Their headquarters occupy gleaming towers in immaculate office parks. Their factories, retail outlets, branch offices and subsidiaries are found on nearly every continent. Early in their existence, however, the corporate technology giants now dominant in Minnesota business struggled with existential crises and formidable barriers to success, growth and profitability.
3M's first mine, for instance, turned out to be a complete bust, producing worthless anorthosite instead of useful corundum. The company's founders invested in research to incorporate the anorthosite into sandpaper, but that failed too. Though 3M survived, it wasn't able to pay dividends until 1916, a decade and a half after the company’s founding. Success did eventually come: In 1921, the company's researchers invented a waterproof backing for sandpaper so it could be used in commercial applications like automotive manufacturing. It's sold to this day, under the WetorDry brand name.
Medtronic, meanwhile, started out as a tiny repair shop for medical equipment; its first "office" was a garage in Northeast Minneapolis. It took nearly a decade for the company to bring its first proprietary device, a pacemaker, to market. In the meantime, founder Earl Bakken had to drop out of school just to pay the company’s bills. But Medtronic is now the world's fourth-largest medical device company, according to Medical Device & Diagnostic Industry (a trade publication).
Today’s technology startups may be a long way from putting their names on a building and their early years haven't been worry-free. But the Twin Cities’ latest crop of tech startups are benefiting from a unique set of 21st-century business factors: a deep local talent pool, dense networks of professionals with complementary talents, access to a growing pile of venture capital, and a culture that increasingly rewards risk and experimentation.
Homegrown co-working companies like Joule in St. Paul, and CoCo, which now has three locations in Minneapolis-St. Paul for its members, sit at the intersection of these trends. They're making life easier for the region's most talented entrepreneurs — and making the road to success a little less lonely too.
Coco: The 'coral reef' of startups
One of the biggest “enabling factors” in the Twin Cities’ startup boom, says Dug Nichols, co-founder of the next-generation parenting app Kidizen, is the fact that “you no longer need an IT staff of 100” to be successful.
Since they don't need to hire huge programming and development teams right out of the gate, local startups can thrive for years without traditional offices of their own. In fact, shared workspaces put entrepreneurs in close proximity to other talented and ambitious people, creating synergies that don't readily form between geographically isolated businesses.
“We launched CoCo [because] there was a huge latent need for freelancers, entrepreneurs and small business owners to belong to a community of like-minded people,” says Don Ball, a CoCo co-founder. "Most entrepreneurs these days, especially those making software, know that it's not the inherent value of your idea that's going to make or break your startup. It's your network and how readily you can source talent, mentors and investors. Co-working simply puts more people at your fingertips than if you were isolated at home or in a coffee shop."
Each CoCo location has a slightly different layout, but the gist is the same. For "independents" and small teams that need a lively space for collaboration, a social area with communal tables and couches facilitates interaction. An open-plan, bullpen-style area offers a quieter, more permanent workspace.
Centrally located "campsites," often demarcated with tenants' branding, support teams of four to eight workers. A communal kitchen keeps workers fueled and supports more informal interactions. Depending on workers’ membership plans, CoCo's meeting areas allow members to consult with outside vendors, investors and clients without straying too far from their desks, which can facilitate serendipitous meetings that drive innovation and create new opportunities.
Bill Pauling and Nils Hansen, co-founders of the real-estate listing app 400 Doors, had a great idea for a product that could reduce the amount of time some houses spend on the market. Pauling is a licensed real estate agent. Hansen is a first-rate designer. They needed someone with the technical know-how to create a world-class app. They literally bumped into developer Robert Nelson, who became their third team member, in the kitchen of CoCo's downtown Minneapolis location.
"We can't really imagine life as a company without CoCo," Nelson says. Having a diverse array of co-members isn't just useful for finding a new full-time team player. Nelson, Hansen and Pauling regularly leverage the talents of other tenants, including a "solopreneur" lawyer with a membership at all three locations. "When we need to draw up a contract or evaluate an agreement, we call her," Nelson says. They also call on Monkey Island, an online marketing firm that occupies a Minneapolis campsite.
