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“Detroit still has assets that appeal to investors. The resources in terms of the people, the businesses, the history, and the culture are all here to have a great city in the future.”
—Warren Buffett, November 2013
MARCH ROLLS IN COLD in southeastern Michigan. And breezy. It isn’t necessarily a snowy time of year, though that depends on how tight the Midwestern deep freeze holds on through the winter, but what snow there is tends to linger, piling up in parking lots, along highways, and tucked into out-of-the-way places. The sky is steel gray and overcast.
But when I arrive at the monthly Grow Detroit meetup inside Mango Languages in Farmington Hills, Detroit, in March 2013, the scene is anything but chilly. The open-floor plan of the office is packed with at least 100 of the region’s most promising entrepreneurs and technology boosters, mingling over pizza and “fancy” beers in the home of one of metro Detroit’s more notable recent tech success stories.
Up the elevator and through the glass entry doors, we may as well be stepping out of the Midwest “spring” and into Startup-land, USA. Overhead, the exposed gray ductwork is interwoven with random ceiling tiles, open space, and orange accents, with a touch-screen panel wall on one side of the room and a slick kitchen and workspace, complete with bar and bistro seating, on the other. About two dozen low-walled workstations, arranged into pod-like units, are scattered around the rest of the space.
Ignore the view out the window and it would be easy to mistake the scene for an office park in San Jose or Sunnyvale. But the fact is, this office is just twenty minutes outside of Downtown Detroit in a modern, two-story office building off of a frontage road that could be located in just about any suburb in America.
But that’s where the similarities end.
“Things are really happening in Detroit,” says Mango co-founder and COO Mike Goulas, his eyes wide like an evangelist preacher, before regaling me with details about the ins and outs of Michigan’s startup culture and how things are improving for entrepreneurs in and around the city (the same city that declared bankruptcy in July 2013). The company itself, which creates and manages a library of Web- and mobile-based language learning software programs, has been around since 2007, and when I visit is in the process of outgrowing its suburban workspace. The solution, according to Goulas, may in fact be a move to Downtown Detroit.
That’s right, Detroit. The city that’s called America’s forgotten city and is generally considered one of the most dangerous cities in the country. “There’s just so much going on down there now,” Goulas says, “even more now than just a year ago. And downtown is just so much more exciting; the spaces are amazing.”
The attraction now, he explains, is the large number of technology startups that are moving into what the locals call Detroit’s urban core—the downtown area bordered by I-75 to the north and the Detroit River to the south, near the General Motors headquarters and the Detroit Tigers’ Comerica Park. Essentially, this is the area’s new “innovation district.” Money is flowing, companies are opening, and the market for technology talent in the Motor City has never been hotter.
Again, this is Detroit we’re talking about.
“It’s an old city,” says Jason Teshuba, Mango’s cofounder and CEO, “but now Detroit is itself a startup, and I love being part of a startup. You know New York, if you look at it in terms of companies, New York is a stable blue chip. Chicago, same thing. Atlanta is probably a medium-sized company that’s kind of had its growth spurt. But I see Detroit, especially the ‘new’ Detroit if you will, as really this amazing startup story in terms of the city. I think we’d like to be part of that.”
For Mango Languages, a move downtown would make perfect sense. The forty-six-employee company—which is self-funded and self-sustaining—has reached the point where it can benefit from proximity to other companies in the software space. Although similar-minded operations are spread out in Farmington Hills—the rest of the Mango building is filled with law offices, bankers, and private medical practices—Downtown Detroit is where the real action is at this point. With a space along Woodward Avenue, for example, Teshuba would have convenient access to neighbors like Quicken Loans, app developer Detroit Labs, and startup training center Grand Circus, with whom they could swap ideas, talk shop, and just generally help contribute to the area’s new tech ecosystem, not to mention the boost that this proximity would offer in terms of hiring and recruitment.
“So in this building here, for example, there are a lot of law firms,” Teshuba says, “and they just opened up a gynecologist’s office on the first floor. So culturally speaking, if we were to go to Detroit, every other company that would be in a building with us would be a tech company. Maybe we’ll be in a building with other app developers. We might be in a building with, you know, some other creative technology companies. So for us it would be a better fit. Plus a lot of the talent that we’re trying to attract on the design and programming side, they have a natural affinity to that area of Detroit.”
In short, it’s where they as a company need to be. It’s where they want to be. And they aren’t alone.
There are literally dozens of new technology startups currently up and running in the city of Detroit and the surrounding suburbs, mostly focused on software and business-to-business services, that are reinventing what the economy of southeastern Michigan can look like. It’s a recent trend, one that’s really only been happening since about 2010, when billionaire financier Dan Gilbert moved his company, Quicken Loans, into new offices downtown. It is evolving and changing on a weekly basis as new companies get started, new buildings come online, and new neighbors move in.
It’s part of a deliberate effort to overhaul the state’s “muscle economy” that for generations has been focused on manufacturing and the auto industry. In fact, the Big Three American automakers (GM, Ford, and Chrysler) were such a dominant part of the Michigan economy for so long—from roughly the 1890s to the late 1980s—that little else had sprung up in the area to employ the citizens or support the local economy after the industry collapsed in the 1990s. The choice for much of the city’s modern history was either to go and work for the Big Three or move.
Now that’s changing, and many in the area feel that software startups can be part of the solution, offering a high-growth, high-potential new alternative that could one day emerge as an anchor for the city’s economy.
“It’s about speed in which growth can happen,” says Jared Sta-sik, an associate with local venture capital firm Detroit Venture Partners (DVP), the largest software-focused VC firm in Michigan, with $50 million under management as of 2013. “A technology startup is so capital efficient that we can make a $500,000 investment that will last the company a year and create a few jobs. But it has high growth potential. If they find the right product that is the right fit for the market then, boom, whatever it might be could actually become a big employer. When we first invest in these companies, the number of jobs is not huge. But the idea is that they are extremely high-growth, high-potential jobs.”
