Yes, Minnesota can be a deep freeze — 1996 brought a whopping record low of 60 below zero. But educated residents and major companies headquartered here are warm to Minnesota. With a strong economy and highly educated workforce, the Gopher State is a solid place to start a business, a NerdWallet analysis has found.
Minnesota has the sixth-lowest unemployment rate in the country at 3.6%, according to the U.S. Bureau of Labor Statistics. It’s home to public companies such as Target, Best Buy and UnitedHealth Group, and private companies including Andersen Corp., Cargill and Carlson.
“We have a lot of smart, educated and affluent people here,” says Julie Kearns, owner of Junket: Tossed & Found, a Minneapolis shop showcasing vintage and local art. In this state, 48% of residents age 25 and older have an associate’s degree or higher college credential, which places the state second only to Massachusetts (52%), according to the Minnesota Office of Higher Education.
Minnesota residents are also a connected bunch, Kearns says. “People maintain relationships since kindergarten. So, when you’re from here, I think your access to an extended network is stronger than it might be coming from elsewhere.”
NerdWallet’s rankings
To determine the best places to start a business in Minnesota, NerdWallet looked at 123 places with a population of 5,000 or more and considered six metrics in two categories:
Business environment. This category makes up 65% of the total score. We looked at the average revenue of businesses in each community, the percentage of businesses with paid employees and the number of businesses per 100 people.
Local economic health. In this category, which makes up 35% of the total score, we looked at factors such as median annual income, median annual housing costs and unemployment rates.
Key takeaways
The Twin Cities are tops. The top 10 were dominated by communities in the suburbs of the Twin Cities of Minneapolis and St. Paul. Eight of the top 10 cities are located in the area, which includes nearly 3 million people in seven counties.
Low unemployment. Minnesota has an unemployment rate of 3.7%, well below the national average of 5.5%, according to the Bureau of Labor Statistics. Each of the cities that cracked the top 10 has an unemployment rate below the national average, and five cities have an unemployment rate below Minnesota’s average.
On the small side. Two of the cities in the top 10 have populations under 10,000. All but one of the top 10 cities has populations under 60,000.
Best places to start a business in Minnesota
1. Golden Valley
The Minneapolis suburb of 20,594 has the highest average revenue per business and benefits from a very low unemployment rate of 3%, according to U.S. Census Bureau data. General Mills, Pentair, Allianz Life, Honeywell and UnitedHealth Group are some of Golden Valley’s major employers. Golden Valley is served by the TwinWest Chamber of Commerce, which provides members with opportunities to grow their businesses through networking opportunities, business programs, events and workshops.
2. Minnetonka
This suburban city just 8 miles west of Minneapolis has the fourth-highest rate of businesses per 100 people (15.75) and a low unemployment rate of 4.3%. Minnetonka is home to Cargill, a food and other products company that was ranked as the single largest private company in the U.S. by Forbes in 2014, and UnitedHealth Group, which is No. 14 on the Fortune 500 list. Other notable companies in the city include SuperValu, St. Jude Medical and Carlson. Minnetonka is served by the TwinWest Chamber of Commerce.
3. Edina
Edina, southwest of Minneapolis, is known for its 40 neighborhood parks and recreational facilities, which include the Edina Aquatic Center, Alden Park, Braemar Golf Course and Braemar Field and the Edina Art Center. The city is No. 3 on our list mainly due to its high average revenue per business and low unemployment rate. Several notable companies are headquartered in Edina, including Barr Engineering Co., Jerry’s Foods and Regis Corp. Businesses making their mark in Edina include Wuollet Bakery, Tavern on France, Edina Grill and Corepower Yoga. Entrepreneurs can turn to the Edina Chamber of Commerce for opportunities to network and grow their businesses.
