home families who fly back from every compass point.

Airports are the front door for business…

They are a practical means for moving people, supplies and freight and a connection to an increasingly global economy.

Central Air It’s been nearly three years since Delta Airlines made its last scheduled flight to the St. Cloud Regional Airport, effectively forcing fliers in 76 zip codes to take off from other destinations. “In economic development we don’t measure loss, we measure gain,” said Jami Bestgen, a marketing consultant who has helped launch the “Let’s Go” initiative. She admits the loss of service has been significant.

“It’s frustrating because people see air service

as more essential now that they haven’t had it for a few years. “Absence has definitely made the heart grow fonder.”

Bestgen has heard these frustrations first-hand, after reaching out to nearly 800 businesses in the region, and sitting down with nearly 400 respondents who revealed they spend more than $22 million on airfare every year. Bestgen’s research also found that 40 percent of their flights were

They’re also a critical calling card that tells potential businesses and skilled employees that your region has the resources to compete.

to or connecting in Chicago, making service to O’Hare, the third largest hub in the U.S., a necessity. “O’Hare has four times as many connections as MSP, flies direct from more destinations, and costs less,” she explained, noting that travelers in the region could see $3.6 million in airfare savings by traveling through O’Hare instead of Minneapolis-St. Paul International.

St. Cloud’s “catchment area”— the annual number of airline trips taken by people within the airports’ service area— exceeds 350,000, making it a potentially larger market than Duluth or Rochester, both of which are served by more than two air carriers.

But sheer numbers aren’t enough to attract airlines. “It’s really hard to get your

Rick Adair

Brainerd’s airport interim manager

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23

Flight Plan: roach p p A s ’ d u St. Clo lines r i A g n i t to Attrac

loud rst thing St. C fi e Th . h rc a e s ording to 1 Do the re eir users, acc th fy ti en id s ’s Go” did wa t. Cloud’s “Let S of er d a le n really Al Kremers, e ones that ca th e ’r ey h “T . n said campaig air service,” he d oo g r fo d ee n express the

Type ver ifr dvfr

Flight Route of

sure Cloud makes t.

S . e s a c e all par2 Make th the benefits to te ra st on em d sithey can community, bu t, or p ir a e th stands ties involved— everyone under so — es n li e ir a nesses, to Bestgen. Th g in d or cc a , ation’s how they win opment Corpor el ev D d u lo C t. ier Greater S nd that a carr u fo , le p m a ex dividual research, for 0 to 29,000 in 0 ,0 5 2 st ju d tal would nee action of the to fr a — ts en em d service trips or enplan in the St. Clou le p eo p s ip tr 350,000 en. ar—to break ev ye y er ev ke ta area

Hours

oard Fuel on B

Minutes

D

estination

days when “Gone are the t. o p e th n te risk,” 3 Swee to take all the e n li ir a n a t ec r St. Cloud you can exp EO of the Greate C , er m ra K n h know said Jo . “When you on ti a or p or C t Developmen of the project, ry a ci efi en b a e b you’re going to ccess.” vest in their su in to ot g e ’v u yo ple ssume that peo a er ev “N . ry sto ing that 4 Tell the mer said, add ra K ,” u yo t ou eat know ab ed Delta’s retr ew vi ly ke li performmost airlines gn of an under si a s a d u a lo C from St. campaign told o” G ’s et “L e ds $22 ing market. Th the region spen t a th y— or st it’s different year and that y er ev l ve a tr airlines million on air market where g n vi ri th d n a t a vibran will succeed.

remarks

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foot in the door because of the risk to the airlines,” said Bill Towle, St. Cloud’s airport manager. “You have to sweeten the pot.” That’s why the publicly owned airport pursued a Small Community Air Service Development Grant, securing $750,000 in federal funding (paid for by airline user fees) that the airport can offer an airline to offset possible losses as new air service gets up and running. The “Let’s Go” campaign also gathered more than $6 million in nonbinding pledges from the business community, underlining their plans to support and use service to O’Hare.

In August, Allegiant announced plans for new commercial service between St. Cloud and PhoenixMesa, an important route for Minnesota snowbirds.

It also has some strategic value to the “Let’s Go” campaign because the resumption of commercial service triggered a required environmental assessment as well as the return of the Transportation Security Administration. With those two major items crossed off the airport’s to-do list, their case to a Chicago carrier is stronger.

“Let’s Go” is also working on a plan to bring freight service to St. Cloud, efforts that John Kramer, CEO of the Greater St. Cloud Development Corporation, compares to repairing a bridge collapse. “If all the roads going into your town were closed, what would you do? How much money

Their pitch worked: in September, SkyWest announced plans to begin service in Brainerd, providing travelers there a minimum of 12 nonstop trips to MSP every week. would you put in to get those roads opened again?” Kramer said. “That’s the way we have to start thinking about air service.”

