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By Annie Stanger
Anniversary Highlights
The Board of Directors, staff, and customers gathered on April 10th in the Landmark Inn’s Skyroom to celebrate Northern Initiatives’ 10th anniversary and their many years of support of entrepreneurial growth across the Upper Peninsula (U.P.).
The evening featured the introduction of two Founder’s Awards. Ron Grzywinski, ShoreBank’s Chairman and Chief Operating Officer and Mary Houghton, its president presented awards for Entrepreneurial Excellence to Bob Jacquart of Jacquart Fabric Products and to Rob Paternoster and Jim Sejbl of Extreme Tool. Dr. Fred Joyal, NMU Provost and Vice President for Academic Affairs and Dr. Mike Roy, Vice President of Finance and Administration presented the Excellence in Collaboration Awards to Kevin Walsh of Pettibone and to Tom Mize and Luke Jaroche of Sustainable Forest Products. ShoreBank and Northern Michigan University are Northern Initiatives’ organizational affiliates.
As Shakespeare said, “the past is prologue.” Following are the highlights from Northern Initiatives’ history.
1985-1992 – Auspicious Beginnings
One of many consequences of an economic recession and increasing rates of unemployment is a drop in the enrollments at affected higher education institutions.
It was 1985, the recession had fully established itself and employment in the Upper Peninsula stood at around 20%. The region’s dependence upon the whims of outside market forces, specifically as they were affecting the resource extraction industry was making matters worse. While the rest of the country was suffering, for many U.P. residents things had become financially excruciating. The hands of local managers were tied as events affecting the area’s predominant workforce were for the most part beyond local control. Then President of Northern Michigan University (NMU), Dr. James Appleberry realized that there was a direct connection between regional economic health and a more stable pattern of enrollment and set about making the university a catalyst for economic growth.
He assigned Dr. Lowell Kafer, then Associate Vice President for Outreach and Continuing Education who solicited the assistance of Dr. Fred Joyal, then Associate Professor of Geography, the task of preparing a grant that resulted in providing the initial funding necessary to support the creation of the Northern Economic Initiatives Center (NEIC). NEIC was first established as an independent university department and was housed on NMU’s campus. In its beginning stages the Center stimulated and coordinated economic development research efforts conducted by various members of the faculty.
Having noticed the quality of work produced by a planning consultant on community projects, Appleberry recruited Richard Anderson to assume the post of Center Director.
Based on the work of Jane Jacobs in her book, Cities and the Wealth of Nations, Anderson developed a plan to reduce economic dependency through import replacement and innovation – the innovation of new and improved products that would compete globally. NEIC would provide professional services and capital to small enterprises that had innovative products that could be made attractive to outside markets.
NEIC offered a combination of services, including counseling and training, a micro loan program that helped small artisan firms move from custom production to manufacturing, and marketing and business planning services through a Small Business Administration (SBA) funded Small Business Development Center that tapped NMU’s faculty expertise in its service. Continuing to make the organization unique among community/economic development agencies are the consulting (educational) services it delivers.
Anderson researched other rural development solutions and decided to adopt a method that was being tried in the southern Appalachians where support of local craftspeople enabled crafting to become fairly lucrative business. An early organizational slogan was “World Class Solutions for Home Grown Firms.” The Center’s staff emphasized and encouraged the use of human as opposed to only their natural resources. Chris Rector, Northern Initiatives’ Director of Marketing Services, remembers the organization’s early work with crafters, furniture makers, and local maple syrup producers saying, “We arranged for the artists to cooperatively display their work in large trade shows as well as helping them with the local marketing necessary to more fully reach the U.P. tourist markets.”