4. Eden Prairie
Eden Prairie lies about a dozen miles southwest of downtown Minneapolis. With a population of 61,516, it’s the largest city in the top 10. Eden Prairie made it to No. 4 thanks to its high average revenue per business, low unemployment rate and high percentage of businesses with paid employees. The city, on the north bank of the Minnesota River, has more than 750 wetlands, lakes and ponds. Major employers include UnitedHealth, C.H. Robinson Worldwide and Cigna. The Eden Prairie Chamber of Commerce provides over 125 networking opportunities annually for members, according to its website.
5. Roseville
Roseville is a city of 34,164 east of Minneapolis and just north of St. Paul. The city is home to the Roseville Library, billed as the busiest library in Minnesota; the Rosedale Center mall; Bennett Lake, which is known for its bank fishing; and the Oval, an outdoor ice rink. With an unemployment rate of 2.8%, Roseville’s jobless figure is among the lowest on our list. Major employers here include the Minnesota Department of Transportation, Target and Symantec. Roseville’s taxes are low for the Twin Cities area, according to the city’s website. The Twin Cities North Chamber of Commerce serves Roseville businesses.
6. Little Canada
Little Canada, about 5 miles north of St. Paul, has a population just under 10,000, making it the second-smallest city in the top 10. Little Canada ranked sixth on our list due to its high average revenue per business ($2.3 million) and percentage of businesses with paid employees (41%).
7. Thief River Falls
Thief River Falls is just 70 miles south of the Canadian border. With a population of 8,652, it is the smallest city in our top 10. The city is home to Seven Clans Casinos; Arctic Cat, a snowmobile manufacturer; and Digi-Key, an electronic parts supplier. The city benefits from a low unemployment rate (2.8%), and high average revenue per business ($3.0 million). The Thief River Falls Chamber of Commerce offers members benefits, including networking events, business workshops and help with promotional activities.
8. Rogers
Rogers is a city of 10,913 about 25 miles northwest of Minneapolis. The city has the third-lowest unemployment rate on the list at 2.5%, and nearly 40% of businesses here have paid employees, which ranks as the 14th highest on the list. The I-94 West Chamber of Commerce represents 10 local communities, including Rogers, and offers members networking and promotional opportunities.
9. Mendota Heights
The city of Mendota Heights had a median household income of $95,083 from 2009 to 2013, well above the state median of $59,836, according to the U.S. Census Bureau. The city has one of the highest number of businesses per 100 people on our list and a low unemployment rate of 3.7%. Mendota Heights businesses are served by the Dakota County Regional Chamber of Commerce.
10. Alexandria
Alexandria is a small city of 11,357 off Interstate 94, roughly equidistant from Fargo, North Dakota, and Minneapolis. Major employers in the city include 3M, Tastefully Simple, Douglas County Hospital and Alexandria public schools. Alexandria business owners can turn to the Alexandria Lakes Chamber of Commerce for networking, marketing and volunteer opportunities.
Best places to start a business in Minnesota data
Methodology
NerdWallet analyzed 123 places in Minnesota with a population of 5,000 or more. We excluded places with fewer than 500 businesses, regardless of the population. The overall score for each community was calculated using these criteria:
Business climate, 65% of the overall score, is based on three metrics from the U.S. Census Bureau’s Survey of Business Owners.
- Average revenue of businesses is 20% of the score. A higher average contributed to a higher score.
- Percentage of businesses with paid employees is 25% of the score. A higher percentage contributed to a higher score.
- Businesses per 100 people is 20% of the score. A higher number contributed to a higher score.
Local economic health, 35% of the overall score, is based on three metrics from the U.S. Census Bureau’s American Community Survey.
- Median annual income is 10% of the score. A higher median income contributed to a higher score.
- Median annual housing costs are 10% of the score. Lower median costs contributed to a higher score.
- Unemployment rate for residents over 16 years old is 15% of the score. A lower rate contributed to a higher score.
Experts tell what makes Minnesota special for business, what needs to improve
Chandu Valluri
Assistant professor of business and academic advisor to the Kabara Institute for Entrepreneurial Studies, Saint Mary’s University of Minnesota
What makes Minnesota a good place to start a business?The state is known for being high tech and is home to a labor pool that possesses strong technical talent. The state’s workforce capability in the field of engineering is stellar, and the Midwest work ethic is a definite plus point. Moreover, the business community is very supportive of entrepreneurial endeavors in the biosciences, food, retail and manufacturing arenas, to name a few.
