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Tracking the pulse of minority-owned Minnesota businesses

MEDA has surveyed clients representative of hundreds of minority-owned companies for a report on how this part of our economy is doing.

While Minnesota has much to be proud of when it comes to being a great place to work and live, reports in recent years have revealed the state is one of the worst in the nation for employing and educating people of color.

Minnesota’s gap between white and black employment is one of the largest in the United States. In Minneapolis, people of color make up 40 percent of the population but hold only 17 percent of the jobs, according to the Minneapolis Foundation. The racial gap in workforce participation is nearly 40 percentage points between the highest (whites, 78 percent) and the lowest (American Indian, 39 percent). And children of color are finishing high school at a rate that is 25 percent to 50 percent below the graduation rate of white children, according to figures provided by Minneapolis Public Schools.

One way to correct these disparities is by supporting and helping increase the number of businesses owned by people of color, according to the Metropolitan Economic Development Association (MEDA), which has been supporting such businesses for 41 years. As MEDA’s President and CEO Yvonne Cheung Ho points out, “We can confidently say minority businesses are more likely to hire minorities in their workforce,” which in turn strengthens families and helps their children succeed.

For the last two years, MEDA has quietly surveyed a group of clients representative of the hundreds of minority-owned companies it works with each year, for a report card of sorts on how this increasingly important part of our economy is doing.

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Minority-owned businesses in Minnesota are optimistic about 2013, despite weathering slowing sales and employment decreases during the last few months, according to an index produced by the Metropolitan Economic Development Association (MEDA).

For 41 years, MEDA has been offering African Americans, Hispanics, Asians, and American Indians a range of services, including business consultation, access to financing, and leadership development.

The index, begun in January 2011, is based on a monthly survey of 25 to 30 select MEDA clients and is a composite of indices tracking trends in sales, employment, and business expectations among entrepreneurs of color. Index readings above 50 indicate expanding business conditions; readings below 50 represent contraction (see chart later in article).

The index hit a new low of 44.7 in November of last year before crawling back to 48.8 in December and creeping up to 48.9 in January. That’s still in contraction territory, but could signal the beginning of a turnaround, according to MEDA Special Projects Coordinator Gary Hobart, based on previous index findings and comments from the most recent survey.

A review of monthly composite MEDA Index reports shows a similar trend line in 2012 compared with 2011, with more upbeat readings early on, then falling over the course of the year.

MEDA also asked survey participants late last year to share their thoughts about the outlook for 2013. More than three-quarters of respondents said they expected business conditions to improve in Minnesota. But they have been similarly positive in the past two years, only to become more guarded as the year progressed, as reflected in the index.

Economic uncertainty was by far the greatest challenge cited (48 percent). Nearly a third said finding and hiring qualified employees and obtaining financing were challenges, while 24 percent said emerging or strengthening competition would create a challenge in 2013. The findings were similar to those of Twin Cities Business’ quarterly economic indicator survey, reported in the February issue.

Survey respondent Andy Wells, CEO of Wells Technology in Bemidji, has delayed new product rollouts. “The future is so uncertain, we think we better hang on to our cash,” says Wells.

Another respondent, business owner Prince Wallace, also voiced uncertainty as first-quarter 2013 began, due to political polarization in Washington. He suspects there is pent-up demand, however.

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Twin Cities BusinessMore than half of the MEDA respondents (55 percent) said they would be entering new domestic markets this year. Half planned to hire additional employees, while 35 percent expected to add new products or services. One-tenth planned to expand into new international markets.

“When these firms are successful, they hire other minorities and build up the economic base of their communities,” says Bruce Corrie, associate vice president of Concordia University in St. Paul, who has studied minority-owned businesses. And as Minnesota becomes more diverse, people of color become a much larger economic force in the state.

That’s one reason MEDA is conducting its surveys and producing its index. It’s also compelled to do so because there’s no other source of current data about entrepreneurs of color in Minnesota.

The U.S. Census provides the best-known snapshot through its Survey of Business Owners conducted every five years. The most recent data is from 2007. By the time the U.S. Census Bureau tabulates the results, the information is often obsolete, says Yvonne Cheung Ho, MEDA’S president and CEO.

Like other indices, the MEDA index provides a snapshot. Longer term, however, Cheung Ho says that the data could reveal trends that could be used to allocate resources and develop policy. The index could eventually influence MEDA as well, particularly if it sees trends emerging.

