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Tanner Montague came to town from Seattle having never owned his own music venue before. He’s a musician himself, so he has a pretty good sense of good music, but he also wandered into a crowded music scene filled with concert venues large and small.But the owner of Green Room thinks he found a void in the market. It’s lacking, he says, in places serving between 200 and 500 people, a sweet spot he thinks could be a draw for both some national acts not quite big enough yet for arena gigs and local acts looking for a launching pad.“I felt that size would do well in the city to offer more options,” he says. “My goal was to A, bring another option for national acts but then, B, have a great spot for local bands to start.”Right or wrong, something seems to be working, he says. He’s got a full calendar of concerts booked out several months. How did he, as a newcomer to the market in an industry filled with competition, get the attention of the local concertgoer?

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by Andrew Tellijohn
February 2007

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Cover story: Help wanted


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Owners need workers to reach growth goals, survey finds

by Sarah Brouillard   MINNESOTA SMALL-BUSINESS owners are again feeling optimistic about the upcoming year, according to results from Upsize Minnesota’s second annual small-business outlook survey.

But as unemployment rates go down and more qualified workers find jobs, owners are concerned about the shrinking size of their labor pool as they begin 2007.

Polled in early November, right after the midterm elections, 84 percent of respondents said they expect revenue to increase next year — almost identical to last year’s 85 percent. Their rosy outlook outshined that of their national peers; results of an Administaff survey showed 70 percent of small businesses planned to exceed their 2006 growth levels.

A significant number of Upsize respondents were less optimistic when it came to their prospective employees. Thirty-four percent of Upsize respondents said there would be a smaller pool of qualified candidates in their industry sector, compared with 29 percent last year.

Only 15 percent said there would be a larger pool of qualified candidates in their industry sector — about one-third less than last year’s 25 percent. Fifty-one percent said the pool would remain the same.

These statistics go hand in hand with a slight increase in the number of those employers that plan to raise employee salaries and wages, from 57 percent last year to 62 percent this year.

A negligible amount — 0.7 percent — planned to decrease salaries and wages. That’s half of last year’s 1.3 percent.

With fewer prospects in the job market, small-business owners are conceding they need to pay to attract and keep talented employees, says a local expert on entrepreneurs.

The challenge isn’t confined to the state or the Midwest; more than any other concern, small businesses across the country listed “hiring the right people” as a top issue for 2007, according to the Administaff survey.

‘Labor pool is gone’
Whatever trepidation they may feel over their limited supply of prospective employees, many small-business owners say they will pursue aggressive plans to add staff, according to Upsize survey results.

Fifty-five percent of respondents said they planned to increase their number of workers in 2007, similar to last year’s 58 percent. Forty-three percent said they would keep numbers about the same. Only 2 percent said they planned to reduce their employment base.

Scott Grausnick, CEO of St. Paul-based IT consulting company Harbinger Partners, says that after a long lull in his industry, business is picking up. But work candidates of high caliber are scarce, he says.

Many IT consultants found other occupations when the economy flipped in the early 2000s and clients simply stopped budgeting for technology projects. “When the economy is going bad, we’re usually the first people to know because the easiest people to fire are consultants.”

Grausnick says about 20 percent to 30 percent of the labor pool left the industry altogether during this time, instead choosing careers in real estate, teaching or simply retiring.

“Now all of a sudden things are turning back up again,” he says, referring to the increase in demand for consultants over the last couple years, coupled with an uptick in billing rates throughout the industry. “But that labor pool is gone. … It’s really hard to find good people.” Grausnick is already tapping into a limited pool to begin with, since he recruits locally only.

Small businesses in manufacturing and construction have a perennial problem finding quality employees. Dave Ferkinhoff, owner of East Side Glass, a commercial glass and glazing company based in St. Cloud, says he and his colleagues are constantly dipping into a small labor pool, as fewer young people set their sights on so-called blue-collar careers.