Enthused by its initial success, staff began to encourage artists to develop their craft into a cottage industry that would employ more people in the creation of more product. While this strategy was successful for some firms, many small craft companies resisted opportunities to expand production because growth was not consistent with the artist’s vision. Instead they were making a lifestyle choice – the choice to live with less, which enabled them to do that that they most loved. Many were not interested when they saw their role shifting from creator to that of plant manager. A glass blowing operation, for example, went from artist to a production studio with employees as demands for products in NEIC-sponsored national tradeshows increased orders. Yet this success was not what the owner ultimately wanted – a pattern that was repeated across the NEIC client base
This lesson shifted the emphasis of NEIC from production crafts to supporting the growth and competitive position of the region’s leading manufacturers. NEIC looked for ways to work with manufacturers using innovation and value added production to attract national markets for their work. NEIC first turned to the furniture and fixtures industry, where 89% of the employment sector came from just five manufacturers. Consistent with the theory presented in Porter’s, The Competitive Advantage of Nations, Anderson looked for lessons learned about how to foster innovation and competitiveness in firms through networks. He shifted his research from Appalachia to networks of like manufacturers in Italy.
While Italian manufacturing groups had trade unions to share safety and key innovation information, create cooperative service agreements, and resources needed to meet the demands of new markets; this was missing from U.P. industry groups. The Italians demonstrated that, when clustered, like business became more competitive. This was due in part to that information sharing. Developing business clusters, expanding information networks, and building a list of manufacturing consulting services that encouraged continuous improvement became new focus areas for NEIC at that time.
The first Manufacturing Directory was published in 1988 highlighting the products manufactured in the Upper Peninsula. In 1991, a program called Artists in Industry combined artists and manufacturers in studying product development processes and issues. While the Center’s initial consulting efforts focused on product improvement, it soon became evident that capacity building in all areas was needed. By the early nineties, it was quickly becoming apparent that the organization could expand the scale of its lending program in addition to providing business development services, a shift that ultimately required NEIC to move from being a department of NMU to a corporate/not-for-profit entity affiliated with NMU and ShoreBank Corporation of Chicago.
Richard Anderson first learned about ShoreBank through a funder, the Ford Foundation. ShoreBank is America’s first and leading community development and environmental banking corporation. By inviting outside investment in Chicago’s inner-city neighborhoods, it has significantly contributed to the improvement of the quality of life the city offers its residents. The struggles of those neighborhoods, which also often stem from problems associated with outside ownership of key resources at least in that way mirrored U.P. difficulties and it seemed that ShoreBank had been successful in finding solutions.
Ron Grzywinski, Chair and Chief Operating Officer, chuckled as he remembered Anderson bringing an economics professor along on his first visit, because he was afraid he would have trouble “understanding what the bankers were saying.” During a subsequent visit to view ShoreBank’s comparative rural example in Arkansas, Grzywinski suggested that NEIC might consider a partnering arrangement. When asked what ShoreBank would gain in developing a relationship with NEIC, Grzywinski answered that in addition to the opportunity to share what they had learned with their northern neighbors, they were interested in learning more about NEIC’s business development/support programs on behalf of their other rural development initiatives.
The first step in the merger process was to establish the BIDCO, a non-deposit subordinated debt bank lending company. ShoreBank and Anderson worked with the Michigan Strategic Fund to create new state policy that would recognize a new class of financial institution working in rural Michigan called Rural BIDCO’s.
The State loan to the BIDCO was used to match program related investments from foundations that together comprised the capital used to make an initial investment in ShoreBank stock. NMU’s endowment used grant money from the Kellogg Foundation to invest in shares of preferred stock in ShoreBank, making it, at the time, one of the largest shareholders in ShoreBank. ShoreBank capitalized the BIDCO. North Coast BIDCO was formed, later named ShoreBank BIDCO. Northern Initiatives was formed to house the non-profit lending and business consulting arm. Richard Anderson became President of Northern Initiatives in 1992, and Steve McConnell came on board, leaving his work with a rural economic development agency in Vermont, to organize and run the BIDCO.