The organization helps up to 600 entrepreneurs of color each year gain access to government contracting, financing, and networking, and provides assistance with minority certifications and strategic planning. Because they tend to be more vulnerable to changes in the economy, minority-owned businesses can be a barometer for small-business conditions overall, says Cheung Ho.

Before the recent recession, the number of minority-owned businesses soared by 43 percent, to 31,074, between 2002 and 2007, according to the most recent Census figures. That was still only about 6 percent of all businesses in Minnesota, however, when people of color represented 15.5 percent of the state’s population.

Most of Minnesota’s minority-owned businesses have less than $1 million in annual revenue, according to Census data. Only about 14 percent of such firms in 2007 had one or more employees.

Combined, however, the businesses had sales of $5.5 billion in 2007, up 72 percent from 2002. That total is equal to the 15th-largest firm in the state, “larger than St. Jude Medical, Toro, or Deluxe,” says Concordia’s Corrie.”If you combine their employees, they would be a bigger employer than General Mills, Ecolab, or Hormel.”

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“It is important that we continue to empower communities of color and build economic self-sufficiency through entrepreneurship,” says Cheung Ho. “We need to continue to develop business leaders of color who can become members of the decision-making community and role models for their communities.”

Your Custom-Made Man

BGD Companies
Headquarters: Crystal // Founded: 1980 // Employees: 30, 80% minority

Dennis Diaz
Photo by Eliesa JohnsonDennis Diaz

The BGD Companies’ showroom in Crystal runs the gamut of restaurant styles—from rustic birchbark tables and chairs to sleek and serene Japanese furnishings to curvy restaurant booths upholstered in red velvet.

Dennis Diaz, the hands-on owner of the combination import and custom manufacturing business, has a story for each piece of furniture and every project he’s worked on. But getting to where he is today hasn’t been without its challenges.

Diaz, 62, immigrated to the United States in 1976 as a young man, with the idea of launching his own business. “It was a tough start,” says Diaz. “You need to think about financing, recognition, credibility, and how to compete in the marketplace.”

He turned to the Metropolitan Economic Development Association (MEDA). “MEDA helped me find financing and develop a business plan,” Diaz says. The organization also helped the fledgling firm connect with organizations offering public contracts. Diaz says that back then, he would never have been considered a viable vendor without MEDA’s help.

Today, BGD’s handiwork can be seen at more than 500 restaurants nationwide—including the Hard Rock Café in Biloxi, Mississippi, Prior Lake’s Mystic Lake Casino, and the play areas and food courts of more than 100 shopping centers nationwide, including Ridgedale and Eden Prairie Center.

Greg Buse, corporate director of purchasing for Great Wolf Resorts in Madison, Wisconsin, has personally partnered with BGD for more than 15 years. “BGD is a quality company, a quality manufacturer, putting out quality goods,” he says. The company is also flexible, and very good at meeting a customer’s conditions and deadlines, Buse notes, even making adjustments onsite if site measurements change.

Making Connections

Born 30 miles north of Manila to rice and watermelon farmers, Diaz was the oldest son of 13 children. “My parents always said, if you have a good education, you can go anywhere and compete. And I believe that,” says Diaz, who received a bachelor’s of business administration from the University of the East, Manila.

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He was working as a purchasing manager for a major textile company in Manila when he met Angelita Gumiran, who in 1976 immigrated to the United States with her parents and siblings. Later that year, Angelita flew to Manila, married Diaz, and returned to the Twin Cities with her new husband. “It was December and the wind chill was almost 70 degrees below zero, and it was 85 degrees in Manila with 90 percent humidity,” he says. “I was shocked.”

But it wasn’t long before Diaz began to capitalize on his overseas connections. Already part-owner in a family manufacturing plant in Manila that produced gifts and accessories, he started importing and selling them.

In the mid-1980s, Diaz wanted to expand into commercial applications, particularly restaurant seating, so he once again turned to MEDA, signing up for a mentor program. He was matched with Ed Asplin, the chairman of Bemis Company, a multinational manufacturer and supplier of flexible packaging.

“We were expanding our product line, but we didn’t have a lot of experience with bigger companies,” Diaz says. Asplin helped Diaz decide to expand his manufacturing capabilities in the United States in the early 1990s, opening a 16-person plant in South Minneapolis to produce upholstered furnishings for commercial applications. The plant in Manila had already shifted into producing wicker and rattan furniture.

