Detroit may be bruised, but it’s far from broken.
The buckle of the Rust Belt – birthplace of the U.S. auto industry and once the country’s fourth-largest city – is mounting a comeback after decades of decline and decay.
At the heart of the renaissance is a pioneering community of young, high-tech entrepreneurs, many of whom were born and raised in the area and have the Motor City’s “maker” mentality in their blood. These startups and a few of Detroit’s business titans are on a mission to build great companies while rebuilding a great American city, one innovation at a time.
“If you think about the auto industry over a century ago, it was guys in garages seeing what they could create. That was the ‘emerging technology’ of the time," said Tyler Paxton, co-founder of Are You a Human. "That mentality still exists here, generations later. There’s a real interest among people who want to put their hands and minds to work building something. The grandchildren of former auto engineers are churning out tomorrow’s technology and, hopefully, Detroit’s future.”
Martin Dober, senior vice president at the Michigan Economic Development Corporation and the son of a career automan, adds, “The startup community is not only helping the city’s economy. It’s helping to rebuild the entrepreneurial spirit we had 100 years ago but perhaps forgot.”
Paxton, a Detroit native and self-professed tinkerer, returned home in the summer of 2011. His company – which develops mini-games to replace the distorted text websites use to verify their visitors are real people – is thriving alongside other like-minded startups in the M@dison Building downtown. The modernized 1917 structure overlooking Comerica Park, where the Detroit Tigers welcomed 3 million baseball fans last season, is ground zero for the city’s brimming tech scene.
“This is a Detroit many people haven’t heard of before,” Paxton said. “There’s a sense of energy and greater purpose among people who see the rebirth taking place and want to be part of it.”
And Detroit could use all the help it can get. Last week, it became the largest city in U.S. history to file for bankruptcy. The announcement marked the biggest blow yet to a city littered with tens of thousands of abandoned buildings and home to barely 700,000 people – a far cry from its peak of nearly 2 million during the auto boom of the 1950s and 1960s. The shrinking population has eroded Detroit’s tax base, pinching municipal services and sinking the city deeper into debt.
Returning Detroit to its former glory, many believe, will require a shift from a “muscle economy” that has been overly reliant on manufacturing to a “brain economy” rooted in innovation and creativity. That’s where startups fit in.
“The challenge is converting the decades-old employment mentality to a startup mentality,” explained Ross Sanders, executive director at Bizdom, a nonprofit accelerator. “And for any region to thrive, you need a strong urban core anchored by a hub of entrepreneurship and technology.”
Bizdom, which runs a sister operation in another beleaguered Midwestern city – Cleveland, Ohio – backs tech startups through seed investments and an accelerated training and mentorship program. All returns are recycled back into the organization to fund more startups.
“Our role is to feed the ecosystem with startups,” Sanders added. “We handle the heaving lifting early on so the foundation and investor community can do their jobs.”
Bizdom is the brainchild of Quicken Loans founder Dan Gilbert. A third-generation Detroiter, Gilbert is on a crusade to revitalize and rebrand the city’s once-bustling downtown as a high-tech hub. In addition to walking the talk by relocating thousands of Quicken employees from the suburbs, he has acquired more than 7.5 million sq. ft. of depressed downtown real estate, converting high-rises into offices, condos and retail space. He’s now Detroit’s third-largest landowner, behind the city and General Motors.
As a result, downtown Detroit is now a hip-yet-affordable urban destination to live, work and play.
“People used to be afraid of the city,” said Jay Gierak, co-founder of Stik, a social media-powered recommendations and reviews platform. “Now they can’t stay away.”
Gierak and his co-founder Nathan Labenz grew up in Detroit and attended Harvard University. They headed west to Silicon Valley after graduation and successfully launched Stik in 2010 before moving back home to tap into an emerging startup community loaded with hungry engineering and design talent. Stik’s status as a bigger fish in a smaller pond would pay dividends from a recruitment standpoint, they figured.
