Enterprise Minnesota Magazine May 2014 by Enterprise Minnesota

Helping Manufacturing Enterprises Grow Profitably

MAY 2014

EXCLUSIVE POLL

Growing Confidence Minnesota’s manufacturers are overwhelmingly confident about the financial future of their companies – but not without caution ®

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MAY 2014

THE STATE OF MANUFACTURING: GROWING CONFIDENCE

Eighty-four percent of Minnesota’s manufacturers are confident about their company’s future, but they’re always keeping an eye on outside inhibitors to growth.

DEED/COMMISSIONER KATIE CLARK SIEBEN

UP, UP, AND AWAY!

THINKING AHEAD

Enterprise Minnesota’s President & CEO Bob Kill recently sat down with Clark Sieben for a wide ranging interview that covered DEED’s multifaceted relationship with manufacturing.

Veteran balloon makers are back at it with Northstar Balloons, a second version of their family business.

2 Bob Kill: Minnesotans who “make stuff“ No industry could possibly duplicate manufacturing’s mixture of product, style, and success.

For a company seeking to adjust to the fast-moving changes in its business, the research involved in strategic planning brings vital consciousness, greater buy-in, innovation and organizational accountability.

12 Steps to a Leaner Office

Manufacturing Success

Fiserv uses its ISO certification to create market niche of superior products.

How Elk River attracts new manufacturing companies—and keeps them growing.

32 Final Word: Marketing in a growing economy

Visit the Enterprise Minnesota website for more details on what’s covered in the magazine at www.enterpriseminnesota.org.

Subscribe to our e-Trends newsletter today! Get updates on the people, companies, and trends that drive Minnesota’s manufacturing community. To subscribe, please visit http://www.enterpriseminnesota.org/Resources/Magazine-eNewsletter/Subscribe.aspx. MAY 2014 ENTERPRISE MINNESOTA /

bob kill

Minnesotans who “make stuff“ The snowy evolution of the State of Manufacturing®

greatly enjoy the day each year that Rob Autry, our pollster, travels from his office in Alexandria, Virginia to unveil the results of the State of Manufacturing® survey at our annual event at the Minneapolis Convention Center. The main appeal of this event is to show how Minnesota’s manufacturing executives describe their attitudes about the economy,

their sales prospects, their workforce needs, the impacts of international trade, and a variety of other topics. Over six years, the State of Manufacturing® has evolved into something far greater than an exchange of information and analysis about a 400-sample telephone survey and 14 focus 2

/ ENTERPRISE MINNESOTA MAY 2014

groups. The “rollout” event has developed into a celebration of the diverse community of “people who make stuff” in Minnesota. They gather as serious professionals who value the information and the time together. It’s why we’ve had as many as 400 people show up for the event. This was made clear to us at last year’s event, when an unexpected April storm was dumping between 12-17 inches of heavy, wet snow across central Minnesota, reducing rush-hour traffic to a virtual standstill all across the Twin Cities. We briefly considered adding our reception to the growing list of communityclosings that crawled across the TV screens of early evening newscasts, but in the end we didn’t want to disappoint those who would brave the weather and show up. When the event was scheduled to begin, fewer than 50 people were scattered around tables in a room that suddenly seemed very large. We delayed a bit, owing to the condition of the snow-choked roadways. And gradually that audience grew to more than 170 people, a truly astounding number, considering the conditions. In all, more than 1,000 people attended the nine events we organized across the state to discuss and analyze the results of the survey. To me, their consistent attendance pays tribute to the State of Manufacturing®, but even more to the status of Minnesota’s manufacturers. Bob Kill is president and CEO of Enterprise Minnesota.

Helping Manufacturing Enterprises Grow Profitably

Publisher Lynn K. Shelton

Custom Publishing By

Contributing Writers Rob Autry John Connelly Suzy Frisch Gene Rebeck Photographer Patrick Kelly

Contacts To subscribe subscribe@enterpriseminnesota.org To change an address or renew ldapra@enterpriseminnesota.org For back issues ldapra@enterpriseminnesota.org For permission to copy lynn.shelton@enterpriseminnesota.org 612-455-4215 To make event reservations events@enterpriseminnesota.org 612-455-4239 For additional magazines and reprints contact Lynet DaPra at lynet.dapra@enterpriseminnesota.org 612-455-4202 To advertise or sponsor an event jim.schottmuller@enterpriseminnesota.org, 612-455-4225 To pitch a story tmason@mason-publicaffairs.com

Enterprise Minnesota, Inc. 310 Fourth Ave. S., #7050 Minneapolis, MN 55415 612-373-2900 ©2014 Enterprise Minnesota ISSN#1060-8281. All rights reserved. Reproduction encouraged after obtaining permission from Enterprise Minnesota magazine. Additional magazines and reprints available for purchase. Contact Lynet DaPra at 612-455-4202 or lynet.dapra@enterpriseminnesota.org. Enterprise Minnesota magazine is published by Enterprise Minnesota 310 Fourth Ave. S., #7050, Minneapolis, MN 55415 POSTMASTER: Send address changes to Enterprise Minnesota 310 Fourth Ave. S., #7050 Minneapolis, MN 55415

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Business Events

2014 Date

Business Event

January 15, 2014

How to Embrace, Sustain & Execute Your Company’s Vision (Strategy Management)

February 12, 2014

ISO: The Business Management System Driving Successful Companies

March 19, 2014

Lean Office — Twelve Steps to Creating Money Saving Company-Wide Efficiencies

April 9, 2014

How to use GreenLean® to Realize Hundreds of Thousands of Dollars

May 8, 2014

The 2014 State of Manufacturing® — Survey Results Release

June 11, 2014

What You Can Do to Increase the Value of Your Business

September 10, 2014

Developing Effective Leadership Teams

October 22, 2014

Ten Best Practices for Developing New Products

November 19, 2014

Developing Leaders Who Are Committed to a Lean Enterprise

December 10, 2014

How to Embrace, Sustain & Execute Your Company’s Vision

Enterprise Minnesota’s Business Events offer outstanding professional expertise and practical business solutions to improve competitiveness and growth opportunities for Minnesota’s manufacturers and related industries

For more information and registration, go to http://www.enterpriseminnesota.org/, or call our events line at 612-455-4239.

The Forecast is Green Uponor uses lean process VSM to predict energy costs

Rusty Callier, director of operations for Uponor North America, heads the Uponor Sustainability Team. 4

/ ENTERPRISE MINNESOTA MAY 2014

PHOTOGRAPH BY CHRIS BOHNHOFF

s a result of his team’s leading edge effort to infuse the power of green-thinking with the financial values of lean process improvements, Uponor’s Rusty Callier is now developing a planning tool that will help forecast the often unstable costs of energy into its operations planning. Uponor, a Finnish company that traces its corporate roots to the year 1620, uses its Apple Valley location to manufacture systems for plumbing, residential fire safety, radiant heating and cooling, as well as its Ecoflex® line of pre-insulated plastic distribution piping. A 13-year veteran of the company, Callier is director of operations for Uponor North America. Equipped with a degree in land use planning, he earlier worked at Aveda under the company’s now famous sustainability principles and worked to apply them to operational work in ISO 9000 and ISO 14000. “Once I was working at Aveda, I knew that I loved operations.” After Aveda, he added an MBA. “I was able to take the environmental perspective and tie it to a solid business perspective. I always wanted to believe that environmental and traditional business could work, but I never saw a really good integration of the two, at that point in time, 10-15 years ago.” Callier joined Uponor with a real commitment to sustainable development, from a systems approach. He spent time at Beltrami Environmental Consultants and Aveda, where he developed an enduring interest in ISO.

ballasting systems, and more sophisticated data measuring which enabled the company to monitor the energy use. In 2010, Callier brought in consultants from Enterprise Minnesota to help incorporate its GreenLean® concepts into the Value Stream Mapping work with Uponor’s EcoFlex® line of insulated piping. “That was what we needed,” he says now. “We were working in operational excellence; we were doing the low hanging green projects.” Over time, his efforts proved successful both in terms of process efficiency and environmental sustainability. “We ended

LOW HANGING FRUIT At Uponor, Callier says, operations process improvements were critical, because of the company’s rapid growth. At the same time, Callier identified some “low hanging” green opportunities, whose success, he says, would inspire some confidence upon the financial decision-makers at the company. His Green Team (later officially dubbed the Uponor Sustainability Team), implemented light bulb change outs, better

up putting in some that were quite simple and some that were quite ‘out there,’” he says. A major success was the implementation of a dry cooling system into its manufacturing process. Cooling water is a critical component of Uponor’s manufacturing processes. At the time, Callier says, Uponor’s process was using traditional chiller bundles on about 70-80 machines throughout the year.