And for the down-and-out Detroit job market, this is nothing but good news.
Tech entrepreneurship might seem like a new thing for Detroit, but, in fact, technology has been part of this city’s DNA since the very beginning. First, the region’s abundant natural resources made Detroit a leader in the horse-drawn-carriage industry in the mid- to late-nineteenth century. Then, Henry Ford arrived on the scene and those same carriage makers become some of the first to build bodies for automobiles. That, of course, grew into one of the great success stories of American business, but we all know how that story ended.
At its peak, the automotive industry formed the foundation of the Detroit economy, helping make the city the fifth-largest in the US and a key player in the country’s postwar economic boom. Fast-forward half a century and things in and around Detroit have changed dramatically. The city’s population has shrunk from its 1950 peak of about 1,850,000 to just 701,000 as of 2013, with about 25 percent of residents having moved out of the city in the last decade. Prior to declaring bankruptcy, Detroit was some $18.5 billion in debt, with $3.5 billion of that tied up in pension obligations.
But that’s the bad news. Since declaring bankruptcy and working to restructure its debt obligations, the city is now going all in on Internet technology in hopes that it could make up at least some of the economic slack from the long-struggling automakers. Optimism is high.
“The idea is that generally for these online software companies, their audiences can be anywhere in the world,” explains Ted Serbinski, vice president of Detroit Venture Partners (DVP), at his office in the Madison Building. “You go way back to 500 AD, if you wanted to bake bread you had to live next to a river to grind the flour. With the invention of electricity, now I can plug my KitchenAid into the wall, and I can make bread in here with my little toaster oven. The same thing is happening with the Internet. I can plug into Amazon Web Services, and now I can have a startup that serves millions of customers around the world. And now I don’t need to be in New York or Silicon Valley anymore. I can actually do it in Detroit.”
For fans of the Midwestern way of life, this has been a very significant development. Now they don’t have to choose between the work they want to do—software development—and the lifestyle that they want to live. And make no mistake: There are worse places to live than southeastern Michigan, despite all of the negative press that Detroit attracts. The cost of living is low, the lake districts are beautiful (“Traverse City: Pure Michigan”), and the state’s midcontinent location makes both the East and West Coasts a reasonably short flight away.
The business side of startup life in Detroit comes with a distinctive Midwestern bent as well. The focus here isn’t on the latest and greatest app or attracting the most users or page views. Conversations among Michigan entrepreneurs often turn on topics like “sensible growth” and “capital efficiency.” It’s a little old-fashioned, it’s a little conservative, but it’s exactly what many people would expect out of the Rust Belt. And, for some founders, it’s a good fit.
“I moved here from California,” says Serbinski, “and one thing we’re seeing is people that are kind of looking to start a family, so they’d like to buy a house and have a backyard. That’s kind of what my wife and I were looking for when we moved here. You have the Great Lakes and you have Traverse City, which is just this undiscovered gem up north. You can have a really nice life here with great schools and great values.”
It’s also proving to be surprisingly profitable for some entrepreneurs.
Mango Languages is a self-funded startup—“No thanks, we’re good,” says CEO Jason Teshuba about his interactions with potential investors—but in fact it is just one of several non-VC-funded businesses that I found in Detroit. Billhighway, which offers a cloud accounting solution for “shared bills” like those among roommates or membership organizations, is also funding its own growth, as is app maker Detroit Labs. It’s a little surprising at first—after all, venture backing is a fact of life for many technology entrepreneurs on the coasts (and a badge of honor for some)—but this more conservative approach just comes with the territory in Michigan. Rather than rely on money from outside the area, and the limitations that often come with it, many of these startups truly want to go it alone, and they structure their businesses to be revenue-positive and growth-oriented from the start.
As a result, they’re also taking their time as they grow.
“You’ve got to give yourself the time to succeed,” says Mango’s CMO Ryan Whalen. “You’re going to fail, but what you don’t want is to build a cost structure that will hit you if you don’t grow as fast as you expected. Focus. Find your niche. There’s power in focus.”
It’s about reasonable, organic growth. It’s about playing your own game. “Don’t worry about where other people are,” Whalen says, “just worry about where you are. There are enough pieces of the pie to go around for everybody.” And, most importantly of all, staying in the black. Entrepreneurs don’t come to Detroit (or stay there) to swing wildly at pie-in-the-sky ideas. The point in this town is to create revenue, create jobs, and help contribute to the rebirth of the city.
It might be quaint, but there’s no denying that this attitude is making gains. The Detroit area’s startup scene has grown dramatically in recent years, taking the city from a tech backwater to a bona fide player on the national map.
According to Automation Alley, more than 201,000 people were working in technology jobs in Detroit as of 2013. The area was named the fastest-growing region for tech employment in 2011, according to job search site Dice.com, up an amazing 101 percent since 2010. Things have only expanded since then. Rents are up in the downtown core, condos and other residential options have begun to spring up, and street life is returning to central Detroit for the first time in at least a generation.
At the center of this effort is Detroit-born billionaire Dan Gilbert, the founder of Quicken Loans and majority owner of the Cleveland Cavaliers. Since moving his company’s headquarters from the suburbs to downtown in 2010, the Michigan native has made it his personal mission to transform the core of Downtown Detroit back into the vibrant, successful, functional place that it once was. The first step was overhauling his company’s workspaces, which are scattered across half a dozen downtown properties and feature bright, colorful offices and hip, worker-friendly amenities. Now, he’s trying to bring the rest of the city up to these modern standards.
And he’s doing it the old-fashioned way: by buying up empty or otherwise available properties throughout downtown, rehabbing them, and then renting them out to new tenants. The idea is to attract the kind of high-growth, high-potential companies to Downtown Detroit that would otherwise be working out of office space in the suburbs by reinventing what life in Downtown Detroit is really like.