President William Vandement remembers forums that were held to brief the faculty on the change/merger/incorporation decision. There was controversy over the decision to redirect the university’s Research in Excellence Funds that by that time were being used to support the work of the Center to an outside albeit affiliated non-profit organization. Adding to the controversy was the fact that it was a new idea no other university had considered – that a university might partner with a bank to promote economic investment. Much of the credit for the university’s support is attributed to former MFC First National Bank President and NMU’s Board of Control member, Ellwood Mattson. While local banks could have considered the partnership with ShoreBank a competitive threat he used his influence to encourage approval of the concept. Mattson understood the positive impact that this project/partnership could have on the area’s economy and supported it.
In 1992, NEIC was legally incorporated as a 501©3, a private, not-for-profit corporation and began the arduous task of designing of its own internal processes/services to take the place of those that were being provided by the university. The April anniversary celebration marked this date.
1992-1996 – From Theoretical Experimentation to Niche-Building
The new non-profit corporation was officially named Northern Initiatives Economic Corporation, but is more commonly referred to as Northern Initiatives (NI). Counseling and educational services provided in the context of the Small Business Development Center eventually narrowed to focus more fully on the specific technical assistance and consulting needs of Northern Initiatives’ lending customers and of manufacturers seeking ways to enhance their competitive edge. Entrepreneurial education programs became the new vehicle for attending to the needs of potential and budding entrepreneurs. While product design initiatives found a niche at Finlandia University they, just as significantly, led to the theory that manufacturing sectors can potentially hold great community development potential and staff began researching new ways to support their growth.
Micro-loan Program Jump-started to Fill a Gap
Before incorporation, NEIC operated a very small loan fund with monies from a Joyce Foundation Grant. As an outgrowth of those early efforts, which had demonstrated a greater need for capital support and filled the financing gap, NI decided to expand the program and began dedicating staff toward this effort. Roni Monteith was specifically hired to develop and grow the micro-lending program. Roni came to NI from the other end of US 41 – Miami. She sought out a career with ShoreBank after hearing a Mary Houghton speech. Northern Initiatives would be that opportunity.
NI found that most lending customers didn’t need loans as large as the BIDCO had been established to provide. The first Small Business Administration (SBA) and Intermediary Relending Program (IRP) loans were issued in 1993, extending lending capacity by $300,000 and $1 million respectively. Soon after another $600,000 grant from the Rural Business Enterprise Funds (RBE) greatly extended lending efforts. Due to the work and support of Congressmen Stupak and Senators Levin and Abraham, NI also received an $800,000 grant from the U.S. Department of Housing and Urban Development.
From Innovation to Capacity Building:
A Design and Engineering Colloquium held in 1993 established a strategy for innovative competitiveness in the U.P. based on product development. Design initiatives continued to develop with manufacturing consulting continuing to grow as its spin-off. A workforce development program joined the list of services with funding from the Economic Development Job Training Project. Northern Initiatives staff worked with area colleges to provide training services to manufacturers and their employees U.P.-wide. With the support of the Michigan Manufacturing Technology Center (MMTC), NI began promoting continuous improvement and network building to manufacturers. Marketing research became a fee service by 1995. Northern Initiatives’ staff primarily served as a broker, connecting manufacturers with service providers. As interest in continuous improvement projects grew the company designed a “blitz” in which these services were perfected and the number of consulting staff swelled. John Schafer, Mike Gorrie, Kellie Carr, Pete Cambier, and Chris Rector worked to set the stage for what became Northern Initiatives’ next advantaged business line (area of business competence).
As the lending and manufacturing consulting departments grew, the number of total personnel grew to its peak at 36 employees. During this time the company moved its office from the Wilkinson House on Ridge Street to its present location on West Washington Street, in downtown Marquette.
Base Closing Inspired the Building of NI’s Entrepreneurial Education Programs:
In 1995, when word of the KI Sawyer Air Force Base closing became public, Richard Anderson organized a trip for community leaders to Tupelo, Mississippi, the site of another base closing, so they could examine worst and best case scenarios and plan to be a best case. The organizing group was part of the Chamber’s loosely knit “Lake Superior Jobs Coalition.” Northern Initiatives worked with the local Chamber and community leaders from the jobs coalition to support the creation of a permanent organization – The Lake Superior Community Partnership.