According to one statistic, Minnesota has more Fortune 500 companies per capita than all but one state. Many large players like Medtronic, Mayo Clinic, UnitedHealth Group, General Mills, 3M, Honeywell and Best Buy are perfect candidates to create spinoffs and support buyouts of high-potential startups.
There are also notable organizations within the state that are strongly committed to supporting entrepreneurial activities. Some of these organizations include Tech.MN, Minnesota High Tech Association (MHTA), LifeScience Alley and MOJO Minnesota.
Aspiring entrepreneurs can also access the state’s accelerators or seek various industry groups to assist with their entrepreneurial endeavors. Some of the well-known accelerators include: Project Skyway, CoCo and the Mayo Clinic Business Accelerator.
Finally, the state hosts various competitions to provide visibility and connections to aspiring entrepreneurs. The Minnesota Cup and Cleantech Open have grown in the number of participants since inception and have been very instrumental in helping entrepreneurs pursue their passions by providing opportunities to receive mentorship, obtain funds and gain noteworthy exposure.
What resources are available for small business owners?
The Minnesota Angel Investment Tax Credit was created in 2010 and provides a 25% credit to investors or investment funds that put money into Minnesota startup companies focused on high technology, new proprietary technology, or a new proprietary product, process or service in specified fields. The purpose is to incentivize startup businesses to move to or stay in Minnesota.
Presently, Minnesota legislators are also looking to link startup businesses with capital resources through MNvest, a proposed online service that would operate like Kickstarter or other crowdfunding sites. If this legislation gets passed, it is believed that more startups will obtain access to seed funding and the public will potentially have access to more wealth-generating opportunities.
What could be done to improve Minnesota as a place to start a business?
The state needs to continue to develop the Greater Minnesota entrepreneurial ecosystem. The ecosystem has to grow beyond the Twin Cities metro area and develop statewide. Particular emphasis and focus on providing entrepreneurial resources to smaller towns and rural communities needs to take place.
Although the state has built a strong national and international presence in the biosciences industry, Minnesota needs to further develop its competitiveness in other industries, too. Innovation and entrepreneurship education needs to be further embedded at all levels of the educational system.
The state has to continue to support and further grow its investments in startup ventures. Barriers to investment capital need to be removed. Startup and early-stage firms require a network of investors, mentors and advisors to make their dreams a reality. The Minnesota angel tax credit and the proposed MNvest legislation (if passed) are predicted to help.
The better resources we can offer our entrepreneurs, the more likely they are to stay in state. Ultimately, once these companies become successful, the more likely they will reinvest and mentor the next generation of firms. Further efforts to ignite women entrepreneurs and minority-owned entrepreneurs need to be tapped as well to respond to changing national demographics.
Elaine Hansen
Director, Center for Economic Development, University of Minnesota Duluth
What makes Minnesota a good place to start a business?Minnesota is a good place to live, and a number of communities have been recognized for their business-friendly and healthy living environments. Two that quickly come to mind are Duluth and Grand Marais. There are many community enticements to support businesses and business owners, from a thriving arts community throughout the state to tremendous access to natural beauty such as lakes, parks, hiking and walking trails, bicycling, and other recreation in large cities, as well as easily accessed remote, rural areas.
There is an educated workforce and strong educational system, including technical training, K-12, and two- or four-year colleges and universities. There are also many entities in place to support new businesses.
What resources are available for small business owners?
There are so many programs and organizations in place to act as resources. There are also many types of alternative financing options that can be utilized alone or in partnership with other financing sources. These resources include SBA-sponsored financing for micro-loans, several 504 loan programs, women’s business centers, SBA financing support for financial institutions, six regional initiative funds, regional development commissions and others have loan programs.