Needless to say, this is no small undertaking. If he hopes to be successful, there needs to be capital to fund new businesses, jobs to attract high-tech workers, and workspaces and housing to support them as they grow. So Gilbert and company decided to start the process by creating a tech accelerator program in January 2012. The resulting nonprofit organization, Bizdom, is housed in the Madison, a historic theatre that Gilbert gutted and renovated, creating the downtown area’s first startup coworking space and one of Michigan’s leading tech incubators.
But Bizdom is not alone. The Madison is also home to DVP, Gilbert’s for-profit venture capital firm, and a number of its portfolio companies, including Detroit Labs, design firm Skidmore Studios, and more than a dozen in-progress new startups.
It is, to put it mildly, a very busy, very unique place.
As for the five-story structure itself, it at one time housed offices for the long-ago demolished Madison Theatre, which was razed to make room for a parking lot in 2000. Now that the remaining structure has been overhauled, there’s a street-level coffee shop that, unusual for Downtown Detroit, is actually bustling at midday. Access to the upper floors is well secured (a key card is needed to even take the elevator from floor to floor), and, once there, visitors are treated to exposed brickwork, open rafters, and a number of floor-to-ceiling murals. Large windows dominate the space on the south and east sides, offering sweeping views of the Detroit River and the east side of town, including Comerica Park. The loftlike warehouse space—which includes three floors of offices, an auditorium, meeting rooms, and an open-air party deck on the roof—is unlike anything else in Detroit.
And it’s packed. The day I visited, workers were crowded into cubes and offices, with many even working at tables in the hall. DVP and its associated companies take up about half of the third floor, with Bizdom and its entrepreneurs crammed together on the other side. Where there aren’t startups at work, there are sport-jacketed executives waiting for meetings. In the middle of the space, a stairway leads down to the second floor, with hardwood accent walls giving the stairs an organic, natural feel.
It’s a cool space, for sure, but the importance of the Madison goes beyond the smoothie machine and the city views. There is serious work being done here, and it is work that many in the city believe would not be happening locally if the forces behind this space did not exist.
“The whole idea is to help reinvent the urban core,” explains Ross Sanders, CEO of Bizdom, in the Madison’s glass-enclosed conference room. “You look at other startup ecosystems—we studied Boulder, we studied Boston, we studied Silicon Valley—they all have these accelerators that are doing the real heavy lifting. Detroit didn’t have an accelerator, so we’ve lost a lot of great talent to these other cities.”
The short-term goal, he explains, is to help entrepreneurs get their ideas off the ground and start generating revenue, thereby creating jobs and eventually contributing some legitimate economic growth for the city.
At Bizdom, this is being done through a nonprofit model that includes a lot of hands-on business training and mentorship. Many of the entrepreneurs that enter the Bizdom program—six potential companies are accepted into the program per session, Sanders says, with three sessions per year—come with little more than a good idea and a business plan. These aren’t experienced entrepreneurs. Bizdom kicks in up to $25,000 in seed funding and, with the support of Gilbert’s family of companies, helps the entrepreneurs get their companies set up and running. They come from all over the country—two founders even recently came to town from Silicon Valley, Sanders says proudly—and are required to keep their company headquartered in Detroit once they complete the program.
“Most people know Dan Gilbert because he’s the majority owner of the Cavs; he’s the founder of Quicken Loans,” Sanders says. “But most people don’t know he also has this network of sixty businesses that he’s associated with. So we heavily leverage this network. So not only do we have full-time trainers out here to work with the businesses, but we pull in experts from this family of companies. For example, the woman who does SEO over at Quicken Loans does a whole thing on SEO [for our companies]. Josh Linkner over at DVP does a whole thing on how to pitch to investors. Rock Ventures, which is Dan’s private equity firm, does a whole thing on business valuation.”
In exchange for all this support and training, Bizdom takes an 8 percent stake in each business. All proceeds from its various startups are then funneled back into the nonprofit fund for use in other business funding efforts, and as of 2013, two Bizdom companies were making payments back into the fund. Sanders expects the program to be self-sustaining in this way within the next several years.
“If you can go and produce a startup and create a couple of jobs, you’re a hero in my opinion, because that’s pretty hard to do,” he says. “And if you can make a great business out of it, that’s even better; that’s a huge accomplishment. But if you can do that in Detroit? I think the appeal of Detroit for some startups is that in Detroit you get to affect the outcome. We truly believe that the next five to ten years is going to be a period that historians will write about, about how Detroit came out of this whole tailspin with manufacturing. And there will be certain businesses that they write about that are going to be startups.”
Go to Silicon Valley and start a business; that’s great and more power to you. But doing the same thing in southeastern Michigan is about more than just your own startup and your own personal goals. “Here you’re really affecting a whole city and a region. With Detroit’s success goes the region’s success,” says Sanders.
DVP’s Ted Serbinski agrees, singing the Madison’s praises and calling the building one of the best locations in Detroit for what he and the others are trying to achieve.
“The startup ecosystem was very fragmented in Michigan,” he says. “There was a lot of stuff going on around Ann Arbor, some stuff in Birmingham, which is one of the nicer suburbs. But Detroit was really in disarray. Dan Gilbert’s whole premise is what he calls the ‘big bang theory.’ It’s that we need everything at once. We need high-tech jobs, we need residential units, and we need commercial spaces. And the impetus for a lot of that is the fact that startups create the most change. We have to build a brain economy, and we need tech jobs.”
It’s all about connectivity, between companies, between entrepreneurs, and between investors. The physical space of the Madison and the community it has nurtured has, many in the city believe, raised the probability that this will all pay off in the end.