T:2.75” S:2.625”

Fahrenheit, enabling Uponor to shut down its chiller bundles and use the natural coolness. That singular move, Callier says, conserved more than one million kilowatt hours and saved the company $100,000 in its first year, a result that surpassed his forecasts and that put the power of GreenLean on the map for the company. “It was a good financial decision and a good environmental decision,” he says, that scored the sustainable trifecta for corporate sustainability, a framework that widely includes measurements, social, environmental, and financial, commonly referred to as “people, planet, and profit.” GREEN PROCESS AND PLANNING Among Callier’s takeaways from Uponor’s experience with Enterprise Minnesota’s GreenLean® value stream mapping process was that the company could highlight opportunities for improvements in environmental inputs/outputs as well as in direct costs of manufacturing. For example, Uponor had teamed with SES Energy to install and network smart energy

S:4.75”

Uponor’s new dry cooling system conserved more than one million kilowatt hours and saved the company $100,000 in its first year.

meters throughout the plant, which logged specific energy utilization data, down to the second. Uponor could now plot energy inputs into a process. This, Callier knew, could enable Make it happen. Uponor’s business planners to start to consider the sometimes elusive costs of energy in their formal planning – and could be used to enlist the considerable assistance of Xcel Energy. “Every company has to wrestle with the common factor that utility costs are BMO Harris Commercial Bank going to go up,” Callier says. “If you do has the resources and nothing to change that you shouldn’t be expertise to help make your surprised by rising costs in the overhead component.” vision a reality. Further, it enabled him to recruit energy professionals at Xcel to engage in the process. Utility companies, he says, can bmoharris.com/commercialbank easily report a manufacturer’s overall energy use in great detail, but can’t help reduce that energy use until they become more “intimate with the process.” The value stream mapping of the GreenLean process made that possible. BMO Harris Bank N.A. Member FDIC Xcel, he says, is a willing partner in the process of reducing kilowatt consumption. The process of predicting energy use, Callier says, matches well with existing production plans. knows FileUponor Name:always BRHCOMY13335_MakeItHappen_EnterpriseMinn_BW_v1.indd in great detail, forClient: example, what products BMO Harris | Ad Number: Y13335 | Publication: Enterprise Minnersota it will manufacture over the next 90 days. Specifications: Inks Used: Fonts: Page 1 Links: Trim Size:use 2.75” sales x 4.875” forecasts toBlack Dax OT (Regular, Medium) Arm_frame_BW.psd (852 ppi; 35.18%) Similarly, planners Live Area: 2.625” x 4.75” Bleed Area: None for the rest of predict production plans Built at: 100% Printed less at: Nonespecifically. The the year, although 12-24 monthsStudio prediction is also “fairly Artist: chi233Wrieglee | 1-10-2014 12:21 PM | Page 1 of 1 | Path: Studio:Volumes:Studio:Y&R:Acti...ItHappen_EnterpriseMinn_BW_v1. accurate” he says, based on mathematical Partnering with regressions and statistics, but it is fairly Minnesota accurate. Proofreader Copy Writer Art Director Creative DirectorManufacturers Exec. Creative Dir. Prod. Manager His GreenLean process now enables Callier’s team to speculate about kilowatt hours and water consumption the next 1224 months out, which gives the company a cash flow tool that enables better decision • HR, Payroll & Benefits making. Outsourcing “It gives the business the sight to • Temporary Staffing balance the triple bottom line (people, • Onsite Staffing planet, profits),” he says. • Direct Placement “It is one of the coolest projects we’re • Contract-to-Hire & More! doing – and not because it’s mine,” Callier says, allowing that he doesn’t mind having “my fingerprints all over it.” “There is a very low risk of failure, but a • Woman-Owned very high (probability) of reward,” Callier • Accredited/Certified says. “The project to me ties in so well • Flexible Options with our sales and operations planning. • Local MN Business (Name, Scaled %, Eff. DPI)

SINCE 1980

Services

Why Doherty?

• Connected Experts

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T:4.875”

“We were always running pumps, we were always moving water and basically have to do a heat removal process to get the hot water chilled down to the 65 degrees we need – not thinking anything about it – winter, summer, spring and fall, no matter what.” These systems entail significant costs because they require maintenance and consume a lot of energy, water, and chemicals. Industry experts say that traditional chillers can account for more than 50% of the energy use as well as environmental concerns. Callier’s team replaced this process with a dry cooling system, which utilized the earth’s natural cooling any time temperatures got below 45 degrees

Anybody would get excited about a project like that.” The company’s innovative attention to GreenLean processes has contributed in part to several prestigious awards in the past year, including the 2013 Manufacturers Alliance Manufacturer of the Year, Sitecore Site of the Year, the StarTribune’s Top Workplaces, as well as being named an “Efficiency Partner,” by Xcel Energy. Callier says Uponor links sustainability to its vision and mission as demonstrated by actions throughout the organization. Its sustainability pillars, he says, include: • Strongly integrating sustainability into our corporate mindset • Driving down our environmental impact • Enriching life through our innovative solutions • Engaging external stakeholders in our sustainability journey Uponor targets reducing CO2 emissions by 15% by 2015 (basis year 2009).

LESSONS LEARNED All told, Callier thinks Uponor’s GreenLean experiences could be instructive to other manufacturers. He says GreenLean should be “Business 101” for manufacturers. “All of it rolls back to a systems approach,” he says. “You can prioritize your sustainability projects.”

“Every company has to wrestle with the common factor that utility costs are going to go up,” Callier says. The good internal publicity from small initial improvements will give the business more confidence in what you’re trying to accomplish. At a higher level, he advises incorporating GreenLean into a manufacturer’s planning process. “Then you get a better understanding of how

your overhead costs impact production, how they are going to affect future costs. “Patterns of the past will be patterns of the future, unless you change,” he says. Planners should understand overhead costs in advance,” he says. “You aren’t going to control your material costs as well as you can control what you are turning on and off,” he said. “You just don’t have the power to control material costs, typically, at a high level. In addition, he says, manufacturers should try to include energy inputs and outputs in planning, he says. “Don’t give up on it merely because you haven’t done it before.” And finally, Callier advises manufacturers to add GreenLean systems to existing process improvements. If they don’t, he says, “then you really can’t say that you are planning any better than just hoping everything stays the same,” he says – and we know that’s not the case. “Because utility costs have never gone down, without an intervention.”

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Manufacturing Success How Elk River attracts new manufacturing companies— and keeps them growing.

lliance Machine, a manufacturer at the crossroads of two major highways, of precision metal components for U.S. 10 and U.S. 169. The crossroads suppliers to the military and aerospace, connection and the easy proximity to moved to Elk River from Maple Grove I-94 also help make it easy for employees in 2006. “We did our due diligence and to get to their jobs. Another employee shopped around looking for a looking transportation asset the community touts: for a location for A station on the future business,” Northstar rail line company president between Big River Bryan Provo recalls. and Minneapolis. Compared to other But location cities, Elk River can take you only made the choice so far. This is easy for him. The where the city’s city’s Economic several economic Development development Authority actively strategies come in. put together One of them is the a package of city’s revolving loan incentives and fund, seeded by Elk found Alliance River’s Economic Machine the right Development site to build a new Authority and now 18,000-square-foot self-perpetuating. facility. One of the Beeman says that advantages of the between 15 and 20 Brian Beeman, Elk River’s Economic location—room to city businesses have Development Director expand. In fact, the used the fund in the company recently past few years. doubled the size of its facility, adding new While Elk River occasionally uses equipment that will boost its production tax-increment financing (TIF) and tax efficiency. abatement strategies, it prefers to put more Alliance Machine is one of more than emphasis in strategies like its microloan 60 manufacturing concerns operating program. These loans, typically used for in Elk River. Brian Beeman, the city’s smaller projects such as energy efficiency economic development director, adds improvements, provide funds up $75,000 that the city of 23,273 continually gets at a fixed rate of 3%. Elk River also offers calls from businesses both in and outside an industrial incentive program, with 3% Minnesota who are considering relocation. loans of up to $100,000 to help a company “We do a good job in marketing acquire or update real estate, equipment, Elk River’s economic development and infrastructure. programs,” he says. “All these successes Elk River can point to several recent build off each other. It’s not just us--it is success stories, in addition to Alliance the entire region.” Machine. In October 2013, Preferred So how does Elk River do it? Powder Coating broke ground on a 10Location, for one. Elk River is midway acre site in the city’s new Nature’s Edge between two major Minnesota metro Business Center. The company serves areas, Minneapolis and St. Cloud. True, a number of industries, from license it’s not on Interstate 94, but the big road plate makers to manufacturers of large is just 10 miles away. And Elk River is machinery. Preferred Powder Coating’s

booming sales required it to build a 100,000-square-foot facility that will bring 50 new jobs to the city. Landing the project wasn’t easy—the county wasn’t able to pass a tax-abatement package, so the city jumped in with a TIF subsidy and a $200,000 forgivable loan via the Minnesota Department of

