MARSHALL - A study by the Southwest Minnesota State University Marketing Advisory Center found Minnesota and Wisconsin jockeying for position as worst state for starting a business out of five states in the region.
The study was contracted by the state Legislative Coordinating Commission. Mike Rich, professor of marketing at SMSU, won the contract and put together a team of students to design and carry out the research, which ran from March to December 2011.
"The maximum bid allowed was $65,000," Rich said. "We bid $45,000."
The team studied the relative difficulty in setting up a business in Iowa, Minnesota, North Dakota, South Dakota and Wisconsin.
The study was designed as two parallel lines of research. In one, the team created questionnaires it sent to 15,000 businesses started since 1985, Rich said. They got back 839, or about 5 percent.
Five team members also took a state each and started contacting their respective state's agencies for information on how to start a business in five categories: beauty shops, restaurants, print shops, dentist's offices and gas stations with a convenience store.
These types of businesses were chosen because they are common in all five states and started with regular frequency, Rich said.
Once a week the team met to discuss its findings. Danielle Schmidt, a senior in marketing, had Minnesota.
"We're not a very business-friendly state," Schmidt said.
While some of the study's findings might be as expected, some were not.
The difficulty in starting a business was directly related to the state's population, according to Rich. More populated states had higher degrees of difficulty.
But it turned out there was no significant difference in the regulatory hoops business start-ups had to go through. There was the same number of permits, the same number of agencies to deal with, the same number of inspections in all categories.
Nor was the difficulty of starting a business in Minnesota detrimental to the state being the leader in business start-ups in the five-state area, Rich said.
"If I'm going to go into business, I'm going into business where I live," Rich said. "Minnesota had the highest percentage of businesses started where the founders live. South Dakota had the highest percentage of out-of-state businesses coming in."
Neither do tax breaks appear to make a difference, according to the study. What was different in the less business-friendly states was the number of people to contact within an agency, the number of sub-departments within the agency and how knowledgeable any given person contacted was. In other words, it's not the hoops you have to go through to start a business, it's finding out what those hoops are.
"In Wisconsin and Minnesota they have a 'silo mentality,'" Rich said. "They just know their jobs, they don't know anybody else's. In South Dakota, you call Sue and she'll tell you everything you need to know. We've got to be friends with Sue."
According to Schmidt, the websites in Minnesota were not user-friendly, or Search Engine Optimized, and often just hard to read.
"In the initial search I didn't have a problem finding the website," Schmidt said. "It was reading the information on the website."
The study found the hardest business to start was a gas station/convenience store, because of all of the permits required from different agencies governing the handling and sale of food, fuel and lottery tickets.
Schmidt and other team members reported that when they did get ahold of someone in the appropriate agency, he or she acted like the request for information was an imposition on his or her time.
Last year Francis Korman took over a long-abandoned garage in Taunton, where he lives. He works on cars in the evenings after his regular job at Lockwood Motors and is trying to grow his business with gas pumps and a convenience store.
"I've been working on it for almost a year now," Korman said, "and I'm still trying to get people to get back to me. I haven't got gas yet. It's just call and wait, do this and wait."
After evaluating the study, the team came up with a series of recommendations, all of which boil down to make it easier for potential business startups to find out exactly what they need to do to stay within the law.
"In the feedback from our questionnaire they didn't complain about the number of regulations, they were upset over what they had to do to find out," Rich said.
Rich recommended making the regional Small Business Development Centers a one-stop shopping for information. When that will happen is anybody's guess.
"We were supposed to make a report to the legislative committee on small business," Rich said. "They never asked us to come in."
Nationwide study gives Minnesota a 'B' in small business
As far as small businesses are concerned, a study conducted by Thumbtack.com, a web-based company that connects the public with a desired professional in a variety of fields, gave Minnesota a "B" for its overall small business friendliness. Although Minnesota ranked well overall, the study found that it struggled with the business friendliness of its tax code, where it earned a "C" grade. Central Minnesota ranked best in the study, while the southern region ranked at the bottom of the scale.
More than 6,000 small business owners nationwide took part in the study that took into consideration 17 categories. The survey asked questions about the friendliness of states toward small business and about small business finances.