Most of Downtown Detroit still consists of vintage steel and concrete office towers—including a collection of beautiful gothic skyscrapers—and a handful of parking garages. Street-level activity is all but nonexistent (though I’m told it is quite a bit better now than it was just a few years ago), and unless you’re walking to a Red Wings or Tigers game, it’s unlikely you’ll spend much time on the sidewalks, especially after dark. This is a block-by-block city. Near Comerica Park or the General Motors headquarters at Renaissance Center you might as well be in Chicago or New York, but stray too far off the beaten path and things get rough. Quick. There are few restaurants and bars, or anything else that would draw people downtown in the evenings, and it has been that way for years.
The blocks around the Madison, however, are strikingly different.
Coming up the block to the building, located directly across the street from the half-moon-shaped Grand Circus Park, the “differentness” of the Madison is obvious. There’s a small plates-style restaurant a few doors down, complete with New York–style sidewalk seating, and an organic bakery on the corner. It’s different, and it’s a welcome change compared to the gritty urban canyons that surround it, but it’s just the start of what Gilbert has in mind for Detroit.
Gilbert’s end goal is to overhaul the entire downtown core, updating existing buildings, improving retail and restaurant spaces, and even adding new residential units between Grand Circus and the Detroit River.
It’s a huge project. It’s at least seven blocks of Woodward Avenue—nicknamed “Webward Avenue” due to all of the tech startups moving into the area—much of which is currently all but abandoned, and capital investment in the millions to bring these buildings not only up to code but also up to modern-day standards of desirability. Most of these buildings, which Gilbert is admittedly picking up for pennies on the dollar, need wiring and electrical updates, but they also need structural improvements, new ceilings, new paint, and all sorts of other renovations.
But it appears to be working, if slowly, and the neighborhood is already visibly changing.
In order to get a better view of this entire project, I caught up with Eric Randolph, a manager with Gilbert’s real estate firm, Bedrock Management, for a tour of the “new” Downtown Detroit. Starting at the Madison, Gilbert’s companies have bought more than a dozen existing structures in the immediate area, all the way down Woodward Avenue to the river, with plans to pick up additional properties to the east and west as the project progresses.
It starts at Grand Circus, which is immediately adjacent to the Madison. The thirty-five-floor Broderick Tower is one of Detroit’s iconic skyscrapers and, until recently, was one of the better-known emblems of the city’s decline. Completed in 1928, the Broderick was at one time the second-tallest building in Michigan and, until renovations began in 2010, had fallen into disrepair and sat empty for years. Now it, and the 1997-era humpback whale mural that’s painted on its side, is one of the hottest residential addresses in the city, with some 125 apartments on the upper floors, many of which are occupied by Madison-related tenants. In fact, it’s becoming something of a “dorm” for Detroit’s young entrepreneurs.
Detroit Labs cofounder Dan Ward, whom I met while touring the Madison, lived downtown for about two years prior to this most recent overhaul and says urban life in the city is definitely doable, despite what many outside the area might think.
“You miss out on some things, service things like groceries and laundry,” he says, “but it’s getting fixed. You adapt how you live a little bit, but it’s a city, so you’re going to do that anyway. But it’s great. You can go out, walk around. It’s a city like any other.”
Back on our tour, Randolph and I stop at 1527 Woodward Avenue, the future home of Bizdom. It’s a nondescript, six-story steel and blue structure. Certainly nothing that would be out of the ordinary in any American city, though a little dated and maybe a bit rough around the edges. Up on the second floor, however, Bedrock has dramatically overhauled the space, opening up the once-cramped offices, creating a large open workspace, and bringing in new light from the street-facing windows. It’s an old office, to be sure, but the promise here is clear. Once complete, it will be every bit as nice as any modern office space and at least twice the size of Bizdom’s cramped quarters at the Madison.
“So all of this is brand new,” Randolph says, pointing around the room at all of the new installations, “and it just shows you what you can do with these spaces. We kept the ceilings the way they were, the walls the way they were, and we kept the columns here and just fixed them a little bit. But as far as power, networking, nothing was here.”
And that’s just one example. Two doors down, a three-story 1960s-era office building is getting a similar overhaul, with restaurant space slated for the ground level and a handful of smaller offices upstairs. Next door to that, Randolph points out a turn-of-the-century red stone structure on the corner that could easily have been a bank or private home back a century ago. It is now being restored to its former glory, with loftlike offices slated for construction above a large open retail space on the first floor. Similar projects are under way across the street and up the block, as Randolph points out building after building that Gilbert now owns.
But it’s still a work in progress. At the moment, there isn’t much street-level retail or a single restaurant to speak of within two blocks on this particular stretch of Woodward, though Randolph is optimistic that this area will be a Midwestern version of New York’s West Village in just a few years’ time. Part of the delay, he explains, has to do with a new light rail project that will eventually connect Downtown Detroit with some of the popular Midtown neighborhoods a few miles to the north. Once construction begins, Woodward Avenue will be torn up for a few months, which could make it difficult for retailers and restaurants in the area in the short term.
“The last thing we want to do is have these businesses move downtown, and then Woodward gets ripped up and they don’t do well,” Randolph says. The plan is for these businesses to move in after the light rail is complete.
We walk another block, past several buildings where the “Gilbert effect” has already taken hold. In one, we see a series of chain stores and some real signs of life. Across the street, there’s a rough-looking convenience store that clearly is not part of the master plan. On the corner, a shiny new Moosejaw Outfitters store anchors another Gilbert-owned building, with another Madisonlike collaborative space set to go in nearby. It will eventually rent out space to small startups that might need just a few workstations instead of a full office, Randolph explains.
“We want to get people out on the streets,” he says. “We want to make this a destination. So we’re working with some urban planners to make sure we plan this the right way and get the right people in the right spots. We only get one shot, you know.”
At the time of my visit, the real meat of the project was happening around Campus Martius Park, where the Quicken Loans offices are located in the modern Compuware building and where several of Gilbert’s larger corporate tenants are moving in. The twenty-five-story First National Building, for example, is anchored by Midwest law firm Honigman Miller Schwartz and Cohn LLP, complete with a snazzy New York–based coffee shop called Roasting Plant in the lobby. Across the street, at 611 Woodward, stands the Qube, a modernist structure where approximately 4,000 Quicken Loans employees are now located, as well as JPMorgan Chase Bank’s Detroit offices. Originally built in 1959, the building was overhauled by Gilbert and company in 2011.
