Free Enterprise Staff  | August 18, 2015

What Comes Next? Startups in Post-Bankruptcy Detroit

Detroit’s Reckoning. That was the headline the Detroit News chose the day after the city filed for Chapter 9, declaring the largest municipal bankruptcy in history. The long fall from grace that began quietly in the late 1950s had culminated in a city deficit of $700 million that threatened to consume nearly 70% of the annual budget by fiscal year 2020. It was time to face facts and figures. Michigan Governor, Rick Snyder, interceded and appointed Kevyn Orr as the city’s emergency manager. Orr took swift action, filing for bankruptcy and beginning negotiations with courts, unions, public employees, city retirees and creditors, all of whom had skin in the game and disagreed with the idea of declaring bankruptcy at all.

But anyone being honest about the situation Detroit found itself in that summer knew that either the city had to lose everything or everyone had to lose something. Such are the ugly compromises of bankruptcy.

Now, two years later, the city is freer of debt, more functional thanks to operational reforms, and is buoyed by newfound optimism about its future. A pathway forward has been cleared. The question now is, what will define the new Detroit?

The recently released Innovation That Matters Report from the U.S. Chamber of Commerce and 1776, a D.C.-based startup incubator, gives us a glimpse at the current state of startups in Detroit, as well as several other cities with more established startup communities that Detroit could learn a lesson or two from.

In addition to a series of in-person discussions, much of the research was conducted through surveys sent to startups, inquiring about their business and their thoughts on the startup scene in the city. The number of survey responses returned in Detroit was so low that several sets of data had to be labeled N/A because they weren’t statistically significant. You could draw two conclusions from this: 1) Detroit entrepreneurs are so busy that they don’t have time to respond or 2) startups in Detroit are disparate and disconnected from each other, let alone the national startup community.

In many respects, Detroit is still the Wild Midwest. Startups lack established connections between national investors and civic organizations, and only now is the city beginning to see its tech talent pool grow. Startups here have to build from scratch the connections between stakeholders that New York, San Francisco and Boston take for granted. As the authors of a post on Medium about the report put it, “After 366 interviews, here’s what we know: Mobilizing a city’s networks is the secret sauce to a successful entrepreneurial community.” The DIY-it ethic of almost every startup trying to take off in Detroit will need to build their network out of necessity for the benefit of all.

But the data, or the lack thereof, doesn’t tell the human side of the story. The founders and employees of local startups are slowly learning how to foster community networks and want to share resources and information with fellow startups. Brian Bosche, one of the founders of Slope, a marketing platform from TernPro Inc. that allows creative teams to store, manage and collaborate on media content tells me, “Detroit has a small startup community, but it is very tight knit.” And he means this quite literally. Many of the investments from Detroit Venture Partners and Bizdom, two startup incubators in town, are located on the Madison Block in Downtown Detroit, a hub for local tech companies.

Rocket Fiber Internet is another tech startup downtown. They offer a fiber optic alternative to cable and Internet giants Comcast and AT&T, which currently dominate all of Southeast Michigan. Started in Detroit, they see faster Internet speeds as essential to any tech startup’s efficiency and want to make Internet cheaper for citizens and startups worried about overhead.

Tech incubator Grand Circus would agree. File transferring, access to servers and coding are happening non-stop in their boot camps, where there might be as many as 50 students coding at one time, and Rocket Fiber’s Internet speeds will improve quality in access throughout downtown, midtown and the Woodward corridor.

Grand Circus is dedicated to teaching tech skills to a new generation of Detroiters. They offer eight-week boot camps and a co-working space in the heart of Detroit’s historic Grand Circus Park. Grand Circus recently received the backing of Google as one of a handful of emerging startup communities in the country, giving them financial support and access to Google resources. And Google isn’t the only tech brand name that senses opportunity in Detroit. Twitter, Uber and Tumblr all recently opened offices here and can hopefully attract desperately needed coders and developers to fill gaps in the talent pool.

But perhaps the future belongs to the past in a way. The Big Three – GM, Ford and Fiat-Chrysler – still factor heavily in Detroit’s economy, and small tech companies would be wise to concentrate their efforts on developing and innovating for them as much as they seek the next breakthrough app.

Running alongside the emerging tech sector are creatives in graphic design, video production and new media. Green Sky Creative’s staff has doubled in the past year, adding photographers, cinematographers and web designers working mainly on projects for Detroit area brands like Cadillac, Buick and Carhartt. TMV Group, an advertising agency founded by ex-ad guys who managed BBDO in Detroit at one time, and created iconic campaigns like “That Thing Got A Hemi” and “Have You Driven A Ford Lately,” have taken off on their own. They’ve started a new model of agency that’s smaller and driven by award-winning creative and precise data analytics that save clients money on media buys. Outside of automotive projects (a given in Detroit), TMV has also focused on health care – another driving industry in the city.

But where Detroit might begin to differentiate itself is in the maker movement, which Free Enterprise documented in Pittsburgh and that’s also taken hold in a city built on manufacturing, and that offers an abundance of studio and office space, not to mention a yen for making things with its hands.

Bamboo Detroit is the city’s largest co-working space with 85 members, and houses makers doing everything from dipping custom candlesticks to startups that build phone cases made from broken hockey sticks.

Green Garage is another incubator in midtown Detroit founded by Tom and Peggy Brenan. In a past life, Mr. Brennan worked with some of the largest companies in the world as a consultant with Accenture, making him uniquely equipped to offer advice to the businesses in residence. But his approach is less formula than it is feeling. He asks owners, “What do you stand for? What do you hope to achieve? How will this business fit into your life?” The Green Garage’s advice is aimed less at accelerating a business and more about slow, deliberate growth. It’s an approach that eschews the one-size-fits-all process of accepting loans, which Brennan thinks burdens startups with too much unnerving debt.

Small-scale manufacturers with niche products, like Red Panda guitar pedals, have found a home at Green Garage and look to steadily grow their business until they can open shop elsewhere. But crowdfunding is still a viable alternative, and it helped breakout manufacturer The Floyd Leg, which used Kickstarter to launch its new line of attachable table legs that transform any surface into a suitable coffee or worktable.

Once these startups start talking to one another, and speaking with one voice, the data points lacking in this report should become more evident. But until then, visit any one of the startup incubators in town, or ask someone at a bar if they themselves or someone they know isn’t daydreaming about a business plan or already taking steps enact one, and you’ll hear a range of ideas that stretch from small-scale manufacturing to hi-tech global ambition.

Optimism might exceed opportunity, but with bankruptcy behind it, Detroit should feel excited to shed some of its past on the way to a brighter future.