Taking Off Just seventy miles north of St. Cloud, the Brainerd Lakes Regional Airport faces a very different set of challenges. Though Delta informed the airport in July 2011 that it would eventually phase out service, Brainerd is designated as one part of the United States’ Essential Air Service Program, which includes 152 federally subsidized airports in small communities throughout the country.

As such, the airport is protected from

“When you’re talking to a company thinking about

doing business here, you can talk till you’re blue in the face about the benefits of outstanding health care and a great educational system, because if you don’t have great air service, it just doesn’t get through.”

Al Kremers

Greater St. Cloud Development Corporation’s Air Service Business Corps

completely losing service until a permanent replacement carrier could be found. Unlike St. Cloud, Brainerd also has freight service— twice a day flights from UPS. Yet with a recent $7 million terminal expansion, new amenities, and just a few flights a day, the airport still isn’t the economic engine that it could be. Rick Adair, the airport’s interim manager, says an airline CEO once summed up Brainerd’s situation this way: “The good news is that you’re close to Minneapolis. And the bad news is that you’re close to Minneapolis.”

That attitude explains why Brainerd’s business community has worked hard to make clear to potential carriers that the region is a unique “micropolitan” area with an airport that rivals many larger communities. The central Minnesota town also has the state’s largest concentration of second homes, a healthy seasonal influx of youth hockey fans, more than 3,000 consultant entrepreneurs and forecasts for the population to triple in the next 20 years.

To make that case a little more memorable for executives at SkyWest, a Utahbased carrier that began flights to Bemidji

last March, community leaders decided to play on the friendly rivalry between the two towns over which has the best claim to Paul Bunyan. They went to Paul Bunyanland and videotaped an interview with the 40-foot-lumberjack, who extolled all the reasons he was looking forward to flying SkyWest. Their pitch worked: in September, SkyWest announced plans to begin service in Brainerd, providing travelers there a minimum of 12 nonstop trips to MSP every week.

That strategy also proved something that leaders in both St. Cloud and Brainerd learned about improving air service in small towns—a lot depends on building a personal relationship between an airline and the community it serves. “An airport is just a piece of concrete,” said Adair. “To succeed, you have to get the community involved.”

Brainerd Lakes Chamber of Commerce CEO Lisa Paxton says that will mean working closely with SkyWest and other airlines in the future to create a schedule that coincides with travelers needs. A marketing plan will celebrate the convenience of being able to drive

30 minutes to the airport and park for free.

In spite of three years of pent-up consumer demand in St. Cloud, Bestgen predicts it will take another three years of aggressively marketing the St. Cloud Regional Airport to get people in the habit of using it again. One goal of the “Let’s Go” initiative was to educate local business about the benefits of flying through St. Cloud, and the risks of not using it enough.

“We’ve shown them the economic loss that they’re currently seeing by not having a carrier here, and we’ve educated them about what it really costs to put that employee in an automobile and take three hours out of his day to get to MSP,” Kramer said.

Though better air service is now poised to take off in Brainerd and St. Cloud, Kramer says the lesson of the last few years is never to take your eyes off the horizon.

“Never, never, never rely on just one air service,” he said, noting that there are now a third fewer airlines than there were 10 years ago. “You have to be out there making new connections every day.”

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E C ON OM I C RUNWAY READY

Walker

Commercial Paved Lighted Turf Turf Seaplane Base Private

Remer Longville

Central Minnesota's Airports Backus

Pine River

Wadena Source: Minnesota Department of Transpotation

Staples

East Gull Lake

Mal's

Moose Lake-Carlton Co

Morey's Clarissa

Field of Dreams Long Prairie

Little Falls-Morrison Co Mora Milaca

Sauk Centre Brooten

St. Cloud

Paynesville

Princeton Cambridge

Rush City

Leaders Clear Lk Buffalo

DRIVING TO FLY What It Costs

Brainerd

Maple Lake

TOTAL DIRECT COSTS TO BUSINESSES

Miles to MSP

Equivalent Travel Time

Round Trip Mileage Reimbursement

Parking Services for 3-4 Days

St. Cloud

70

1½ to 3 hours

$77

$85

unproductive time + cost of ticket

Brainerd

125

2½ to 4 hours

$138

$85

$223 +

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$162 +

unproductive time + cost of ticket

A I R

P OWE R

Greater Minnesota St. Cloud Regional

Range Regional (Chisholm/Hibbing)

Brainerd Lakes Regional

Bemidji Regional

Falls International

Thief River Falls Regional

6 Airports

2.5

$$$ 2,260 Visitors Per Year

$280 Per Day, Per Visit

million dollars

Source: University of Minnesota, 2010

A FINANCIAL JET STREAM...

