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Outstate MN: Innovation in Southern Minnesota

This article on southern Minnesota innovation is the fourth in a series written in partnership with Great North Ventures. Read more about innovation in other Minnesota regions: Northwest, Northeast, and Central.

souther minnesotaWhen examining the state of startup and entrepreneurship across the southern plains of Minnesota, three themes stand out: 

Digital. Health. Devices.

Those words, able to be combined in almost any combination, form the foundation of the Southern Minnesota entrepreneurial ecosystem. It’s a scene largely anchored by one of the most renowned clinics in the world, and while that medical muscle certainly enables experimentation and innovation, there’s also no shortage of independent minds brainstorming potentially life-changing bolts of entrepreneurial lightning.

Big Business Needs Small Business 

The Mayo Clinic’s mission, as written in the 1919 “Deed of Gift” by the Mayo brothers, is simple-yet-grand:

“The success of the Clinic, past, present and future, must be measured largely by its contributions to the general good of humanity.”

Al Berning - Ambient Clinical Analysis - southern minnesota

Al Berning

More than a century later, those roots of “general good” have ensconced Rochester as a hub of medical innovation and cutting-edge technology. But giant machines have a lot of parts, and the gears and pistons tend to move slower than something nimbler. This, Al Berning says, is just simple science.

“Large organizations have a lot of structure, and they have to,” Berning said. “It’s a function of physics. There are going to be roadblocks and checkpoints and other things that are going to always make it more difficult. And you somewhat pick up the mindset of, ‘Well, everything we do has to be successful.’ And that’s just not possible.”

Berning is no stranger to the slow momentum of large corporations. He spent more than 15 years working for IBM in an engineering and operations management capacity, giving him access to top-of-the-line tech and the opportunity to learn the business from all angles.

But the ‘90s brought changes for IBM. With the company choosing to phase out hardware and some other spokes of the business, Berning knew it was time to change too. And the change he chose was inspired by his time on the family dairy farm in St. Michael, Minnesota.

“[The farm is] the perfect place for entrepreneurs to get their initial training,” he said. “There are problems every day. It looks impossible. There’s never enough funding to get done what you need to get done. But somehow you figure out how to do it, and you get it accomplished, and you move on to the next day.”

In other words, a startup.

In 1994, Berning founded Pemstar Inc., a company that provides full range “engineering, product design, manufacturing, and fulfillment services.” While serving as CEO, he led Pemstar to the NASDAQ and an eventual acquisition by Benchmark in 2007. Now, as the CEO of Ambient Clinical Analytics (formed in 2014 in Rochester), his experience with both large and small organizations inform his outlook on the Mayo Clinic’s role in Southern Minnesota entrepreneurship.

“I think many people in large organizations are recognizing that it’s easier to try things and it’s less expensive either to get it to a finish or if you happen to fail — and many will — at a startup level as opposed to doing it inside of a large organization,” he said. “So, I don’t see any way for that to shift to anything but more entrepreneurial initiatives.”

In that sense, the Mayo Clinic’s shadow won’t snuff out smaller companies looking to innovate; it’ll provide them fertile ground from which to grow. And one such company taking advantage of that shade is Rochester’s LEAH Laboratories.

Genes, Dogs, and Mayo

Gene editing sounds like science fiction but tinkering with the fundamental building blocks of life is very real, and it’s very much being worked on in Southern Minnesota. Instead of engineering human cells, however, LEAH Labs is focused on our four-legged friends.

LEAH Laboratories - Wesley Wierson - southern minnesota

Wesley Wierson

Co-founded by CEO Wesley Wierson, LEAH uses technology he developed as a graduate student to reprogram immune cells to become cancer-destroying genetic warriors. Instead of taking the project down an academic path, however, Wierson received input from an important Rochester connection — Dr. Steve Ekker, Professor of Biochemistry and Molecular Biology at the Mayo Clinic and LEAH co-founder.

“[Steve] got in my ear really early about creating your own job after graduate school and how the pathway to become an academic is actually really challenging,” Wierson said. “You can commercialize your technology that you develop as a graduate student and become a technical founder.”

So, after developing the core of the business through the National Innovation Corps program at Iowa State University, Wierson and LEAH were accepted into Y Combinator. That double-whammy of lean startup learning (much like what is delivered through Minnesota’s ILT Academy) allowed him to focus on de-risking the business from a product perspective. From there, he says a move to only one place made sense — Rochester.