"We think of CoCo as a coral reef, in which the biodiversity is the very thing that makes the reef thrive," Ball says. "One of the things that has surprised us is how some of our members are playing up their CoCo membership as an asset...putting it on their websites, on their business cards."
CoCo membership has certainly been an asset for Josh Becerra, a Monkey Island co-founder. His company began in a rented office in a St. Paul neighborhood. But Becerra and his partners felt increasingly isolated from their peers, especially after attending a handful of CoCo networking events. "We wanted to be around other business owners doing the same thing as us," he says.
Monkey Island moved to CoCo's downtown Minneapolis space in 2012 and hasn't looked back. Last year, says Becerra, about 80 percent of Monkey Island’s new business came directly from CoCo tenants or their referrals. Separately, the company has worked with other members on side projects, including mobile app development and traditional Web development, paying directly for services or sharing equity to speed the project along. "The collaboration and co-working aspects definitely keep us here," he says.
Generating new business wasn't the primary motivator for Docalytics, a marketing analytics startup based out of the St. Paul CoCo, but co-working certainly hasn't hurt. "We have a few ongoing relationships, primarily in the tech and development spaces, with [CoCo members]," says Evan Carothers, a co-founder. "We would not have much — if any — exposure to [them] if we weren't all sharing a space."
In addition to creating new spaces for collaboration, co-working hubs serve as magnets for out-of-state talent. Nichols followed the tech boom to the Bay Area in the late 1990s. After an impressive run, which included the $800 million sale of a “voice portal” business called TellMe to Microsoft, he moved back to the Twin Cities for the sake of his growing family.
Taken with the flexibility and access afforded by co-working, and driven by a desire to plow as much startup capital as possible into Kidizen's product, Nichols and co-founders Mary Fallon and Dori Graff set up shop at CoCo.
Cost was equally important for Carothers and Docalytics.
"We priced dedicated office spaces and it's a substantial cost savings for us to work out of CoCo," he says, declining to provide specific figures. But the most expensive CoCo membership, which includes a dedicated campsite, 12 hours of meeting room time, and 24/7 access to the facility, costs $450 (in downtown Minneapolis and Lowertown St. Paul) or $500 (in Uptown) per month, plus a one-time application fee of $150.
In these neighborhoods, the rent for a dedicated office space for a team of four to eight can easily double that figure, before factoring in utility costs, furniture and other necessities. Office leases also often have longer terms than residential leases, so it takes a big leap of faith to sign one. Ball puts the cost issue in perspective, noting that startups with limited capital can't immediately afford the amenities they get at a co-working space.
"Multiple locations with multiple conference rooms, gigabit fiber connectivity, plus mentoring, discount services and funding opportunities through Google for Entrepreneurs — all that has tangible value and is available in a monthly membership,” Ball says. “Plus, you don't have a long-term commitment, so if your business suddenly takes a turn, you're not stuck with a 3-to-5-year lease."
Investing locally in ambitious entrepreneurs
Even for smaller startups, and entrepreneurs with great ideas but few connections and little capital, co-working doesn’t always work miracles. According to Chad Halvorson, founder and CEO of St. Paul-based thisCLICKS, local entrepreneurs — including co-working tenants — might feel more comfortable taking risks with more support from their peers.
He'd like to see decision-makers at established firms pay more attention to the “little guys” via funding and sponsorship through the Minnesota Cup competition, Minnesota Emerging Software Advisory (MESA, a nonprofit mentoring group through which established tech industry leaders support entrepreneurs), and other venues.
“Large companies…have a corporate responsibility to look locally for innovative companies, benefit from their offerings, and provide the startups with the brand recognition that might very well help secure their futures and growth,” adds Docalytics’ Carothers.