Cities and counties are willing partners for new businesses and also can partner with the state of Minnesota programs for infrastructure and site cleanup needs. There is a very strong Small Business Development Center program in Minnesota, and the state Legislature has funded a number of nonprofit initiatives to assist business owners. The state has a one-stop program to help business owners determine appropriate licenses and regulatory requirements.
What sectors or industries are doing well in Minnesota and why?
As with many areas of the country, service-type businesses are doing well. But, as an example, the northwest part of the state has a large manufacturing sector covering everything from agriculture to windows (Marvin Windows), electronics (Digi-Key), recreational equipment (Arctic Cat and Polaris), metal fabrication and mobile equipment.
There has been a shortage of trained workers in many areas of the state, which is encouraging creative partnerships with industry and education to provide the training needed to meet industry needs and opportunities for creative employment options, such as reduced workweeks, job sharing, day care in or close to a workplace, working from home, etc.
In the large metropolitan area of Minneapolis and St. Paul, as well as the surrounding counties, there is a definite increase in the number of businesses, and that area has long been known for its financial service industries, health-care-related businesses and large retailers.
What could Minnesota authorities do to make it an even better place to start a business?
They could assist with the housing crisis, which is impacting many areas of the state. It is difficult to start or expand a business if the employees cannot find appropriate housing. Also, continued and increased support for the various business assistance programs would be helpful.
Donald Salyards
Economics professor, Winona State University
What makes Minnesota a good place to start a business?One thing a lot of people overlook: the single most important factor that determines where people start a business is where they already live. Younger people who are more high tech and more mobile probably are more able to move quickly into new opportunities than established people who have a mortgage and all that kind of stuff.
Minnesota’s is more of a high-tech economy than a manufacturing economy. We’ve got Medtronic, St. Jude Medical, and those jobs really create value. There’s a really good research facility at the University of Minnesota in the Twin Cities. So you’ve got your big companies there, your high-tech firms and universities.
For small businesses starting out, what are some useful local resources?
You have to have people around who can help you with your venture, whatever it is. Whatever expertise you need, you have to have those people around. Mentorship is important, although, surprisingly, entrepreneurs love to mentor other young entrepreneurs, even at the expense of their own enterprises, and even if they’re going to be a potential competitor.
This little town that I live in of 30,000, maybe once in the entire history of the town has a company come in and built a plant or brought a job to Winona. All the jobs in Winona were created in Winona. They always say, “There’s something in the water.” But I think what is really is, entrepreneurs in Winona going back to 1850 or 1860 have prospered and then spun off, either directly or through their mentorship, other firms. So it’s kind of a cool little network. A young kid who’s here starting a business, if he wants to go to some guy running a $500-million business, that guy is going to see that kid. It’s kind of a neat thing.
Are there any startup accelerators or incubators for small business owners?
We have one company in town called Miller Ingenuity that has kind of an incubator, a place where entrepreneurs can try out new ideas. Those guys have something going. My feeling is that I’m not sure you can teach people to become entrepreneurs or accelerate them in a formal sense.
Universities [will] get a bunch of students to work on a case and show a guy, “Well you should be doing this or that, and this can help you, and that can help you,” and I think in rare cases that really will help a person. But I think what that person really needs is an entrepreneur who has actually done it — been there, done that — to show an interest and help that person get through their financing obstacles, personnel obstacles.
What are some sectors or industries that are doing well in the state?
Well, medical is good, information technology is good. I would say things like nanotechnology, they are getting a good foothold here. And then there are your core sectors, like agriculture, which kind of holds everything together and is always going to be there.
What could be done to improve Minnesota as a place to start a business?
I would say anything that can be done to reduce costs for potential entrepreneurs, especially in the early years, is very important.
For more information about how to start and run a business, visit NerdWallet’s Small Business Guide. For free, personalized answers to questions about starting and financing your business, visit the Small Business section of NerdWallet’s Ask an Advisor page.
NerdWallet staff writer Steve Nicastro contributed to this article.
Update: A link in earlier versions of the methodology has been changed.
Carlson Towers in Minnetonka, Minnesota, image via iStock.
