Detroit Tech City

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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-19th century. Then, Henry Ford came onto 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 pumped millions of dollars annually into the Detroit economy, helping make the city the fifth-largest in the U.S. and a key player in the country’s post-war 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 just the bad news.?

On the economic front, the city is now going all-in on Internet technology in hopes that it takes up some of the slack for 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,” says Ted Serbinski, vice president of Detroit Venture Partners. “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. Then 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 Midwest 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 eastern Michigan, despite all of the negative press that Detroit seems to attract. 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. Even the local sports teams have been looking better lately.

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 great 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 Midwest. 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.?

Billhighway, which offers an online 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 capital backing is a fact of life for many technology entrepreneurs on the coasts (and a badge of honor for some) – but it 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 also take their time.

“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 area. 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 here) 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 startup scene has truly blown up in recent years, taking the city from a tech backwater to a bona fide player on the national map.

Even the smart money is finding its way to the city.

“There actually is a significant amount of venture capital in Michigan,” says DVP’s Stasik, “although a lot of it has been focused in Ann Arbor with the life science and health care industries. But in terms of software, it’s true that we [DVP] are one of the largest. But in a lot of our deals lately we have had co-investors too. So it’s not just DVP leading this; there are other investors that see the value here.”

Serbinski agrees, citing the many state programs that are available for entrepreneurs. “It’s almost been perfect timing with the slump in the U.S. economy and the focus on startups nationally. And Detroit – hey, this is one of the worst cities in the country. Oh, now there are these amazing tech jobs? Let’s start them here.”

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