Thanks to the critical mass of talent and ideas at CoCo and Joule, which make it easier for venture capitalists and angel investors to access ambitious entrepreneurs, such recognition and support is finally happening. “We’re seeing successful tech entrepreneurs reinvesting locally,” says Ball, “as well as outside investors from bigger markets who are now making regular visits to the Twin Cities.”
Direct beneficiaries include Docalytics and Kidizen, which leveraged CoCo's partnership with Google for Entrepreneurs to score invites to the tech giant's annual Demo Days pitchfest. This year's event was a huge success, with both companies scoring high-profile investments from the venture capital firm owned by Steve Case, AOL’s former CEO.
Back in the Twin Cities, CoCo regularly welcomes visitors from Google Ventures, another division that provides promising startups with targeted investments. The suited-up, often bespectacled VCs stand out from casually dressed members, but they interact freely with them — less major league scouts than big brothers and sisters.
Every capital infusion, whether from Google or another source, raises its recipient’s profile and, by extension, improves similar companies' chances of securing similar investments — or of forging profitable partnerships with newly stable startups. Although CoCo doesn't present itself as a business incubator, per se, the result is similar.
Owners and key employees at successful Twin Cities startups are giving back in a bigger and more organized way too. ThisCLICKS’s Halvorson has been involved in the local startup scene since the early 2000s, and he’s thrilled by what’s been happening over the past three or four years.
“Since about 2009 or 2010, the tech community has come together to create more events, meetups and networking opportunities for entrepreneurs,” says Halvorson, citing MOJO Startup School, Bootstrappers Breakfast, MESA and Minnesota Cup in particular. ThisCLICKS’ 2013 Minnesota Cup victory, for instance, dramatically raised the company’s profile among prospective clients and investors.
Support also comes in less serious, but no less useful, packages. At CoCo in downtown Minneapolis, Becerra hosts a weekly networking and mentoring event in which newcomers can turn to established members to hone pitches, ask for advice and work out logistical sticking points in a "safe, non-structured environment."
Becerra and his Monkey Island team participate in even more light-hearted activities, including charity pie-throwing contests and an office-wide March Madness bracket, where participants try to predict the outcome of the NCAA basketball tournament.
Meetups, mentorship, political goodwill
Going forward, current CoCo tenants can look forward to leveraging a growing network of co-working alumni who have "graduated" to standalone spaces. Kidizen's Nichols, who currently mentors two local startups independently of the CoCo network, is "very passionate about helping grow our startup community here," he says. "I'd definitely be interested in participating in a mentorship program through CoCo."
Targeted public-private partnerships, a perennial building block of Minnesota business, can build on this critical foundation — especially when it comes to fostering the right conditions for co-working to flourish. CoCo might not have opened its downtown Minneapolis location without help from the mayor’s office, notes Ball.
Soon after the opening of Coco’s St. Paul facility, the office of then-Minneapolis Mayor R.T. Rybak contacted Ball and Kyle Coolbroth, his co-founder, to ask what it would take for them to expand across the river. Once CoCo’s Minneapolis space was online, Rybak held his State of the City address at that Grain Exchange location and subsequently brought Google chairman Eric Schmidt to town. Those events ultimately led to CoCo’s partnership with Google for Entrepreneurs and, indirectly, to Steve Case’s investments in Docalytics and Kidizen.
Starting a tech-fueled business still requires vision, drive and a healthy appetite for risk, not to mention startup capital, office space and talented employees. These barriers won't fall anytime soon. But by pooling their collective resources and talents at co-working spaces like CoCo, Twin Cities' entrepreneurs are finding it easier — and more fun — to connect with others who share their vision, from potential partners and vendors to investors and mentors.
This article is reprinted in partnership with The Line, an online chronicle of Twin Cities creativity in entrepreneurship, culture, retail, placemaking, the arts, and other elements of the new creative economy. Brian Martucci is The Line's innovation and jobs editor.