By Tom Still
“Creative destruction” is the constant process of economic upheaval that defines capitalism. When economist Joseph Schumpeter first wrote about it in the 1940s, he described it as the “process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one.”
The past week in Wisconsin was a time when creative destruction was on full display.
The announcements that Oscar Mayer would close its headquarters in Madison and that Joy Global would continue its layoffs in Milwaukee illustrated how changes are rippling through two legacy industries, food processing and mining.
But as older industries evolve and sometimes consolidate, younger companies and sectors emerge. It’s a natural process that is often painful for workers and shareholders in mature companies, and promising for young companies on the rise.
The Wisconsin Early Stage Symposium in Madison took place as the Oscar Mayer and Joy Global news was unfolding, providing a contrast in terms of emerging companies that are pushing the economy forward.
Speakers included Sue Marks of Cielo, which began as a Milwaukee-area startup called Pinstripe in 2005 and has grown to 1,300 workers worldwide, including about 550 in Brookfield. It’s a human resources outsourcing firm that is among the fastest-growing companies in Wisconsin, exceeding $100 million in revenues.
As Marks told a conference audience, however, she was nearly a victim of “creative destruction” herself when the Great Recession hit in 2008 and the company needed to adapt to survive.
“I started talking to our employees about how we were going to cut fast and deep,” she recalled. “Many had never seen bad times because we had a lot of young workers. We were a $15 million-in-revenue company then, but because of the things we did, we only dropped to $12 million, which wasn’t as far as our competitors. We saw this as a huge opportunity to adjust the business, become more financially sound and have more rigor.”
She said she hired three key executives in 2009 and 2010 and came out of the recession stronger, while other market leaders slumped.
“We reinvented what was basically a people model to a technology-enabled service model,” she said.
Another success story came from the opposite side of the state in Eau Claire, where Zach Halmstad launched JAMF Software in 2002 on the notion that he could write platforms that would help integrate use of Apple products.
Only later did he learn that 2002 was Apple’s worst year before or since in terms of its revenue performance. Halmstad’s company boot-strapped itself along for the first few years, eventually hiring its first employees beyond the unpaid founders in 2007. Today, JAMF Software has about 5,500 customers, nearly 500 employees and offices in eight locations worldwide, including its home base in Eau Claire.
“Wisconsin is an ideal place for startups to happen,” Halmstad said, because costs are low compared to historic technology hubs such as California’s Silicon Valley and high-quality talent is available through the state’s colleges and universities – although he worries that could be threatened in time if budget troubles continue.
“We found really good people in Eau Claire” and worked hard to keep them through a corporate culture that values its workers at all levels. The retention rate of JAMF Software employees is about 95 percent over time.
The Early Stage Symposium also featured about 45 young companies or soon-to-be companies that presented ideas in three different forums, with investors from Wisconsin, the Midwest and beyond on hand to listen and learn. Earlier in the week, five promising young companies debuted with pitches at the Gener8tor Premiere Night in Milwaukee. While most young companies fail, Wisconsin’s survival rate is better than most, in part because there’s a strong support system in place.
The news about Oscar Mayer’s phase-out in Madison, Joy Global’s layoffs in Milwaukee and other recent announcements by Johnson Controls and GE Power & Water are hardly welcome, especially by those who are directly affected.
They are part of capitalism’s uneasy natural order, however, reflecting the upward push of ideas and products in an economy that constantly reinvents itself.
Still is president of the Wisconsin Technology Council. He is the former associate editor of the Wisconsin State Journal.