“We have seen at least four recessions,” says Diaz. In the late 1980s, Asplin and his team of volunteer executives helped Diaz connect with large commercial customers for the first time, including Dayton-Hudson Corporation, now Target. “We were then able to develop products for these customers, which helped us make it through the economic downturn,” says Diaz.

Even after 30 years in business, Diaz says, the recent recession was tough. “Banks were not lending money to people like us or to people who would buy our products.” In 2009, the company’s revenue fell 24 percent, and Diaz was forced to lay off four workers from his staff of 24.

But he kept looking to the future. “When the market was going down, we were brave enough to take a calculated risk to invest in new machinery, retrain our people, introduce new product design, and invest time and money in product development,” says Diaz.

Business has since recovered, with sales up double digits in the last two years; both total revenue and staff now exceed pre-recession levels, he adds.

In 2008, Diaz sold the manufacturing plant, moved out of his showroom at International Market Square, and bought a 40,000-square-foot building in Crystal to consolidate operations. Over the years, the company also began importing wooden and metal table and chair frames, primarily from China, for assembly and finishing in Crystal.

Today Diaz’s staff consists of about 80 percent people of color, primarily Latino and Asian. “We find good craftsmen, dedicated to what we do and who understand our business, in the minority population,” says Diaz. His company is now large enough to bid on projects in excess of $500,000. “Once you are established, being a minority no longer is an issue,” he says.

Making a Mark

Shaw-Lundquist Associates, Inc.
Founded: 1974 // Headquarters: Eagan // Employees: 70-100, 15-18% minority

Hoyt Hsiao
Photo by Eliesa JohnsonHoyt Hsiao

The hallways of Shaw-Lundquist Associates, the nation’s largest Asian-owned general contractor, are lined with colorful peasant paintings from China’s Shaanxi Province. “This one shows peanuts being harvested, and the peanut signifies prosperity and wealth,” says Hoyt Hsiao, the firm’s president and CEO.

“There is a perception that minority-owned businesses are small, but we are trying to change that perception,” says Hsiao, 47, a graduate of the University of Minnesota’s Carlson School of Management. “We are considered big for a minority-owned firm, but we have a long ways to go to achieve the status of being a major firm.”

The largest minority-owned contractor doing business in the Twin Cities, Shaw-Lundquist is rebounding after some lean years. “Commercial construction lags the economy by about one and a half years,” says Hsiao, so the impact of the recession was delayed. The company’s revenues peaked around $81 million in 2008 but plunged to less than $46 million by fiscal 2011.

During the downturn, Shaw-Lundquist laid off about 20 percent of its 26-person office staff and about the same percentage of its 80-plus field staff. The firm also joined the leadership program of the Metropolitan Economic Development Association (MEDA). Through this program, MEDA assembled an outside advisory council to meet quarterly with Shaw-Lundquist’s executive team. “It helped us better refine our vision, values, and strategies,” says Hsiao.

Last year, the firm’s revenue grew to $50 million; Hsiao projects revenue will hit between $68 million and $70 million in fiscal 2013 and has a goal of $100 million by March 2015. “We feel we are back,” he says, grinning.

In November 2012, Shaw-Lundquist broke ground on a $24 million St. Paul condo project, West Side Flats, in partnership with the project’s owner, Sherman Associates, based in Minneapolis. It is one of the largest multi-unit housing projects the company has been involved with.

Other significant recent projects include the $50 million building that houses the laboratories for the Minnesota departments of health and agriculture in St. Paul, the A and C concourse addition at Terminal 1 at the Minneapolis-St. Paul International Airport, US Bank branches in Minneapolis’ Uptown neighborhood and in Shakopee, the renovation of a Best Buy store in Minnetonka, a Wal-Mart renovation in Bloomington and a new Wal-Mart store in Princeton.

“Shaw-Lundquist is definitely one of the top building contractors in the metro area,” says David Semerad, CEO of the Associated General Contractors of Minnesota, a trade group, noting the company’s record of quality work and outstanding reputation.

The Shaw in the firm’s name comes from Hsiao’s father, Feng Hsiao, who used the American version of both his first and last name when he began working in the United States construction industry in 1949. “My father never changed his name to Shaw, but he was known as Fred Shaw,” says Hsiao.

The elder Hsiao had immigrated to the United States from China’s Shaanxi Province in 1945 and earned a master’s in civil engineering from the Massachusetts Institute of Technology. He and Lyle Lundquist were longtime co-workers at contractor Orville E. Madsen and Sons, Hsiao as an estimator and Lundquist as a superintendent. When they started Shaw-Lundquist Associates in 1974, they chose to use the American pronunciation of his last name when forming the company.

