A Defense Cluster Grows in Minnesota

A look at how the Defense Alliance in St. Paul, one of 10 economic clusters in an SBA pilot program, is nurturing energy entrepreneurs.

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By Catherine Clifford

A lightweight diesel engine for which EPS, a New Richmond, Wis.. member of the Defense Alliance, won a $2.9 million contract with the Air Force.

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Editor's Note: This series takes a close-up look at the SBA's economic "clusters" designed to aid regional businesses.

When you think of the Midwest, rows of cornfields may spring to mind. But it's also a major hub for defense contracting and research.

Related: 9 Cities You Wouldn't Think Are Hubs for Tech Startups

St. Paul, Minn., is home to the so-called Defense Alliance, an independent business network that helps small-business owners figure out the daunting task of winning contracts from Uncle Sam – specifically, the Department of Defense. In the past two years, aided by a grant from the Small Business Administration, the network has helped a niche-group of energy entrepreneurs secure some $32 million in federal contracts and create an estimated 400 jobs.

The Defense Alliance is one of 10 economic "clusters" selected by the SBA in September 2010 as part of a pilot program to aid regional businesses. Each cluster is a collaboration of businesses, non-profits and academic institutions to advance a specific sector, ranging from nuclear energy to agriculture. The idea, according to SBA chief Karen Mills, is to support small business participation in regional clusters, "which are enhancing the ability to create jobs locally and compete on a national and global scale."

Related: How Industry Clusters Can Spur Small-Business Growth

In the Midwest, the Defense Alliance works primarily with high-tech companies that want to grow their business by selling to the military. The group, headed by military veteran Chip Laingen, also helps connect small suppliers with big government contractors, including General Dynamics and Honeywell. Members do not have to be located in St. Paul, and currently are spread out among 24 states.

The group holds quarterly meetings at either the University of Minnesota or a local community center, or at large businesses like 3M or BAE Systems. It's also hosted events in Fargo, N.D., Sioux Falls, S.D, and Washington D.C. Attendees get the chance to network, listen to experts and get educational information about how to win contracts from Uncle Sam.

Laingen started the network in 2004, while working for Minnesota Wire, a small manufacturing company that realized that high-tech entrepreneurs needed some way to band together and tap into the rich vein of military spending.

"The defense industry -- the Department of Defense -- is the single biggest customer in the world," says Laingen, who estimates that the military awards some $150 billion in contracts each year, depending on the size of its budget. And, "they buy everything," he says, ranging from lightweight systems to make body armor more efficient to 3D printers to medicinal products, to name a few.

Related: Trying to Win a Government Contract? Avoid These 3 Mistakes

Since it was named an SBA cluster, the Defense Alliance has received a total of about $1.2 million in funding for its advanced power and energy group, sort of a cluster-within-a-cluster that has 100-plus members.

The group has used the money to proactively scout out high-tech energy entrepreneurs, help those entrepreneurs get business and network with other clusters outside the region, Laingen says. Just last month, the Defense Alliance received an additional $385,000 from the SBA to continue work with its niche energy cluster, with an option for another four years worth of funding. When calculating how many contracts have been secured and how many jobs have been won, Laingen says he only counts those deals "where we are confident we were a contributing factor."

For example, e-ride Industries in Princeton, Minn., received $1.2 million in government contracts for its rugged, electric utility vehicles. Kinetic Resolve in Stillwater, Minn., received a $150,000 Small Business Innovation Research award to develop bullet protection for gun mounts for the Navy. And EPS in New Richmond, Wis., won a $2.9 million contract with the Air Force for prototypes of their lightweight diesel engines.

How have you benefited from the resources of a cluster or business support group in your region or industry? Leave a comment below and let us know.

Catherine Clifford

Senior Entrepreneurship Writer at CNBC

Catherine Clifford is senior entrepreneurship writer at CNBC. She was formerly a senior writer at Entrepreneur.com, the small business reporter at CNNMoney and an assistant in the New York bureau for CNN. Clifford attended Columbia University where she earned a bachelor's degree. She lives in Brooklyn, N.Y. You can follow her on Twitter at @CatClifford.

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