Duluth regional focus: Who's who

Multi-dimensional

No longer a one-note mining city, Duluth reaches out

by Elizabeth Martin       When visitors wander down the bricked streets of downtown Duluth and look over the blue expanse of Lake Superior, it’s easy to mistake the area for a purely tourist town.

But the Duluth area is proving itself to be an active center for business. In July, Expansion Management Magazine of Cleveland ranked Duluth as the 25th best place in the nation to grow a business. The placement shows just how far the region’s economy has come.

The slow death of northern Minnesota’s mining industry hit the Duluth area hard. As demand for iron ore dropped and the U.S. Steel plant in West Duluth shut down, the town began to stumble. The shipping and railroad jobs dried up and the steel plant, which had once employed 6,000 people, closed in the 1970s.

In the late 1970s Duluth was faced with an unemployment rate in the high teens and workers that were, for the most part, not trained for any profession except the mining-related industries from which they had recently been laid off.

Today the area’s economy has diversified and includes manufacturing, technology and health care.

“This entire region is morphing from an economy dependent upon heavy industry and extracted natural resources into a more diversified economy,” says Jim McGinnis, president and CEO of Duluth-based Murphy McGinnis Media Inc.

Says David Ross of the Duluth Area Chamber of Commerce: "We're fortunate in that the city of Duluth learned from some painful experiences back in the 1970s where we were pretty one-dimensional.”

Agrees McGinnis: "I think the fact that Duluth in the 2000 census actually showed a population increase for the first time in several decades is indicative of how Duluth has positioned its economy in a very positive way.”  Murphy McGinnis Media publishes 20 daily and weekly newspapers and shoppers throughout the upper Midwest, including Minnesota, northwestern Wisconsin and upper Michigan.

“This community right now is right on the edge of being a huge factor in business growth,” says John Eagleton, president and CEO of Duluth-based Northstar Aerospace, a precision machining and manufacturing company.

Cirrus success

One of the business community’s favorite success stories is Duluth-based Cirrus Design.

Cirrus, which manufactures single engine airplanes, moved to Duluth from Baraboo, Wisconsin, in 1994 after Baraboo made it clear that it was “annoyed” at the amount of air traffic that Cirrus was creating, according to Bill King, vice president of business administration at Cirrus.

"Clearly the interest that they had in helping the company continue to grow was something less than nothing,” he says.

Originally, says King, Duluth wasn’t even on the company’s list of potential sites. Cirrus worked with the city of Grand Forks, North Dakota, for 14 months to try to put a deal together. But when it became apparent that a deal wasn’t going to happen, the company began a nationwide search for a new home.

“When we landed here the mayor, Gary Doty, met us at the airport and proceeded to absolutely blow our doors off,” with his aggressive, no-nonsense approach, recalls King.

Within 60 days the mayor had project funding in place to build a facility and fund future growth.

“It was just a truly, truly remarkable effort on his part,” says King.

The city has also become an equity partner in Cirrus, which today has more than 800 employees between its Duluth and Grand Forks facilities. The city of Grand Forks and the state of North Dakota are also equity partners in the company.

Today Cirrus is the second largest manufacturer of single-engine airplanes in the country, says King. Wichita, Kansas-based Cessna is number one. However, King is quick to point out that last quarter Cessna only bested Cirrus by 10 airplanes.

Cirrus’ mere presence has played a role in business growth over the past ten years. Companies that supply Cirrus with parts and equipment have grown along with their customer.

When Cirrus came to town, Northstar Aerospace was just a small machine shop owned by three siblings. Because of its proximity to Cirrus’ facility, Northstar Aerospace was asked to make some parts for the company. That request became a launching pad for Northstar Aerospace.

“We've sort of grown up together,” says King of Northstar Aerospace. “And they are so good at what they do that at this point when they open their mouths at a trade show and say we manufacture seats for Cirrus, everybody wants to talk to them.”

Today, 10-year-old Northstar Aerospace employs 50 people. But back in 1996 when John Eagleton postponed his retirement to become president and CEO of the company, the little machine shop was struggling.

“It was marginal for a number of years. Many days I wondered if they’d put the key in the door,” admits Eagleton.

Three years ago, Northstar decided it needed to “make this company global and be able to attract business from other aerospace companies,” says Eagleton. Northstar Aerospace has 15 to 20 other customers, but Cirrus remains its largest. The company manufacturers 9,000 parts per month for Cirrus, in addition to seats for the company’s planes.

But after some hard work and help from the city of Duluth and the Duluth Airport Authority, the company is ISO 9001 certified and has state-of-the-art equipment. Although Cirrus is a large part of the reason Northstar has stayed in Duluth, it’s not the only reason.

“I think we’re very fortunate in Minnesota to have a high quality workforce and low energy costs,” says Eagleton.

He tells of a recent visit to a manufacturer in California where the entire manufacturing facility was lit by skylights, but not for ergonomic or environmental reasons, Eagleton says. The owner admitted that the company couldn’t afford to pay for lighting for the facility because of California’s high energy costs.

Duluth is attractive to the aviation industry because it has the largest runway in the state, says Tom Cotruvo, business development manager for the city of Duluth. The runway was built for an Air Force base that was located in Duluth until the early 1980s.  Today the city is home to an Air National Guard base, but the runway is attractive to other users as well, including Eagan-based Northwest Airlines, which has a maintenance facility in Duluth.