12.1 billion to the MN economy $ 6.4 billion in labor income 165,000 jobs

$

900,000 international flights per year to 279 airports

Supports 7% of the national workforce

$

30 Million Labor Income

$

85 Million Total Impact

$

Source: International Air Transport Association, 2012 Source: Airports Council International-North America, 2010

Nation

577

295

Construction Jobs Additional Jobs

Accounts for 8% of gross domestic product

361 direct connections to large cities in 108 countries

Source: University of Minnesota, 2010

State

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BankAbility With stricter regulations on community banks, a good balance sheet usually trumps a good idea.

By Lawrence Schumacher | Photography by John Linn

W

hen Dean Koerner bought Dino’s Southside Café in Richmond nine years ago, he sat down with the loan officer at the bank he’d worked with for 20 years. An hour later he walked out with the loan he needed to start his restaurant career.

This year, when Koerner contemplated buying a nearby restaurant that had gone out of business, it was a different story. He was told “no” by every bank he visited. “They weren’t going to take the risk again, no matter what my credentials were,” said Koerner. “The restaurant industry is high-risk in a good economy, and banks today really don’t want risk.”

Outstanding small business loans in Minnesota were down 13 percent in mid-2011, compared to three years prior—before the financial crisis broke, according to a review conducted for the StarTribune.

Restrictions on credit in this post-recession, post-financial crisis era are causing central Minnesota businesses to look for new solutions to the lingering problem of tight credit, even as the economy recovers.

Koerner eventually found another opportunity—a lake side supper club in Eden Valley— that was already a bank-owned property for four years and therefore a liability that the financial institution was more willing to get off its books. He had to put up his own house as collateral to secure the loan though.

“If I’d just been starting out today to buy my café, I doubt I would have been able to get into this business,” Koerner said. “There’s a guy who wants to buy my café in Richmond, but the bank wants him to come up with 30 percent down.”

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Tight Times: Two Rivers Enterprises owner Robert Warzecha (left) and American Heritage bank president and CEO Jay Johnston (right) worked together throughout the economic downturn. Today, Two Rivers Enterprises is poised to begin a $1 million expansion.

The New Normal

Seeking Alternatives

Robert Warzecha found a similarly friendly Today, some banks are requiring three years all banks, whether large or small, stable lending climate when he started Two Rivers of profitability from applicants, and some or fragile, to institute new policies for Enterprises in Holdingford in 2001. But have raised the minimum personal credit evaluating loan applications and balancdespite a good relationship with his banker, score they’ll accept from 650 to 680, according their financial books. the stainless steel equipment manufacturer ing to the Minneapolis-based Metropolitan “The biggest challenge for us today found that the credit market had changed Consortium of Community Developers, is how regulation has put a stranglehold since his last financing deal. an organization that lends to higher-risk on us,” Ronning said. “Small commu“Before the crunch, you’d go in and businesses who have been turned down by nity banks like ours are especially hardthey’d shake your hand and give you the the banks. hit, because we have to live by the same money,” Warzecha said. “Now, there’s a lot In turn, some are relying on other sourcrestrictions as the big banks, but without more documentation and scrutiny. You have es of capital like the financing provided the resources that they have.” to have a good relationby federal programs, comship with your bank and munity loan funds, angel know how they’re going to “Small community banks like ours are especially hard-hit, investors, venture capitalbecause we have to live by the same restrictions as the big ists and the Minnesota react to your needs.”

Warzecha’s bank— banks, but without the resources that they have.”

Initiative Foundations American He r i t a g e (MIFs), which provide a National Bank in St. Rob Ronning, CEO of Pine Country Bank form of gap financing.

Cloud—helped his busiEven when a bank ness through the economic downturn. is willing to loan money to a rock-solid Ronning describes diverting staff time Two Rivers Enterprises currently employs customer, they often can’t loan the entire to regulation compliance that would otherbetween 28 and 40 people, depending on amount that a business needs to buy a new wise be spent on servicing clients, and says the season, and is now poised to begin a $1 piece of equipment or add on to their facility, the new climate has left banks more unwillmillion expansion. said John Elden, director of business finance ing to “go out on a limb” for clients in the for the Duluth-based Northland Foundation, same way they might have in the past.

Tighter Regulations one of six Minnesota Initiative Foundations.

“The pendulum had swung too far In the wake of the collapse of nation“Businesses that have a reasonable track toward easy credit for businesses before al banks, several changes took place in record and are in an expansion mode aren’t the financial crisis, and now has swung too the financial field, said Rob Ronning, having a particularly hard time financing, far toward preventing another meltdown,” CEO of Little Falls-based Pine Country but they might need financing partners to said Jay Johnston, president and CEO of Bank. The 2010 Frank-Dodd Act forced get them all the way,” he said.

American Heritage Bank.

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In response, the MIFs offer gap loans to make up the difference between the capital businesses have on hand and what the banks are able to lend.

“The goal of our lending program is simple: quality job creation or retention.

We’re interested in working with business owners who want to create jobs that pay a living wage with benefits,” said Dan Bullert, business finance manager for the Initiative Foundation. “The Initiative Foundation’s focus has always been on economic growth, and partnering with companies who bring

during the financial crisis. The guarantees it provided were essential to keeping businesses from folding, according to Johnston.