Elk River’s North Star Business Park, where many of the city’s manufacturers operate, is now planning to add new space. Employment and Economic Development that successfully lured the company to Elk River. The city also brokered a forgivable loan of $111,000 to Sportech, a 20-year-old company that has been so successful in engineering and producing aftermarket

doors, windshields and other components for motorcycles and snowmobiles that it needed to expand to 200,000 square feet in order to accommodate 3-D printers and a new innovation center. These new capabilities will allow the company to produce oneday prototypes for customers. (Sportech is now contemplating a fourth expansion.) Speaking of expansion: Elk River’s North Star Business Park, where many of the city’s manufacturers operate, is now planning to add new space. The original plan was to complete the expansion by 2017, but interest from potential new companies could lead the city to finish the infrastructure for the addition by next year. Elk River’s amenities also include a rich mix of energy sources, including a trash burner and a city-owned landfill that converts decomposing trash into

methane. “Manufacturers love low energy rates with consistence and reliability,” Beeman notes. Elk River Mayor John Dietz observes that Elk River may not “have the lowest taxes in the area, but we have a very good quality of life, great amenities, and a tremendous park and recreation system. And with all the other things we offer, businesses look at Elk River very favorably, because when a company is looking to relocate, one of the things they are looking at is the quality of life for their employees. I think we would be near the top in something like that.” For Alliance Machine’s Provo, what distinguishes Elk River from many nearby communities is actively engaged economic development staff that keeps projects going forward. “That puts Elk River ahead of its competitors--its aggressive economic development staff,” Provo says. —By Gene Rebeck

MAY 2014 ENTERPRISE MINNESOTA /

The benefit$ of an efficient office Fiserv’s Berger outlines the business case for the lean office

PHOTOGRAPHS BY PATRICK KELLY

ohn Berger is vice president of quality and process improvement at Fiserv, the national behemoth that provides financial services technology solutions to financial institutions and businesses worldwide. Fiserv owns eight plants all across the country. Their Shoreview operation focuses on creating and administering credit cards. To put their size in perspective, Fiserv last year mailed one billion first class envelopes, which

John Berger

included 250 million bank cards and more than 700 million printed statements. Berger recently gave an enlightening presentation at one of Enterprise Minnesota’s business events, Lean Office -- Twelve Steps to Creating Money Saving Company-Wide Efficiencies – at Great River Energy in Maple Grove. Other presenters included Mikel 10

/ ENTERPRISE MINNESOTA MAY 2014

Smith, operations manager at Harmony Enterprises, plus David Ahlquist and Greg Langfield, both business growth consultants at Enterprise Minnesota. In a wide ranging presentation that expounded the benefits of leaning up a company’s office procedures with the same tools manufacturers use to bring efficiency to their production floors, Berger provided an example of how mapping out just one process helped the company bring in $100,000 last year from just one client. The request from the president was simple, he said. Being a company that spends hundreds of millions of dollars on postage each year, just a one percent error in postage would mean millions of lost income for Fiserv. Berger’s initial analysis revealed a complex process that included data processing (to process the data), operations (to create the statement), shipping (to apply postage), client services (to create the bill) and accounting (to enter the bill). “It was pretty complicated, with lots of handoffs,” he said. “If we don’t have everybody doing this correctly, we don’t get paid.” Most surprising, he admits, is that the process contained many manual steps. He recruited a cross-functional team and started by asking questions: Why use so many data sources? Why use manual entry? How can we eliminate reports? Can we automate the process? Where can we combine or eliminate steps. How can we better coordinate? What if we involved fewer systems? How can IT help us simplify? Where can we reduce errors? Using a Value Stream Map, the team eliminated a lot of boxes, streamlining the myriad handoffs. They created a standard report for their output processing that was the same for every client. That report was linked to an Excel bill, a billing table that held all rates, also linked and created a standard accounting entry. “This isn’t perfect. It is not our end state, but it marked a big improvement,” Berger says.

Enterprise Minnesota’s 10 Steps to Company-Wide Efficiencies 1. Being busy cannot be a reason to

avoid improving your processes. There’s always too much to do or a crisis to address. 2. Commit resources. Assign tasks. Given time, the right people on the right problems will fix them. 3. Involve the key people. If you don’t get buy-in, improvement won’t sustain. Don’t fix the problem for them. 4. Macro manage. Tell the team what needs to get done and let them figure out how. 5. Identify value to the customer. What do customers want when they buy your product? 6. Target waste. Identify where your company wastes resources by finding what customers are NOT willing to pay you for. Five percent is what clients pay you for. Thirtyfive percent is not value added, but necessary. The rest is waste. 7. Know the usefulness of value stream mapping, 5S and problem solving. VSM identifies value and waste, 5S eliminates clutter, and problem solving can be targeted. 8. You can be faster, better, and cheaper. Find disruptive technologies that can establish new levels of performance – you can accomplish all three. 9. Productivity = Output/Input. You’ll measure your success when you monitor input resources and output metrics to see productivity. 10. Achieve year over year. Sustain change by making metrics visible and auditing the process changes.

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Enterprise Minnesota names three new staffers David Buchholz is now a Business T. Gift Matemba-Mutasa is also now a Growth Consultant. A resident of Business Growth Consultant. Stanchfield, Buchholz has over 25 years Matemba-Mutasa, a resident of Maple of experience as a leader at Fortune 500 Grove, will draw on experience managing companies as well as at small multi-million dollar product to medium manufacturing lines and overseeing product firms. planning and development His expertise is for major manufacturers in business process to help manufacturing transformation, quality clients expand and find new management systems, and markets in the U.S. and lean methodologies. internationally. “Dave brings a wealth Prior to joining Enterprise of experience in helping Minnesota, Matemba-Mutasa manufacturing companies was a global business director improve productivity for Honeywell, a director of and building cultures of global product planning for continuous improvement. Danaher in Greensboro, NC T. Gift Matemba-Mutasa He’s a great addition to our and has held global product consulting team,” said Bob management and corporate Kill, Enterprise Minnesota strategy and marketing president & CEO. consulting roles for 3M. Prior to joining Matemba-Mutasa holds Enterprise Minnesota, an MBA from Wake Forest Buchholz served as a University and a BS degree principal consultant at the in Aeronautical Engineering Business Improvement from the U.S. Air Force Team of Minnesota, as vice Academy. He holds a Six president of continuous Sigma DMAIC Green Belt improvement for Smyth and has received his Design Companies in St. Paul, as for Six Sigma (DFSS) vice president of operations certification. T. Gift Matemba-Mutasa for the Topflight Corporation Vicki O’Brien is a senior in Glen Rock, PA, as vice accounting clerk. president of three strategic A resident of St. Paul, business units for the O’Brien most recently served Moore Corporation in as a senior performance Bannockburn, IL, and as a analyst for Standard director of manufacturing Valuations, Inc. and as a for the Brown-Bridge marketing representative for Division of Kimberly Clark International Office Systems. in Troy, OH. She has also served on the Buchholz holds a Master administrative staff at Del of Business Administration Office and the University of from Indiana Wesleyan Minnesota Law School. University in Marion, IN Vicki O’Brien O’Brien holds a Bachelor and a Bachelor of Arts in of Science Degree in Sociology and Education from Business with an emphasis in finance Hanover College in Hanover, IN. In and marketing from the University addition, Buchholz holds a Six Sigma of Minnesota’s Carlson School of Black Belt and is certified in Lean Design Management. for Six Sigma.

Four Questions

INNOVATIONS

With Jim Johnson, retiring Southeast Tech president

Why leave? It is one of those situations where you look at the next stage of your life and there are other things that I want to do. There are a lot of good new leaders coming up. I need to go on to another chapter in my life. I’m a new grandparent. I’m healthy. It is time to move on. And I think it is time for new leadership.

What part of your legacy gives you most pride? Awareness of the changes that are always percolating around us. Our mission, succinctly, is workforce education at a technical college. It is about economic development. We’re always looking for new avenues to align with the economic development needs of our region. We need to focus on how our mission can support change, how work with the community to find ways to align our mission with their successes. We try to match our programs and our offerings with what they need. Some of that is just short term. Our custom training division, for example, may just be a one-time thing. Or maybe it will become an ongoing thing that will grow into a full-blown program. We are going to have to reach out and find alternative resources. That happens through partnerships. I think I’m leaving that legacy with the college. I think the leadership – faculty and staff – all understand that. How has higher ed changed since you started? We talk a lot about how manufacturing is the economic engine that supports services and agriculture and business. But I don’t think we are whole-heartedly willing to invest in vocational education as much as prior generations. In many ways people

know education is important, but we don’t value technical, two-year education like they do in other countries. Everybody else’s child needs to look at two-year degrees, but not mine, because mine is going to the university. Every parent wants their kid to go on to get a doctorate degree. We need to have students who graduate from our institution who understand that this is not a terminal degree, that they need to be a lifelong learner, that they need to go back to school, maybe to pick up another degree, but certainly for additional training. Some of our youth just are not satisfied to be in rural America. They want to go to the Big City. We have to challenge them with not only exciting careers, but careers where they can make a good living. It is a challenge that most rural communities feel. Are people surprised to hear that your next job will be as a truck driver? I grew up as a baker’s son. I’m not your traditional college president, as far as my background is concerned. I’ve given this job my life’s blood. My wife and I have both loved higher education, especially the two-year gig. I’ve really enjoyed it because we’ve changed people’s lives and that is something always to be proud of. As a college president who lives in Winona and has to be up in the Cities a lot, I put about 30,000 miles a year. I’ve always enjoyed driving. I have a motorcycle, some old cars. I’ve always enjoyed getting on the road. I lived a life of dealing with lots of different people with lots of different problems every day. I am looking at de-stressing my life a little bit. The solitude of the cab and having to deal only with a dispatcher is kind of my Nirvanic dream.

