A corporate buyout doesn't always mean a sellout here in Ann Arbor. Just ask
HealthMedia, the web-based
health coaching company, which will be keeping its Ann Arbor address after its
recent acquisition by mega
company Johnson & Johnson.
HealthMedia, of course, isn't bucking the
trend here by sticking around. It makes sense to stay, for business reasons both
large and small, personal reasons, and, of course, city reasons. And HealthMedia
is just another company on the list of startups that didn't need moving boxes. A
few others on the list include the 2005 acquisition of
Arbortext by PTC,
the 2006 buyout of T/J Technologies by
A123Systems (A123 is in a silent period about the acquisition
right now and will not disclose information), and
Mircos Retail's 2008
purchase of Fry, Inc. All were startups, all were in Ann Arbor, all were
purchased by global companies, and all stayed.
The question of why to
stay, when asked to the heads of these former startups, is answered with: "Why
leave?"
Yes, it happens, says Amy Cell,
Ann Arbor SPARK's director of Talent Enhancement. Big
companies have come through and grabbed up intellectual property like cherry
pickers in Traverse City and then left Dodge. But a great number of corporations
realize that Ann Arbor is uniquely positioned to allow acquired startups to
thrive, thereby increasing parent companies' own success, and the city's success
as well. It's like Mesopotamia here for startups, if you think about it.
In fact, earlier this year
BusinessWeek named Ann Arbor the best city in Michigan to
start your startup. And it's pretty safe to say that the cost of living here is
cheaper than Boston, Silicon Valley, or San Francisco – the big power hitters in
startup cities.
"It's about 20 to 25 percent cheaper here in Ann Arbor
than Silicon Valley or Boston," Jim Sterken says. Sterken is one of the three
founders of Arbortext, a software company transformed from a $40K investment in
1983 to a $40 million company in 2005 before its sale to PTC, a billion dollar
global operation. And that acquired startup is still in Ann Arbor. "There is
reliable work here," he says. "Companies can recruit from U of M, Eastern, and
Wayne State (University). That's a big draw. It just makes sense."
The
decision to stay or leave depends on many things. Entrepreneurs, by nature, are
rooted to the areas where their businesses are formed, says Keith Bourne, owner
of a local startup,
Adaptive Campus, which utilizes social networking capabilities
to aggregate one's knowledge base. Adaptive Campus hasn't exited
yet.
"Entrepreneurs are tied to their area," he says. "You get attached
and you want to give back to the community that supported you. A big part of
startups is creating jobs for the community. If I sell the company and divest,
it'll mean a lot more to me to keep it in Ann Arbor, its origin. It would be
something I'd push for. There are good people here, good for recruiting, and a
lot of startup and entrepreneurial support."
Bourne says he's obviously
looking to be successful, but asks, "What is a measure of success?"
"It's good to have some idea of success in mind, obviously," he says. "Whether
that is an exit strategy or an I.P.O. – though that isn't all that realistic
these days – or acquisition. It's different things." I.P.O., by the way, stands
for Initial Public Offering, defined as a company's first presentation of shares
for public stock market trading.
For Sterken and the two other founders
of Arbortext, the goal was unbridled growth. Acquisition wasn't necessarily a
focus, but staying in Ann Arbor was on the radar.
"We were ambitious and
competitive," he says. "When we reached $1 million in sales revenue, we wanted
to see if we could take it to five. Then to an I.P.O, then to 100
million."
They were successful, to say the least. Sterken says they were
contacted two or three times a year for 20 years by companies looking for an
acquisition. Nothing seemed to fit, for various reasons. When Arbortext made it
to $40 million in sales revenue, the partners decided that they probably had
gone just as far as they could go with their product and in this economy. That's
when PTC came into the picture.
"Their vision was inline with ours and
what we wanted to do," he says. Sterken says they watched PTC acquire
Windchill, of
Arden Hills, Minn. PTC picked up that company when it employed 40 people, and
500 people now continue to work in Arden Hills.
"(PTC) had a strong
record of investing into an area," he says. "There was potential to build a
place and our place was Ann Arbor."
David Fry started
Fry, Inc.,
which stemmed from a family printing business in Pennsylvania and turned into an
e-commerce startup that grew from year to year. In August of 2008, Micros Retail
acquired Fry, Inc. And again, a former startup stayed at home.
"It was
never a question for us," Fry says. "We understand that we impact the work force
here. We're an Ann Arbor company. And this is a great town; there is an educated
population. The staff lives here. The cost is quite low. This is a good quality
of life."
Fry believes that quality of life is just as much part of the
business as is product. "Companies need to look at that as an acquired asset
when purchasing. There is a stigma about Michigan, about people leaving," Fry
says. "But Ann Arbor is a unique area. There's a vibrant community here and
we're fighting that stigma."
Reasons to buy and sell, however, vary from
startup to startup, entrepreneur to entrepreneur, and, more importantly,
investor to investor.
"Every entrepreneur is different," Cell says.
"Investors might want to sell. And they really drive the company, since it's
their money. Whereas entrepreneurs might be fine with keeping it and growing
it."
Johnson & Johnson's acquisition of HealthMedia, for example, was
done in part because J&J saw the opportunity to grow into a specific market
without having to expand its own branch.
"They wanted to invest in this company because it made sense for them," Cell
says. But it also has made sense for the community, too. "And they kept it here,
to grow and expand. This will keep the jobs here and the talent. And an
acquisition like this is inspiring to other entrepreneurs. Never could this be a
negative." HealthMedia currently employs 145 in the Ann Arbor area.
But a
little advice for budding entrepreneurs: as both Fry and Sterken point out, if
you're thinking sell, acquisition, exit strategy, you might want to change that
mindset.
"Don't focus on trying to sell your company in five years.
You'll be looking at disappointment," Fry says. "Building a company and running
it the best you can should be the goal. Focus should be on the ground, running
the business."
"If you're thinking about a larger market or 'I want to
sell the company,' you're not going to be happy," Sterken says. "Work on the
development of something truly unique, something that's valuable. If you're
successful you'll get two or three calls (about acquisition) a year for the 20
years you're in business."
Terry Parris Jr. is the
utility infielder for Metromode and its sister pubs Concentrate and Model D.
His last feature for Mode was The High Life.