When VitalMedix announced its exodus from Minneapolis to Hudson, it launched a flurry of debate among Minnesota lawmakers who feared more companies would follow suit.

Though VitalMedix represents a smaller-sized company in a sea of large corpor-ations calling the Twin Cities home, lawmakers fear similar relocations are on the horizon because the state of Wisconsin grants tax credits to “angel investors” while Minnesota currently does not. “Some people have said, ‘Well it’s one company, and it’s a small company,’ ” Minnesota Sen. Kathy Saltzman says. “I say that it’s perhaps indicative of what will happen in the future if we don’t find a way to put these very critical tools out there for emerging companies to stay in Minnesota.”

When you look at what Wisconsin’s northwestern region has to offer startups like VitalMedix, a high-tech company developing a drug used to treat patients who have suffered severe blood loss, it appears she may be right. Besides investors willing to ante-up cash for entrepreneurs with innovative and high-tech ideas, the area boasts strong economic development initiatives, lower taxes and a high quality of life causing companies to give the region a second look

“Wisconsin has a pro-business climate when compared with other areas and that’s been proven time and time again,” says Bill Rubin, executive director of St. Croix Economic Development Corp. “We have lower corporate taxes, property taxes and sales taxes. And we have Act 255. Minnesota doesn’t offer the similar tax credits to angel investors.”

With things like Act 255 (which creates two tax credit programs for early stage seed investments and angel investments), lower taxes and strong regional economic development initiatives in its favor, the area, at times referred to as Minneconsin or Winnesota, is staking a claim of its own to be known as more than just an outgrowth of the Twin Cities. And it’s doing so with great success.

“We are showing that if you have all the right tools in place and you know how to manage them, you can attract high-tech companies and higher paying jobs to the region, and they can be successful here,” says Myron Schuster, executive director of the Northwest Regional Planning Commission (NRPC).

Better business

The move to Wisconsin made abundant sense to VitalMedix from a purely financial standpoint, CEO and founder Jeff Williams reported in the news coverage that surrounded his company’s move.

According to Williams, Wisconsin’s investment climate for small, biotech companies is “more favorable” than Minnesota’s. Not only did he say it’s harder for small companies to raise funds in Minnesota but he also indicated Wisconsin’s lower taxes play a role. A comparison of tax rates in the two states from the “All States Tax Handbook: 2009” finds corporations are levied a tax rate of 9.8 percent in Minnesota compared to 7.9 percent in Wisconsin. In addition, the statewide average property tax rate is estimated at $33 per $1,000 of full value for commercial-industrial property in Minnesota compared to $22 per $1,000 of full value in Wisconsin.

Creating an identity

But while the region offers many benefits, there’s a reason it’s been referred to as Minneconsin in the past, and it’s one notion economic development entities are working hard to dispel.

The area’s lack of identity presents unique challenges, admits Schuster, who says the first hurdle is often simply explaining where they are from. The next is changing the mindset that metro areas are better suited to high-tech companies, where employees with specialized skills and business services are readily available.

“The philosophy has always been that entrepreneurs are attracted to urban areas that have the services they need, more universities and better cultural opportunities, but that’s not always the case,” he explains. “Many entrepreneurs are there because that’s where they happened to land. They worked for a large company then spun-off and formed their own.”

But the tranquility northwest Wisconsin offers combined with the knowledge that the area can provide the services they need often changes their minds. Enterprise centers, also known as business incubators, often provide the setting startups need to locate here. Business incubators such as the University of Wisconsin – Stout Business Incubator or the NRPC’s enterprise centers provide facilities with the infrastructure companies need to get started, whether they are a medical products company requiring a clean-room environment or a manufacturer needing a specific type of electrical service.

Oftentimes when working with companies Schuster says they’re surprised to find that northwest Wisconsin can meet all of their needs. For example, one company the NRPC worked with, Digital Data Destruction and Services (D3), created a technology that destroys data on disks so that it cannot be recovered. The Iron River-based company works with Symantec Corporation, which produces Norton Anti Virus software. When Symantec released a new software version and wanted its old products destroyed, the California company initially thought it would be cheaper to ship products designated for destruction to Minneapolis instead of directly to D3. They were wrong. “When we pulled the numbers it was cheaper to ship from the West Coast to Iron River than to Minneapolis,” Schuster recalls. “A lot of times things get discounted but when you really look at it and run the numbers you find it can work. A lot of people say, ‘That’s out there in the middle of the woods, there’s no way a high-tech company can go in there, but that’s not the case. It can be done.”