“We thought, ‘We can go to Detroit and hire the best people or stay in San Francisco and pick up Google and Facebook’s scraps,'” Gierak said.
They opted for the former, relocating in October 2012 and never looking back. Stik has since expanded from four to 14 employees and continues to grow its business thanks, in part, to the close-knit nature of the community.
“It’s something we didn’t expect and have been a bit overwhelmed by,” Gierak added. “When you tell someone in San Francisco that you work for a startup, unless you’re Twitter, you’re yesterday’s news. But in Detroit, people say, ‘That’s great! How can I help?’”
Ted Serbinski moved to Detroit from San Francisco in 2011 to join Detroit Venture Partners, where he invests in seed-stage software startups. Co-founded by Gilbert, the VC firm backs many of the Big D’s up-and-comers – including Are You a Human – and works shoulder-to-shoulder with several of its portfolio companies in the M@dison (owned by, you guessed it, Gilbert).
An experienced entrepreneur who co-founded and later sold ParentsClick to Lifetime Television, Serbinski had been eyeing a move to Boston, Chicago or Washington, D.C. when his wife, a Michigan native, suggested Detroit.
“I laughed at first,” he recalled.
Weeks later, he read a story on the newly formed Detroit Venture Partners. His interest now piqued, he stopped through downtown while visiting his in-laws.
“I was blown away by the passion I saw,” he said. “It was energizing to realize I could play a hands-on role in investing in startups and rebuilding a city. You can’t get much more entrepreneurial than that.”
Despite the gloomy headlines, Detroit is benefiting from what Serbinski calls a “perfect economic storm” of investment and support from Gilbert and other influential business leaders; state government programs and incentives led by a pro-business governor (Rick Snyder, former Gateway chairman and one of the first venture capitalists in Michigan), and a steady pipeline of talent from The University of Michigan, Michigan State University and Detroit’s very own Wayne State University.
Sanders echoed this optimism. “I truly believe that in five to 10 years, Detroit will be known for making a historic comeback,” he said. “And startups want to be a part of that story.”
Detroit’s startup infrastructure – while perhaps not yet on par with other more established hubs – continues to solidify thanks to a hybrid of public and private support and an engaged community of investors and incubators.
What the community still lacks, some insist, is a strong mentor network and seasoned, senior-level tech talent. “The entrepreneurial community here is nascent,” Paxton said. “We haven’t had a big exit like in Austin, so role models are limited. And while we have a lot of strong talent in the area, the depth of knowledge in the types of technologies we want isn’t quite there.”
Another criticism is that Detroit’s revitalization efforts are too focused on the downtown core, which encompasses a mere 5% of the city’s 139 sprawling square miles. TechTown, a Wayne State-affiliated incubator, is promoting what it calls a holistic approach to economic development by supporting not only technology-based businesses, but also neighborhood retailers and small enterprises in the city’s underserved districts.
Through its SWOT City program, the team works with community associations and economic development groups to stabilize and grow traditional storefronts through workshops, coaching and assessments.
“What we found was that a lot of people were being left out of the economic conversation,” said Leslie Smith, TechTown president and CEO. “We kept getting asked, ‘What are you doing for me… what about the rest of us?’”
SWOT City applies the same model used to launch and grow high-tech companies with coffee shops, clothing boutiques and more. TechTown sets up offices in neighborhoods and identifies struggling businesses with a strong presence in the community. Their mission: to create and retain jobs in these areas by building sustainable businesses.
The program has reached five Detroit neighborhoods since 2011, Smith said, helping about one-third of its business clients triple their revenues.
“We know the model is working and that the need is not acute, but chronic,” she added. “We have to continue this work over an extended period of time.”
This story is part of a series highlighting the next wave of U.S. startup hubs. We kicked things off with a look at Austin, Texas. Next up: Coke's hometown of Atlanta, Ga.