This July, Jim Johnson, president of Southeast Technical College in Winona will retire after more than 33 years in higher education. Johnson started his educational career in 1977 at Sparta, Wisconsin teaching high school vocational metals. After a short return to industry as a maintenance machinist in Denver, Colo., and Houston, Texas, he returned to vocational/technical education at Winona Technical Institute in 1981. He has remained in administration at the college over the last 28 years in a variety of positions, serving as president since 1995. The very popular Johnson highlighted his last year in April by being named 2013-2014 “College President of the Year” by the Minnesota State College Student Association (MSCSA) at their Annual Awards Dinner. He will be succeeded by Dr. Dorothy Duran.

MAY 2014 ENTERPRISE MINNESOTA /

S P E C I A L R E P O RT

THE STATE OF MANUFACTURING®

Confidence Eighty-four percent of Minnesota’s manufacturers are confident about their company’s future, but they’re always keeping an eye on outside inhibitors to growth

ith a wary eye still watching the horizon for economic and regulatory turbulence, Minnesota’s manufacturers appear to be cautiously poised to grow in 2014, according to the results of the sixth annual State of Manufacturing® survey. While they still characterize Minnesota as being headed down the “wrong track” as a competitive business location for manufacturers, executives statewide express rising confidence in the growth

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potential of their own enterprises. My firm, Public Opinion Strategies, recently interviewed 400 Minnesotabased manufacturing executives between February 28 and March 13 as part of our look at the State of Manufacturing®. Enterprise Minnesota supplemented this research by convening 14 focus groups throughout the state during roughly that

By Rob Autry

same time period. While the number of manufacturing executives who think Minnesota’s business climate is on the right track remains effectively unchanged since 2011 (41 percent), the number who think the state is on the wrong track has grown from 47 percent to 51 percent over that same period. Despite this, a whopping 84 percent of those same executives said they were “confident” about the financial future

of their company, the highest level in the six years we’ve been conducting this study. This confidence is highest (96 percent) among companies with more than $5 million in annual revenue. The percentage of executives who say they are “very” confident (36 percent) represents a significant eight-point spike over the past two years. Similarly, manufacturers are hopeful about the economy. At just seven percent, their recessionary concerns are at the lowest we’ve recorded. Fifty-four percent expect a “flat” economy this year and 37 percent expect economic expansion. GROWTH

Nearly half (45 percent) of manufacturers expect increases in their gross revenues in 2014, with about 35 percent expecting profits to increase. Barely more than one quarter (27 percent) expect to invest more in capital expenditures. Minnesota’s unfavorable business climate is also seen as a key inhibitor of business growth. Fully 48 percent of respondents said issues “such as taxes, regulations and policy uncertainties” might negatively impact their firm’s growth. Rising health care and insurance costs was next, at 31 percent. This perception most affects firms that have been in operation for less than 15 years (57 percent). Respondents predicted that the overwhelming source of that growth (76 percent) would be through new customers. WORKFORCE

Virtually all (97 percent) of Minnesota’s manufacturers expect to maintain or grow their workforce in the year ahead. About a third (30 percent) expect their firms to grow, split proportionally between companies in the Twin Cities and Greater Minnesota. Least likely to project growth (21 percent) are companies with less than $1 million in revenue. About a quarter (23 percent) of Minnesota’s manufacturers saw growth in their workforce in 2013, while 62 percent stayed about the same.

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This perception most affects firms that have been in operation for less than 15 years (57 percent). Respondents predicted that the overwhelming source of that growth (76 percent) would be through new customers.

Significantly, the “ability to attract and retain qualified workers” continues to grow as an increasingly chronic concern for manufacturers, particularly in Greater Minnesota. While 34 percent cite this as a major concern statewide, we have seen its importance steadily increase since 2011. That number climbs to 43 percent in Greater Minnesota.

Rob Autry is a managing partner of Public Opinion Strategies, a national political and public affairs survey research firm based in Alexandria, Va. 16

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Moreover, two-thirds (67 percent) say it is “difficult” to “attract qualified candidates to your firm’s vacancies,” the highest margin we’ve seen over the six-year life of this series. Manufacturers in Greater Minnesota find this most pressing at 75 percent, a noticeable jump from the 42 percent we saw four years ago and considerably higher than the 61 percent of firms in the Metro area. The difficulty is even more acute in large and more established firms: More than four-fifths of companies with more than $5 million in revenue (82 percent) or more than 50 employees (83 percent) are having trouble finding qualified

applicants. Only a few executives (12 percent) expect to lose more than 5 percent of workers to retirement in the coming two years. As a possible response to this shortage, more manufacturers expect to invest more in employee development. A quarter (25 percent) of them predicted they would “invest more in employee development as a percent of payroll” in 2014, seven percent higher than last year. This interest is greatest (42 percent) among companies with more than $5 million in revenue and/or more than 50 employees. A majority of executives expect to increase wages for the first time since the recession. Fifty-four percent said that on average, wages over the last two years have gone up, an 11-point increase from 2013. Thirty-nine percent expect them to “stay about the same.” A whopping 62 percent expect wages to increase in 2014, a 14 percent upsurge from those polled in 2013. Greater Minnesota firms are more likely to say their wages are going up (66 percent) than those in the Metro. HEALTH CARE

As in all other years, the cost of health care coverage tops the list of manufacturer concerns at 58 percent. Most anxious about health care are companies over $5 million in revenue (66 percent) and companies in Greater Minnesota (64 percent). Government policies and regulations was a close second at 55 percent. Similarly, the ability to provide affordable health care is again the dominant factor in recruiting new employees, overshadowing “salary and wage expectations” by almost

companies with more than $5 million in revenue ship internationally. “Home-sourcing,” the trend of OEMs bringing their supplier work back from foreign sources, has benefitted 24 percent of Minnesota manufacturers statewide, 34 percent for companies with more than $5 million in revenue. Of those benefitting from home-sourcing, 31 percent said that “shorter lead times” were the primary reason the supply-chain relationships changed. THE VALUE OF STRATEGIC PLANNING

20 percentage points (51 percent-32 percent). The cost of health care coverage was also named the most important factor (59 percent) when it comes to attracting and retaining qualified workers. TRADE

Manufacturers are continuing their interest in developing foreign markets for their products, with almost one in four (23 percent) now saying they ship 11 percent or more of their products internationally. This represents an 11-point increase over last year and signifies the highest level we’ve reported in six years. About one third of

Companies that engage in formal programs regarding marketing, strategic planning and quality management processes exhibited sharply better revenues and profitability than those that don’t. Roughly half the companies surveyed engage in formal processes for marketing (48 percent) or strategic planning (50 percent). About 37 percent of companies have a formal quality management system, such as ISO. Companies that have a formal marketing process expect an increase in gross revenues by a 2-to1 margin (60 percent-31 percent) over those that don’t. These companies also expect better profitability (46 percent-26 percent). Similarly, companies that incorporate formal strategic planning into their processes also project better financials than those that don’t: 56 percent-33 percent for gross revenues, and 44 percent-27 percent in profitability. Companies with ISO-like systems expect greater revenues (53 percent-40 percent) and greater profitability (38 percent-33) percent over companies that don’t. MAY 2014 ENTERPRISE MINNESOTA /

The Interview

DEED/Commissioner

KatieClarkSieben Enterprise Minnesota’s President & CEO Bob Kill recently sat down with Clark Sieben for a wide ranging interview that covered DEED’s multifaceted relationship with manufacturing.

ommissioner Katie Clark Sieben was appointed commissioner of Minnesota’s Department of Employment and Economic Development in October 2012, after a turn as executive director

of the Minnesota Trade Office (MTO). MTO promotes the creation and retention of jobs and economic prosperity of the state by assisting Minnesota companies to export manufactured goods and services and attract foreign direct investment. As executive director, Clark Sieben was responsible for managing the overall strategic direction of the MTO, which marketplace, introducing Minnesota companies to foreign buyers and investors, building diplomatic relationships with international delegations and managing a staff of international trade representatives.

