The South Central Small Business Development Center: Leading the Way to Business Success

The road to business success is never easy. That’s why organizations like the Small Business Development Center (SBDC) exist: to provide the resources and expertise new and existing business owners need to survive and thrive.

The Region Nine area is served by the South Central SBDC, which is headquartered in Mankato and hosted by Minnesota State University, Mankato’s Strategic Partnership Center. Since 2017, Mike Hahn has been at the helm, serving as regional director.

Hahn knows a thing or two about the business world. He’s been working in small business development and downtown development for decades. You could say he’s seen it all, but even he concedes these past few years have brought unusual challenges.

“I’ve been doing this for about 30 years. In all those years, this is the most interesting time that I’ve ever seen because things are changing so fast,” Hahn said. “Sometimes, it’s hard for us to keep up with all the changes.”

As the pandemic fades away in the rear-view mirror, the road to business success is still looking bumpy with plenty of potholes and detours ahead. Inflation, supply chain issues, and staffing shortages continue to linger. Meanwhile, new technologies such as AI and automation are fueling even more change.

“There’s been a definite change in the way we do business, and I don’t think we’ve seen the end of it yet,” Hahn said.

Which makes the role of the SBDC more important than ever. Its mission is to arm new entrepreneurs with the information and resources they need to launch successful startups. It’s also a valuable resource for seasoned businesses that are looking for ways to take their companies to the next level.

“People are utilizing the resources that are out there more than ever, economic development resources like the SBDC and others that help with business consulting,” Program Manager Molly Byron said.

I sat down with Mike and Molly recently to get the latest news on the state of business in our region.

What do you do here at the SBDC?

Mike: Our base service is one-to-one consulting for small businesses and people who are considering opening a business. We are funded in large part by the Small Business Administration (SBA). They’re the primary funder, but the remainder of our funds come from a partnership between the state, the community and the university. When I mention the community, we’re talking about everyone from banks to counties to municipalities that provide us with funding on an annual ongoing basis.

We serve the nine-county region of South Central Minnesota, the same counties as Region Nine Development. We’re one of nine Small Business Development Centers within the State of Minnesota. There are over 1,000 SBDCs in the United States and the U.S. territories.

Molly: It’s important to keep in mind that we’re not solely focused on Mankato. Our services are available to everyone in the region, and our consultants can travel or meet virtually online to assist you.

Who are your consultants?

Mike: These are specialists in various areas of business. We contract with them, and we pay them for their time when they meet with clients. It doesn’t cost a dime to the client. It comes out of our funding.

Molly: Currently we have 14 consultants that vary in expertise from accounting and finance to HR, cybersecurity, and marketing. We also offer general business planning. I like to say that they’re the boots on the ground, doing the work with our clients.

Are SBDC services free?

Mike: We keep it pretty low cost. We might have costs for purchasing textbooks or copied materials, or we might charge folks a nominal fee for training, so they have some skin in the game and they attend. We say we’re no fee or low fee, and we keep it as low as possible. But we cannot charge for our face-to-face consulting under our charter.

Who are your customers and where are they located?

Mike: On average, we serve about 400 to 500 clients on an annual basis. In the pandemic years, it got really high. We don’t want that to happen again. The majority will come from the Region Nine area. Occasionally we will have alumni or people that have connections through MSU Mankato from beyond our area. But the majority of our clients do come from our area.

About 35 percent of our clients are looking at starting a new business. When most businesses start up with us, it’s very intense in the beginning. Once they get their funding in place and they’re getting enough revenue, they’ll go out and hire an accountant. They’ll hire an HR service or somebody to process their payroll. Another 60 percent of our clients are existing businesses. They’re looking at reinventing themselves or developing new concepts, new product lines and things like that. We also serve nonprofits. That’s the remaining 5 percent.

Mike, halfway through your tenure here the pandemic rolled in. How did it impact the SBDC?

Mike: We had to pivot. Pivot was the word of 2020. Prior to the pandemic, clients would come in and, if they were serious about starting a business, they would take cash out of their house. They would take whatever cash they had saved, and then they would go after a commercial loan. They would leverage that cash with other financing so they could get started in a business.

After the pandemic, we went from seeing 400 clients to seeing almost twice that amount in a one-year period. It was pretty trying. Before the federal government developed the Payroll Protection Program and the Economic Injury Disaster Loan Program, people were asking, “What are we going to do?” I’ve had some long-time businesses here in Mankato call me literally crying over the phone. It tugs at the heart. So, it was very tough, very difficult. We were able to work with the SBA and the state SBDC to provide the assistance that was needed to retain as many businesses as we could, to get them over that hump.