When the recession hit, Dubow Textile was in a strong enough financial position to look at expanding when the company started running out of space at its St. Cloud headquarters in 2010.

Because it had its finances in good order and a longstanding relationship with its lender, American Heritage Bank, the company was able to secure a

“The pendulum had swung too far toward easy credit for businesses before the financial crisis, and now has swung too far toward preventing another meltdown... Eventually, things will balance out, but it’s taking a while.”

Jay Johnston,

President & CEO of American Heritage Bank

in new revenue or keep it within the region is one of our key strategies.”

Warzecha said a past business financing package for Two Rivers included a loan from the Initiative Foundation, and he’s eager to repeat the process in the upcoming expansion. The Foundation does not compete with private banks in the small business loan industry, but typically partners with a bank to construct a loan package that leverages a variety of funding sources, added Bullert.

American Heritage and Pine Country Bank are among the 60-plus banks and community development partners that have worked with the Initiative Foundation to approve nearly 900 loans since the foundation began lending in 1987. “We probably lean more heavily on the Foundation now because there are more gaps that we can no longer fill,” said Ronning.

And if a business is looking for a smaller loan (under $50,000) the Initiative Foundation will often direct them to microloan funds such as those managed

by Region 5 Development Commission, St. Cloud State University, Southwest Initiative Foundation and other partners who are also focused on microenterprise development and support for entrepreneurs.

Small but Vital Many experts credit the Small Business Administration from keeping the business loan market from completely imploding

loan to almost double its headquarters, buy new equipment and add roughly 30 employees. But the expansion was much easier to accomplish because of favorable terms arranged through a Small Business Administration loan that American Heritage accessed. “We definitely took advantage of the favorable rates and terms of it,” said CEO Rob Dubow. “It wasn’t a moneymaker for us, but it made the difference between many businesses staying open and shutting their doors.”

Outside the Mainstream If a business has had recent economic troubles, or if an entrepreneur wants to start a new business, the picture can be more complicated though.

“There’s still money for a good idea, but it needs to be backed with a solid business plan and detailed, realistic estimates of its market and profitability,” said Barry Kirchoff, director of the Central Minnesota Small Business Development Center at St. Cloud State University. “Industries that have been hard-hit in the recession—banks are less willing to put up the money for them now than they were before.”

Nonprofits such as the Minnesota Initiative Foundations can provide some options, according to Elden. Gap loans that were typically directed toward helping a business expand went unused during the recession, and funds can sometimes be Continued on page 42

The 5 C’s of Credit

Numbers aside, most lenders consider a handful of subjective guidelines when considering a loan application. Although the weight of each one may vary from bank to bank, the elements are the same: a profitable idea, financial stability and the borrower’s unwavering commitment to business success.

CASH FLOW

Don’t confuse cash with profit.

Lenders must be convinced that your business will have enough cash to pay its debts at any given time. This includes payroll, suppliers, utilities and, of course, your business loan.

CAPITAL

How will you make it through the proverbial “tough times?” Will there be enough money to sustain and grow your venture?

CHARACTER

Are you honest, competent, determined, savvy and adaptable? Prove it to your lender, and bring along a good credit score.

COLLATERAL

Lenders are trained to protect their investments. By securing valuable assets, they can sell (or liquidate) them if you can’t repay the loan.

Such assets include real estate, equipment, inventory and yes, even your personal property. In fact, a personal guarantee of repayment is non-negotiable. No collateral? No loan. It’s that simple.

CONDITIONS

How healthy is the overall economy and the market for your product or service? Is your industry booming or sagging? Who are your competitors? In the razor-sharp minds of lenders, external conditions are equally as important as your business idea.

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Bare Market Rural grocers offer wealth, wellness and aisles of community connections. But can they be saved?

By Andy Steiner | Photography by John Linn

F

or about a century, residents could pick up milk, bread and sundry supplies at Pete’s Grocery at 410 Elm Street in Waverly. Some customers arrived by foot or bicycle. But as young families began filling new homes in the town’s nearby residential developments, Pete’s began to falter.

“The owner had been in the business for 25 years,” said Waverly Mayor Connie Holmes. “He really wanted to retire. He was tired out. Things were falling apart, and there was no one to pick it up. It’s a very difficult business and it’s not for everybody.”

The death of Pete’s Grocery was a painful, drawnout process. Shelves weren’t restocked and equipment didn’t get the needed repairs. For months, the owner — and, eventually, the City — tried to find someone to take over the business, but prospects were discouraged by the deteriorated condition of the building (renovations to bring it up to code would cost as much as $200,000), and the City had little in its coffers to make the upgrades needed to attract a new investor. When Pete’s finally closed for good in February 2012, it seemed unlikely that the store would ever open again.