Hsiao says his father was self-conscious about his English, and not a natural schmoozer. “My father didn’t really drink,” says Hsiao. “It was difficult for him to socialize and build business. He never really felt comfortable with it.” So Shaw-Lundquist sought out public construction contracts. With public contracts, Hsiao says, if you provide the best bid, you get the job.

Hsiao recalls that his father, who passed away in 2010, talked about how in the early years he sometimes faced discrimination, but it only increased his resolve to succeed and to help others in similar positions. A founding member of the National Association of Minority Contractors Upper Midwest Chapter, the elder Hsiao played an instrumental role in helping minorities advance in the construction industry by providing them guidance and sometimes personal loans to help them through a rough patch or to start their own business, his sons says.

Shaw-Lundquist’s size now makes it ineligible for preferential treatment when bidding for public contracts in Minnesota and with the federal government, but Hsiao advises other minority business owners to take advantage of such opportunities. “But you can’t count on that,” he cautions. “Being a minority provides an opportunity to get in the door, but you still have to prove that you are a firm that is able to do the work and provide value.”

Woman With a Plan

Ideal System Solutions
Headquarters: Minnetonka // Founded: 1997 Employees: 40, 10% minority

Elise Hernandez
Photo by Eliesa JohnsonElise Hernandez

In technology, an industry dominated by white men, Elise Hernandez is a rare Latina. Asked whether being a woman or Latino presented the greater challenge, Hernandez retorted unequivocally: “Woman.”

Hernandez, 46, is the president and co-founder of Ideal System Solutions, a fast-growing company that provides information technology (IT) services to companies and government agencies.

“Sixteen years ago, there were very few women-owned technology companies,” says Hernandez. “Even today, I can be in a group of people, and someone will only address my male employees.”

She learned responsibility early. The daughter of a Mexican immigrant father and a Mexican-American mother, Hernandez’s parents divorced when she was young, and her mother raised four children on welfare. When Hernandez was about 10 or 11, her mother went to school to become a registered nurse and then joined the military when Hernandez was still at St. Louis Park High School. “When my mother was gone for extended periods in boot camp, I took over the house,” recalls Hernandez. “My mother instilled in me independence at a young age. I had to make lots of decisions on my own.”

“I always knew I would go to college,” Hernandez says. “I did not want to end up like my mother, relying on the welfare system.” After putting herself through college at the University of Minnesota, she enrolled in the MBA program at Metropolitan State University. Her master’s thesis was to develop a business plan for a start-up technology company.

“While going to school, I worked for small technology companies that didn’t have a plan,” says Hernandez. “They didn’t have a strategy. In those days, it was easy for anyone to be successful in the business. You didn’t need a strategy, but I knew that would be short-lived. I knew the industry was changing, becoming more competitive.”

Business plan in hand, Hernandez and her husband, John McGuire, launched Ideal System Solutions in 1997 with $1,000. At that time, the company was a value-added reseller of technology products from IBM, Cisco, Oracle, Hewlett-Packard, and others. Hernandez was aware of the advantages that being a women- and minority-owned business offered and sought out the Small Business Administration to become an 8-A (socially and economically disadvantaged) certified business, which allowed her to bid on government contracts. “It was a nine-year program that opened doors for us,” she says. “We have graduated from that program.” Customers include Lockheed Martin, the U.S. Army and Navy, and the Department of Energy.

For the first 10 years, Ideal System Solutions remained a reseller of technology products, but the industry started to shift again, becoming more commoditized with smaller profit margins for resellers. “Five years ago I began building out technology services: communications and IT consulting,” says Hernandez.

To do that, she made two strategic acquisitions, Minnetonka-based Excel Systems in 2010 and Minneapolis-based Creative Vision Technologies in 2011. Excel Systems specializes in unified communications, putting together voice, video, and data, while Creative Vision Technologies focuses on consulting services and solutions.

Hernandez used the sluggish economy to focus on strategic planning. Now, she says, “Business is good.”

“People can’t hold off any longer. They are spending money. They are upgrading their technology infrastructures. We’ve been awarded numerous contracts. I’m seeing expansion from both the commercial firms and the public sector. Demand for both technology products and services is increasing simultaneously.”

Today, Hernandez’s husband plays a much smaller role in the business and a larger role at home with the couple’s children, while she keeps an eye out for the next industry shift.

Spring Surge?

This article is reprinted in partnership with Twin Cities Business.