COVER STORY: Smaller communities search for ways to stand out in economic development

Wayne McFarland heard plenty of jokes about working in a cornfield from his Los Angeles-area colleagues five years ago when he moved his company’s sales and technical support operations to tiny Milbank, SD.

McFarland, the CEO of Santa Clarita, CA-based Link It Software Corporation, decided to move the company’s marketing and technical support to a smaller Midwestern community with low costs and a strong workforce as the company expanded.

The success of Link It Software’s small tech support and customer service operations in Milbank led the company to add a call center in Milbank to market its software throughout the United States and Canada. The new business-to-business call center was so effective that it helped increase Link It Software’s business by 40 percent. The strong demand for its products has led the company to open five additional call centers in the South Dakota communities of Watertown, Arlington, Eureka, Britton and Roslyn.

“Nobody’s laughing now,” McFarland says.

Larger cities throughout the Northern Great Plains like Sioux Falls, Fargo and Bismarck continue to grab headlines for their relative economic strength in the midst of a recession. But a number of companies with major national and international operations like Tastefully Simple of Alexandria, MN, Killdeer Mountain Manufacturing in Killdeer, ND and Willmar, MN-based Jennie-O Turkey Store have set up shop and stayed in smaller communities throughout the region.

Recent research has indicated that a growing number of employers and workers are considering leaving congested major population centers in search of a simpler life in smaller communities with less crime and shorter commute times.

“Small towns will become increasingly important in corporate site selection in the next decade,” says Dennis Donovan, a principal in the Bridgewater, NJ-based Wadley Donovan Gutshaw Consulting corporate site selection firm. “Communities that show well and are fully prepared for business will do well. Many companies want to be in smaller communities with lower costs and better labor market conditions.”

Smaller, more out-of-the-way cities generally fly under the radar of site selectors, but there are benefits for businesses looking to locate in smaller areas.

“There definitely are advantages of smaller communities,” says Dan Johanneck, executive director of the Crookston (MN) Housing and Economic Development Authority. “Cities like Crookston have some excellent opportunities without the higher business costs of larger communities.”

RURAL ADVANTAGES

McFarland says Link It Software was attracted to rural South Dakota by the cheaper business costs, strong workforce and less turnover found in smaller towns.

“Our strategy has been to open up offices in smaller towns,” says McFarland, who says his company’s call centers offer starting pay that is 70 to 100 percent higher than minimum wage. “We’d rather be in a smaller community where our jobs are treasured.”

In addition to cheaper costs, smaller communities are often more flexible and more responsive to a company’s needs.

Eagle Creek Software Services opened a business intelligence facility in Pierre, SD, a year and a half ago after the city’s development corporation spent more than $4 million constructing a new building that the company leases. Eagle Creek Software currently has 45 workers in Pierre and expects to increase employment to 200 within four years.

“A lot of companies like to be a bigger fish in terms of how the community and local government respond to their needs and support the business,” says Jim Protexter, executive director of the Pierre Economic Development Corporation. “You get that type of attention in smaller communities.”

Economic development experts say smaller communities need to concentrate on their strengths as well as workforce development, strategic planning and creating partnerships between key stakeholders like cities, economic development groups, colleges and major employers.

“You really have to be targeted and understand what you are looking for and what you want to develop,” says Kevin McKinnon, director of business development with the Minnesota Department of Employment and Economic Development. “Then you need to become ready for development and have the right facility or site. You need to listen to local employers, know their needs and be aware of the larger needs of the local community. The local college or university should be engaged in making sure a trained workforce is available and all the resources should be available to help companies grow, including being plugged into larger regional efforts.”

McKinnon mentioned Alexandria, MN, Worthington, MN, Willmar, MN, and Morris, MN, as a few examples of smaller communities in the state that have had recent success in community-wide economic development efforts.

The University of Minnesota is opening a new biosciences center on a privately-owned technology campus in Willmar where students can help companies with research and engineering.

“That’s an example of understanding local employers, seeing an opportunity and leveraging the resources that are available to facilitate the type of development they are interested in seeing,” McKinnon says. “It’s not just economic development. It’s also workforce development.”

SHOVEL-READY DEVELOPMENT

Donovan of the Wadley Donovan Gutshaw Consulting site selection firm says in order to attract primary-sector businesses from outside the area, communities generally need a trained available workforce and some type of physical infrastructure like suitable existing buildings, an industrial park or fully-prepared lots with utilities already in place.

“A number of companies will only go into a community if there is an available building,” Donovan says. “One big mistake some communities make is they think you don’t need sites ready to go with buildings. This is a market-driven business. Nothing is a sure thing. You have to do the right marketing for it. The No. 1 goal of building a shell building is to get traffic and get companies that wouldn’t have considered your community before to take a look. The second goal is to fill it.”

Mark Hanson, the economic development director with the City of Marshall, MN, says communities need to be ready for development so they can respond when a company is ready to move on a tight timeline.

“You really want to be ready today, not in six months,” Hanson says. “There’s no point in saying, ‘We have some cornfields that can be ready in a year.’”

The community of Madison, SD, recently filled a 10,000-square-foot spec technology building and data center that was built in 2006. The facility was developed in collaboration with Dakota State University and has created 40 local jobs in the IT industry. “We needed to build that partnership,” says Dwaine Chapel, executive director of the Madison-based Lake Area Improvement Corporation. “We already had a workforce in place. The students were graduating from Dakota State and going all over the country. We decided to see if we could bring in businesses in those fields to keep them in the area.”

But economic development officials caution smaller communities to do their research, target an industry their community has a competitive advantage in and calculate the risks before putting up a spec building for a company that may never come.

