Twin Cities small businesses growing faster than peers, but harder hit by labor shortage

Small businesses across Minneapolis and St. Paul grew more than in other cities, despite being significantly challenged by a dearth of skilled workers, according to a survey released this week by U.S. Bank.

The study, which surveyed 2,400 small businesses and 1,000 employees across the country, found 91% of Twin Cities small businesses surveyed reported growth, compared with 73% of firms in other cities.

“We saw both a much higher level of optimism compared to the rest of the country,” said Shruti Patel, U.S. Bank’s chief product officer for business banking. “Almost 93% of the businesses surveyed in Twin Cities viewed their businesses as successful and have experienced growth over the past year.”

Bryce Quinn, co-owner of the popular St. Paul based Cafe Latte and Bread & Chocolate stores, said business has been good.

“Our year is up over last year, which was a good year for us,” he said. “Prices have held pretty steady, so we are hopefully in a good spot for the rest of this year.”

While good news, most of the small companies U.S. Bank surveyed in the Twin Cities also reported significant stressors that made it harder to grow and operate profitably.

About 55% said limited worker skills and big training needs were among their top issues, compared with 34% of small firms nationwide.

“Those two stressors were more acute in the Minneapolis Twin Cities study than the rest of the country,” Patel said.

That frustration was pushing more small-business owners into action. About 96% of those surveyed said they will soon invest in training efforts. That compares with 78% nationwide.

Cafe Latte is one of the companies in the middle of big training efforts, Quinn said.

The two restaurants are replacing many summer college workers who just left to head back to school. So they are training new employees.

In addition, the business upgraded its cash registers, payroll software, food ingredient tracking systems and staff scheduling system, requiring even more training of current employees, including using their phones for some functions.

“It’s a lot. It’s been a learning curve for people, especially for longer employees who are not used to doing work on apps on their phones,” said Quinn. Training in the restaurant can also get “complicated” for his 130 workers since the two stores include a bakery, pizza and wine bar, a cafeteria salad, deli and soup section and a coffee bar.

It takes eight shifts of training for each employee to learn one new line.

”It’s a month’s investment to make sure someone is comfortable. We have a lot of things to teach people. So that’s definitely always something we have always dealt with,” Quinn said. “Not everybody walks in the door knowing baking or customer service.”

Twin Cities small business owners said reskilling employees was “very important to reach their business goals in the next 12 months,” Patel said.

The training was likely to help the small companies retain employees, attract new ones, gain efficiencies and cut expenses. The employers were particularly keen on teaching workers and new hires how to use various digital tools, the survey found.

Small businesses with less than $25 million in revenue and 99 employees said they wanted workers to learn software systems and other “digital tools” that might improve cash flows, accounts payable, and payroll management.

Surveyed employees feared being forced to use artificial intelligence (AI) tools at work, because the technology might eliminate jobs. At the same time, some employees thought the introduction of AI tools might make jobs easier to perform, Patel said.

Either way, additional training is expected to help these small businesses improve their bottom line and make it easier to grow, she said.

Only 44% of small Twin Cities firms, vs. 65% across the markets surveyed, reported inflation and increased supply costs as their top stressor. They also listed as other issues supply chain disruptions, short staffing, the competitive labor market and the struggle to keep employee salaries on pace with inflation rates.

Hourly wages for all private-sector Minnesota workers increased an average $1.42, or 3.9%, from a year ago, said Kevin McKinnon, Minnesota’s deputy commissioner of Employment and Economic Development.

McKinnon and other economists noted that inflation may not be such a stressor because it has started to ease.