Entrepreneurs, whether emerging or established,
defy tough times in fast-growing St. Cloud
When Granite City Food & Brewery searched for a location for its first microbrewery and restaurant, St. Cloud topped the list.
The city, about 65 miles northwest of Minneapolis-St. Paul, is a mid-tier market, CEO Steve Wagenheim and his colleagues figured, and often ignored as some of the better restaurant chains focused on bigger cities. “We wanted to prove the strength of the concept in smaller towns and then work our way to major markets,” Wagenheim says.
“So they took a risk and decided that they would target St. Cloud,” says Av Gordon, an attorney at Briggs & Morgan in Minneapolis who does legal work for the publicly held firm. “It’s been a wild success.”
The units can do $4 million a year each in sales, Wagenheim says, and company revenue topped $12 million last year. Growth was fueled by a private placement in 1997, then a public offering for a little under $4.1 million in 2000, which allowed a second restaurant in Fargo, North Dakota, and a third in Sioux Falls, South Dakota. Following that was a private placement of $5 million in convertible preferred stock in 2002. The next growth targets are such cities as Rochester and Des Moines.
Granite City Food isn’t the only company focusing on the St. Cloud area, itself nicknamed Granite City because of plentiful deposits of the natural resource. Nicely located in central Minnesota, St. Cloud is becoming a regional center for retail and restaurant activity, as well as health care, real estate, financial and other services.
Population growth is the reason. The St. Cloud tri-county area, consisting of Stearns, Benton and Sherburne counties, grew by more than 70 percent in the last 30 years, with Sherburne County itself growing 351 percent over the same period.
Population was 231,809 in 2000, up from 134,585 in 1970. This growth rate is about twice as fast as the corresponding rates for Minnesota (29.3 percent) and the nation (38.4 percent), according to a March 2002 report by the Minnesota Economic Development Center at St. Cloud State University. Through 2025, the population for St. Cloud is forecast to increase by 16 percent and Sherburne County by 53 percent, compared to Minnesota’s forecast of 7.4 percent.
The growth in turn has fueled a boom in housing construction. The combination of three factors — a significant student population with three major universities and a technical college in the area, a growing senior population, and an expanding service sector — keeps per capita incomes in the area at 75 percent of the state’s level. Low wages are a draw, of course, for some businesses, but a problem for others that target wealthier consumers.
Norm Skalicky of Stearns Bank in St. Cloud, with just under $1 billion in assets at the holding company level, says the national economy is hurting the area but housing is doing well. He cites population growth and low interest rates as the reason.
St. Cloud businesses often get new competition from Twin Cities companies that open branches or go after customers in the area, the St. Louis Park-based Granite City Food being just one example. Stearns Bank is going the other way. It started a year ago moving into the Twin Cities with banking services. “It’s a natural progression for our growth,” Skalicky says. “There’s not too many banks our size and with our independent decision-making.”
John Babcock, a partner at Rinke-Noonan Law Firm in St. Cloud, also points to construction as one factor in his firm’s “fairly dramatic growth” since the early 1960s. “There’s a lot of real-estate driven growth, like housing developments, multi-family apartment building construction, a lot of construction of retail/commercial establishments. All of that has generated a lot of work for the area,” Babcock says.
For one architectural firm, Grooters Leapaldt Tideman Architects, the boom has generated much more work in and around St. Cloud itself. “We used to do 80 percent of our work outside of the St. Cloud area and 20 percent inside, and we’ve reversed that,” says David Leapaldt, president.
Demand from educational institutions is strong. “In the K-12 market, 60 percent of the school districts in the state are declining in enrollment. In St. Cloud most of the districts are increasing,” he says. The firm builds a lot of schools, including a $61.5 million project for the Sauk Rapids/Rice school district.
Leapaldt cites the growth of St. John’s and St. Ben’s universities, both in reputation and size, and St. Cloud State University’s “considerable” growth over the last few years. “Then there’s the technical college in town that’s been growing by leaps and bounds,” he says.
The reason: “It’s the regional thing,” meaning that St. Cloud increasingly is becoming the center of central Minnesotan activity. “It’s also movement from the smaller communities to the larger communities. There’s tons and tons of new housing going up and it’s in the whole corridor, not just St. Cloud but down I-94 to the west end of Minneapolis. Then you see growth in Monticello and Big Lake,” Leapaldt says.
