Is Minnesota running out of bright ideas?

Minnesota innovation is falling off. At least, that’s how the Minnesota Chamber of Commerce read the tea leaves at presentations to business groups in February.

In 2003-04, 75.5 percent of the 550 Minnesota companies contacted by the chamber reported that they introduced a new product in the previous year. By 2012-13, that had fallen to 63.4 percent of 722 companies surveyed. The rate was just 55.9 percent for the 195 Twin Cities companies surveyed that year.

“You have to constantly be innovating or else someone is going to out-innovate you,” said Bill Blazar, the chamber’s senior vice president for public affairs and business development. “I’m not sure that we are innovating and creating both new ideas and new services as quickly as we need to.”

And yet, the situation may not be that dire. Business filings in Minnesota actually grew 15 percent over the past eight years, from 50,666 in 2006 to 58,260 in 2013, according to data from the Secretary of State’s Office. Filings reached an all-time high of 63,338 in 2009.

Secretary of State Mark Ritchie expects filings to grow 20 percent over the next eight years. His office is so confident in that projection that the agency is investing in measures to handle the bigger loads.

Minnesota is also in the midst of a patent boom that started in 2010, according to U.S. Patent and Trademark Office statistics. The 3,902 patents that originated from Minnesota in 2012 (the latest year available) marked the third consecutive year the state saw patents hit an all-time high. By contrast, there were just 2,535 patents from Minnesota as recently as 2008.

The University of Minnesota’s Office for Technology Commercialization has launched new programs to make it easier and less risky for companies to license university technology. In 2013, the office spun off a record 14 startup companies, had a record 91 new licenses and filed a record 148 new U.S. patents, according to the office.

“From my purview at the university, I see increased activity,” said Jay Schrankler, the office’s executive director.

But the best evidence that Minnesota is a place for innovative businesses may be the way out-of-state companies are spending their money here, Ritchie said. He ticked off several major investments, such as new FedEx distribution centers and an Underwriters Laboratories expansion in Mounds View.

“You just see nothing but their heavy investment in expanding capacity,” he said. “They’re certainly betting with their dollars.”

Measuring success

Innovation is hard to quantify. “I’ve never seen anything that can measure it in a firm way,” Ritchie said.

Blazar is the first to admit the chamber’s surveys aren’t definitive. The chamber interviewed a small fraction of the state’s businesses, and those companies weren’t randomly selected. The chamber is in the process of digging into the details further.

At times, it seems every positive indicator is offset by a negative statistic. Minnesota scored dead last on last year’s Kauffman Index of Entrepreneurial Activity, which looks at the proportion of residents in a state who start a new business. About 0.15 percent of Minnesotans started a new business in 2012, half the nationwide average of 0.3 percent.

Michael Mrnak, a Minneapolis-based business banking senior client manager with Bank of America Merrill Lynch, saw inertia like that in last year’s tepid loan growth. The 3.09 percent growth that Minnesota banks had at the end of 2013 is about half the 20-year median. That’s partly because fewer new businesses are entering the market, Mrnak said. While he has seen companies looking to acquire manufacturers and distributors as baby boomers sell their businesses, he hasn’t seen the same appetite for starting new small businesses.

New Minnesota businesses also die at slightly greater rates than those in other parts of the country, according to U.S. Bureau of Labor Statistics data. Of the 7,297 Minnesota businesses launched in the year ending March 2009, 59.8 percent were still around in 2013. The rate is 60.9 percent for the country as a whole.

Hard as innovation may be to quantify, Blazar said it’s a critical issue for the state because Minnesota is a “homegrown” economy. Every one of Minnesota’s 19 Fortune 500 companies — 3M Co., Medtronic and St. Jude Medical among them — started here. The big private companies like Minnetonka-based Cargill launched here as well.

Outside companies often move into the state only after acquiring an existing Minnesota company. That’s what happened when Natick, Mass.-based Boston Scientific bought Guidant, which began life as Cardiac Pacemakers Inc. of St. Paul.

Minnesota Cup director Melissa Kjolsing, who oversees the annual contest for new entrepreneurs, echoed that point: “Minnesota is a place that creates companies. We don’t attract companies.”

The U of M’s Schrankler said Minnesota is partly a victim of its own success. Because the state has so many successful companies, there hasn’t always been an urgency to cultivate new businesses or an organized way to help entrepreneurs find the right path forward.

People working at large companies may have honed the necessary technical expertise, but they don’t always have the entrepreneurial skills they’ll need when starting a new business, he said.

“I think there’s this notion in Minnesota that this must’ve worked in the past since that’s how all these companies got founded,” Schrankler said.

‘Development of the economy’

Kjolsing said the business community is more active in supporting new businesses than it was in the past. Companies are working together and collaborating more often instead of sticking to themselves, and there are more resources available.

“I would say [that] where we’re at today versus where we were 10 years ago, there is definitely a buzz around the startup community,” she said.

Still, Schrankler says, the state should play a bigger role because entrepreneurs often struggle to find early-stage investors. He’d like to see Minnesota renew and expand its Angel Tax Credit program, which ran out by March 3 this year and is set to expire after 2014.

“The trend for much of economic development has been: Let’s see if we can steal a company from Wisconsin or Florida to move here. But in the U.S., that’s a zero sum game,” he said.

Blazar said Minnesotans need to take a more active role in helping businesses thrive. Too often people talking about “economic development” are focused on attracting specific types of businesses to specific, underused properties, he said.

Instead of economic development, people should focus on “development of the economy,” Blazar said. That could be as simple as bringing businesses together. But it could also mean developing technologies to create new industries wholesale, as happened with taconite.

By the 1950s, the state’s iron mines were running dry. The University of Minnesota developed a way to economically extract iron from taconite formations. By the 1960s, companies were making major investments in an industry that still supports the Iron Range today. Blazar sees similar possibilities from the inaugural Minnesota Water Technology Business Summit, which the Minnesota Trade Office is hosting March 25.

“Maybe the problem we have today is we haven’t focused enough recently on what those strategic industries are,” he said. “Instead, we’ve been captivated by real estate deals.”