In the months since Waverly lost its grocery store, the town’s 1,300 residents have adjusted, Holmes said. Many of the town’s young families had already been doing their shopping on their way home from jobs in the Twin Cities, and the older residents who favored Pete’s started shopping in nearby Howard Lake, Delano or Buffalo.

Life goes on in Waverly without Pete’s, but Holmes and many other residents still feel the sting. “In a community like Waverly, losing a mom-and-pop grocery

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33

“Value doesn’t always mean a better price. Value also includes customer service and proximity. A small town is like an ecosystem. We all support each other.”

Craig Thorvig (right), owner of Chris’ Food Centers in Sandstone & Pine City

store often means losing more than a sense of nostalgia,” said Don Today, a group of community members in Rockford and nearby Hickman, Initiative Foundation vice president for economic and comGreenfield are working to form a local food cooperative, a nonprofit munity development. “When people start traveling out of town to buy organization that will be member-owned and provide low-cost, food, they usually do the rest of their shopping out of town, too.” healthy foods. The Initiative Foundation is assisting the group in Holmes said that she worries about Waverly becoming little their efforts, connecting them with successful rural food co-ops. more than a “bedroom community.” “Small towns need to have a The Foundation also awarded a small grant to help leaders develop grocery store to stay healthy,” said Holmes. “It’s a strong center, a a business and marketing plan. place where people stop by, hang up notices about garage sales, see Maintaining a healthy core of locally owned businesses is a key their neighbors. It’s a gathering place, the heart of a town.” to rural economic strength, according to Craig Thorvig, owner of Grocery stores are often small-town anchor businesses, Chris’ Food Centers in Sandstone and Pine City. His father purHickman said, central chased the Sandstone to the economic vitalin 1974 and oper“Small towns need to have a grocery store to stay healthy. It’s a strong store ity of their communiated it until 2003, when ties. Last September, center, a place where people stop by, hang up notices about garage Craig moved back the F o u n d a t i o n sales, see their neighbors. It’s a gathering place, the heart of a town.” home and took over the hosted a workshop business. He purchased called “Saving Your Connie Holmes, Mayor, Waverly Minnesota Pine City’s struggling Hometown Grocery grocery store and now Store” for community and business leaders interested in establishing employs about 130 workers in the two locations. It’s a gamble, or sustaining food retail stores in rural towns. The event emphasized Thorvig acknowledges, especially since the Wal-Mart Supercenter is the importance of having reliable sources of food in smaller comless than a mile down the road. munities and how different ownership structures, such as coopera“We try to provide value for our customers,” Thorvig said, addtives, are growing in popularity. ing that his business isn’t looking for customers who shop there out Particularly challenging for grocers is the spectrum of large of pity but rather out of choice. “Value doesn’t always mean a better national chain stores like Wal-Mart and Target that sell a mix of conprice. Value also includes customer service and proximity. A small sumer goods and groceries at discount prices. In 2006, when nearby town is like an ecosystem. We all support each other. If Chris’ does Rockford lost its locally owned grocer, owners said that big-box well, we will reinvest in our town. If Wal-Mart does well, will they competition made it impossible to sustain their business. Efforts to will reinvest in Bentonville, Ark.?” attract a new grocer have not yet been successful, which means that No matter the structure or size, studies suggest that if a business Rockford residents must drive at least 10 miles to buy their food. is independently owned, more of the customer’s dollars are rein“We all tend to think that driving for groceries is an inconvenience, vested in that same area, thereby contributing to local and regional but that’s assuming that all people have access to a driver’s license economic growth. A 2011 study by the Maine Center for Economic and reliable transportation. If you’re a senior citizen or a family Policy found that every $100 spent at locally owned businesses conin poverty, this situation impacts your life, your budget and your tributes an additional $58 to the local economy while $100 spent at health,” continued Hickman. a chain store yields just $33 in local economic impact.

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Food Deserts in Central Minnesota According to the USDA, “food deserts” are low-income areas where at least one-third of the population lives 1-10 miles from the nearest grocery store. This map suggests that more than 83,000 central Minnesota residents may have challenges in finding fresh, healthy food. The USDA identifies 206 total food deserts in the state, which often have higher rates of poverty and limited public transportation options.

To learn more visit: www.ers.usda.gov/data/fooddesert

Food Desert

Many small and mid-sized communities are served by grocers that may not be owned by someone living within the city limits but rather have headquarters in the region. Based in St. Cloud, Coborn’s, Inc. has 19 Coborn’s or Cash Wise stores in central Minnesota, 12 of which are located in smaller communities, outside of the St. Cloud area. In 2007 Coborn’s established an employee stock ownership program (ESOP), so their 6,500+ employees could share equity in the company.

