First Impressions of Michigan’s Innovation Landscape: An Institutional Legacy, A Fragmented Entrepreneurial Community, and Some Unexpected Promising Sectors

10/26/10Follow @xconomy

Last week I headed to the Detroit and Ann Arbor area to make my first visit to one of Xconomy’s newer outposts. I spoke with entrepreneurs and industry veterans, as well as academics and investors looking to jumpstart the region’s innovation engine. Some of what I saw and heard on my trip stood in stark contrast to the Boston technology landscape that I am accustomed to covering—and some was quite familiar. Read on for some of the key insights I took away from the trip.

1) Southeast Michigan lacks a well-connected, grassroots entrepreneurial culture.

It’s not that Detroit is lacking entrepreneurial talent, says Bill Volz, a business professor at Wayne State University and executive director of the Blackstone LaunchPad, an entrepreneurship program founded recently at the school. “The entrepreneurial community here—they don’t know each other at all,” Volz says. “They’re bright people and they’re interesting people. But they don’t know each other.”

It’s one thing that Detroit seems to have in common with Ann Arbor. And formally orchestrated business accelerator programs that put startups together won’t necessarily do the trick if the mindset isn’t there, says serial entrepreneur Dug Song, who’s currently CEO of Scio Security, a stealth-mode security software startup. “We don’t do nearly enough to help connect people here,” he says. “There’s not enough grassroots stuff going on. There need to be more opportunities for serendipity to happen.”

To create such opportunities, Song set up a co-working space in a former brewery building in Ann Arbor, aptly named Tech Brewery, which is now home to mobile app makers, University of Michigan biotech spinouts, cleantech startups, and software developers (including Scio Security). The co-working space is strikingly similar to Polaris Venture Partners’ Dogpatch Labs in Cambridge, MA. Song also favors events like casual hacker meetups where developers can get together without having to push toward a specific business plan. “That’s how companies happen,” he says.

Song says that the disconnectedness in the innovation community is at least in part an inheritance from the institutions that long defined the region, the big three automakers. “It’s the culture coming out of the auto industry: the culture of big, top-down institutions, silos, and big gaps between schools,” he says, pointing to the fact that even within the University of Michigan, entrepreneur-focused organizations are often housed at separate schools and isolated from one another.

Volz, meanwhile, says that part of the challenge in growing an innovation culture in the region is that working for large institutions, not entrepreneurship, has historically been the norm for people who grow up and/or go to school in the area, Volz says.

Volz says the LaunchPad program’s mentors will have to work to convince students that entrepreneurship is a desirable path, and not a last resort. “The whole idea is entrepreneurship is a career choice for students, and it’s not what happens when no one else offers you a job,” says Volz.

2) Early stage funding is a challenge in Michigan, just like everywhere else, but the area shouldn’t look to the government.

Some challenges transcend geographies. Many in the Boston-area bemoan the lack of early-stage funding for startups, a concern that was echoed for the Detroit and Ann Arbor areas. “There’s a lack of seed stage funding and a culture around angel investing,” Song says. “Not everyone can build a company on the side from their day job. But that’s a problem everywhere.”

It may be a bit of a self-fulfilling prophecy for the Detroit area, though. Standout startup ideas are needed to attract more investors to the region, Volz says. “One way to bring that investment capital to Detroit is to have good ideas with which they could be successful,” he says.

Michigan has a greater availability of government grants and tax incentives than any of the other regions Xconomy covers, but those looking to transform the area are wary of fully depending on that assistance. “Depending on the government—it plays to a stereotype and the whole idea is to move from a stereotype,” Volz says. “There’s something dynamic going on here; Henry Ford was not the last entrepreneur in Detroit.”

3) The quest for innovation should extend beyond the sectors that the government has bet on.

The Michigan Economic Development Corporation, a corporation set up as an agreement between state and local governments, has particularly targeted four industries as sources of transformation in Michigan: alternative energy, life sciences, homeland security and defense, and advanced manufacturing. But several of the people I spoke with believe that the quest for innovation should extend beyond those four sectors.