Donovan also says having a favorable business climate, including low business costs and an expedited permitting process, are important. He says offering something unique that most communities don’t — like dual telecommunications feeds, dual power feeds or connections to two separate electrical substations — can help a community stand out to site selectors.

CHALLENGES

Many rural areas and small cities have built in economic development hurdles like more isolated locations away from major transportation infrastructure and daily air service, a smaller workforce and a lack of existing facilities capable of housing certain operations.

“The big four cities in North Dakota have a big advantage in economic development smokestack chasing,” says Gaylon Baker, executive vice president of the Dickinson, ND-based Stark Development Corporation. “To attract bigger facilities you need daily jet service and a major university and they are also looking for a deep labor pool. Most of these are production facilities that require blue collar workers. Few communities in North Dakota can do that unless they are adjacent to larger cities.”

Amy Wobbema, executive director of the New Rockford (ND) Area Community Betterment Corporation, says smaller communities start out at a disadvantage because of their size.

“If they are looking to add 100 employees, we probably don’t have the workforce to support that,” she says. “But some of those companies that have five employees and are looking to add 10 or 15 more, that’s where we have an opportunity with smaller early-stage companies.”

TECHNOLOGY ADOPTION

Rural communities aren’t always thought of as tech savvy, but advances in technology have actually helped remote areas become more competitive.

Extensive fiber optic networks throughout North Dakota and South Dakota have made it possible for many companies to set up shop in rural communities.

“With current technology, a lot of businesses can be located anywhere,” says Protexter of the Pierre Economic Development Corporation. “Why wouldn’t you choose blue skies, fresh air and all the recreation opportunities offered by a smaller community?”

Instead of operating one large 100-person customer support and sales center in a larger city, Link It Software employs about 100 in six smaller offices throughout South Dakota that are all linked by fiber optic cables, allowing for videoconferencing between the state’s call center offices and its California headquarters.

“For years I have been hearing about the possibilities of be anywhere, work everywhere,” McFarland says. “By and large it has not been true. Until now the bandwidth hasn’t been there. But with the bandwidth available in South Dakota, we can set up offices in a number of cities and we truly can work together out of the same system. This would not have been possible five or 10 years ago.”

Richard Florida, director of the Martin Prosperity Institute at the University of Toronto and the author of The Rise of the Creative Class, says technology and innovation will play greater roles in communities’ economic future.

“To be successful, communities and organizations must have the avenues for transferring research, ideas and innovation into marketable and sustainable products,” Florida says.

A growing number of communities like Marshall, MN, are using the web and social interaction websites like Facebook and Twitter to help market themselves.

“Cities like Marshall don’t have a lot of money to spend on marketing and advertising,” Hanson says. “We have to find the best ways to spend what we have. We have decided to stop printing brochures. The website is less expensive and we can continuously update it.”

SHIFTING DEMOGRAPHICS

Despite moderate population gains in mostly larger metro areas in the region, rural America continues to shrink, providing challenges for small towns with declining population bases. Recent research suggests that less than half of the country is still defined as “rural.” More than half of the land area in the continental United States is now made up of Metropolitan Statistical Areas, which are anchored by cities of 50,000 or more, or Micropolitan Statistical Areas that are centered by cities of between 10,000 and 49,999.

Much of the region’s future population growth is anticipated to be in metropolitan areas like Fargo and Sioux Falls, one-step-down sized metros like Grand Forks, ND, and micropolitans similar to Brookings, SD, that can offer the jobs and amenities of a decent-sized college town.

“Micropolitan communities probably have an easier time of it than really small towns because they have turned themselves into regional centers, making it easier to recruit industry in,” says Jack Schultz, the author of the Boomtown USA book and the CEO of the Effingham, IL-based Boomtown Institute that fosters investment in rural areas. “They have shopping and entertainment.”

Schultz says he is seeing some people move back to their hometowns from more populated areas, but adds, “if you were born and raised in New York City, you’re probably not going to move to Rugby, ND.”

Joel Kotkin, a distinguished presidential fellow in urban futures at Chapman University in California and a senior consultant with the Grand Forks-based Praxis Strategy Group, says larger cities like Bismarck, Sioux Falls, Fargo and Grand Forks and smaller communities within a 50-mile radius look to be well positioned for the future. But he adds that the farther away you get from air service and key infrastructure, the more challenging the situation becomes for rural communities.

“There will be centers in predominantly rural areas,” Kotkin says. “In areas where there used to be 10 communities, there may be three doing very well and others that will shrink.”

DEVELOPING HOMEGROWN BUSINESSES

Many smaller communities depend more on retaining and growing existing small businesses and helping aspiring entrepreneurs than attempting to attract new employers from outside the area.

“Our No. 1 economic development strategy is to build upon the businesses that are already here, which is where historically 80 to 90 percent of new jobs and development comes from,” says Baker, of the Stark Development Corporation. “Many of our businesses were created by community-minded entrepreneurs who have decided to stay. Some of them have been offered very lucrative relocation opportunities outside of North Dakota. You have to constantly make sure that you have a good business environment that encourages business leaders to stay.”

Beth Davis, president of the Sioux Falls-based South Dakota Rural Enterprise, says attracting primary sector businesses is still important, but smaller communities need to alter the way they look at economic development.

So much focus on economic development is on attracting a 30-person manufacturer that will provide great wages and build a daycare center on the side,” she says. “But the foundation of economic development is small businesses that are already located in small communities. This is essential to the survival of small towns. If we aren’t keeping the businesses we have, there isn’t going to be anything left.”

The Dakota Rising pilot program is underway at four sites in South Dakota, helping to cultivate entrepreneurs, strengthen local businesses and grow rural communities.

“We’re trying to nail down what rural communities need to be successful,” Davis says. “We are very close. When we’re done we’ll look at replicating the model in other places.”

Tags: rural development, economic development, economy