Oddly enough, the Qube is also home to the Quicken Loans “command center,” which provides security services to the whole Campus Martius area. The company operates a series of more than fifty security cameras on all of its buildings, all capable of facial recognition, and it monitors them 24/7 from this glass-enclosed “eye in the sky.” This is in addition to the private Quicken security force that patrols Campus Martius on foot and provides shuttle service to employees.
“This area is the safest area in Detroit,” Randolph says. “People always say these negative things about Detroit but considering what goes on in New York, Chicago, Miami—all cities—the same things happen, but here it’s just further out. This is the safest part of the city, and we’re trying to make it even more secure.”
As part of this effort, Randolph explains, every time they buy a building they make a point to “light it up”—installing new lighting on the façade, the sidewalks, even the alleys. Everything. He says, “Before we came downtown, it was dark down here, and people were scared. Now people are coming back because they’re seeing that things are happening.”
It’s an impressive project, to be sure, and a valuable service to both Gilbert’s employees and the city in general given Detroit’s well-documented crime problem. But the very existence of such a high-tech security operation raises questions about the sustainability of the downtown core over the long term. Sure, Quicken Loans can afford this kind of system right now while business is good, but what about its neighbors? What about the startups? And how long will Quicken Loans really be interested in bankrolling the security of Downtown Detroit? What happens if they leave? If the city’s public services are so far gone as to require a private police force, which is what this Quicken Loans system really is, what chance do less well-funded companies have here? When we get to the point that private enterprise feels the need to subsidize its own police force to make its workers feel safe—well, clearly this is a dysfunctional city.
It’s all still a work in progress, though. At the time of my visit, Woodward Avenue was still essentially a ghost town of half-empty office towers, limited retail space, and minimal foot traffic. But a change is happening, if slowly. The chain stores are moving in, there is construction all around, and the sidewalks are legitimately more crowded than those in many other parts of the city. Boarded-up storefronts are noticeably less common.
And Randolph is excited to get the word out.
“One of our interns who was here this past summer went back to U of M [the University of Michigan] and brought 150 of her sorority sisters to Detroit for a visit,” he says. “We broke them up into groups of about twenty to twenty-five girls and, of the group that I had, only one was from Michigan. The rest were from Texas, New Jersey, New York. And they had never been downtown; they had only heard stories of Detroit.”
Needless to say, they were surprised by what they saw, he says. This past summer, Quicken Loans brought some 1,200 interns in to work at its downtown offices.
“The feedback we’ve gotten from the interns has been incredible,” says Randolph. “They love the city, and downtown is not what they expected. That’s what it’s all about.”
For their part, the entrepreneurs on the receiving end of all this development are upbeat when asked about Detroit’s long-term chances for success.
Michigan native Greg Schwartz returned to the city in 2012 to start his company, UpTo, a service that makes appointment calendars shareable on social networks, as part of the DVP portfolio. He and nine employees currently work out of the Madison building.
“For me, trying to do a startup in New York seems crazy,” Schwartz says. “From the office space, to the cost of doing business, and all the different distractions and people trying to do the same thing. Why do it there when I can come back to the Detroit area?”
The key selling point for him was hearing about everything that’s happening downtown and how many other startups are based in Detroit now. The ecosystem is starting to become self-supporting, he says.
“Here’s an opportunity where we can actually make a name for ourselves. It was both a personal decision but also a cost-effective decision in terms of access to resources and access to talent. I had a hunch [that this would be a great place for startups], but I discovered that it was reality.”
Of course, after growing up in the area, Schwartz was hesitant about the downtown location at first.
“I was skeptical,” he says. “I met with DVP and still didn’t believe it. But after kind of a week of being down here and living, I realized that Detroit isn’t what it was twenty years ago. Now restaurants are opening up. Part of it is how much has come up in the past twelve to eighteen months. The thing that really blows me away is not just working down here but living down here. A large chunk of [employees in] this building lives around here and hangs out all the time in Downtown Detroit. And that was never the case growing up.
“It’s cool to be in Detroit. It used to be cool in the suburbs, but now there are cool restaurants, cool bars down here. It’s the thing to do. A really cool sort of cultural shift has sort of happened.”
For app development shop Detroit Labs, its downtown location has turned out to be a significant competitive advantage. Headquartered on the second floor of the Madison (at least it was at the time I visited; the company was set to move into its own space around the corner in summer 2013), the firm is a technology services provider specializing in advanced mobile apps for brand-name clients like Domino’s Pizza, Stryker Corporation Medical, Caesars Entertainment, and General Motors. It has also been on a growth kick of late. Only a year into its existence, Detroit Labs has thirty-two employees, is self-supporting, and has developed a reputation as the go-to mobile development shop for much of the Midwest.
Locating in Detroit has played a large role in this success, explains CEO and cofounder Paul Glomski.
“There is some competition in the metro area,” he says, “but downtown we’re the largest, and that’s given us a lot of press and attention that we wouldn’t otherwise get in just some random city in Silicon Valley where we’d be one of many. The fact that we are the mobile shop that is growing fast and is now very quickly the largest in the city of Detroit has definitely given us an advantage.”
Detroit Labs was also one of the first major tenants in the Madison, giving its founders a front-row seat to the growth of the local scene and the redevelopment of the downtown core.
“Where else do you get the kind of support and attention that we get here?” asks Glomski. “And not from just Josh [Linkner, DVP managing partner] and Dan Gilbert. But you can see that there are a lot of other startups here. We’ve got a community here, a real community, so there are tighter connections and more support than is typical.”
And, according to cofounder Dan Ward, there’s that whole Midwestern work ethic at play as well.