“I know what kind of impact the IT sector can have,” Song says. “We’ve just had a hard time adapting that to the culture here. You see a lot more emphasis on the four magic sectors, where there’s a chance of putting the manufacturing sectors to work. The challenge is that a lot of them have left or are leaving. Now you can outsource a lot of manufacturing; hardware companies are not even making their own stuff. The smarts are really in the software.”

Ann Arbor and southeastern Michigan have the danger of playing the role for California’s big tech businesses that Bangalore, India, has played for other U.S.-based companies—that of the call center and customer-service outpost, Song says. Even Google’s presence in the region supplies more sales-end jobs than technology and development, Song says. “People are grateful for the jobs, but that’s not what’s going to transform the region.”

Volz says innovation in less sexy areas could also help include those not trained in software and high tech. He hopes innovative ideas that transform traditional sectors—like the food and beverage industry or hygiene and cleaning in hospitals and labs—come out of the Blackstone LaunchPad at Wayne State. He’s looking to open the program to a diverse array of entrepreneurs—from those working on iPhone apps to those looking to develop biodegradable cleaning products. “I would like to be open to people who are interested in doing what’s the least glamorous thing you can think of,” he says. “The techie stuff would be wonderful. It just strikes me that everybody has clamored to that.”

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  • http://monkey.org/~dugsong/ Dug Song

    Thanks, Erin!

    Some more on Ann Arbor’s startup community development (from a year ago):

    http://www.slideshare.net/dugsong/ann-arbor-startup-community-development-h109-1759718

    Anyone in the area should join us for our flagship community event, the Ann Arbor New Tech Meetup, which has introduced 80+ companies to our 1200+ members:

    http://a2newtech.org

    And check out http://a2geeks.org for links to the 60+ geek groups organizing an average of 2-3 tech events every day in Ann Arbor, including big annual events like http://IgniteAnnArbor.com and http://a2makerfaire.com

  • http://www.bankofannarbor.com Michael Cole

    Opportunities like the ones that Dug has noted are plentiful in our region. Here are a few new economy building activities for your consideration:

    The New Enterprise Forum. A grass roots organization in its 25th year. http://www.newenterpriseforum.org/

    Ann Arbor SPARK’s calendar of events.
    http://www.annarborusa.org/

    Michigan Emerging Conference.
    http://www.michiganemerging.com/

    MidAmerica Healthcare Venture Forum
    http://www.midamericahealthcareforum.com/home.html

    The Michigan Growth Capital Symposium, celebrating its 29th year in 2011.
    http://www.michigangcs.com/

    Great Lakes Entreprenuers Quest. This is a statewide business plan competition, wrapped in a calendar of workshops and mentorship.
    http://gleq.org/gleq.nsf/index.html

  • http://www.neocontext.com Jim Chiang

    I think Michigan has a great entrepreneurial community. The question is more about where the outside funding is?

    Jim
    http://www.neocontext.com
    Blog at: http://blog.neocontext.com

  • http://www.buycentives.com David Goldschmidt

    As cofounder of an Ann Arbor startup NOT within one of MEDC’s four “holy” industries, Dug is right about missing out on IT opportunities.

    Like established entrepreneurial communities such as Boulder, SV and the Alley, we also need a culture that fosters a fail fast mind-set. Serial entrepreneur Steve Blank’s definition of a tech startup is especially appropriate here. To Steve, a startup “is a temporary organization used to search for a scalable and repeatable business model”. He says that startups fail because they execute when they should search. He also says that business plans are the leading cause of startup death, but that’s another issue….

    So to help enable the search by these temporary organizations, our region should offer a mentorship-driven, seed stage investment program like Boulder’s TechStars or Chicago’s new Excelerate. And, to enhance the ability for entrepreneurs and investors to connect, holding Open Angel Forum events (already in Boulder and seven other locations) provides entrepreneurs with access to angel investors, and also inspires high net worth individuals to become angels.

    Dave
    http://www.buycentives.com