The base’s closing boosted participation in Northern Initiatives’ counseling and outreach programs. Entrepreneurial support shifted from one-on-one services to group workshops providing business start-up information. Lisa Nyquist, a commercial lender, remembers a meeting in Escanaba that attracted 400+ participants who came to learn how to start their own businesses. Richard referred to these “blitzes” as “Billy Graham Events” in which staff shared with participants nineteen patterns of business success. NI was appointed to the Base Conversion Authority. Approximately 6,500 jobs were lost, due to the base closing. The surge of interest in business development services inspired the writing of a resource –Four Steps and a Leap, a manual used to assist potential entrepreneurs in the development of business plans. It received a national award.
Northern Initiatives began holding Basic Business Principles Workshops on a regular basis in 1995. Todd Horton and Dar Shepherd headed these efforts for the company. In 1996, Northern Initiatives partnered with the Marquette-Alger Regional Educational Services Agency (MARESA) to bring REAL (Rural Entrepreneurship through Action Learning) to the U.P. In subsequent years other workshop topics were added including: Customer Services Training, Marketing on a Zero Budget, Seasonal Cash Flow, Smart Money, Bookkeeping, Patent/Trademarks and Copyrights.
The Copper Range Mine in White Pine also officially closed in 1995 leaving even more U.P. residents without jobs.
Product Design and Innovation Work Found a Permanent Home
While Northern Initiatives’ work with most area colleges was limited to the expansion of workforce development and training programs, in 1996 research into the creation of a product design component in the Art and Design Department at Suomi College/Finlandia University was conducted. An exchange program began with the Kuopio Academy of Design in Finland that specialized in furniture, industrial, and graphic design. Their curriculum provided the model for the development of Finlandia’s program, which now serves the U.P. Funding constraints have hampered its growth to some extent, but this program and more recent efforts to integrate design work at the high school level have been important points in the culmination of the organization’s initial efforts with artists and craftspeople. The design program contributed to Finlandia University’s ability to grow from a 2 to a 4-year school and has given them another way to contribute to their community’s further development.
Here to Stay
Also in 1996, the decision was made to drop the Small Business Development Center status. While counseling is certainly an important skill lenders continue to use to help link clients with the technical assistance services they most need, Lisa Nyquist remembers when staff stopped recording the number of counseling sessions offered and began to focus instead on the number of loans they’d closed. The staff and board of directors realized that the organization had reached the maturity stage of its life cycle and that finding ways to sustain itself over the long-term would have to become the primary concern. The financial constraints affecting local industries were also affecting the level of government and private funding. The “era of limits” that started with the Reagan Administration it seemed was no longer being understood as temporary, having become a general condition in the country and especially in the U.P. As it was encouraging its manufacturing customers to implement continuous improvement strategies, Northern Initiatives began working harder to improve its in-house practices and build its core competencies. Indeed it had become a corporation in the real sense of the word.
1997- present – Focusing on Sustainability
Northern Initiatives held on to its visionary leader as long as it could, but Anderson finally opted to return to private consulting. His work with nationally recognized community development corporations led him to Dennis West, the replacement Mr. Anderson thought could take the company to the next level. Recruited from Indianapolis, West joined the NI team in 1997. It has been his primary responsibility to push the organization toward a greater and greater degree of sustainability.
Advantage Business Line #1 – Commercial Lending
In the late 1990’s, NI’s lending services were refined. Northern Initiatives’ largest loan had been made to Sawyer Lumber, a company that moved onto the previously vacated air force base as part of the recovery effort. In 1997, the Ford Foundation invested $1million in NI, which was an indication of their belief that Northern Initiatives could eventually become self-supporting. In 1999, the first Program Related Investment (PRI) used to strengthen the loan fund was received from the Kellogg Foundation and Chris Homan was hired to staff the company’s first out-based lending office in Newberry. In 2001, the 100th SBA micro loan was issued, Roni Monteith became Chief Operating Officer, and Todd Horton began in his role as Commercial Lending Manager. The company was named a Community Development Financial Institution (CDFI) in 2002. That same year Kevin Nyquist began serving lending customers from his Bessmer location. Today, in many respects, the lending department’s policies and transactional procedures stand as models. Seldom has a CDFI served such a high level of start-up businesses and managed its portfolio to such a low default rate. On March 10th, 2003 the lending staff celebrated the closing of the loan that put their total loan amount granted figure over the $10 million mark.