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PHOTOGRAPHS BY PATRICK KELLY

includes promoting the State of Minnesota and its companies in the global

DEED’s role is to strengthen Minnesota’s economic competitiveness, whether it’s recruiting new jobs to Minnesota or building a highlyskilled, productive workforce. MAY 2014 ENTERPRISE MINNESOTA /

Q: Tell us just a little bit about your training to get over from the private sector, and your time as director of the Minnesota Trade Office. A: I worked in the private sector for Target Corporation in human resources and in marketing/community relations. After working for Target for about five years, I was interested in working for a startup and joined a company called National Wind, a wind-energy developer. But I was asked to join Governor Dayton’s campaign as his finance director. Once the governor was elected, he appointed me to be the executive director of the Minnesota Trade Office, which is a department within DEED that focuses on how we can increase exports from the state and how we can attract foreign direct investment inward. During my time in the Trade Office, I identified that the office was solely focused on exports and helping small and midsized companies reach new markets where there is great demand for

We are a very diverse department. DEED is focused on recruiting and attracting businesses to the state, increasing exports and attracting foreign direct investment. Minnesota products. I determined there was an opportunity to also start talking about foreign direct investment. Minnesota had a few foreign business expansions occurring in the state. The recent expansion of Geringhoff in St. Cloud is a great example of foreign direct investment. But we only had one office in a foreign market, in Shanghai, China, while other states had many offices. The state of Pennsylvania has over 20 offices around the world. So Governor Dayton and our legislative leaders provided additional funding to set up three new

offices in Germany, Korea and Brazil to help small and midsized companies increase exports and to be our FDI representatives on the ground in those markets. That program has launched, and we officially hired a foreign direct investment director just a few weeks ago. It’s a fantastic opportunity to promote Minnesota in the global environment and identify foreign companies looking to relocate or expand in Minnesota. You’ve really brought a lot of visibility to DEED, which I think reflects, in part, an understanding of the power of public-private relationships. We are a very diverse department. DEED is focused on recruiting and attracting businesses to the state, increasing exports and attracting foreign direct investment. We house the new Office of Broadband, so we’re now getting into broadband development across the state. We have 47 WorkForce Centers across Minnesota focused on

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serving unemployed or underemployed Minnesotans looking for new career opportunities. We oversee State Services for the Blind, Vocational Rehabilitation Services and Workforce Development. DEED’s role is to strengthen Minnesota’s economic competitiveness, whether it’s recruiting new jobs to Minnesota or building a highly-skilled, productive workforce. We couldn’t do it alone. We work with many local partners across the state to do that work: nonprofits, private sector, cities and counties. I like to tell people that manufacturers led us out of the recession … Manufacturing is essential to Minnesota’s future economic growth. Our projections show that jobs in manufacturing in Minnesota are expected to grow by 5 percent by 2020, and that doesn’t include positions that will need to be filled when baby boomers retire. If you look across the state of Minnesota, there are industry clusters that exist in different pockets in the state. Manufacturing is one that is spread across the state. Minnesota is known for having one of the most productive workforces in the country, and that is why we’re seeing manufacturers and businesses and other industries look at Minnesota as a potential location for their business. The Wall Street Journal recently reported how employment is lagging behind economic recovery. At the same time, many manufacturers are increasingly frustrated at their inability to recruit employees with the kinds of training they need. What are your thoughts about that? DEED tracks that information on behalf of the state and reports and shares that information widely. We know the state as a whole has fully regained all the jobs lost during the recession and added another 33,000 jobs. We also know that the manufacturing sector lost about 51,000 jobs during the recession, and our data show that we’ve gained about 25,000 of those back. So it’s significant growth, but we need to remain focused on gaining the full amount back. We also know that during the recession, manufacturers focused on more efficient processes and new technology to make sure that their businesses were able to survive the recession. So, as you

mentioned, there is a great need for training on that new technology and to ensure our productive workers across the state have access to training programs, higher-education programs, and on-thejob training that will enhance their skill set and allow them to work with the new technology that’s in that workplace. Which is why I think the Minnesota Job Skills Partnership is an important program. It’s a great public-private collaboration that helps address workforce development, which leads to company development, which leads to job growth, etc. A lot of my fellow board members are impressed that MJSB is so results based. What’s your take? It’s a fantastic program. It operates such that a business and a higher education institution co-apply for a grant to the board. The community technical college or private institution provides customized training for that particular business. So it’s

fitting the needs of that specific business, and it’s also creating new curriculum that the community technical college can potentially use for other businesses in the future. Over the lifetime of this program, about 65 percent of the Minnesota Job Skills Partnership grants have gone to manufacturers. The grants are up to $400,000 per training round. As a board member, you know that we get visited by the companies and education institutions applying for the MJSP grants during our board meetings. We hear directly from them on why they have that specific training need and what outcome that training will produce for their workforce. So I believe it’s providing a niche that fills an absolute need in the economy. As baby boomers retire, we’re expecting an 86,000-worker shortage by 2020. We need to ensure the next generations to come are being trained on those processes, learning new technology in the workplace and are ready to take on those jobs. MAY 2014 ENTERPRISE MINNESOTA /

Speaking of great jobs, Alexandria, Brainerd and Mankato sometimes are held up as communities that collaborate really closely with manufacturers. It is no accident that each of those communities has a dynamic local technical college partner. Is there a role for DEED to spread those kinds of collaborations on a statewide basis? It’s an interesting question. Absolutely, our role with all of our programs is to provide effective outreach, to make sure that organizations are aware of the resources that exist here on behalf of the state. So it’s a good idea, and one that we should explore or discuss at future board meetings on how we might make that happen. We are regularly promoting the Minnesota Job Skills Partnership program. Every time we do a grant signing, we go on site to the manufacturer and bring in the training partner, not only to give the business recognition but also to shed some light on the importance

of this program in our state and the difference it’s making. We’re hoping that helps get the word out about this necessary training resource. Both the Minnesota Job Skills Partnership and the Growth Acceleration Program receive a lot of good attention from our elected officials because they tie public-private dollars to creating results, hopefully leading to job building. Are there similar programs that are kind of undiscovered that people just don’t know about? Some companies are more aware of DEED’s programs and resources than others. We have a constant focus on communication and outreach, making sure that the general public is aware of the resources that exist here. For example, the Minnesota Trade Office regularly provides training for small to midsized companies to support new-to-export or new-to-market strategies. In addition, our Business and Community Development division houses economic development

incentive programs such as the Minnesota Investment Fund and the newly launched Minnesota Job Creation Fund, which are key economic development tools to recruit and attract new jobs to the state. Our Competitive Adult Workforce Program and Competitive Youth Workforce Program are helping to provide funding to organizations targeting populations with barriers to employment. Our Business Development Competitive Grant Program provides funds to organizations that offer technical assistance, primarily for small companies, to spur additional growth. We always encourage anyone interested to go to the DEED website, which was newly launched last year. The website has a full list of all resources and programs here at the agency. Does DEED feel like manufacturing is getting the right attention? Is there something that they could or are doing that just isn’t recognized by the public? When it comes to recruiting workers in

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manufacturing, I hear from manufacturers that it’s a challenge. We’ve heard that nearly two-thirds of jobs across the state have been hard-to-fill positions, and that’s presenting a real challenge. Fortunately, 68 percent of those hard-to-fill positions were filled within four months of the posting date. DEED’s partnerships with MnSCU and other educational institutions are key relationships because we need to develop a pipeline of talent with the necessary skills. We need to begin the conversation with students in K-12 and talk with their parents about the value of manufacturing and the opportunity it presents to create a high quality of life. These are well-paying jobs. Helping to educate students and unemployed or underemployed Minnesotans that these are good job opportunities is an important part of our work. We know that the northeastern part of our state has had great success in recruiting workers in manufacturing. You might think that some of the areas of our state that are more rural have a harder time recruiting talent, but it’s actually the central Minnesota region, where there is such a strong manufacturing sector, that has had more difficulty finding talent. We think that it’s probably because it’s closer to the Twin Cities metropolitan region, and they are competing for talent. So the northeast and northwest regions have actually had a better time finding that talent than what we’re seeing in central Minnesota. Minnesota’s rate of unemployment is substantially lower than some of our neighboring states. Why is that? You’re right that our unemployment rate is much lower than many other states. It’s currently at 4.8 percent, and nationally it’s at 6.7 percent. We have a strong, positive economic story to tell at the moment. One of the reasons we’ve weathered the recession far better than many other states is because of our diverse economy. We are not a state that is focused on just one or two industries. We have a diverse array of industries across the state, and that’s benefiting our economy overall. If one industry is not doing as well, there is another industry typically that is doing a little bit better. That helps ensure that we have consistent job growth and jobs for Minnesotans across the state. When it comes to manufacturing, we

know that food manufacturing is huge across our state and an economic strength, as are electrical, machinery and computer manufacturing. Another strong area is transportation equipment. We’re not just manufacturing one product, and that is why Minnesota’s economy is so strong. As you plan ahead, how big is the role for public-private collaboration? Public-private partnership is essential in today’s economy. If we’re going to think about how we drive Minnesota’s future economy, we need to be talking to the private sector to understand their challenges, any barriers that exist. What is their future projected growth? What skill set are they looking for in a worker? What type of talent will they need for their future workforce? That information needs to be shared with the Department of Employment and Economic Development so that we can work with the Office of Higher Education and the Minnesota Department of Education to help produce the pipeline of talent that is needed for the jobs of

