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5 Reasons to Start a Business in Detroit

Despite the decline of its vital auto industry, Detroit aims to become a more diversified, sustainable economy for the 21st century. Here are five reasons why it will succeed.

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There's no hiding the fact that the past decade hasn't been easy on the Motor City. Once a paragon of stability and the nation's fourth largest city, Detroit has seemed to fade alongside the auto industry on which it so vitally depends – now sitting at 11th place on that very same list.

In spite of the decline, those who stay refuse to see this as an anything other than an opportunity. With tons of open space, inexpensive rent, and legions of talented workers, the city was – and is – ripe for the kind of fresh and innovative thinking that drives new business. "Detroit needed to decrease its reliance on manufacturing," says Ross Sanders, CEO of Bizdom U, a local business accelerator formed in 2007. It needed to transform into a "brain economy," he adds, rooted in innovation and entrepreneurship.

Bizdom U, founded and funded by Quicken Loans CEO Dan Gilbert, is among the many organizations formed the past few years with the aim of diversifying and sustaining business in the region. These places recognized the ingredients – the new ideas, the support, the passion – already in place to make Detroit into a 21st century economy.

"The entrepreneurial spirit that exists in this region has been here forever," says David Egner, director of the New Economy Initiative for Southeast Michigan. What organizations like his have done is shine a light back on would-be entrepreneurs and provide them the resources to start strong.

While returns remain modest, small ripples of new businesses have begun to pop up around the city's tri-county area. Ranging from high-tech battery-makers to downtown storefronts, these new businesses hope to grow into the impending wave of prosperity down the road. Here are five reasons why they will succeed.

1. Innovation is in the air.

Egner of the New Economy Initiative isn't hyperbolizing when he talks about Detroit's unique, longstanding entrepreneurial spirit. He's just trying to characterize a city that paved the way for automotive innovation for more than 70 years. The problem, however, was that the city became extremely rooted in its past success.

Perhaps too rooted. "What's held Detroit back has been the success of entrepreneurs in the last century," says Chris Rizik, one of the region's most prominent venture capitalists.

"What it created were two generations of employees, not of entrepreneurs," says Rizik, whose Renaissance Venture Capital Fund invests only in Michigan start-ups.

Once the large corporations – or the "safety net" as Rizik describes them collectively – began to falter, many of their employees were left jobless. "People had the choice to stay and do things more entrepreneurial, or leave," Rizik adds.

Ah: a silver lining. Those who stayed have started to bring about dramatic changes in the culture, not unlike New Orleanians after the flood.

To see the change, you needn't look further than the SPARK Business Accelerator in Ann Arbor. Located 45 miles outside the city center, SPARK has helped more than 200 innovation-related start-ups in the region. Its convenient location next to one of the world's leading research institutions – the University of Michigan – doesn't hurt either. "We think Ann Arbor represents a wonderful hub of activity that can serve as a catalyst for the rest of the state of Michigan," says Michael Finney, president and CEO of SPARK.

Entrepreneurs also look to the region's automotive pedigree to tackle new industries. They can parlay the region's swath of talented engineers to make innovations in areas like battery technology, which Rizik says fits "hand-in-glove" with the auto industry. SPARK has, in fact, sought funding for a few battery makers in Ann Arbor, aiming to establish Michigan as a leader in the technology for the rest of the country.

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2. Training and support abound.

Integral to the success of any entrepreneur is, after all, having the right tools get there. Organizations like Bizdom U and the Kauffman Foundation have poured resources into training business owners in how to sustain growth for the future. In June of 2009, the New Economy Initiative helped bring Kauffman's FastTrac program to the city without cost. Since then, FastTrac has worked with and graduated more than 1,200 entrepreneurs from an assortment of backgrounds.

Two FastTrac graduates include Austin Black and James Canning, longtime friends and Detroit natives who both started their own businesses this past year. After completing the course last year, Black encouraged Canning to enroll as a way to shore up the direction he wanted to take his new PR company. "As someone whose job it is to help people tell their stories, this class helped me to tell my own story," Canning says. Soon he learned strategies like how to develop his mission, create his competitive advantage, and attract new clients to the businesss.

FastTrac courses typically run 10 weeks and help entrepreneurs to carry out certain early business plan objectives. Bizdom U, by contrast, provides an intense, full-scale experience from the idea stage all the way to acquiring funding. Each year, twenty chosen entrepreneurs partake in a four-month regimen where they get feedback from consultants, a professional workspace to operate from, and help with business plan development. At the end participants are eligible to receive up to $100,000 in funding to invest in their businesses.

Bizdom U largely came out of the vision Dan Gilbert had for the city in 2006. By moving the Quicken Loans headquarters to downtown Detroit, Gilbert staked his faith in the future of the city. And, as Sanders points out, entrepreneurs have responded to the call. These aggressive, forward-thinking leaders, he says, will lay the groundwork for the city's next generation of innovators.

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3. A vibrant support network exists.

Though a diverse lot, Detroit entrepreneurs all seem to share one common trait: they want to see each other succeed. Owners of businesses large and small, across dozens of different industries, have united under this belief to help the city progress as a whole.

"You have this community in Detroit where entrepreneurs want other entrepreneurs to succeed because it brings more business and more people to the city," says Black, who started his own real estate company devoted to city living. Black's passion for Detroit and its success extends to his work with Detroit Synergy, a group he advises on giving people the resources they need to revitalize the city.