Advantage Business Line #2 – Manufacturing Consulting
The aforementioned consulting “blitz” resulted in an improved understanding of the market and of its needs. With the knowledge gained, consulting staff was scaled down and Joe Boyle, engineer by trade, hired in the summer of 1997, was left to provide direct services and outsource other services through a collection of outstanding service providers to meet manufacturing customer needs in a more cost effective manner. Chris Rector shifted her attentions to providing marketing assistance to both manufacturing and lending customers. Lean and Kaizen (meaning “big break through product”) projects were introduced to assist manufacturers with product improvement. More recently, Joe received training to deliver Professional Business Advisor and Executive Coaching Services to company executives. Initial sessions have been well received. The web-casting techniques used to deliver these new products have enabled manufacturing customers to build relationships with experts across the nation, an opportunity most could not otherwise afford. The “shared space” Internet communication affords also provides them an electronic flip chart upon which they can record critical information for later use. The Manufacturing Leaders Group is another tool offered to meet the higher level educational needs of repeat customers.
Continuing to Invest in Entrepreneurs
A twelve-week entrepreneurial education class was instituted and more recently materials have been organized so that they can also be delivered in a more intensive camp-type format for those participants that are ready to “jump in with both feet.” The U.S. Department of Agriculture, a consistent partner for NI, provided a Business Enterprise Grant to support the expansion of adult entrepreneurial education throughout the U.P. 1st Step has agreed to administer Reality Check workshops, the precursor to Four Steps and a Leap, the business planning workshop, U.P.-wide in 2003. Western Michigan Works! has agreed to coordinate, manage, and promote Four Steps and a Leap workshops. Northern Initiatives will continue to play an active as a partner in training trainers for the intensive business planning workshops often referred to as the “camps”.
Northern Initiatives became the administering agency for REAL (Rural Entrepreneurship through Action Learning), an entrepreneurial education program for children and youth, K-12. Today the REAL program in the U.P. supports 33 teachers in seven elementary schools, ten middle schools, and thirteen high schools. Grants from the Marquette and Ishpeming Community Foundations supported a showcase workshop for student work in April 2003. In 2001, Northern Initiatives secured financial support to “endow” entrepreneurial education in the U.P through 2010. Northern Initiatives has contracted with Northern Michigan University’s new Center for Economic Education, as they will carry forward the work of advancing entrepreneurial education for U.P. student educators.
Research and Development
In the late 1990’s, stressers in the U.P.’s forest products industry provided fuel for a discussion during a board retreat and NI’s research work with secondary wood manufacturers got its start. Finding markets for undervalued wood products has been the main challenge. Research partners include Michigan Tech’s School of Forestry, The Natural Resources Research Institute at the University of Minnesota – Duluth, the USDA Forest Service’s Forest Products Lab in Madison, WI, and the USDA Forest Service Lab in Princeton, WV. To date, research projects are investigating the use of red maple in the manufacturing of laminated veneer lumber and structural applications in construction such as trusses and tongue and groove paneling. Waste materials are also among these secondary wood products. Research continues on the possibility of developing a co-generation facility fueled by wood wastes. Northern Initiatives’ lending work with the fishing industry highlighted similar waste problems there. Efforts have even been made to combine the two wastes to create appropriate compost for use in the plant-made pharmaceutical industry.