We know the state as a whole has fully regained all the jobs lost during the recession and added another 33,000 jobs. the future. It starts with the Department of Education and our K-12 schools, and thinking about how we influence curriculum and how we educate students about the jobs that will be available when they graduate from high school. That will help guide their decision making and what sort of training or post-secondary education that they go on to achieve. It ultimately helps guide them toward a job that has a ladder for success. It’s happening all across the state, public-private partnerships with organizations like the Itasca Project, Greater MSP, Greater St. Cloud Economic Development, Greater Mankato Growth and Rochester Area Economic Development Inc. These are public-private organizations where that conversation is happening. There are also great examples on state boards and commissions. The MJSP board is a great

example of public and private working together, with a mix of voices at the table. On top of that how do you think the role of DEED will evolve? I think DEED is playing an essential role for the state of Minnesota and will continue to in the future, for multiple reasons. It has evolved and changed over the years, depending upon the needs of the economy. So even in my short time here as commissioner, over the past year and a half, I’ve seen some adjustments that we’ve made based on a shifting economy. When I first took this role as commissioner, I realized the Minnesota Investment Fund didn’t have a dollar left in the fund, and JOBZ was scheduled to sunset in 2015. We needed to quickly take action and develop sustainable economicdevelopment funding for those programs, to make sure we can compete for business expansions with other states that have much more robust economic development budgets. Governor Dayton served as the past commissioner of DEED and understood this need very well. He supported $30 million in ongoing funding for MIF and $24 million for a new Minnesota Job Creation Fund. So now we have that economic development funding in place, and the team is up and running and busier than they’ve been in a decade. The conversation is already shifting to workforce shortage. With baby boomers retiring, what are we going to do about the projected gap, and how do we ensure that Minnesotans have the training that they need for the jobs of the future? And while the unemployment rate for the state is 4.8 percent, it’s 4.3 percent if you’re a white male, and it’s 15 percent if you’re an African American male, up from 13.8 percent the previous year. So not every community in Minnesota is doing as well as that 4.8 percent unemployment rate. We need to remain focused on populations with some barriers to employment, and ensuring all Minnesotans are prepared for job opportunities. That’s the really exciting part of my job and for everyone here at DEED. We’re never short on work. We’re never short on challenges and new opportunities for the state. It’s a constantly evolving landscape. As the economy shapes and changes, we need to be nimble enough to respond. MAY 2014 ENTERPRISE MINNESOTA /

Up, Up, Away!

Veteran balloon makers are back at it with Northstar Balloons, a second version of their family business

and

s CEO of Northstar Balloons, Nico Kieves Wyrobek has the odd experience of running a company that is simultaneously a legacy, secondgeneration manufacturing business and a start-up—inheriting all of the challenges that presents. Fortunately, she has more than 30 years of experience in the balloon industry to call on, having grown up in the business initially started by her parents. Plymouth-based Northstar is making a run at becoming a market leader in the global balloon industry, building on its strengths in manufacturing and pushing the boundaries of what balloons can be. Though Northstar can print standard 18-inch balloons to match any competitor’s, it has been carving out a name for itself with creative, intricately shaped balloons like no others. The company’s catalog tells this story, from the pirate octopus with eight wiggly tentacles to a helicopter with a free-standing

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rotor to Daphne Dragon, who has horns and fire coming out of her mouth. As Wyrobek and her team call on customers or attend trade shows, they often have people crowding around and raving about their distinctive balloons. “What we really wanted when we started Northstar was fresh thinking,” says Wyrobek. “A balloon is a floating greeting card with a message on it, and that’s what we wanted to do with our products. Instead of being encumbered by a history that says, ‘You can’t do that,’ we go to our engineers and say, ‘We’re going to make this, help us figure out how to make this.’ We really push the limits.” Northstar’s limit-pushing is paying off. Since

PHOTOGRAPHS BY PATRICK KELLY

By Suzy Frisch

“A balloon is a floating greeting card with a message on it, and that’s what we wanted to do with our products. Instead of being encumbered by a history that says, ‘You can’t do that,’ we go to our engineers and say, ‘We’re going to make this, help us figure out how to make this.’ We really push the limits.”

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2007, the company has at least doubled revenue each year, nearly doubled its factory, and grown to about 80 employees. Northstar takes full advantage of the Kieves family’s decades of experience in the balloon industry, strengths in precision manufacturing, and a singular sales and distribution structure to become a new— and veteran—force in the balloon industry.

But industry players had other ideas. In 2007, the family’s non-compete agreements with Anagram/Amscan ran their course. A former competitor approached Garry Kieves to ask whether he’d be interested in manufacturing a new generation of balloon machines. “They didn’t have the expertise in-house to do the intricate stuff we do here, and they were looking to expand their range and take over some market share,” BALLOONS, PART I Wyrobek says. “They said, ‘You’ve been The Kieves family got involved with kings of quality and always made a better balloons the 1970s, when Wyrobek’s balloon. How do you feel about partnering parents, Garry Kieves and Michaela Graeb, with us?’” distributed them in Europe. They moved The soon-to-be partner proposed that from Belgium to settle near family in the Kieves and his team manufacture its foil Twin Cities in 1980 and started the balloon balloons, utilizing their existing distribution manufacturer, Anagram International. An network, mature sales force, and strong engineer at heart, Kieves focused intently creative team to boost sales. The family on designing and building machines to sat down to determine whether they had manufacture excellent quality balloons. the heart, stomach, and desire to get back The family’s efforts grew Anagram into in the balloon business, and whether they one of the world’s largest manufacturers of wanted to invest the capital to start a new metallic balloons. venture. At the time, Nina Kieves was in Twin daughters Nico and Nina literally veterinary school and Wyrobek worked grew up in the business. They would as in-house counsel at Excelsior Energy, spend time at Anagram’s headquarters an energy development company in after school, helping with filing, answering Minneapolis. phones, whatever was needed. “My dad and I had a lot of When it came time to chart conversations. Is this going to be their own career paths, the something where we sisters decided on other just make and sell, professions, with Nina or will this be the Twin daughters becoming a veterinarian legacy business and Nico pursuing law. we want it to be? Nico and Nina Kieves Realizing the family I had a nice day literally grew up business wasn’t going to job, and I liked it, have a second generation but we said, ‘Let’s in the business. of leaders and ready for new do it.’ The numbers challenges, Garry Kieves will work great,” recalls decided to sell Anagram in Wyrobek. She worked 1997. Amscan, a wholesale out an arrangement with her supplier of party goods and employer to spend one day a week the parent company behind Party at the family business, subsequently City, Party America, and others, bought named Northstar Balloons. Anagram and still owns it today. The Kieveses were just getting their new The Kieves family moved on to owning balloon company off the ground when the and operating other Minnesota companies, Great Recession hit. No surprise, it turned including Motoprimo Motorsports, a out to be a tough time to take a crack at a full-service motorcycle dealership, and new venture. After their partner lost one of Talon Innovations, a CNC machine shop its biggest customers, it became apparent in Sauk Rapids that supplies parts to that the investments Northstar poured into the semiconductor industry. Nina and its high-tech balloon-making machinery Nico Kieves helped their dad run two weren’t panning out. Motoprimo locations in Burnsville and “The idea was that they would stop Lakeville—eventually dialing back to just manufacturing foil balloons and we would the Lakeville facility. The Kieveses also do all of it. That never came to fruition,” recapitalized and turned around Talon, says Wyrobek. “We had a big factory selling the company last year. It seemed and lots of capacity, and we had to fill it like their balloon days were over. somehow.” 26

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Not only would Northstar make other companies’ balloons, it would ramp up its design abilities, customer service, sales and marketing, and distribution to bring its product directly to customers. BEYOND MANUFACTURING The Kieveses thought that the best way to fill this capacity was to go beyond being a contract manufacturer. By 2011, they decided to get back into the business full bore. Not only would Northstar make other companies’ balloons, it would ramp up its design abilities, customer service, sales and marketing, and distribution to bring its product directly to customers. Wyrobek, who earned her law degree and a master’s in public policy from the University of Minnesota, already planned to get more formal business training. It would prepare her for eventually working full-time at Northstar. She took one year off and earned a master’s in management from Stanford University’s accelerated Sloan Program. When Wyrobek graduated in 2011, it turned out that time had come, just as Northstar was ramping up design and production. She joined Northstar full-time as vice president and became CEO in 2012. It’s quite a family affair, with Garry Kieves serving as chairman of the board. Nina Kieves sits on the board and her husband, Patrick Ward, heads up sales in Mexico and Latin America. To inflate its balloon business, Northstar needed to build its creative studio. The Kieveses tapped into the Twin Cities’ rich pool of design talent by bringing on artists and graphic designers from other industries. They also invested in a flexographic printing press, which allows Northstar to print its own balloon designs onto extremely thin sheets of plastic. “One of the first things we said was that in this industry, it never pays to buy your printed material from someone else,” says Wyrobek. “You want to buy raw material and print it yourself.” Purchasing the nearly 16-foot-tall PCMC