In Morrison County, Gosch’s Store in Randall is known for its meat department that features special homemade sausages. The store attempts to set itself apart with promotions like the “Brat of the Week” during which Gosch’s creates new varieties of bratwurst (recent examples include “Lumberjack” and “Gummy Bear”). Denny Mueller, who bought the 110-year-old institution in 2004 with his wife, Lori, said that such creative promotions attract cabin-bound customers who are likely to purchase other items like produce and bakery goods. He also added that the highway stopover provides opportunities for other local businesses.

The Muellers said they believe that the economy of their 650-resident community depends heavily on the health of local businesses. Two years ago, they helped to create a local businessowners group, founded to preserve the vitality of Main Street businesses. The 30-member group, “Vision Randall,” received training and grant funds from the Initiative Foundation Thriving Communities Initiative.

The Foundation assisted Vision Randall by inviting the Minnesota Design Team to assess the condition of their business district. A volunteer group of 15 community planners, architects and engineers toured the downtown area and offered advice on how the community could maintain its economic vitality. Recommendations included planting trees to buffer the impact of railroad tracks as well as planting community gardens and building convenient housing within walking distance of local businesses.

As ideas are put into action, Gosch’s still has to deal with competition from area retail chains. A partnership with a co-op wholesaler

has kept Gosch’s prices reasonable on many items. Mueller said that he works hard to emphasize the more intangible value that comes from local owners and employees.

“We stress quality,” said Mueller. “We have gone back to the oldfashioned ways of making things here. I always say that in our store, you can tell when our guys are making potato sausage. They are standing around in a little circle crying because they are chopping the onions. That’s the kind of authentic place I want to run. You can’t put a price tag on that.”

Sausage Sells: Denny and Lori Mueller draw customers to Gosch’s Store in Randall with a meat department that is known for its sausages and “Brat of the Week” promotions.

Double

Bottom Line Enterprising charities measure success by both purpose and prosperity.

By Rachel Reabe Nystrom | Illustration by Chris McAllister | Photography by John Linn

C

entral Minnesota’s business landscape is dotted with coffee shops, energy companies and secondhand stores. All sell a product in the hopes of turning a profit. Now, some are also fueling nonprofit organizations with their proceeds.

Nationwide, foundation assets - one of the primary sources of funding for many nonprofits - fell by an unprecedented 17 percent in 2008. Although grantmaking has stabilized, the long-term impact and outlook seems uncertain.

So as more organizations compete for less grant money and government funding becomes less reliable, a growing number of nonprofits are turning to social enterprise to ensure their organizations’ fiscal health.

In basic terms, a social enterprise model uses entrepreneurial, revenue-generating strategies for earned income. Those strategies and activities are directly tied to the nonprofit’s mission.

“Social enterprise models can broaden the scope of funding opportunities for some nonprofits,” said Kate Barr, the executive director of the Nonprofits Assistance

Fund in Minneapolis. “Not only can it make them more financially stable but it can lead to greater impact in the community.”

In the same way that entrepreneurs create new businesses, social enterprises are change agents for social issues. “You combine the brains of a business model with the hearts of the social sector and it can help solve the chronic problems of poverty, homelessness, hunger, unemployment and lack of opportunities for young people,” said Linda Holliday, vice president for organizational development at the Initiative Foundation.

A recent survey of nonprofits in central Minnesota indicates close to 60 percent operate some kind of earned income or social enterprise activities, mostly using a fee-for-service model. Outside of those activities, the most common form of social enterprise is thrift shops, which sell donated used goods and then contribute the profits to a wide range of nonprofits.

Experts say that central Minnesota has distinct strengths and challenges when it comes to social enterprise. “The most successful social enterprises tap into a real market opportunity and demand,” said Barr,

who explained that nonprofits in rural areas are very close to the community and can get a good understanding of the real demand and competition more quickly than in urban centers. On the other hand, “the market for customers is smaller, so the enterprises have to be at the right scale,” she said.

Partnering with the Nonprofits Assistance Fund, the Initiative Foundation is hosting a Purpose & Prosperity Conference on November 15 for central Minnesota nonprofits interested in social enterprise.

The event will bring together people who have launched social enterprise models with social venture investors and business and finance experts.

Following the conference, the Initiative Foundation and its partners plan to launch a year-long pilot project to help nonprofits develop business and marketing plans following the conference. “We know that nonprofit organizations play a significant role in thriving communities and economies,” said Holliday. “We want to improve thier effectiveness and sustainability.

Here are three central Minnesota social enterprises that are doing just that.

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Randy Jahnke: manager, Cyber Café

Cyber Café, Wadena Eat, chill, click…get connected. That’s the slogan for Wadena’s Cyber Café, a gathering place for area teens since it opened in 2001. “Wadena is a small community of 4,200. We have our school, one theater and a bowling alley,” said Ann Pate, Cyber Café’s chairman of the board. “There really weren’t places for kids. We needed a youth center.”

That wish became a reality when a sizeable gift from a local benefactor created a nonprofit to serve the youth of Wadena County. The money helped purchase an empty 100-year-old building in the middle of downtown Wadena.