Post-pandemic we’re seeing a shift. What I mean by that is “microprenuers”. These are people who are coming in and asking for assistance, but they’re not looking at any type of commercial lending. They’re bootstrapping. They’re utilizing their existing resources and they’re testing multiple different business concepts all at one time, essentially seeing what sticks in the marketplace. And they’re starting up at a pretty low-cost level: farmers markets, street fairs, community events, food trucks. We’re starting to see a lot more of that, where they’re keeping their day job while starting these businesses on the side.

We’ve also definitely seen a big increase in service-based businesses from tutoring services for educators to people who are working from home and processing medical insurance forms, things like that. So, we’ve seen this growth in businesses that we call a side hustle. They’re freshman entrepreneurs. Once they approach that point where they’re replacing the livable wage that they’re getting in a W-2 job, then they kind of elevate to sophomore entrepreneurs, and then things really start to get serious.

As difficult as it was for many businesses to survive the pandemic, it seems it was also a time of tremendous opportunity for others.

Mike: It was. We had a lot of people that saved money and were able to put it into a business concept, a business idea. People had a lot of time on their hands and were able to consider new business ideas. We’ve seen a lot of new businesses that came out of the pandemic to meet market needs and solve problems. Molly’s part founder of a startup business, The Meatery. Didn’t that start during the pandemic?

Molly: Absolutely. Before the pandemic, The Meatery was a mere concept that was often discussed during family meals. We noticed the growing community of meat enthusiasts and saw an opportunity to create a business around it. As hog farmers ourselves, my family experienced firsthand how the pandemic disrupted the supply chain. Recognizing this problem, we were motivated to find a solution and bring our idea to life.

That’s where the SBDC came into play and where I jumped in. I was working at the City of Waseca and the Waseca Chamber at the time. We partnered with the SBDC to do the Waseca New Business Challenge. It was a ten-week entrepreneurial training program. At the end, we held a pitch competition and awarded a $30,000 forgivable loan from our EDA. We had 13 people participate in the challenge with seven businesses among the participants. It led to five new business starts from that group. One of the businesses was my family’s, The Meatery. … The success of our innovative business model can be attributed, in part, to that program.

Mike: We’ve also seen existing businesses become stronger because of the pandemic. The economy was good prior to the pandemic, and some businesses were very loose, especially in controlling and managing their business. The pandemic kind of gave them a slap across the face and made them say, “You know what? I need to become a better businessperson. Instead of just being passionate about what I do as a service or as a product, I need to know how to manage the business.” So, we’ve had a lot of existing businesses that have come into the SBDC. We’ve used our team to help them develop, getting somebody with strategic planning or finance or IT experience to work with them and give them some rocks of knowledge which they could follow. It’s turned them into better businesses over the long haul.

Many workplaces have shifted to remote or hybrid work. Are you seeing a similar trend toward the digital workplace in your clients?

Mike: Oh, yes. We see the onset of more digital businesses, but also existing businesses utilizing digital platforms. We’re definitely seeing growth in that area. That’s the reason why we brought on cybersecurity and IT support consultants. Those were areas that we did not have as part of our consulting team before the pandemic. The big thing now is Artificial Intelligence (AI). You’ve got to accept it, but it’s a little scary. We’re seeing what we can do to find some consultants in that area. The SBA and our state SBDC office are also developing policies relating to AI and what we can provide for technical assistance.

Are your clients using AI? Are you?

Mike: I’m not. Are you, Molly?

Molly: Just recently we started utilizing it as a tool for business planning help. So, it’s starting.

Mike: We talk to our partners that fund programs. One of the things that they’ve been noticing is a lot of applications that are coming in are looking a lot alike. People are using AI for business plans, for funding applications. So yes, they’re using it. But if they aren’t managing their message and just taking it strictly from AI, our funders say they can usually tell. But if they’re managing the message or only using a little bit of AI to create content, then it becomes a tool.

What other changes are you seeing?

Mike: The other thing that I think has changed is that if you looked back to the ’80s and ’90s and even the early 2000s, everybody who worked in city government or in economic development regarded downtown development as: “Oh, that’s cute. That’s nice. But I’m going out and getting this track of land, and we’re going to bring in somebody from outside the community. We’re going to give them all sorts of incentives, and they’re going to bring 100 new jobs here.” We called them smokestack chasers in the day.