A major focus is seniors, with nursing home construction, congregate housing, housing with health care and meal services, and so on. “St. Cloud is a regional center so a lot of people retire here, and also it has a very strong medical component,” Leapaldt says.
Health care at center
The area’s health care providers are working to make the area a regional health care center, as many seniors retire in the area and prefer to see doctors near home rather than traveling to the Mayo Clinic in Rochester.
“The target for a number of years has been to grow St. Cloud to be a central referral system,” says John Frobenius, newly retired president and CEO of CentraCare Health System in St. Cloud. Formed in 1995, the system gathers a number of providers under one umbrella, with annual revenue last year reaching $400 million and payroll of $240 million. It’s the largest employer in St. Cloud since the closure and sale of Fingerhut.
The development of the medical center now puts St. Cloud on the map, whereas before Rochester, Duluth and Fargo got much of the business. But larger economic woes are affecting the health business, too.
“I consider St. Cloud’s economy as rather fragile right now,” Frobenius says. “After several years of significant growth at St. Cloud Hospital, it’s seeing a flat line in volume.” He points to St. Cloud’s per capita income as below the national average, which means that the hospital operates with a higher percentage of Medicaid and Medical Assistance patients.
Because Gov. Pawlenty’s budget suggests cuts in both health and human services, and in local government aid, St. Cloud will feel it. “The tough issue for the state is, we are at a time when more people are needing to fall back on a safety net, and the safety net is going away,” Frobenius says.
That said, the health care system is an important part of the local economy, with all types of services from plastic surgery to radiology clustering around the northwest part of the city. In 2001, Abbott Northwestern opened a specialty care center called St. Cloud Cardiac and Diagnostic Imaging. St. Cloud Surgical Center, a HealthSouth company, fields a staff of outpatient surgery specialists.
Companies that make medical products have formed at the same time. Scott Schneider was a St. Cloud State grad who helped to start a prosthetics company, TEC Interface System, grew it in St. Cloud, and then sold in January 2003 to Otto Bock Health Care whose Minnesota office is in Plymouth. The company maintains a presence in St. Cloud and Schneider lives there, but he commutes into the Twin Cities in a marketing and consultant role with the new owner.
Jay Johnson, CEO of FENA Design Inc., is another product of St. Cloud State’s business school. After an accident that left him a quadriplegic, he relied on mentors at the university to develop the VERTRAN, a power wheelchair that moves the user from a seated to standing position. FENA Design in December received underwriting assistance to bring its product to market. His company, too, is in Plymouth.
Solid roots
While health care-related companies represent a new wave of business formation in the St. Cloud area, the roots of the area’s entrepreneurial spirit lie in granite. Since 1898, Cold Spring Granite Co. has been growing to become one of the world’s largest granite producers, employing about 900 people locally. Cold Spring Granite supplied granite for the Korean War Memorial in Washington, D.C., and in 2001 the company fabricated the mausoleum for NASCAR legend Dale Earnhardt.
Another natural resource, sand desposits, make optics a foundation of the region. More than a dozen optical firms with manufacturing or lab facilities are based in St. Cloud. The Mississippi River winds through St. Cloud, historically important for trade and transportation and now supporting a successful paper and printing industry.
Ancillary businesses such as trucking firms started to haul the granite and paper around. The grandfather is Anderson Trucking Service Inc., a transportation firm now headed by Rollie Anderson. “St. Cloud is pretty much a retail type market vs. a manufacturing type market,” Anderson says. “St. Cloud is not any different than any other community. Everybody’s kind of tenuous and there’s mixed signals. I think people are putting off decisions.”
Anderson is a holding company made up of six transportation companies, with operations all over the United States, Mexico and the Caribbean, Anderson says. In late March the company finished a small acquisition in Georgia. Anderson looks for companies to purchase that are in the transportation business, with owners who want to continue on for a period of time, that are profitable or at least break-even, and that want to grow but need capital to do so. Much of Anderson Trucking’s growth is financed through cash flow generation, or through a combination of traditional sources like banks or asset-based lenders.