“This might offend folks on the coasts, but I like to say we’re blue-collar technology here,” Ward says. “Automotive was here, the whole blue-collar movement was here. This is where the hardworking part of the country was. And I think it translates really well to technology because creating a startup is hard as hell. It’s glamorized in movies and people think that’s what it’s assumed to be. And here it’s just a little bit different. Not to knock on the coasts, but here they’re willing to put the time in; they’re willing to sweat it out. It’s definitely blue-collar tech here.”
But can this blue-collar vibe extend beyond the walls of the Madison and make waves nationally? It did for Jay Gierak and Nathan Labenz, the cofounders of online business referral platform Stik, who after raising funds and launching their business in Silicon Valley moved it all to Detroit in 2012 in order to work with DVP.
The company has done well since moving home—both Gierak and Labenz, who met in college, grew up in Michigan—adding eleven employees and recently closing a $2.3 million round of fund-raising led by DVP and a group of non-Detroit investors.
The reality, however, is that Detroit is a city torn in two.
It’s the urban core versus the suburbs. The unemployed, largely African American downtown neighborhoods versus the upscale, college-educated suburbs. And neither side is happy with the situation.
But, when speaking about the Detroit suburbs, it is important to be clear about what we mean. The city of Detroit is made up of three major zones: the downtown core, the ring of older neighborhoods just beyond that, and then the true suburbs. The suburban areas are the same as they are in any area across the country—malls, chain restaurants, highways. It’s the older neighborhoods in that mid-outer ring where most of Detroit’s problems lie. That’s where you’ll find the abandoned buildings, the burned-out homes, the empty streets.
DVP’s Ted Serbinski sums it up best when he compares the city and its suburbs to a doughnut.
“The center of the doughnut where we’re at is good and becoming very good,” he says. “The ring is where there’s a lot of abandonment. And then when you get outside of that you get in the ’burbs and it’s nice and it’s fine. It’s the ring and that sprawl that needs to be improved, and once the core is solid that will happen.”
As far as tech startups are concerned, there are still some interesting things happening out in the Detroit suburbs, beyond that “ring.” Sure, the density outside of town isn’t the same as it is at the Madison and the downtown core, but there is enough going on outside to justify a visit anyway.
So, one morning I drove north on Woodward Avenue, through the historic neighborhoods of Highland Park (home to Ford’s original Model T factory), the funky and young Ferndale, and then Royal Oak, to the upscale suburb of Birmingham. It’s about twenty-five minutes outside of the city limits, with tree-lined residential streets, a low-rise commercial district, and even some light industrial space.
But for Jeff Epstein, who founded Ambassador—a company that helps corporations create, track, and manage their custom referral programs—in 2010, setting up shop in Birmingham just made sense. He had grown up nearby in West Broomfield and wanted to be close enough to the city for meetings, but didn’t want to sign on for “the big gamble” before the downtown tech community really got established.
“Birmingham is a cool place and there are a lot of young people here,” he says, in Ambassador’s small office space off of a residential street. “The whole Woodward Avenue corridor from about 9 Mile to about here is all where the young people who are staying in the area live, so I wanted to be close to that. It’s a really great spot. It’s easy access to downtown and you can get to pretty much anywhere in southeast Michigan pretty quickly.”
What’s happening in Downtown Detroit is “awesome,” Epstein says, but it’s still too early for him to consider moving down there full time.
“In the past year it’s gotten more interesting to move down there and a lot of people are doing that,” he says, “but a lot of people still don’t live down there and it can be sort of challenging, especially when you’re working twelve to fourteen hours a day. What they’ve done downtown is amazing, and it’s nothing about what they’re doing, but the infrastructure just isn’t there. It’s tough. In the past six months there’s been a lot more to do down there, and Gilbert’s been buying buildings, and I think in five years it’s going to be great, and you’ll be able to walk around at night and not be nervous. It’s definitely getting there; it’s pretty exciting.”
For Epstein, however, picking up and moving his company downtown just doesn’t make sense yet. He and his employees all live out in the suburbs anyway and, for a scrappy startup like Ambassador, it’s easier for them to be located near everyone’s homes. An hour-long commute over the course of a week can be an extra day of work that’s not getting done otherwise.
But, as far as local entrepreneurs are concerned, Michigan native Epstein is blazing a path nonetheless.
“My peers, my generation, all went to other cities,” he says. “Even if they stayed to go to U of M or MSU [Michigan State University], they went to Chicago or New York or LA after graduation. Nobody, nobody, stayed. It was a sort of a lost generation. And those people are starting to come back.”
There remain a lot of political hurdles in Detroit, he explains, and figuring out transportation and fire and police for the city are top priorities. But it’s happening. If nothing else, there is money flowing into the city now, more employees are coming to work downtown, for Quicken Loans or otherwise, and it’s making a noticeable difference.
Is the suburban location holding back his growth? Does he wish he had done things differently? Not necessarily. The Internet works from anywhere, suburbs included.
“I think people are rooting for Detroit,” he says. “I think Detroit gets an overly bad rap in the press, and that has people rooting for it. Detroit was really bad when I was growing up; in the eighties to maybe 2000 you’d go there for a show or a sporting event and basically that was it. It wasn’t a cool place to go. It’s way better now, and people are coming in with a fresh perspective. Yeah, it’s a little gritty, but that’s sort of cool.”
And with jobs come people.
“People will start coming here,” Epstein says, “but at the end of the day, the companies need to offer a compelling reason.”
Just beyond the Detroit suburbs, about forty-five minutes from downtown, lies the small city of Ann Arbor, home to the University of Michigan and many of the state’s traditional innovation industries. In fact, for a college town of just over 100,000 people, Ann Arbor is well connected. There’s quite a bit of venture capital in town, mostly focused on biotech and the life sciences, as well as a small but growing community of more traditional tech entrepreneurs.