Now when we talk about economic development, it’s changed. Instead of trying to lure in an Amazon, maybe it’s better to plant some seeds locally and create the next Taylor Corporation, to create the next Angie’s Kettle Corn. We’re seeing a lot of communities utilizing entrepreneurship as an economic development strategy to help build their ecosystem and their business community over the long haul.

Are supply chain issues abating at all?

Mike: The supply chain issue turned into an inflation issue. When you have things like cooking oil that went from $20 a gallon to $60 a gallon, that’s now an inflation issue. Business owners have to watch their bottom line with inflation. The supply chain issue is somewhat abated, but I also think people are looking at other ways to get around it. They’re carrying less inventory, or they have a good supplier that’s able to dropship when they need it. Those relationships are so important. For us to flourish as a region, we need people to understand that you have to develop strong relationships. You need to be open. You need to be communicative.

What about higher interest rates? Do they appear to be inhibiting growth?

Mike: They are. Interest rates are a challenge. I hate to use the R-word. I haven’t seen anything that reflects that in our region. People are trying to find ways to make their business happen but to make it happen within their economic means. They’re bootstrapping or collaborating with other suppliers or with people that might have joint interests. From my standpoint, this is probably the most creative time I’ve seen for deals.

Unfortunately, we’re still noticing issues with the workforce. Some small business owners are having to serve their clients themselves because they can’t find people to hire. I believe that’s going to have a domino effect. We are going to have to adopt new technologies to replace people so that these small businesspeople can work on their business instead of working in their business.

There are some entrepreneurs, I refer to these as lifestyle entrepreneurs, that say, “As long as I’m making a living wage, as long as I got a good client base, I’m happy with that.” But other entrepreneurs want to grow, and for them to grow, they’re going to need to adopt new methods, new technologies to get them to that point. They’re looking at automation, taking a look at what they can do to streamline things. It’s a challenging time, but it’s also full of opportunities.

What does it take to be a successful entrepreneur?

Molly: To succeed as an entrepreneur, you need to possess a great deal of grit and passion. In my role at the SBDC, I interact with highly passionate individuals on a daily basis. It’s easy to spot someone with an entrepreneurial spirit – you just know they’re destined to be a business owner.

Do you ever sit across a desk from someone who’s making a pitch and think: “That’s never going to fly?”

Molly: We help a lot of people discover that maybe they shouldn’t go into business.

Mike: Our milestones are from the SBA, from the state. They ask: “How many businesses did you create? How many clients did you assist to acquire capital? How many employees did they add?” The thing that they don’t ask is: “How many times have you talked somebody out of wasting their money on a business concept or idea?”

Molly: Or put their mind at rest by exploring an idea and helping them figure out that this isn’t actually what they should do or what they want to do. Now they know, so it’s not always a question in the back of their mind.

Mike: Sometimes that’s a very difficult conversation to have one-on-one with the client. My consultants and I sit down with a laptop and we look at a spreadsheet. We can usually find things from the North American Industrial Classification System, and we can say, “Okay, we think that in this marketplace you can do X number of dollars in sales. This is how many competitors you have.” We know what the expenses are. We know what the cost of goods is. Sometimes that’s all it takes for the client to see, “Ooh, that doesn’t look good.” Then either they’ll move on and go do something else, another business concept or idea, or they might say, “You know, this is too hard. Maybe I’d better keep my W-2 job.”

Molly: Which certainly happens a lot. When The Meatery was going through the New Business Challenge, we had a lot of ideas. Not all of them were good. The advice and consulting that we received helped. We wouldn’t be where we are today without it.

If there was one piece of advice that you could give a new client, what would it be?

Molly: You can never have enough education. You’re never too successful to learn. You never reach a place where you should stop searching for those development opportunities.

Another thing is you always need to be searching for people who are great resources to be working with you. Sometimes it can get overwhelming. It’s that concept of not only working in your business but also working on your business. You need to make sure you’re surrounding yourself with people and organizations that can help you because you never know what opportunities or connections you’ll gain from that.

Mike: One of the big things that we stressed for the Waseca program was having a business pitch ready. The elevator pitch. Your business story in 30 seconds.

Molly: In one minute, in 30 seconds, how can you describe your idea? That was key because if you can’t do it, no one else is going to understand your business.

How will the new One Minnesota budget plan impact the South Central SBDC?