Supporters of all these collaborative research efforts include the Michigan Economic Development Corporation, the USDA Forest Service Wood Education and Resource Center in Princeton, WV, the Michigan Department of Environmental Quality, and the USDA Forest Service State and Private Forestry Division of the Northeast Area.
Presently, a grant from the National Science Foundation is supporting the work of the Great Lakes Wood Manufacturing Partnership. Lean manufacturing workshops are among other efforts being made to support the improvement of production procedures and practices used within the secondary wood processing industries in Upper Michigan, Wisconsin, and in Minnesota.
This research work led to NI’s first equity investment in Subterra, LLC. Senators Stabenow and Levin and Congressman Stupak leveraged the capital that was needed to launch NI’s equity fund. The U.P. Business Capital Limited Liability Corporation was incorporated in 2002 as NI’s first affiliate. Subterra is using an abandoned mineshaft in White Pine to isolate the plant materials they are growing for use in the pharmaceutical industry. This isolated chamber protects these and other plant species from contamination. Research has shown that plants can grow at a significantly faster rate in mines where environmental variables such as temperature and light can be controlled. The plants currently in the growth chamber are producing therapeutic proteins to help in the fight against a variety of degenerative diseases.
Supporting the Eastern U.P. Tourism Alliance
Over the past year Northern Initiatives has been involved in helping to support the creation of the Eastern U.P. Tourism Alliance. Community and business leaders in the U.P.’s five easternmost counties have joined to implement the recommendations of the Fermata Report, which suggested that the U.P. is missing a great opportunity by not focusing more on the promotion of its unique natural features. With grant support from the U.S. Department of Agriculture’s Rural Community Development Initiative funding, Northern Initiatives is continuing to work on building the capacity of businesses and organizations to grow this market opportunity and to financially support the growth of new entrepreneurial efforts being created by this effort.
It is interesting to note that tourism has once again come to the fore. A project like this builds wealth while guaranteeing that the U.P.’s environmental quality and quality of life are protected, as its beauty and uniqueness becomes the substance behind that growth. Like ShoreBank, Northern Initiatives is a triple bottom line company.
Partnering – It’s a all about Scale
It became evident that Northern Initiatives could have a much more significant impact on the U.P.’s economy if it worked cooperatively with other regional and community groups with similar purposes. In addition to those previously mentioned Northern Initiatives has established partnering relationships with the Michigan Economic Development Corporation, the U.P. Economic Development Association, the Central Lake Superior Land Conservancy, the Marquette Sustainability Council, and Upper Great Lakes Educational Technologies Incorporated. NI participated in the Winter Cities Program in the mid-nineties and continues to work with the City of Marquette and other communities in the U.P. on downtown revitalization and development
Moving Northern Initiatives “From Good to Great.”
Economic conditions in the U.P. are generally improving. It is critical that ground gained isn’t lost during the present recession and that in the longer-term momentum continue to build. Northern Initiatives is proud to have contributed to the creation of over 600 jobs since 1994 through the deployment of over $10 million in loans to start-ups and expanding firms. Over 200 companies have received the company’s business development and/or consulting services. Dennis West and NI’s Board of Directors are engaged in careful planning efforts they hope will enable the company to make the best use of increasingly limited resources and to invest in projects in which multiple effects are most likely to end in impacts of greater scale. The progress report above demonstrates the importance being placed on integrative and collaborative work today.
While entrepreneurial education, lending capital, and technical assistance will continue to support potential and new entrepreneurs, efforts are being made to develop deeper knowledge of and relationships with what Mr. West refers to as “catalyst entrepreneurs” in identified industry sectors: manufacturing, secondary wood processing, and nature based businesses. Catalyst entrepreneurs demonstrate the potential to significantly impact community development and provide a link through strategic alliances to supply chains and clusters of enterprises. The opportunity to tie sound business investments with environmental preservation potential will continue to be a priority.
It is the board’s hope that focusing in the ways described will also result in greater organizational stability. The National Community Capital Association (NCCA) rates Northern Initiatives at 36% on sustainability. West’s goal is to reach 60% in the next three years.
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