Erick Bzovi and Lance Carlson cofounded HealPay Technologies in 2010 to develop online applications to support billing and collections services. Based out of a small, walk-up office in the middle of Downtown Ann Arbor, the company now has a roster of clients ranging from collections agencies to attorneys to real estate investors, anyone who can benefit from online billing tools. Bzovi and Carlson still run the operation with a staff of about five total employees.
But it ended up in the shadow of U of M almost by accident.
“Lance has been an Ann Arbor guy his whole life,” Bzovi says, “and when we got together he was like, ‘Dude, Ann Arbor is so much more techie than Detroit.’ And it is. You can go to any of these cafés around here—Starbucks or Sweetwaters—and you hear people talking about JavaScript or Ruby or cloud computing. And you don’t often hear that in Detroit. So Ann Arbor has that tech cluster feel. It’s kind of cool.”
But that doesn’t mean it’s an easy place to start a company. Having a major research university in town—particularly one as well regarded as Michigan—is theoretically great for recruitment and great for talent, but convincing a twenty-one-year-old computer science major coming out of a school like that that he’s better off staying in southeastern Michigan than trying to make his name in San Francisco or New York is almost a losing proposition. Most of these graduates feel like they can do better.
“There are so many smart kids here,” Bzovi says, “but we just have a window [to keep them around]. We had an intern who was a data scientist and we would have loved to have kept him, but he left. Ann Arbor has a window and then they leave.”
Still, HealPay is making its mark on the fledgling “fintech”—financial tech—space. They’re traveling the country to attend banking and collections conferences—“I actually got licensed as a collection agent,” Bzovi says. “It’s not something I ever wanted to do, but it helped me understand how these companies operate and how they make money”—and have recently expanded into residential billing and big data services. The goal is to help collections agencies and other clients better understand their own customers via the reams of data that HealPay processes for them.
“What we do is a business solution, and it’s actually a legit business model that makes money,” he says. “It’s not about downloads or shares or apps or whatever. Enterprise is not sexy, but in enterprise just being visible is the most important thing. You don’t need an elaborate setup.”
As in many university towns I visited across the country, the university is “sort of but not really” part of the local startup discussion. Michigan, however, is actually trying, if in no other way than by encouraging current students to consider working for a startup after graduation. The student-backed MPowered tech entrepreneurship organization, for example, hosts a startup career fair that, in 2013, attracted more than 100 small companies from all over the country and hundreds of qualified soon-to-be graduates. And that was in addition to the 1,000-plus business ideas that competed in its recent elevator pitch contest, or in what has become the world’s largest student-run hackathon.
I sat down with Scott Christopher, the president of MPowered, at Sweetwaters coffee café in Downtown Ann Arbor to learn more about the university’s interest in entrepreneurship and how Michigan students are getting involved.
“Staying in Ann Arbor is becoming a lot more likely than when I first came here,” he says, referring to his freshman year in 2010. “I remember when I was a freshman I saw a talk where the speaker said, ‘When you graduate, the school should give you a plane ticket to either the East Coast or the West Coast,’ because nobody stays in Michigan.”
But there’s been a real push in the last few years, he says, to try to get U of M students excited about the possibilities of a career in Detroit. The startup career fair is part of that, as is the army of Michigan interns that now work locally each summer.
“People are realizing that you can make a difference in Detroit,” he says. “A lot of people come to Michigan, want to get a good education, want to enjoy the big public university scene, but also want to make a difference in the world after they graduate. Detroit is the perfect place for that right now, because there’s not a lot going on there yet and there’s plenty of opportunity.”
Big talk. Big opportunities. And what is Christopher himself planning to do after graduation? He was just a junior when we met, but he had already secured a summer internship at Google, in Mountain View, California. More than 2,300 miles away from Ann Arbor.
The fact is, Detroit is still a huge city. It’s more than 140 square miles in total, encompassing dozens of distinct and contained neighborhoods, some of which are doing better than others. In the upscale Grosse Pointe area to the east of town, you can still drop $300,000 or more on a country club home. But on the west side? And to the north? In these areas there are almost more foreclosures on the books than people, and arson has become a nightly problem for the city’s fire department as abandoned buildings keep going up in flames. There’s just no one around left to care.
Homes across the city—and these are nice, large, historic structures on picturesque streets—are selling, when they sell at all, for five-figure prices and less.
To learn more about the city itself and the macro problems it is still facing, I sat down with Leslie Smith, president and CEO of TechTown, a research and technology business park and accelerator program located near the campus of Wayne State University north of Downtown Detroit. And this is the real Detroit. Her office is located in a converted General Motors research and development facility, the actual building where the original Corvette was designed, and we could see the abandoned shell of GM’s first headquarters building across the street through her window as we talked.
We started off discussing the ongoing tech renaissance, but the conversation quickly veered to the city’s larger problems.
“The challenge with Detroit is that there are so many pockets of despair,” she says. “We have the riverfront, downtown, mid-town, here at TechTown, and the north end. Really, the entire downtown area runs from the river to Grand Boulevard and even just getting connectivity between those districts has been a thirty-year challenge. And they’re still not really connected.”
One of the mysteries of Detroit is what happened with the city’s freeways, she says, which cut through the heart of downtown and take away many of the walkable areas.
“We broke up all of our neighborhoods, broke people apart, and created all of this segregation and the racial challenges that go along with that. That still faces us today. What started as a central business district approach has broken up into all of these different neighborhoods, so we still have some infrastructure and walkability challenges.”
As a result, her work at TechTown, which was originally designed and funded as a fairly straightforward technology accelerator program, has taken on more and more traditional economic development projects (though the tech incubator still exists and works with a limited number of companies each year). Right now, Smith says, the organization has become the “last stop before dying” for all sorts of people who really have no business calling themselves “entrepreneurs,” let alone tech entrepreneurs.