More manufacturing

But aviation manufacturing isn’t the only manufacturing-related industry in Duluth. W.P. & R.S. Mars Co. is a regional industrial distributor of abrasives, cutting tools, MROP, metalworking fluids, precision measuring, rubber products and safety supplies. The company was founded in Duluth in 1924.

"We were well established during the ’40s in the war when Duluth had shipyards that were building tankers and freighters," says Bob Mars Jr., the company’s chairman whose father and grandfather founded the company.

But in the early 1970s the company recognized that the base of its business was mining and that mining was a volatile, cyclical industry. So, they opened a warehouse in Bloomington, Minnesota, in order to expand into the Twin Cities market. The company has 95 employees and $25 million in revenue.

Mars believes that northern Minnesota’s reputation for having a heavily unionized work force keeps many business owners from locating in Duluth. However, he says, that reputation is less deserved than it has been in the past. Ross agrees and says that the chamber has been working to form a relationship with the area’s trade unions.

  “I think that's an antiquated image of Duluth and we're not nearly as combative. If we're going to forward this community we have to partner” with the buliding trades, says Ross. “We jointly advocate for construction, for development, we both have a great deal to gain when there's an investment made in the community and when jobs are provided.”

McGinnis says: "I believe that the strongest misconception that a lot of people may have is that the impact or the influence that labor has over successful business development is onerous in some way. And, as a business owner with companies in 17 different communities across northwestern Wisconsin and northeastern Minnesota, I have not found that to be the case.”

Health care has become another booming industry for Duluth. Duluth-based SMDC, St. Mary’s Duluth Clinic, the area’s largest employer, is planning a $50 million to $75 million expansion of its existing facility to house its orthopedics and neurology departments. Groundbreaking has not been set.

Smaller health care companies are taking hold in Duluth as well.

Senior Friend was founded in 1981 by Karen Stocke and Max Kheinberger and is a Medicare-certified home health care provider. Kheinberger, who became a quadriplegic after contracting polio in the 1950s, came up with the idea.

“Most people’s needs are not of a skilled nature but more of a paraprofessional-homemaker,” says Stocke. For its first five years, the company only provided those paraprofessional services. After five years the company became Medicare certified and currently employs registered nurses and licensed practical nurses, although Stocke says that has never been the company’s main business.

Senior Friend employs 153 people and has revenue of $2.5 million. The company provides services to clients between Duluth and the Iron Range.

“We never have given a thought to leaving Duluth,” says Stocke. The company ventured into expansion by opening up a facility in Hopkins in the late 1980s, but closed that facility after a difficult three years.

“I think there’s a lot of small businesses starting,” says Stocke. “I think Duluth has difficulty attracting and retaining large companies. Duluthians take a stake in whatever is going to be happening here. And people aren’t afraid to speak up.”

Stocke believes that the community activist spirit may scare off developers but she feels that that spirit is important to Duluth’s quality of life.

‘Where I live’

Quality of life is a reason that many companies choose to locate and stay in Duluth.

“This is where I started the business, this is where I live,” says Chad Braafladt, founder, president and CEO of CP, a Duluth-based telecommunications company that provides Internet service as well as telephone services around the state. Because of those roots, Braafladt says he has never seriously considered moving his company out of Duluth.

He adds that CP and Duluth-based Inventis are two of the largest and fastest-growing Internet companies in the state.

CP employs 100 people in Duluth, Mankato and Minneapolis and had revenue of $10 million in 2002. Braafladt adds that the company has been profitable for eight years and grew over the past year. The fact of CP’s growth is significant, he says, given that many of the company’s competitors are contracting or closing up shop altogether.

“My focus of my strategy and thinking is really on our own markets. We’re happy to expand when most of our competition are closing or contracting,” Braafladt says.

Like many cities during the 1990s, Duluth got in on the technology boom.

In 2000 a new building called Technology Village was ready to open its doors. The facility, based on the Soft Center concept that city leaders had seen in Duluth’s sister city, Vaxjo, Sweden, was to be the focal point of Duluth’s technology community. The concept was to bring education and technology together under one roof.

"The original concept was a public/private partnership to co-locate universities with software development companies. That aspect has had limited success because we opened this project right at the dot-com collapse,” says Cotruvo.

"I think it took longer than the public thought to fill that space, but it's over 80 percent filled now,” says Tess Dandrea, director of business retention and resources with the Duluth Area Chamber of Commerce.

The building’s current tenants include the University of Minnesota Center for Economic Development, which offers financial, managerial, and procurement assistance to start-up and existing small businesses, as well as facilities leased by Lake Superior College. Although the building houses companies in a variety of industries, city officials still believe in the basic concept.

“It was built and designed as a technology center and it's the only one I'm aware of in this area that's built from the ground up with that purpose in mind. We think that it will produce the results that we were hoping to over time,” says Cotruvo.

Duluth is trying to attract the attention of Montreal-based Bombardier, a maker of regional jets that is looking for a new location for a maintenance facility. The state is also assisting Duluth in an effort to attract an assembly facility for the Boeing 7E7, the aerospace giant’s next generation of jets.

 But the main factor in much of the business growth in northern Minnesota is quality of life.

“People want to live here, and that retains people that would otherwise leave. A lot of people could move to the Cities but want to stay here,” says Cotruvo.

That sentiment is echoed by many business leaders who say that the natural beauty of the area, along with the lower cost of living and doing business, are what keep them there.

“I've seen these enormous changes in the business community in Duluth over the last 10 years,” says King. “There is an excitement in the business community up here, and there's a lot of reason to be excited.”