In another situation, McNally Industries of Grantsburg received a large defense contract and needed to add 16 engineers. The company feared it might be difficult to attract engineers to the area, but Schuster says they found the opposite to be true. “They didn’t have any problem recruiting them because these professionals wanted to leave the city and move their families to a rural setting,” he recalls. “What we initially thought would be a problem was not.”

Initiatives like the Smartt Network, an online network designed to connect talent with career, business and technology-based opportunities in northwestern Wisconsin has aided these efforts, adds Jason Plante, president of Momentum West, a northwestern Wisconsin regional economic development organization comprised of 10 counties.

He says the troubled economy also presented barriers that required them to alter the focus of economic development. Instead of looking to recruit companies for relocation, they’ve sought to unearth advanced technology startups to nurture and grow. “This way, we’re not competing with the economy and trying to get companies to relocate,” he says. “We’re nurturing business development and matching them up with available technologies and services. We are starting to grow our own.”

Measurable success

The UW-Stout Incubator, and others like it, is one means being used to grow startups with measurable success. A recent survey of incubator clients over the last 25 years showed UW-Stout’s center had a greater than 70 percent success rate, meaning these companies were still in business within the region. At the end of 2008, the combined sales of these companies exceeded $73 million and employed nearly 400 area residents.

Randy Hulke, director of the Stout Technology Transfer Institute and Discovery Center credits this success to offering services startups need utilizing the expertise of faculty, staff and students in areas from accounting to Web site design, rapid prototyping and business planning. Stringent acceptance criteria also plays a role. Incubator clients must be technology-oriented; willing to involve students, faculty and staff; and plan to grow in the region. “We don’t want to start a business in Menomonee and have them move to Arizona,” Hulke explains.

Schuster echoes this sentiment explaining that once a startup company establishes roots, the chances of them moving are less when compared to an existing company that relocated. “If you recruit a company into your community that has been in three different communities before, all of a sudden they want to move to the community willing to pile it the highest to get them to come there,” he says. “We don’t get in to that game.”

The NRPC also offers startups much of what they need to land on their feet. Its Northwest Business Development Corporation manages five loan fund programs that provide financial packaging and long-term, low-interest financing. Its Wisconsin Business Innovation Corporation aids businesses with technical, financial and enterprise formation while its Enterprise Center Network puts a roof over their heads and provides the services they need to launch and grow.

“Our philosophy is to seek very early-stage startup companies and attract them to the region and help our existing companies expand,” he says, with the end goal of boosting wages in what has traditionally been a low-paying job market.

The NRPC boasts similar results to the UW-Stout Incubator. At the end of 2008, 25 different companies were in the enterprise network, 12 of which have since graduated and moved into their own facilities. These companies have combined annual sales of $24 million, employ nearly 300 employees and have an annual payroll of $12.25 million. Perhaps its greatest success, though, has been the boost in wage rates. “The average wage in our enterprise center network or its graduates is $42,496,” he says. “That’s 45 percent above our regional average, 10 percent over the state average and 4 percent over the national average.”

Sometimes success begets success as well. Custom injection molding company Red Cedar Plastics of Menomonee, another graduate of UW-Stout’s program, recently purchased Schmit Prototypes, a 1990s graduate. “Both companies are very successful and worked together on a number of projects and decided to join forces,” says Hulke. “That was really neat to see.”

Taking a regional approach to building businesses makes the region strong enough to support employers, according to Plante.

“When you combine the strength of many counties, you create a perfect storm of opportunity,” he says. “If one county wins a project, the other counties didn’t lose, the region won. The more wins we have, the better it is for all. It impacts employment, it affects the tax base, it increases spending, it improves the education and health care systems, and the region becomes stronger overall.”

It is likely this perfect storm will continue to brew and with that in mind the words of Sen. Saltzman may ring true. These efforts are breaking the area’s stereotype as an agricultural and tourism-based region that cannot support high-tech companies, such as VitalMedix. As more companies opt for a rural base instead of a metro one, Minneconsin or Winnesota may soon be better known as northwestern Wisconsin, a region with an identity all its own.

By Ronnie Garrett

Ronnie Garrett owns and operates Garrett & Co. Studios, a Fort Atkinson company providing editorial, photography and graphic design services.

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