The problems began when “entrepreneurship” became the answer for anyone who had anything to do with the dying automotive industry, she says. You spent twenty-five years fitting frame rivets? Start a company. Your career was in design and fabrication? Start a company. You shipped tires for a decade? Start a company.
“For some people it was, ‘I finally get to do this thing that I’ve always wanted to do,’ and that was great,” Smith says. “But for many people, we took them on this really weird path to creating a company when all they really wanted was a job, and we weren’t helping them find jobs.”
So TechTown has begun to go into neighborhoods, doing work that is well outside its technology portfolio, if for no other reason than the fact that there is really no one else willing to do it. It offers retail boot camp programs to help storefront shop owners launch and maintain their businesses. It works with small-time service providers to make sure they have the resources they need to succeed. It goes in, solves problems as needed, and then leaves.
“It’s been really humbling work,” Smith says. “We just go in and ask them what they need. We have some team members who are really passionate about this mission, so they’re embedded in the neighborhoods, have offices there, but most of this is basic stuff. Getting them QuickBooks. Getting them access to suppliers or other resources that they need.”
And it’s surprisingly capital efficient, especially for an accelerator that usually works with tech companies. In the four months that TechTown spent working in the Brightmoor neighborhood—“which has abject poverty, and disinvestment, and population shrinkage, and crime, and I think is just a really horrifying place,” Smith says—it added four new jobs, stabilized fifteen local businesses, and added two new businesses to the economy.
“We’ve kind of become integrated in a neighborhood that kind of felt forgotten and now doesn’t anymore,” she says.
Inspiring stuff, for sure, but what does any of this work have to do with technology? Very little, admittedly, but the real key here, according to Smith, is shoring up the Detroit economy from the ground up and laying the foundation for future growth. Without those stable local neighborhoods, without a city that really wants to improve, it will be all but impossible to ever get the tech ecosystem in Detroit off the ground.
“The challenge of the Detroit experience is that it’s pretty wonderful,” she says. “It’s very satisfying at the end of every day to say, ‘OK, I made a difference.’ But there are elements of this work that are simply exhausting. And if we can’t figure out stickiness, I think what we’ll do is we will attract them, and we will get a lot out of them, but we won’t be able to keep them. Technology companies, specifically, still don’t have in the state of Michigan a real venture capital industry. We have a lot of state support for startups, but we only have a small group of investors. So you almost ultimately have to leave if you grow a significant business here, because the answers are not here. We’re going to grow these fantastic companies, and we’re going to lose them.”
Part of the problem isn’t even unique to Detroit; it’s common across the Midwest: You don’t move to the area unless you have a good reason to be there. Of the two dozen people I talked to in the area, all but one of them either grew up in the region originally or had married into a Michigan family. Transplants just don’t stay here. They rarely come here in the first place. Sure, many transplants have been moving in to be a part of “the great Detroit comeback,” but the reality is they generally don’t stay for long. It’s just too big. Too overwhelming. The problems are too numerous. And if you don’t have a built-in reason to stay, it just makes too much sense to hightail it back to wherever you came from and start over there.
At least you tried, right?
Amid all this doom and gloom, does tech in Detroit really stand a chance? It’s complicated.
During my visit, I kept a list of “things I’d never seen in the US before,” and it ended up running to more than a half dozen legal-sized pages.
Marked city streets that peter out into nothing or turn into dirt? Detroit has those, and they’re surprisingly close to downtown.
Blocks worth of broken streetlights? Tired, old police cars with mismatched, mid-nineties graphics? Yep.
Abandoned libraries and torched elementary schools? Saw several of those, too.
Graffiti on occupied homes? Lines on the road that don’t match up after intersections? Collapsed buildings immediately adjacent to open businesses? Yes, yes, and yes.
And that was all before the city was forced to declare bankruptcy in July 2013, kicking off the largest metropolitan rescue effort in US history. That’s still a work in progress.
Despite the problems, there is a lot of optimism in and around Detroit these days. The city has struggled for more than a decade, but many in the area now see technology as a way to bring at least some of Detroit’s lost glory back. No, it likely won’t erase the images of the abandoned and crumbling old train station in Corktown anytime soon, and the wasteland between downtown and midtown will probably linger for a while, but at least now the city has a plan. It has hope. It finally has some economic growth on the horizon.
“When you think about other places and what they’re going to be like five years from now, it’s hard to think about anything that’s going to be [more] different than Detroit,” says DVP’s Stasik. “San Francisco is going to be San Francisco, except they’ll probably put lights on the Bay Bridge. New York is going to be amazing for all the reasons that it is, but it will still be New York. Chicago is going to be Chicago. But I think Detroit is one of the cities where I think the next five years are going to be transformational.”
And, at the end of the day, that’s the big selling point for entrepreneurs in this town. Sure, you can come to the city, find some funding, and get your own personal dreams and aspirations off the ground. There is a community and a support network in place to make that happen now. But startup life in and around Detroit is about more than just individual goals and individual aspirations. It’s about the fortunes of the city and the region, it’s about contributing to something bigger than yourself, and it’s about getting in on the ground floor of what, many hope, could be one of the largest civic recovery projects in US history.
For entrepreneurs, particularly in the tech space, it’s an intriguing opportunity, not only to contribute to this rebirth but also to carve out a new niche in the regional economy, with the backing and support of everyone from the state government on down.
Everyone there wants to see you succeed. Everyone there loves your ideas, simply because it’s something new and different, and many are prepared to put up cash to back your startup. The economy needs solutions, and tech startups are very much on the radar for the future of Detroit.
And the message to entrepreneurs is clear.
Come to Michigan, do interesting work that makes sense for your career, and enjoy the quality of life that comes with it. Weekends at the lake house (which you can afford, since the Michigan real estate market is in shambles), private school for the kids (which is pretty much required, given the state of public education in the city), and a beautiful house . . . in the suburbs. It used to be called the American dream and it’s still possible—at least for some people, in certain ways—in and around Detroit.