Joyce Brenny worked at Anderson for a time, as well as at other trucking firms, then started her own company, Brenny Transportation Inc., seven years ago in St. Joseph. It tops $6 million in sales. Because the company transports goods for a wide variety of national customers, poor economic times haven’t hurt too much.
“When we go out and visit customers, we’re getting about a 50-50 response. Half the people are saying things are not good at all, and half are saying we’re doing great. So I guess it depends on what kind of product they ship or manufacture,” Brenny says.
“I see that we’re going to have small growth, probably not what we hoped for. We definitely see our company at the end of the year with a successful profit margin, which we have had every year since the day we started,” Brenny says. “We just have some ambitious people, and we have a vision and a mission, and the option to fail is not an option.”
Legendary businesses include Creative Memories Inc. and parent company Antioch Publishing. Creative Memories is a national direct seller of photo albums and custom photo and scrapbook materials with more than 55,500 independent consultants worldwide. Antioch Publishing is in the midst of a major facility expansion south of St. Cloud.
Bankers Systems was founded in 1952 to provide administrative and legal documents to the financial services industry. Entrepreneur Bill Clemens started the company by peddling documents from his car. Today, Bankers Systems employs about 1,000 people nationwide, about 800 of them in St. Cloud.
Area boosters say these businesses and others fuel a strong entrepreneurial spirit. “In St. Cloud you see a lot of chronic entrepreneurialism,” says Marshall Weems, who heads the St. Cloud Housing & Redevelopment Authority. He cites activity like the St. Cloud Hospital’s $190 million new campus and $26 million expansion, Antioch’s new headquarters, spin-off businesses from Anderson Trucking such as St. Cloud Truck Sales, and printing powerhouses such as Nahan Printing.
High tech, high wages
The recent focus is on manufacturing and technology-based jobs, because those jobs tend to pay higher wages. Technology is increasing business for a variety of companies.
For example, ING Direct is a product of the purchase of ReliaStar Bank in St. Cloud by Dutch giant ING. ING’s main focus is on insurance and the corporation was going to spin off ReliaStar, but instead is focusing on Internet banking based in St. Cloud. It’s now a fast-growing Internet bank with 180 employees, on the way to double that number over the next year.
For another example, William Casto is president of Cellular Mobile Systems and Northern PCS, the former a cellular company and the latter a personal communication services company that covers four states.
Casto came to St. Cloud in late 1992 from Missouri, and in that time the cellular company has grown 23 times, he says. The PCS company didn’t launch service until mid-2000, and it’s gone from zero subscribers to 70,000, Casto says.
“One thing that’s been a real boon for us has been the advent of data in a wireless environment. I live in a more rural area than St. Cloud, and my dialup speeds are 48.8, which is very slow. The PCS side of the business has a card to slip into your computer, so now I can increase my Internet speed up to three times,” Casto says. The company has budgeted for a $12 million upgrade for the PCS business in 2004.
A third example, GeoComm Inc., is a closely held high-tech company that has sustained a 30 percent per year growth rate over the past eight years, according to Tom Grones, president and CEO. GeoComm remodeled its historic headquarters building in a “somewhat stressed” downtown area, supported with private funds and funds from the state, the city of St. Cloud, and the St. Cloud Downtown Council. Grones attributes some of the company’s success to its ability to leverage “local public/private relationships in tandem with our integration of the local work force.”
The activity as a whole encourages people such as Ron Carlson, who used to own a minority interest in two local manufacturing firms. Both firms were sold, against his wishes, and he’s just completed his first acquisition on his own.
Called Davtone Inc. and doing business as Tote-a-lube, Carlson’s newly purchased company sells polyethylene tanks for bulk liquid storage, primarily oil, anti-freeze and hydraulic fluid. There are about 600 distributors and dealers throughout the United States, with 70 percent of the business farm-related.
Carlson says “it was luck” that he found a company to buy. “I could literally write a book on buying a company as an individual. It is really, really tough,” he says. He hired a business broker who contacted the seller, with the seller providing financing. Carlson will pay the owner back over seven years. The company does about $1.5 million in annual sales, and Carlson thinks he can double that number by adding to the distribution network.
The best part of owning his own business, Carlson says: “The control element and just to be able to run your own show.”