That building turned out to be more than just a meeting place. “We offer computers and high-speed wireless connection,” said Randy Jahnke, a recent college graduate from Wadena who runs the youth center.

“In a poor county, it’s important that all of the kids have computer access.” The Cyber also has ping-pong and pool tables and hosts tournaments and dances.

With almost 50 young people coming in every day, the Cyber was a success. When grants were cut substantially, the board of directors explored alternate funding sources to cover the $100,000 annual budget.

Their innovative solution was to open a coffee shop in the Cyber Café, utilizing 38 Initiative Foundation Quarterly

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the morning and midday hours when the students were in school. “It’s been very successful,” according Pate. “It’s like a Starbucks with specialty coffee drinks. Business people stop in on the way to work and it’s a meeting place for community groups. Tech students appreciate the wireless connection.”

The coffee shop also provides employment opportunities for area teenagers by teaching workforce skills—which furthers the organization’s mission. “It’s great to be around here with friends,” said Zachary Hassa, a high school sophomore in Wadena and a part-time worker at the Cyber Café.

“We have five computers, two Xboxes, a bunch of TVs. There’s not much else to do

in this town. If this wasn’t here, we would be hanging outside or stay home.”

The revenue from the coffee shop has allowed the board to pay off the mortgage on the building and contribute almost half of the annual expenses for the Cyber Café.

The organization also raises funds with a farmers’ market, monthly rummage sales and an annual fundraiser.

Pate credits the Cyber’s success to its strong volunteer base. “We’ve been open for 12 years and have outlived most youth centers,” she said. “We are committed to our mission—providing a safe and chemical-free zone for area young people to hang out.”

As more organizations compete for less grant money and government funding becomes less reliable, a growing number of nonprofits are turning to social enterprise to ensure their organizations’ fiscal health.

In basic terms, a social enterprise model uses entrepreneurial, revenue-generating strategies for earned income. Those strategies and activities are directly tied to the nonprofit’s mission.

Jana Shogren: executive director, Bridges of Hope

Bridges of Hope, Brainerd Shoppers at the stylish Common Goods north of Brainerd hunt through attractive collections of antique, vintage and second-hand goods. Many have no idea that their purchases support local families who are in crisis.

Bridges of Hope, which operates Common Goods, serves Crow Wing County and surrounding communities by connecting families facing temporary crisis situations with existing resources.

Last year Bridges of Hope served 2,500 households. “For ten years we’ve been helping families who need emergency assistance with rent or utilities, parenting skills, mental health issues, abuse or medical crises,” said executive director Jana Shogren. “We have so many agencies in Crow Wing County to help people.

We work to connect people to the right place for help and fill in the gaps when they arise.”

That includes tenants who were recently displaced after a fire tore through their Brainerd area apartment building.

Bridges of Hope worked to rally the contributions of volunteers and connect families to the support they needed.

Even though Bridges of Hope had become essential to its community, rely-

ing on grants and donations in addition to state and county contracts for funding was growing more and more unpredictable. “If we missed a grant, we had to think about saying no to families in need,” Shogren said. “Our board and staff discussed how we could operate a sustainable business to provide stable funding for the organization.” After much thought and research, they decided to open an upscale thrift shop. They worked with the Small Business Development Center at Central Lakes College to develop a business plan.

It was not an easy decision. “We were worried that it could take focus away from our mission and day to day operations,” said Shogren. But Common Goods, now three years old, caught on right away. “Our location on Highway 371 was a key to success as well as having the right manager. The store has raised the profile of Bridges of Hope in the community. We have signs and literature in the store about our organization and we try to share the stories of the clients we serve.”

The goal for Common Goods was to break even in two years. The community received it so well that the

store turned a profit after its first year.

“It has helped plug the holes,” said Shogren. “It now provides 20 percent of our budget. We have been able to keep up with the needs of our families and grow as an organization.”

There was a risk that the success of Common Goods might lead funders to

“We have generated more interest and enthusiasm f rom our supporters because we want them to be part of the solution.” assume Bridges no longer needed financial support. In fact, their entrepreneurial spirit turned out to be an asset. “We have generated more interest and enthusiasm from our supporters because we want them to be part of the solution,” Shogren said. “It’s what we ask of our clients. We want them to work as hard as we do to help them.”

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“We realized we could develop and design our own products. It expanded and grew. It’s all part of our nonprofit mission.”

Jason Edens, Founder & Director , Rural Renewable Energy Alliance

Rural Renewable Energy Alliance, Pine River Jason Edens is a man with a mission.

He wants to make solar energy available to everyone, regardless of income. Edens started by incorporating solar heat into the federal energy assistance program. “I grew up in a family that intermittently had to rely on energy assistance,” he said. “I know how it works and how critical it is.”

Years later, when Edens was in graduate school, he needed energy assistance again.

This time he took a different approach.

