Problem for Minnesota startups isn’t the cost, it’s finding the information

UPDATED WITH DEED COMMENTS. SEE BELOW. Originally posted May 29, 2012.

It's not that regulations make starting a business in Minnesota cost more than in surrounding states. Nor is it that the state puts more licensing and regulatory demands on new entrepreneurs.

What's more difficult in Minnesota than in Iowa and the Dakotas is finding the information you need to launch a start-up.

Those are the conclusions of a little-noticed study done for the Legislature this winter by a marketing center at Southwest Minnesota State University in Marshall.

Lawmakers ordered the study two years ago to get a handle on how Minnesota stacks up against its neighbors when it comes to the impact of regulations on startups. The Legislative Coordinating Commission contracted with the Southwest Marketing Advisory Center at Southwest State for $65,000 to do the work.

Under the direction of executive director Michael Rich, the center both surveyed successful startups and assigned student researchers to pose as potential entrepreneurs looking to start five different businesses in each of five states.

When it comes to licensing costs, here's what they found.

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The numbers vary, but Rich maintained that, with the exception of some liquor license costs in South Dakota, "the [licensing] costs are peanuts" compared to the overall expenses of starting a business. (He notes that in Minnesota, about the most complicated business you can set up, from a licensing point of view, is a convenience store that sells prepared food, gas and lottery tickets.)

Likewise, he found tax incentives not to be large factors distinguishing among the states. The more populous of the five states -- Minnesota and Wisconsin -- tended to have more requirements and slightly higher standards, but not onerously so.

"Businesses did not have a problem with the fact that the standards were higher," he said in a phone conversation last week. "What they had a problem with was finding out what they had to do."

Information about rules and requirements is easier to suss out in the Dakotas and Iowa, his researchers found. All five states have websites with information but none are sufficient without supplementing the information with phone calls to state employees.

In Minnesota, the Department of Employment and Economic Development has an online document called "A Guide to Starting a Business in Minnesota." It's a near 400-page document updated annually and it covers everything from laws to money to where to call for more information.

But Rich said, "In Minnesota, the real problem we found is that when you call in for information, they all seem to act like you're interfering with their regular job."

His report says:

"When Minnesota state employees were either unwilling or unable to answer specific

regulatory questions, the caller was often referred to specific websites containing the actual

regulations involved. Callers often found these regulations confusing and difficult to

understand. This then required additional telephone calls to the same agency in an effort to

gain clarification of the regulation."

I have a call in to DEED for a response.

"The bottom line," Rich said, " is that costs don't make a difference; tax incentives don't make a difference. The only difference is trying to run down the information."

UPDATE

Charles Schaffer, director of small business assistance at DEED, said he doesn't think the situation is as dire as the Southwest State study indicates. He noted that the study didn't divulge what questions its researchers put to state workers to elicit information and "the answer you get depends on the question you ask."

But he called the study useful and agreed that to the extent callers get different answers on different days, "that is troubling."

He said several initiatives are under way to make the state better at dealing with small business startups. One is a new web site called Minnesota Business First Stop.

Another, longer range, effort is to develop an online portal that could dispense information to wouldbe startups, allow applications and payments and deliver documents.

"The state is trying pretty hard," Schaffer said.

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