Mike: It’s still to be determined. The biggest challenge that we have in all our regional centers in Minnesota is that 50 percent of our funding comes from the federal government. Another 20 to 25 percent will come from local sources like the university, the communities — cities, counties, banks, and things like that. For the remaining 25 to 30 of our budget we’re very, very dependent upon a competitive grant, the Small Business Partnership Grant. So we as a staff are constantly in fundraising mode. There’s that period when we’re just coming out of a fiscal legislative year when we don’t know when the grant is going to be announced. We don’t know when the Request for Proposal (RFP) is going to be done. We have to go through the process of putting a grant proposal together every two years to essentially service the program.

In other states, those funds are covered by the legislature — and I can say this because I worked in the Iowa program for a number of years. So, for instance, in the State of Iowa, in the State of North Dakota, the money comes from the SBA, then there’s our half that’s coming from the legislature. Boom. The match is made. In Minnesota, the legislature designates funds to DEED which then distributes the funds to the SBDC. Then I have to go through this competitive grant process to essentially get the state match. Now DEED has been very gracious to us. But we’re chasing our tail every two years to get that 25-30 percent of our budget. Every two years we have to ask, “Am I going to have enough funds to continue?” Then I have to go out and ask my university, ask my bankers, ask my cities and counties: “Hey, could you pony up the money to help us help small businesses in our region?” We need to have something a little bit more solid than just a two-year commitment.

It sounds inefficient.

Mike: Exactly. For instance, we have been wanting to start this new entrepreneurship program. It’s called FastTrac, and we want to bring it to Mankato. But because we’re up against this grant cycle and we’re also hosting a big event for the state SBDC this fall, we don’t have the bandwidth to do it. Instead, Molly and I are going to be concentrating on making sure that we get that funding for the next two years.

You offer a wide range of resources to your clients. Which are the most popular?

Mike: Business planning is number one. Number two would be financial projections and financial packaging because you need your projections in place to show the funding agency, be it a commercial lender or some type of local program, that you’re a viable business and worthy of the funding. Those are the two things that have traditionally been in high demand, and I think it will continue to be that way. The university and one of our staff people have been testing AI on projections, and it doesn’t get it. There are errors.

The other thing that we haven’t talked about is business succession. That’s a service that is really needed. We have Boomers that are going to retire and a lot of them have businesses in our rural communities that are desperately in need of certain services. They need everything from plumbers to optometrists to pharmacists. We need to find ways to get people that will take over some of those businesses for those communities or else they’re going to dry up.

So the Boomer generation is ready to hand off the baton, but there may not be anyone to hand it to?

Mike: Right. Prior to the pandemic, we had a program called BizLink North that we were testing in Sibley County. It’s an online platform for business succession. We’re trying to find a way to resurrect that program because business succession planning is very time-consuming. It’s very emotional because you’re working with families. It just needs more resources than what people think it will need.

What’s the current outlook for our region?

Mike: We’re seeing growth, especially in our rural areas, post-pandemic. A lot of people are realizing, “You know what, I don’t need to go to an urban area. I can do this from the comfort of my home.” We’re seeing a whole new demand where people can work from smaller communities. I think the advantage that we have in Greater Minnesota over even some of the suburbs is that our pricing and our cost of living are lower. So that provides us with an opportunity. But the thing that kind of prevents us from going to the next level is that we need to work with each other. We need to make sure that these people that are coming to our community with different ideas, different concepts are welcome. They may look different. We need to be more accepting of those concepts.

What is the relationship between existing businesses and new businesses? Does it feel adversarial or welcoming?

Mike: They’re definitely supportive in this community. They want more younger businesses coming up.

Molly: They are very welcoming. It’s great. As a new business owner myself, I can attest to the overwhelming support that we received not only from the business community but from the whole community. It’s been phenomenal.

Sidebar: Get Deep with Mike Hahn

For an in-depth conversation with Mike Hahn, tune in to Episode 37 of the Get Deep Podcast on Spotify. The Get Deep Podcast is part of the Connect Network and is hosted by Wes Otto and Aaron Jones. You can find it here: https://podcasters.spotify.com/pod/show/get-deep/episodes/Ep037-Mike-Hahn-e1v9gnv%3Cbr

Sidebar: The myth of easy money

Mike: There’s a common myth out there that you can start a business with no personal equity and have no personal risk at all. That’s not true. There are grants out there, but they’re very specific to a business need or a demographic.