The marketing sector, on the other hand, seems to have a glut of workers. Kerry Olson, owner of Alexandria-based marketing and design firm KO Creative, says plenty of talented people are seeking employment in her industry, mostly because of large corporations downsizing their marketing departments or eliminating overlapping positions after a merger.

She points to Best Buy’s 2001 acquisition of Musicland, which resulted in several rounds of layoffs among marketing personnel (Best Buy later sold the Musicland unit in 2003). In the interim, “a lot of them have gone freelance.”

Kara Lazarus, owner of Think Pink Idea Consulting, a Minneapolis-based marketing research and branding firm that contracts out to Fortune 500 companies such as General Mills and Best Buy, says large companies still aren’t hiring for marketing jobs.

“With a business like mine, I expect it to grow quite a bit” because companies are “continually having to outsource,” she says. “General Mills doesn’t have that type of expertise in house anymore.”

An optimistic lot
When asked about their expectations of the overall economy next year, 43 percent of respondents said they felt it would improve, compared with 37 percent last year.

Only 4 percent said revenue at their companies would decrease, compared with last year’s 3 percent. The same amount — 12 percent — said revenue would stay about the same.

“In general, they’re an optimistic lot,” says John Stavig about the Upsize survey respondents. He’s professional director for the Center for Entrepreneurial Studies at the Carlson School of Management at the University of Minnesota, in Minneapolis.

And they’re expressing less concern about things getting worse. Only 12 percent said the overall economy would worsen, compared with last year’s 19 percent. “That’s a pretty material shift,” he says. Forty-six percent said the economy would stay about the same — slightly more than last year’s 44 percent.

Despite escalating violence in Iraq, recent rises in fuel prices and a slowdown in the housing market, small-business owners don’t seem to believe any adverse effects from these 2006 events will follow them into the new year, he says.

“I think people are about moving beyond them as things that are going to derail the economy and cause a problem for small businesses,” Stavig says.

Sonja Hayden, a partner with Society Void Inc. (doing business as Duplex, a Minneapolis restaurant and wine bar), has an alternative theory. She wonders if the results of the November midterm national elections let out steam among some of the pessimists.

As power has shifted from Republicans to Democrats in the U.S. House and Senate, she says perhaps business owners of all stripes felt relief.

“It just can’t get any worse,” she says, referring to the economy and the war in Iraq.

Republicans historically may be “more business-friendly, but whatever has been tried doesn’t seem to be effective.” She says she may eat her own words, however, if Democrats raise the minimum wage too quickly or try to take away tax breaks. “I guess we’ll have to wait and see.”

Martha Swenson, president of Start Forward Inc., a St. Paul-based management consulting firm for the health care and government sectors, says she believes Democrats are better advocates for small businesses, in particular. For that reason, their success at the polls bodes well for 2007, she says.

Respondents also expressed less pessimism from last year in their ability to obtain business financing in 2007. The amount that said it would be more difficult went down significantly, from 21 percent last year to 16 percent this year. Almost the same amount — 18 percent this year, versus 19 percent last year — said it would be easier to obtain. The majority — 66 percent — said there would be no change in their ability to obtain financing.

Stavig says he wonders why the numbers weren’t more positive, since the surrounding environment is very supportive for small businesses right now. “It’s a great time for small businesses to be looking for capital.” Interest rates appear to be stable going into 2007, and angels are on the hunt for investment opportunities, he says.

Companies’ plans to expand their offices or facilities were similarly muted. Twenty percent said they planned to expand or relocate to more space, down from last year’s 29 percent. Three percent said they planned to reduce facilities size, compared with 4 percent last year. The majority, who said they had no plans for this area, grew slightly from 67 percent last year to 73 percent this year.

“I’m surprised there weren’t greater increases in terms of their comfort to expand,” says Stavig.

Doubling down
Despite these ancillary concerns, many small-business owners have ambitious growth plans on tap for 2007.

