A little more than a year ago, famed venture capital firm Andreessen Horowitz made an unusual announcement: It was moving its official headquarters to “the cloud.”
In a press release dated July 2022, partner Ben Horowitz said that the rapid adoption of hybrid work was “profoundly weakening the Silicon Valley network effect.” As a result, Andreessen Horowitz — a juggernaut investor that’s backed companies like Lyft and Slack— would be working “primarily virtually” for the foreseeable future, he said.
But “the cloud,” of course, cannot accept U.S. mail or provide basic business services. Accordingly, Andreessen Horowitz, also known as a16z, is still incorporated as a California company, and it keeps a physical office in Menlo Park. The firm’s announcement even noted that there were plans to open three additional offices in California, Florida, and New York. “In our firm’s new operating model, we work primarily virtually, but will use our physical presence to develop our culture, help entrepreneurs, and build relationships,” Horowitz wrote. “The firm is now virtual, but can materialize physically on command.”
And at a time when business can be conducted just about anywhere in the world, data show that plenty of entrepreneurs are still setting up shop in Minnesota, even if they’re not here all the time. Where a company is incorporated has important implications for tax purposes, access to talent, and communities at large. While the meaning of a “Minnesota business” is in flux, startup boosters in the state are doing what they can to convince founders to plant a flag here.
From Silicon Valley to the Twin Cities
To understand why physical headquarters still matter for some businesses, look no further than Arctic Wolf, a cybersecurity firm that moved its HQ from California to Minnesota in late 2020, after the COVID-19 pandemic set in and the promise of virtual work seemed unlimited. When the company first settled into its Eden Prairie office, it had about 200 employees in Minnesota. Since then, that figure has grown to over 500, says chief product officer Dan Schiappa. Arctic Wolf employs around 2,200 workers among all its offices.
“If you come to the Eden Prairie office, it’s a buzzing, high-energy, pre-COVID-like office atmosphere,” Schiappa says. “The culture we’ve created at Arctic Wolf is that you’re part of the pack, part of the wolf pack. That does mean something to us.”
Yet in another quirk of the hybrid work world, Schiappa lives in Florida. He regularly spends time in Arctic Wolf’s Minnesota office, which he says has become a sort of model for the company’s other offices. The company likes what he terms “Midwestern values” among Minnesotan employees.
“Everything that we wanted as part of our company culture was kind of the culture of Minnesota, so it was a natural place for us to set roots,” Schiappa says. “If you go to any other office, you see a very similar type of culture that really was founded in the Minnesota office.”
In addition to the Eden Prairie location, Arctic Wolf has offices in Utah, Florida, Texas, and Wisconsin, along with locations in Canada, Germany, South Africa, and elsewhere internationally. The company does employ some fully remote workers, but Schiappa says the company still aims to “bring them to the offices on a regular basis so they can feel that sense of belonging.”
Schiappa says the Twin Cities office also acts as a magnet for Arctic Wolf to draw talent — locally and beyond.
“One of the benefits of being in Minnesota is a great tech sector and a good cyber sector,” he notes. “But we also hire across a broad range of industries, so we’re bringing in people with a bunch of different experiences that really make us a better company.”
Still, in the hybrid era, it’s not unusual for executives to live in one state and work for a business in another state, as Schiappa does. Consider MySimplePetLab, a 4-year-old startup that sells at-home diagnostic kits for cats and dogs. Officially, the company is headquartered and incorporated in Colorado, but CEO Jen Hagness is a Twin Cities resident with a long tenure at Minnesota companies.
Hagness likes to describe the company as having “dual headquarters” in Denver and Minneapolis. MySimplePetLab does have plans to establish offices in Minneapolis “very soon.”
“I would say we are a real hybrid,” says Hagness, a former VP at Caribou Coffee. “We’ve got roots here in Minneapolis, and our investors are also here in Minneapolis. We’ve got roots in Denver relative to our lab. But we also run pretty virtually, as well. In calls, our teams will be all over the United States.”
Still, Hagness admits that it was challenging to build a corporate culture in what is essentially a transcontinental operation. For her, regular communication is key to building a positive and productive hybrid culture. She also tries to make sure all employees understand how their jobs fit into the company’s overall strategy.
Discussions about the future of corporate culture aren’t purely theoretical or academic exercises; they hold real implications for communities and the long-term viability of businesses. “Having a healthy business climate is really the root of just about everything else that makes a community healthy,” says Lynn Casey, retired chair and CEO of Minneapolis-based PR firm Padilla. When it comes to community involvement, Casey maintains that it’s incumbent on established leaders in town to be role models for younger entrepreneurs.
“They have a role, no matter how busy they are,” she says.
Plus, disengaged employees are twice as likely to leave, according to a 2021 Gallup poll. “For a lot of positions, employees have to have an appreciation for what they’re contributing to the company long term,” says John Stavig, program director of the Carlson School of Management’s Gary S. Holmes Center for Entrepreneurship at the University of Minnesota.
And being remote suddenly opens the possibility of replacing Minnesota workers with potentially cheaper ones. The remote worker phenomenon is “not something that’s going to migrate from the coasts to the Twin Cities and stop there; it’s going to migrate all the way offshore,” says Stavig. “Those positions that are purely remote are at a bigger risk.”