Remember what Al Berning said about organizations shifting toward more entrepreneurial endeavors? The Mayo Clinic’s Office of Entrepreneurship and The Hatchery make that approach clear. The Hatchery provides unoccupied Mayo lab space to science startups at low cost, something Wierson says is only possible in Rochester at the moment (without a mountain of cash to open a lab of your own). There are, of course, some caveats. Right now, the Mayo Clinic’s approach to fostering entrepreneurship is gated; unless a business is commercializing Mayo technology specifically, the space isn’t available. For Wierson, he jumped LEAH through that hoop thanks to co-licensing the gene-editing tech from Iowa State and Mayo.

“Mayo Clinic has a novel cell therapy that they need to de-risk in a model that’s better than mice,” Wierson said. “And so, we could partner with Mayo to try to translate this technology and kind of be that go-to partner to not only help dogs, but also help accelerate human assets.”

Connecting the Southern Dots

As with Central, Northwest, and Northeast Minnesota, a lot of work is being done to build the strongest entrepreneur ecosystem possible. After all, even the most brilliant innovation is meaningless if it’s not given the resources to make it out of the basement.

Amanda Leightner - Collider - Great North Ventures

Amanda Leightner

Amanda Leightner, Interim Executive Director of Collider and Founder of Rochester Rising, has a common outlook when it comes to entrepreneurship opportunity in Greater Minnesota — things are better than they were, but there’s more work to be done.

“Southern Minnesota is a good place to start a business because we do have a lot of resources available for entrepreneurs,” Leightner said. “That being said, the communication between the service providers and the entrepreneurs definitely could be improved… But our connectivity is increasing between service providers. And I think at least within the last year, there’s been a heightened focus and understanding of who is critically under-resourced in the community. How do we critically look at what we’re doing and start to make some systemic changes to be able to reach those individuals?”

Part of Collider’s role in that change has been the Ecosystem Navigator program. The free service connects budding entrepreneurs with individuals from a diverse background to better serve startup communities that may have traditionally been left out of the loop.

“It’s a program specifically focused on under-resourced and underserved individuals, led by individuals from those backgrounds going out into the community, literally speaking the language of some of these entrepreneurs and making them feel heard and seen,” Leightner said. “Somebody like them in these positions to link them to resources that will be useful to them.”

Even with the increased efforts in resource availability in recent years, Greater Minnesota (and rural Minnesota in general) faces another challenge — resource connection.

Red Wing Ignite - Stacy Nimmo - Great North Ventures

Stacy Nimmo

“We do cover a wide geographic area,” Stacy Nimmo, Executive Director of Red Wing Ignite, said. “And one of the things that, rural being rural, we struggle with is a lack of density of resources.”

Nestled in Red Wing, Red Wing Ignite has doubled down on its efforts to not only provide its own suite of startup resources, but also to point founders in the right direction in hopes of filling any need. The E1 (Entrepreneurs First) Collaborative stitches together a bevy of regional partners to increase access to startup resources. From the single point of the E1 Collaborative, founders can be quickly connected to what they need without hunting and pecking across the plains to find it. Nimmo says the network allows for, “true collaboration, not just information sharing, between the various partner organizations to really support entrepreneurs” no matter their stage.

All that work is, well, working. Over the past two years, the number of entrepreneurs Red Wing Ignite has served has increased to more than 130. And, with increased funding by recent grants, the organization is planning to expand its educational efforts even more.

But Southern Minnesota isn’t only becoming more fertile ground for new entrepreneurs. As one business shows, it’s a region brimming with potential for transplants, too.

Building Virtual Restaurants

Derrick Fountain - Backhouse Brands - Great North Ventures

Derrick Fountain

Derrick Fountain has been there and back again. He started building and coding his own products when he was about 16 years old, learning various programming languages in the process (something he strongly encourages other young people to do). After those bootstrapped digital days, he set out on an international journey. From leading digital teams in Iraq, Qatar, and Turkey for media companies like Al Jazeera to working in Kenya and Poland, he has traveled with a capital T. But eventually, family needs brought him to Mankato, and a tough decision came along with the change of scenery — go for a traditional nine-to-five or start building something from the ground up?

Fountain chose to build.

“Seeing what Ryan and Rob [Weber] at Great North Ventures have been doing and how they’re promoting entrepreneurship… that was very attractive for me to say, okay, there is an alternative path. And so, getting back into that was exciting for me.”

Now, he’s the President and Co-founder of Backhouse Brands, based in Mankato. The company helps restaurants create online-only brands that operate out of existing commercial kitchen space (an idea that originally came from Food Dudes Delivery Founder David Carlson). Fountain’s life is a bit different from his days of working in literal warzones. But those global experiences have given him a unique leg up.

“Getting picked up by a bulletproof SUV in Iraq makes walking into a restaurant and getting rejected like a drop in the bucket,” he said. “There’s no comparison.”