printer in 2012—and investing in one of the largest drums in the balloon industry— allowed Northstar to make much bigger balloons than competitors. It also opened other doors into printing for the packaging industry. So while Northstar grew its balloon business to 1,400 SKUs with sales across the country and around the world, it also worked to build a second line of business as a printer of flexible packaging. The timing couldn’t have been better for Northstar to enter the commercial printing market. It turns out suppliers weren’t able to keep up with demand for flexible packaging, as more companies move from paper and cardboard to plastic. Northstar had plenty of capacity on its flexographic press and started quickly adding customers. Anyone who shops at Costco has seen its handiwork on Kirkland Nature’s Domain pet food bags, or on bags for other foods like potato chips. Wyrobek calls the commercial printing Northstar’s best-kept secret, and its workload actually splits evenly between balloons and packaging. The company added its second, larger flexographic printer this spring, giving Northstar the ability to take on more work for clients and do 10-color printing compared to its current eight. BALLOONS, PART II But back to the balloons. Wyrobek and her team set out to create highly visual and unique balloons that would really stand out in the industry. Northstar frequently comes to market with different shapes, like its 3D, four-sided balloons, or animal balloons shaped like the creatures they are supposed to be. Many competitors make a unicorn balloon by printing a picture of a unicorn

on a standard circular balloon. Not Northstar. It cuts out an intricately shaped unicorn, complete with its signature horn and a jaunty pink tail. And while other manufacturers make letter and number balloons, the quality isn’t great. Northstar’s are striking with unique patterns like zebra print, brighter colors, and precise shapes, says Lisa Gibson, who manages US and custom sales. Unlike competitors, the company markets to tweens with balloons that say “HB2U”—Happy Birthday texting style— and develops clever messages like a coffee cup–shaped balloon that reads, “I Love You a Latte.” The balloons certainly stand out in the crowd, but it’s the quality that keeps retailers and distributors coming back for more. Garry Kieves holds numerous balloon patents for inventions like the selfsealing valve. Knowing that Kieves was involved prompted Jim Rose to sign up as a Northstar distributor, and it’s been a good decision. “I think they are innovative, and their design work is really good. They don’t have a huge line but they fill some gaps that other companies don’t fill,” says Rose, who knows the Kieves family from their Anagram days. “Their quality is good, their price is good, and one of the things I know very well about Garry is that he is an absolute fanatic when it comes to quality.” Part of that excellent quality comes from using Kieves’ precision machines to cut out Northstar’s intricate shapes—incorporating some of the sensor technology the family learned from owning Talon, the semiconductor company. Its MicroSeal technology generates balloons that require less helium and can be made without an encircling big border of foil. It also gives pressure points about 30 percent more strength to hold their shapes. Another client, the Corner Balloon Shoppe in Minneapolis, began carrying Northstar Balloons as soon as they started coming off the press. Customers love being able to buy balloons that are manufactured in Minnesota, and many also enjoy the company’s balloons that aren’t licensed characters. The shop has a display area just for the Northstar balloons “because we think they are that great,” says owner Kristin Traynor. “The artistry on their balloons is amazing. The details and the effort they put in and the thought they put into them is really great. We can’t keep some of their balloons in stock.”

Sales have been a bit trickier than Northstar bargained for, mainly because Anagram has put up a stiff fight. Some distributors have shied away from offering the Northstar label for fear of angering the much-larger corporation, says Gibson. These obstacles inspired Northstar to get more creative with sales. The company offers direct, online ordering to help retailers save money by bypassing distributors. Many manufacturers rely on distributors to offer extras to clients, such as providing helium and ribbons, or helping retailers blow up and merchandise balloons. Northstar stays in play by handling this end of the business, too, and by offering competitive pricing to retailers and distributors. “It’s been very challenging. We tell them to be willing to take a risk and that it’s worth their time and money to work with us,” says Gibson. “We’re starting to see some successes by adjusting our pricing and being very competitive. Like any company, it’s about getting everyone to know your name and your quality.” Northstar also has made inroads on its custom side of the business, working with numerous clients like Walgreens, Walmart, and other retailers that use balloons for promotions. It also makes balloons for sports teams or character license holders (like Angry Birds) in other countries. International sales overall have been strong, especially in Mexico and the United Kingdom, which have a deep tradition of balloon sales. The company will continue to make its case in this small industry, where there are few players and everyone knows each other. Despite the slow start, the sales challenges, and the angst of launching a new company, it’s been worth it for Wyrobek. She truly enjoys working again at her family’s business—and a secondgeneration one at that. “People ask what I do and I say that we sell happiness. At some point it’s in your blood. I love doing it,” says Wyrobek. “The opportunity to work with my dad and say that maybe we can build a company that has a legacy that will last—boy, not everybody gets that chance. It’s hard to pass that up if it’s handed to you.” She’s striving to build a business that her toddler son, expected newborn (due this summer) and the next generation eventually can take over—one that’s focused on selling happiness through the best-quality balloons money can buy. MAY 2014 ENTERPRISE MINNESOTA /

Thinking Ahead

huck Anderson had started and grown a remarkable company. But a few years back, it reached a point where its direction was no longer certain. Since founding Midwest Rubber Service & Supply Company in 1976, Anderson had built the Plymouthbased company into an international manufacturer and distributor of conveyor belts, hoses, and other industrial rubber products, with 90

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employees and operations in Shanghai and the Netherlands. (One of its most successful specialties is a line of squeegees for use in professional floor care machines.) Midwest Rubber President Doug Turk credits the companyâ&#x20AC;&#x2122;s distinctive die-cutting technology as being a key factor in its

By Gene Rebeck

growth. Then, about four years ago, Anderson told his employees that he planned to retire and transfer oversight of the business to his five children. Midwest Rubber had been guided by an energetic, visionary entrepreneur who made all of the big moves. Now crucial decision-making would be spread across more people. To accommodate that new leadership, Midwest Rubber would need to make

significant changes in the way it conducts business. But what changes would those be? How would the company begin to make them? For Midwest Rubber and numerous other smaller manufacturers, the answers to these questions are coming from a formal strategic planning process. Such a process requires a company’s leadership to develop a clear and detailed picture of its

business—its operations, its products, its competition. It uses that picture as a basis for drawing up initiatives for the business going forward, then acts upon them. All businesses plan, of course. But strategic planning is about looking further ahead—and getting more of the organization involved. The reason? Companies are realizing that they need to evolve. Turk sees the planning that his company has been pursuing

as a response to big changes not only in his company but in the world as a whole, as an older generation of leadership transitions to a younger one with new ideas, new ways of thinking, and a deeper understanding of new technologies. Strategic planning helps a company adjust to those changes and challenges by planning not for the next quarter but for the next few years. It isn’t a simple process, and it requires hard

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work. But it also can mean the difference between a company simply surviving and successfully thriving. IN PROCESS Businesses that pursue strategic planning realize that doing things the way they’ve always been done, even if their businesses remain profitable, no longer works as well they used to. John Connelly, director of consulting with Enterprise Minnesota, uses author Tom Collins’ famous pronouncement, “Good is the enemy of great,” and adds: “Good is the enemy of getting better.” What’s wrong with simply being good? If a firm is producing steady margins and has some rock-solid customers that are happy with the products, why not just stay the course? Because these days, staying the course means falling behind the competition, which for more and more manufacturers is increasingly global. “At least some of those competitors are not satisfied with where they are,” Connelly says. “And they will make an effort to do something faster, cheaper, better to distinguish themselves. As soon as they do that, the area that you thought was good is no longer good enough. And the recovery from being not good enough is really difficult.” Connelly sums it up this way: “The marketplace doesn’t stand still, and the only safe place is out in front.” So what are the ways to come out ahead? How can a company find a map for the road ahead? That’s where a formal strategic planning process can help. Thoughtful business managers are “used to doing very tactical things—‘we need to get a shipment out, our quality is inconsistent today,’” notes Mary Connor, an Enterprise Minnesota business growth consultant based in Rush City. “But they’re not looking at strategy.” That’s largely because of the intense focus on day-to-day performance a manufacturing operation requires. That daily focus is essential, of course. But you can think of operating a business like running a household. You need to make dinner, wash dishes, do laundry. But you also need the longer-term perspective that maintaining the house requires— painting, repairs, yard work and so on. What drives businesses to pursue strategic planning, Connelly says, is 30

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that they know they need to develop that longer view. An organized research method, he says, “provides a framework for today from which you can figure out how to get to that future.” Enterprise Minnesota’s research methodology begins by having the company gather together a group of thought leaders who can provide useful insights into a firm. These thought leaders would certainly include the president or CEO, another top manager or two, and perhaps a key salesperson and one or more longtime employees. For maximum benefit, the group also might include a top legacy customer, a key vendor, and a relied-upon advisor,

need and want now—so that a company can begin thinking about how both it and its competition will respond to those evolving needs and wants. Past decisions and processes might have been good ones; but as customers and other aspects of a business change, how a business operates will need to change with them. Once the research is gathered, the people handling each area, along with other thought leaders, gather for a day to listen to and discuss the findings. The next day, the group reconvenes to come up with a list of five initiatives that will move the company forward. Enterprise Minnesota consultants do not dictate the process; rather, Connelly says, they share