Basically, where grants come in as equity. In most cases, when you want to start a business, the bank will want you to have good credit and meet all the creditworthiness requirements. Then you can usually get into a business with only 30 percent equity. Now, let’s say you have only 10 percent, but you meet a specific demographic or your business meets a specific need in an underserved community. Then you might be able to get either a grant or a low-interest/no-interest loan that will provide that equity or that will help leverage you to get the commercial loan from the bank. Now when you’re talking about restaurants and bars, that equity requirement is probably up to around 50 percent or higher because of the failure rate that’s involved with those types of ventures.

So, we hear that a lot. People think it’s easy just to go out and find the capital for the funding. It’s not. But if you work with us, and if you have that tenacity and resilience, we can help you find it. If you are passionate about a business, we will work with you and find a low-cost way of doing it. We give people multiple options, a pinpoint map of how they can grow depending on what direction they want to go with their business.

Sidebar: Increase your chances of business success with the SBDC

According to the US Census Bureau, more than 5 million new businesses were started in 2022. It was a big year for startups (the average year sees about 4.4 million), driven by a post-pandemic surge. Each of those business starts represents a substantial investment of money, time and effort, but despite that many of these businesses will fail. In fact, according to the latest data from the U.S. Bureau of Labor Statistics about 1 in 5 U.S. businesses fail within their first year of operation.

That’s where the SBDC comes in, increasing a fledgling business’ chances of success with expert mentors and business planning resources.

Mike: If you do it on your own, you probably have a one in five chance of being successful. If you work with us, your chances grow. You probably have a 90 percent chance of success. SBDCs are located all over the nation. So, it’s very important for you to develop that relationship with your SBDC, to develop that partnership. We have people who know all the holes you can get into, and we’re there to prevent you from falling into those holes.

Don’t do small business in a vacuum. There are resources out there. Don’t be afraid to call. Don’t be afraid to go online, to put an application in. Don’t be afraid to sit down and talk to or to virtually talk to somebody. That’s what we’re here for. We’re here to help businesspeople, to make sure they’re successful and also to make sure that they don’t do anything that’s going to financially hurt them over the long term. … We’re here to partner with them and to make sure that they are as successful as they can be in the marketplace.

Sidebar: Don’t miss these popular local entrepreneurship ecosystem programs

1 Million Cups: 1 Million Cups is a free, nationwide program designed to accelerate early-stage startups. Entrepreneurs and community members from the greater Mankato area come together for coffee and conversations to support new ventures. These events are hosted by the MSU Mankato Center for Innovation & Entrepreneurship on the first Wednesday of each month.

Behind the Success: This free speaker series is hosted by the SBDC in Mankato. Each event introduces a highly successful entrepreneur from the region with an intimate Q&A session, describing their business journey. can relate to the advice that they have. The next Behind the Success will be on September 20 and feature Ted Marti.

Entrepreneurial Pathways: A joint venture between the SBDC, Greater Mankato Growth and the Mankato Area Foundation, the Entrepreneurial Pathways/Kauffman FastTrac program helps new entrepreneurs develop a business plan over an 8- to 10-week period. At the end of the program, participants will have access to a group of resources, the “Connect Tank”. It allows each new business to rapidly meet with a wide range of representatives from area banks, cities, counties and funding agencies like Region Nine Development and the Southern Minnesota Initiative Foundation.

Sidebar: SBDC Success Stories

Distilled from interviews by Molly Byron

 

OFFICIASTORE

officiastore.com

Entrepreneur: Pamela Ryan

Description: Manufacturing women’s officials apparel and accessories

Passion: I’ve always loved women’s sports. Not only those who participate in the sport directly but those who support female athletes. Female officials are a small segment of the officials market, but my heart and passion are for that segment of the market and serving their needs.

Biggest challenge: Being an entrepreneur can be lonely. Having an intelligent person who walks the journey with you is extremely helpful

Biggest success: Surviving the pandemic with a clearer vision of the future.

Advice for aspiring entrepreneurs: Find a trusted partner who you respect and can turn to for advice and support.

 

PADDLEFISH BREWING COMPANY

St. Peter, MN

Entrepreneurs: Luke Dragseth, Eric Johnson and Dave Long

Description: Craft Brewery

The Dream: Bringing a craft brewery to St. Peter with eight beers on tap all brewed from ingredients indigenous to the Midwest. The Paddlefish will offer live music and feature an open storefront design for enjoying the outdoors.

Biggest challenge: Staying within budget. Inflation really impacted our start-up costs.

Biggest success: Paddlefish Brewing is slated to open in Fall 2023