The goal for Bjorn Stansvik, CEO of MentorMate Inc., a custom software developer, is to increase sales by 100 percent in 2007. MentorMate’s revenue is under $1 million.

Stansvik says “it’s a stretch goal, but a feasible one,” based on written commitments from existing and prospective clients. He has a strong track record to go by: Growth was so rapid in 2006 that the company had to move out of its cramped Minneapolis headquarters in August to a larger facility in St. Paul.

But in 2007, the greatest growth for MentorMate will happen far away from Minnesota. Most of the staff is located in Bulgaria. Six more software developers will join the nine already based there. “That’s where most of the expansion would happen,” he says.

Hayden, of Duplex restaurant and wine bar, also sees sales going up in 2007, but only because 2006 was such a hassle.

“It’s a very tough business and it’s been a very tough year,” she says.

She and her two partners opened for business in November 2005 — much later than they had anticipated — because of construction delays and regulatory hurdles. The twin obstacles escalated their costs. And despite strong opening reviews, turnout was disrupted in 2006 by a greasy smoke that stank up the place, requiring weeks-long remediation. The restaurant remained open during the cleanup, but the foul odor briefly affected business, says Hayden.

Then she discovered they had a visibility problem.

Passersby, it turns out, were confused by the name “Duplex”; without any additional wording, many failed to realize it was a restaurant, she says. Also, the surrounding neighborhood is largely residential, so people often miss it while driving down Hennepin Avenue.

Hayden says she’ll spend 2007 investing in better signs — more lighting and an improved description — to “build awareness for our physical location.” Duplex will also add to its ambiance, introducing liquor and live music acts and building a patio.

She refers to 2006 as a building period. “I think that having been in business for a good, full, solid year — we’ve been able to be out there, be on people’s radar.” She hopes the company has built up enough momentum to push revenue over $1 million in 2007.

Other small-business owners are anticipating a decrease in revenue and earnings. For Lazarus of Think Pink Idea Consulting, the reasons are personal: She plans to take off two months after having her baby in 2007. And as a one-woman shop, she says she’s clear-eyed about the fact that she may have some difficulty rebuilding her business after such a long break. In 2006, her company had $200,000 in revenue.

Ferkinhoff, of East Side Glass, originally gave negative responses when he took the Upsize survey in November, saying revenue and earnings for his company would go down in 2007. By December he had changed his mind: Now he thinks they’ll stay about the same. He posted revenue of $4 million in 2006.

Bidding for next year’s construction projects started out slow in the fall, but then really heated up near the end of 2006, he says.

Ferkinhoff says he feels the regional economy will stay strong in 2007.

When the economy slows down, St. Cloud-based construction crews, architecture firms and developers find themselves vying for projects with competitors from the Twin Cities, or even as far away as Fargo.

But when these companies stay put in their usual territories — as they have been recently — it’s a telltale sign that “the economy is good and Minnesota is humming along,” he says.

[contact] Dave Ferkinhoff, East Side Glass: 320.251.1900; dave@eastsideglass-mn.com; www.eastsideglass-mn.com. Scott Grausnick, Harbinger Partners: 651.260.7805; scott.grausnick@harbinger-partners.com; www.harbinger-partners.com. Sonja Hayden, Society Void Inc. (dba Duplex): 612.381.0700; sonja@mn.rr.com; www.duplexmpls.com. Kara Lazarus, Think Pink Idea Consulting: 612.922.7377; kara@thinkpinkideas.com; www.thinkpinkideas.com. Kerry Olson, KO Creative: 218.943.5014 or 320.491.8580; kocreative@hotmail.com. Bjorn Stansvik, MentorMate Inc.: 612.823.4000; bjorn@mentormate.com; www.mentormate.com. John Stavig, Center for Entrepreneurial Studies, Carlson School of Management, University of Minnesota: 612.625.2485; jstavig@csom.umn.edu; www.csom.umn.edu. Martha Swenson, Start Forward Inc.: 651.334.8447; martha@startforward.com.