Right now, Backhouse Brands is operating in stealth mode, although Fountain says it’s getting close to emerging from the shadows with its first pilot kitchen. He has been focusing on smaller markets – smaller restaurants with unused kitchen space that are looking to expand with an online-only delivery and pickup brand (he gave “It’s Just Wings” from Chili’s as an example). Backhouse Brands has created a platform to democratize the process. A restaurant can set up and operate a virtual brand all from the Backhouse Brands website and companion app.

After interacting with many different small-business owners for pitches, Fountain shares a sentiment held by many in Minnesota, especially those in the startup ecosystem — Minnesotans are all about support.

“It’s been refreshing to have these very authentic interactions,” he said. “Even if someone gives me a hard no, I still end up getting at least three recommendations for someone who may give me a yes. That’s been the  whole referral relationship-driven nature of what I’ve experienced in Southern Minnesota and just Minnesota in general.”

Securing Southern Funds

Even with Southern Minnesota beginning to entrepreneurially flourish, there’s still the omnipresent question of funding (where it’s coming from, how much is available, how a founder gets it, who is getting it…). While everyone will tell you there should be more funding (who doesn’t want more money for small businesses?), that doesn’t mean there aren’t some major players involved in pipelining cash to help founders succeed.

In 2019, the U.S. Economic Development Administration awarded $750,000 to Red Wing Ignite as part of the i6 Challenge (along with more than $900,000 from local organizations in cash and in-kind support), providing a considerable amount of fuel to stoke the entrepreneurial fires in the region. LEAH Labs has run two successful equity crowd-funding campaigns and has received large amounts of funding from the Minnesota Department of Employment and Economic Development (DEED) and Regenerative Medicine Minnesota. More and more startups will benefit from the renewed strength of Launch Minnesota. And venture capital firms like Great North Ventures will continue to inject the scene with funding to promote growth across the state.

pam york3-capita3-great north ventures

Pam York

But sometimes, it’s not necessarily about getting an investment as it is recognizing you’re not ready to get an investment, a differentiation Pam York, Co-founder and Managing Partner of Capita3, is tackling.

“What we find is a lot of people think, ‘I just need to get in front of investors, and then I will be able to raise financing and move my company forward’ – when in fact what they really need to do is define their value proposition, or they need to really fill out [their team with] a key founder,” York said. “There’s some key thing that’s missing that they don’t realize that will prevent them from getting financing.”

Capita3, a venture capital group investing in early-stage, women-led health and healthcare companies (as well as working to create more opportunities for women founders in the startup space), is addressing this awareness gap with “Leader Launch,” a 21-day program that drills into the knowledge and skills necessary to reach the financing milestone.

All these efforts (as well as the Angel Tax Credit to spark more enthusiasm in the angel investment community) are helping — and needed — to create a vibrant and capital-rich Southern Minnesota ecosystem. Because, as Al Berning said, there’s no one fix.

“I don’t think there’s any one silver bullet that’s going to solve it,” he said. “It’s really the combination of all those things. And now most areas have some type of accelerator entrepreneur network available so it’s easy for people to access that funding, understand where it is, and have the ability to go to see if it fits for them.”

A Bright Future

Digital. Health. Devices.

shrpa-spave-southern minnesotaAs businesses like LEAH Labs, Backhouse Brands, and others such as Shrpa and Spave show, those three words are the Southern Minnesota entrepreneurial ecosystem. As the scene continues to grow, strengthened by the efforts of community builders, investors, and organizations such as the Mayo Clinic, the region is no-doubt going to continue to grow as one of the preeminent startup hubs in the state. Because while the south may be a bit off the metro-beaten path, its importance shouldn’t be understated.

“One of the things I would really love to see is for our young people and young adults to recognize that there are opportunities right in their own backyard,” Stacy Nimmo said. “There are innovative startups that are growing and building and creating more opportunities, and I think it’s very important to our economy to really bolster our rural communities that are so much the fabric of our nation. Entrepreneurialism really plays a key role in doing that.”

Great North Ventures

About Great North Ventures: 

Great North Ventures is an early-stage venture fund headquartered in Minnesota. The fund’s motto is “Execution Is Our North Star,” based on a belief that great startups can be built anywhere, but, to flourish, they need teams that can execute. The fund is led and supported by founders and operators that have scaled tech businesses from the idea stage to multiple IPOs with an aim at providing both capital and guidance to early-stage startups in support of strengthening their execution from idea to scale-up.

Alex Skjong
Alex oversees the content produced for BETA, Twin Cities Startup Week, and tech.mn. When he’s not writing or editing, there’s a good chance he’s enjoying a refreshing brew and explaining the merits of heavy metal (of which there are many).