In today’s world, you can’t just operate on gut feeling. You have to have a greater understanding of where you are going. such as a banker, lawyer, or accountant. People not involved with the operations day to day can look upon a company and its processes in a more detached way. For example, in order to get a firmer grasp on customer needs and wants, a company shouldn’t rely on one salesperson’s perspective, no matter how good a salesperson he or she is. Instead, it should be talking with the customers themselves and getting their insights. From there, Enterprise Minnesota consultants such as Connor help direct the thought leaders to research 21 areas (see sidebar, page 31) in order to describe and evaluate the firm’s current state. Examples of these areas include the company’s marketplace, its operational requirements, its competition, customer and employee wants and needs, as well as the owner’s wants and needs. The research typically includes elements such as employee surveys and customer interviews. “So much of the present condition of a company is legacy,” Connelly says. “‘These are the things that we do—these are the customers that we serve, these are the conditions of the marketplace that we feel are beneficial.’ Things that happened in the past often define that present state.” What the research should also uncover is what those customers

their experience with what other firms have done so that the company involved in the strategic research can find its own way and determine its own priorities. Often, consultants such as Connor also introduce different ways of communicating, such as conducting company-wide meetings. She also may bring in other consultants for projects such as marketing and lean manufacturing techniques. Throughout the process, Connor encourages the researchers to look as deeply and broadly as possible. “Keeping it moving is a really important part” of her work, she says. But what is most important is not the process itself but the changes and initiatives that come out of it. As Connor says, the tool is less important than how it is used. Connor notes that a business needs to be clear on what its current position is before going forward: “Is the company in transition mode? Are they in accelerated growth mode? Are they just starting to add a leadership team? Are they adding a new product or service?” The type of plan a company needs to pursue, she adds, “really depends upon the lifecycle of the company.” In some cases, the process can reveal the need to make changes, sometimes major ones, in the leadership team.

Engaging the Team In Enterprise Minnesota’s methodology for strategic planning, the purpose of the research phase is to engage the team in discovering information and building an accurate picture of the company’s current state. Those working on the exercise are encouraged to collect data, information and opinions that they can use to help inform the rest of the group involved in the planning effort. The questions are divided into 21 categories designed to help guide the discovery. Team members are encouraged to develop others that they think will help inform the process. The 21 research categories are: • Organization viewed as a system • Vision • Principles of management (values) • Ideal conditions • Mission • Customers’ needs and wants • Employees’ needs and wants • Owners’ needs and wants • Competition • Marketplace • Technology • Internal conditions • External conditions • Strengths • Weaknesses • Opportunities • Threats • Financial • Operating requirements • Products/services • Structure

This can occur, Connor notes, when the company learns that that team “needs important development to lead them to the next level.” That points to another aspect of strategic planning. It can be very challenging, especially for a smaller company, where even nonfamily members can be like family, to move

people to different jobs or hire outsiders over them. But for such planning to be successful, a firm needs a clear sense of its strengths, weaknesses, and threats—of where it is now, and where it wants or needs to be. That’s why the Enterprise Minnesota approach to research has such breadth and covers so much ground. As Connelly says, the company should strive to reach the point of articulating, “This is where we’re headed.” THE WAY FORWARD Ten years ago, Alliant Castings wasn’t quite clear about its direction. Founded in the late 1800s, the Winona-based manufacturer was losing money as well as its direction. “We needed to change and adapt to the current market needs,” company president Tom Renk recalls. Starting in 2009, Alliant Castings tried to put together a formal strategic plan on its own, but those efforts went nowhere until it engaged Enterprise Minnesota’s help in February 2010. The company finished its planning process two months later. “We had five key initiatives come out of that,” Renk says. They included employee engagement and facility improvements— initiatives inspired largely through the involvement of the company’s employee base in the process. “There was a completely different workforce in the ‘80s and ‘90s as compared to today,” Renk says. In the not-so-distant past, the company’s employees were highly skilled, “the kind of guys who worked with their hands and knew how to make a mold or hunt for a mold.” But with such employees becoming more difficult to find, problems kept cropping up—a high scrap rate, for instance. In response, one Alliant Castings’ initiative called for more automation in the facility, “so that we weren’t dependent on the skill of the operator like we had been through the years.” Nearly four years later, Renk says that the planning process “worked out really well. Basically the company has turned around because of this.” He cites a few key metrics: “Our scrap is down 44%, our sales are up 50%, gross margins are up 80%.” Renk adds that “had we not worked this plan, if we weren’t really disciplined and really diligent, we would not be in the position we are today.” In

addition, he cites as evidence a 25% improvement in productivity and a more diverse customer base. “The largest market we had, at 67%, is now reduced down to 25%,” he says. All told, “we’re in a much better position today than we were 3½ years ago.” Alliant Castings, which manufactures abrasion-resistant castings used in road construction, agriculture, mining and other industries, now has 35 employees, and has plans to hire a few more in the coming months. While its market is mostly North America, “a lot of our parts do end up overseas,” Renk says. Midwest Rubber’s Turk is optimistic that his company, now in the midst of its own planning process, will yield rewards similar to those of Alliant Castings. “We’re getting a better handle on the structure of our company,” Turk says. For one thing, “We’re putting job descriptions together [and working on] how we tie that back into the structure and how employees manage subordinates as we go forward.” In other words, Turk says, Midwest Rubber is transitioning from a company where the decisions were made mostly by an entrepreneurial leader to a more structured organization with broader employee involvement. The small businesses that pursue strategic planning “have a desire to be better,” Enterprise Minnesota’s Connelly says. “It doesn’t mean that what they’re doing now is wrong, because many of them are good.” Still, “They have a sense that things can be different, more organizational. They could be bigger than they are, they could do more than they do.” What’s more, “they want to be able to capture and articulate what ‘better’ is, in a way that the whole company could move towards it.” In other words, contributions from the entire company, as well as from other “stakeholders” (customers, vendors, advisors), will lead to a successful strategic planning effort. That, in turn, will help a company navigate more successfully in an ever-changing business environment. “In today’s world, you can‘t just operate on gut feeling,” Turk notes. “You have to have a greater understanding of where you are going.” Gene Rebeck is a Duluth-based business writer. MAY 2014 ENTERPRISE MINNESOTA /

Final Word

Marketing in a growing economy As manufacturers contemplate greater revenues, marketing strategies should target greater profits.

olks who spend their days marketing manufacturing services and products may find particular enlightenment in correlating two findings in this year’s State of Manufacturing® poll. The first, most obvious, is this: 84 percent of Minnesota’s manufacturers today have high expectations for their companies’ financial prospects. That’s a huge number. The second is this: manufacturers that work from a formal marketing process expect an increase in gross revenues by a 2-to-1 margin (60 percent-31 percent) over those that don’t. And these companies also expect better profitability (46 percent-26 percent).

• Company includes your organization’s strengths and, more narrowly, the benefits that you bring to your customers, including capabilities, timeliness and price. • Competition considers not only the organizations that offer similar benefits to customers, but also alternative technologies that customers can consider and choose. • The Customer factor can be particularly powerful when you consider their unique needs and expectations. Taking time to understand the mix of these customer expectations will help identify segments within your customers that will have a critical impact on your marketing success.

So what’s the correlation? We at Enterprise Minnesota encourage clients to be in a continual state of strategic marketing. Some manufacturers may conclude, mistakenly, that today’s upsurge in sales revenue means they can cut back on marketing. Not true! What it really means is that they should adjust their

“Think of it this way: You are not looking for more business as much as better business.” marketing strategy from trying to maximize revenue to one that maximizes profits. Even though you’re no longer hustling to add customers, you should now be hustling to grow the best and most profitable customers. Think of it this way: You are not looking for more business as much as better business. When we’re not busy, we’re trying to get as many customers as we can, within a profile. As we get busy we can afford to tighten that profile up, so that it maximizes the profits that it brings to us. Part of the 32

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John Connelly is director of consulting at Enterprise Minnesota.

way we do that is to understand which customers are closest to the ideal fit for us and what we’re capable of. These customers are not a stretch. What they want is exactly what we do. So we want to do more work with those customers as we get busier. That’s the work that brings us the best margins. To understand what I mean, it might help to step back and think about the mix of people and initiatives you deploy to grow revenue and improve profit. Every manufacturer’s marketing plan blends three major factors: company, customers and competition. Your goals in each of these areas represent the foundation of your overall marketing strategy.

Foundational marketing strategies harvest more from existing customers by driving additional value-added services. They will also emphasize finding new customers in underserved regions, and by winning over customers from their competition. As the economy expands and backlogs build, savvy manufacturers will adjust, evolving segmentation strategies focused on expanding profits. And as they target specific customer types that better match their company’s capabilities, they will maximize price. The bottom line: This is a perfect time to review your marketing successes and challenges, to redefine marketing objectives and to make the right marketing plan adjustments. Additional strategies will expand margins and pursue more effective sales channels, improved sales processes, and identify high value product improvements that fit your capabilities and address your customers’ needs. We at Enterprise Minnesota have a knowledgeable team of creative consultants that would be more than happy to help.