“Instead of applying for assistance, I asked for a loan for a solar energy system,” he said. “They said no. So I found a discarded solar heater system and put it to work. I was no longer in need of energy assistance.”

In 2000, Edens formed a nonprofit organization to offer solar energy for lowincome households. Located in Pine River, the Rural Renewable Energy Alliance (RREAL) is the only organization in the country that is actively incorporating solar heat into the energy assistance program.

“Our objective is to transform the way the 40 Initiative Foundation Quarterly

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nation delivers energy assistance and lead by example,” said Edens.

RREAL has installed some 250 solar heating systems in low-income households. “We find them by partnering with Community Action Agencies that administer the energy assistance program,” Edens said. “We have a waiting list of 400 people.”

After concentrating on the charitable mission for five years, Edens said it was clear they needed to establish financial support for the work ahead. The organization started offering solar installations for the residential and commercial sectors at market prices. They also developed their own solar panel in 2006. “We had been purchasing equipment from across the country. It came with a mark-up and shipping costs,” Edens said. “We realized we could develop and design our own products. It expanded and grew. It’s all part of our nonprofit mission.”

In the last five years RREAL has developed a manufacturing and distribution

business. “We have 70 dealers nationwide using our solar products on residential and commercial buildings. It generates revenue for our nonprofit work and helps us weather the storm of funding,” said Edens. “One of our long term goals is to share solar technologies with partners in other parts of the country.”

It’s a challenge to operate a nonprofit organization along with a business that generates profit to fund the philanthropic work. “At this point our revenue from the for-profit program is starting to reach parity with our charitable and educational programs,” Edens said. “It’s tough. I bounce from program to program. We have a million dollar business and need to keep our eyes on the prize.”

Edens predicts they will split off the programs and establish them as self-standing entities partly owned by nonprofits. “This is a big, exciting opportunity for non-profits and our organization is a novice. We’re very much in the learning stage.”

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Continued from page 31

redirected toward providing a lifeline to businesses that need working capital to sustain them until the economy picks up again. Despite the end of the recession, Elden said “the need is still there” for many of those sustaining loans.

And even though times are tough, experts remind businesses that the situation isn’t permanent.

According to the Federal Reserve Bank of Minneapolis, Minnesota banks loaned out more money in the second quarter of 2012 than in the same quarter last year, the first time in three years that the state’s banks as a whole showed a quarterly gain.

“On the political side, they want you to lend to get the economy going again, but on the regulation side, they tell you not to lend unless it’s a sure thing,” said Johnston.

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Home Made

Water Works, Cambridge

By Maria Surma Manka | Photography John Linn

Yes, Water Works may be the coveted utility in the Monopoly board game. But it’s also the name of a Cambridge-based company that’s dominating a nearly untapped market in the U.S. Hydroforming—a metal-forming technology— uses highly pressurized water to shape metal into everything from motorcycle parts to kitchen faucets. Prior to Water Works entering the market, hydroforming was only cost-effective for industries like auto manufacturers, which order millions of the same part.

JUST ADD WATER

This faucet piece is shaped with little more than highly pressurized water. A metal tube is placed in the machine and water pressurized to 30,000 pounds per square inch (psi) is pushed through the rod, expanding it to the mold’s shape.

Under PRESSURE

The amount of force per square inch used to form the metal is more than double the pressure at the deepest point in ocean.

That’s about seven miles deep!

Like most businesses, this central Minnesota success story has endured its share of challenges. In 2007, Water Works was looking to buy a second hydroforming press and needed more warehouse space. At the eleventh hour, it found Cambridge Metals and Plastics (CMP), which was on the verge of closing its doors. With support from community partners like the Initiative Foundation, Water Works purchased CMP. Since then, it has nearly doubled its workforce and combined the expertise of both companies to create a match made in industrial heaven. Here’s an in-depth look at one of the products created by using the unique process: the modest faucet fixture.

Future Projections Sheet shaping. Water Works will soon have a sheet hydroforming process that uses water to create a form from a sheet of metal. This can be used to make a range of products, including oven hoods.

Other natural elements. Water Works just purchased Interlaken Technology Corporation. This will allow them to explore shaping techniques that push the boundaries of metal forming, including using heat and air to create even more shapes, such as a seamless metal box.

46 Initiative Foundation Quarterly

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efficiency

Hydroforming is more time-efficient than other processes. The part shown here can be formed in less than a minute while the traditional manufacturing method— which includes stamping, welding and then grounding the seams—takes more than 10 minutes.

DAILY USE

From seat-back frames to exhaust pipes, other everyday items are also made with the hydroforming press.

LESS IS MORE

Hollow pieces, like this faucet piece, have traditionally been made out of several parts. For instance, an exhaust pipe was previously made out of five stamped parts that were then welded together. With hydroforming, that component is now two parts and one weld seam; creating a more durable and reliable product.

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48 Initiative Foundation Quarterly

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