It’s also worth noting that some companies have historically been willing to uproot entire corporate operations for the sake of the executive team—moves that seem less and less necessary in the hybrid era. RV-maker Winnebago Industries, for instance, had its corporate headquarters in Forest City, Iowa, for decades. That changed in 2015, when it hired former Toro Co. executive Michael Happe as CEO and set up a Minnesota office. In early 2022, Winnebago officially reincorporated as a Minnesota company, although all its manufacturing still happens in other states. Such moves are more likely to be a rarity in the hybrid era.
Meanwhile, fledgling businesses have continued to set up shop in Minnesota at a brisk pace over the last three decades. According to data from the Minnesota Secretary of State, the number of new business filings has risen every year since 1990, with a few exceptions. Minnesota reached its highest growth on record in 2021, with a whopping 92,818 new business filings. Between 2015 and 2020, the number of business filings in Minnesota jumped by about 50%.
As of July, there had been 58,060 new business filings in the state, more than at the same point last year. So far this year, March saw the most business filings in a single month, with 9,558.
Adam Hansen, director of business services in the Secretary of State’s office, says it’s hard to pinpoint precisely why business filings increased so precipitously in 2020, but the pandemic likely played a role. “How many people found Covid to be a wonderful time to quit their job and follow a dream? Probably a bunch,” Hansen says.
There are some caveats to the Secretary of State’s data. Clearly, not every new business will become a major employer, and some are bound to fail in the first months. Plus, the vast majority of filings each month have been limited liability companies, which could include as few as one or two people. Hansen notes that, theoretically, it can take as little as 10 minutes for someone to file for a new LLC in Minnesota.
Prospective business owners need not live in Minnesota to file for a new business, Hansen says. But they do need to have a physical place to accept mail in the state. That’s true even if they’re registering a foreign corporation based elsewhere. “A P.O. box doesn’t work,” Hansen notes.
Tom Fisher, a University of Minnesota architecture professor who’s studied the impacts of pandemics on societies, says there’s “always a burst of new entrepreneurial activity” after a pandemic. “After every pandemic in the past, there’s a lot of soul-searching,” he says. Fisher notes that this was true after the Spanish flu pandemic in the 1920s and a cholera pandemic way back in the early 1800s.
The rapid adoption of remote work obviously owes a lot to Covid-19, too. “Pandemics typically accelerate trends that had already begun,” Fisher says. “We’ve been in a time where it’s been easier to start a business than ever before, in part because of the digital environment. You can start a business without a lot of up-front capital or fixed costs. That was a trend that existed before the pandemic.”
The Minnesota pitch
There are concerns — especially among state and local governments — about the effects of hybrid and virtual work on tax revenue. If a company is based in Minnesota but all its workers live and work in other states, that could, in theory, have an impact on the tax base.
“We’ve been thinking about this, quite frankly, for longer than just the past number of years,” says Kevin McKinnon, deputy economic commissioner at the Minnesota Department of Employment and Economic Development.
McKinnon and other Minnesota boosters say they’ve long spotlighted the state’s talent pool as an important reason for starting a business here. Minnesota’s high concentration of Fortune 500 companies per capita has generally grown that pool. As of 2023, Minnesota has 15 Fortune 500s, down one from 2022. McKinnon also highlights a strong startup ecosystem — the complex interplay between potential customers, expertise, and funding in the state, though many startup proponents have for some time raised concerns about a lack of venture capital dollars in Minnesota compared to coastal states.
Shelisa Demuth, former executive director of Twin Cities startup advocacy group Beta, says the evidence contradicts such concerns. “Entrepreneurship is a major component of culture in Minnesota,” she says. “People building here are met with support from individuals and institutions who want to tell their stories and see them succeed.”
Beyond tax revenue, bigger philosophical and societal issues come into play. For years, Minnesota’s largest corporations have had a major influence on the state’s cultural institutions and causes. Target, Ecolab, Cargill, and 3M have their name emblazoned on galleries around the cities, for instance. Those companies’ executives have historically served on local boards and helped build communities. In a world where people’s workplaces and residences need not always align, what happens to community?
“The leadership of business requires stepping outside of companies to become leaders of communities,” Ryan Companies board chair Pat Ryan told TCB. “There’s a greater hesitation today to do that” in the new environment.
Zack Steven, CEO of Minneapolis-based software development studio Cloudburst SBC, says community is still a part of his company’s ethos, even though it’s still a small operation employing around nine people. He frequently opens up Cloudburst’s office in Northeast Minneapolis for community workshops, and the company has hosted a few Twin Cities Startup Week events. “We’ve benefitted from other people’s investments in the community; now, how do we give back?” Steven says.
Hagness of MySimplePetLab has adopted a similar approach for her company, which is establishing guidelines for a “give-back” program for employees, which could include options like offering workers time to volunteer. “Of course, profitability and economics matter, but giving back to the community also matters an incredible amount,” Hagness says.
But how exactly companies give back and which communities benefit remains an open question, and both prospects appear to be less and less tied to a corporate headquarters.
[cms_ad:x104]