Detroit's collaborative and collective mindset is one of the primary catalysts for the creation of groups like Open City Detroit. Started by two women entrepreneurs, Open City invites its network of loosely connected business owners to share thoughts on how to run better businesses. "No one is competing here as much as they are trying to help one another through forums like Open City," says James Canning. Open City is just one of a number of similar resources such as Motor City Connect, Business Leaders for Michigan, and Fusion Detroit that aim to bring these enthused leaders together.

One such leader is Jonathan Citrin, the 34-year-old founder of the aptly titled financial services firm CitrinGroup. Citrin considers himself lucky that he was on the early end of the city's entrepreneurial upswing – the firm started in 2003 and has doubled its revenue in the past 18 months alone. Now, after all his success, Citrin hopes to guide others along a similar path. "I made a ton of mistakes," he admits. "But had I had some of the support that's here now, I know I would've done even better."

Part of helping others to do better involves mentoring other business owners and teaching part-time at Wayne State University's School of Business Administration. Citrin says he loves to talk with students and aspiring entrepreneurs about their projects, particularly Wayne State's high-tech business park, TechTown. "I don't know if they get enough credit, but Wayne has been a real bright spot in fostering entrepreneurship in town," he says.

Similar to SPARK, TechTown works with innovators from the university community to bring ideas into fruition. It hosts 70 high-tech, growing companies from its facility in the heart of midtown and has enrolled a host of entrepreneurs in Kauffman's FastTrac program as well. While TechTown and SPARK and other accelerators operate independently, each has its own strengths. Rizik helps spawn capital for many of these accelerators and has seen increased communication between them in recent years. He says that "it's only through the coordination and efforts between them that they can each be optimized."

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4. There's access to space, leadership, and capital.

These three elements combine to make the Detroit landscape an untapped territory for starting business on the cheap.

Austin Black worked in the Detroit real estate market for nearly a decade before opening up his own shop specializing in urban communities. He says he's witnessed a lot of movement over the past five years into neighborhoods that had traditionally sparse residential populations. Lately, though, Midtown in particular has turned many of its vacant lots into mixed-use structures that combine storefronts and residences.

"You have a lot of landlords that really want to work with entrepreneurs and help them open businesses because of the benefit of storefront sales," Black says. This seamless "barrier of entry," he says, is what drives entrepreneurs to open businesses they are passionate about and fill a need for the city.

The hospitable disposition you get from the city trickles down from the its stable of strong, accessible leaders. James Canning says he doesn't have trouble getting meetings with some of the top CEOs in his industry, willing to lend a helping hand to those starting out. "The established leadership are looking for new ideas and next wave leaders to step up," he says. "Those that are taking the initiative to do so are being heard."

Named Crain Detroit Businesses' Newsmaker of the Year in 2009, Chris Rizik is certainly one of those leaders looking for the next big idea. He founded Renaissance Venture Capital Fund under the notion that Michigan was brimming with opportunities for investment. He cites that it has been a top-five region for research and development over the past few decades on both the corporate and university levels. Now it is his responsibility to convince investors of the state's potential for innovation and business development. And to a large extent, Rizik has been quite convincing.

"So far we've invested a certain amount in venture capital, and they've invested four times that amount in Michigan," Rizik says of the investors.

While funding from companies like Rizik's makes for a good start, investors aren't exactly throwing money around, especially for non-high-tech industries. Egner believes that the region's access to capital will grow even stronger once it has a more robust entrepreneurial ecosystem. "VCs will come here when they see something to invest in," he says. "We have to make sure the infrastructure is in place, so that companies that come here will stay here."

For now, Egner advocates freeing up capital for companies in the second stage of growth looking to reach the next level. He doesn't want to freeze capital for proven companies while earlier stage companies misallocate funds. He says that only once they align the right resources – the research, development, and communication – can they use capital to fortify growth.

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5.
Government support is plentiful.

Apart from all the independent accelerators out there, the government itself remains dedicated to small-business growth as well. Michael Finney of SPARK says that government cooperation has been vital to the growth of Ann Arbor's now-vibrant entrepreneurial community. "We have a very seamless voice to local and state government with respect to the needs of our entrepreneurs," he says. "And these governments respond very nicely to ensure they're not inhibiting the ability of the entrepreneur to be successful."

Organizations like the Detroit Economic Growth Corporation also serve as liaisons between business owners and the state. Bizdom U CEO Ross Sanders says his businesses have received assistance from the DEGC as well as support from the city government. Entrepreneurs from the program have presented their progress in front of City Council meetings and have even gotten pep talks from Detroit's mayor, Dave Bing. "The government is really recognizing need to foster entrepreneurship and to retain talent in Michigan to do so," Sanders says.

Grant programs such as the 21st Century Jobs Fund prove the state's commitment to aiding Michigan businesses. So far Michigan has committed close to $100 million to the 21st Century Jobs Fund, which aims to grow new industries in technology and alternative energy that will bring a diverse, robust economy to the state.

Ultimately the burden to change will fall in the hands of the entrepreneurs and their passions. The government, the leaders, and the community have given them the means to succeed. Now it will be up to them to make it happen.

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IMAGE: Jim Wark/Getty




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