Building A Start-up City
Larry Swain's heart and brain come from different places, but not in the
Boris Karloff-wide-stitches-Mary Shelley kind of a way.
scientist up here," he says, pointing toward his head. "But I've always
been an entrepreneur in here," lowering his hand to his heart.
who retired this year after spending his last 33 at the State of
Michigan's Department of Agriculture, has gone into business for himself
– or, at least, back into business for himself. He started a carpet
cleaning company in the mid '80s and pulled double duty with the state
for a spell.
Clean Suite Inspections is his newest endeavor. It's
a company that, essentially, cleans and deodorizes hotel rooms using
"green" methods and environmentally-friendly chemicals. Swain is one of
13 tenants that lease a space out of the SPARK
East Business Incubator
building in Ypsilanti.
Despite the relatively young company the older Swain has started, it has
already pulled in interest from the west coast. At the end of the
summer, a California-based investment firm offered to buy CSI from Swain
for $2.2 million. They wanted 30 percent of the company with the deal
paying him $100,000 upon signing. "I'll tell you, that motivated me," he
says, with a whistle. "But I said no. I didn't want to sell yet." He
wants the company to grow a little more under him before he sells, if he
sells at all, adding "I'm thinking of framing that letter."
the numbers across the nation suggest a downward trend in business
creation. It's been reported that venture capitalists are tightening the
purse strings. From coast to coast, Boston to Silicon Valley, startups
aren't growing like they did in the aftermath of the recession in the
early 2000s, according to the Bureau of
But then there's Ann Arbor, with the
University of Michigan redoubling its commitment to tech transfer, the
efforts of SPARK, and ever-increasing numbers of Larry Swains that
gravitate toward our community.
"Nationally, some of the riskier
investments" – for example first time financing – "[are] down 20 percent
[in Q3 2009]," says Lindsay Aspergen, founder of North Coast Technology Investors
"But that problem doesn't seem to manifest here in Michigan."
Over the state of Michigan's last three quarters, investment has
increased from $20 million to $26 million to $36 million, respectively.
Other states that Michigan is often compared to when it comes to these
numbers, like Ohio and Wisconsin, aren't nearly as high or consistent.
Ann Arbor SPARK's business accelerator activity has grown
significantly. From 2007 to 2009, general inquiries about business
creation have increased from 40 companies to an estimated 224, while
full-on developments have more than doubled from 25 start-ups to an
"Due to a growth in the IT community and to social networking, the
startup community has been invigorated," says Skip Simms, Ann Arbor
SPARK executive. "Startups created to turn an idea into an app are
turning out to be real businesses. Alternative energy is also running
the gamut, from solar power to battery technology to wind [power]. There
are a lot of possibilities. These sectors have added to the growth of
startups in the area, not subtracted." Simms continues, listing the
different industries and sectors that are growing with the speed and
excitement of a kid listing the toys he wants for Christmas. "There are
new drugs, new treatments. Life science sectors are very strong, and
there are strong engineering companies."
Yet it's not exactly a
shock that business creation is up in the area. "The culture here drives
the formation of these businesses," Simms says. "Ann Arbor sponsors a
certain culture, an entrepreneurial, innovative attitude." The
University of Michigan is a billion dollar research center, incubators
like SPARK, companies like Google, a startup community for U-M students
are the notches that help Ann Arbor – and the surrounding areas – buck
the downward trend.
"There are an awful lot of startups out
there," says Chris Rizik, CEO of the Renaissance Venture Capital Fund
organization that pools capital and invests it into other venture
capital funds. "There are a lot of new things creating companies and a
lot of early indicators of growth that have not matured to venture
capital yet. But they are out there."
Rizik says that Ann Arbor had one big shortfall in the past. "Management
and talent in that area. But there's been a change in gears, a
transition. These managing issues have been addressed in both the
culture and skills of the area." He says that's one indicator, and "the
second is that the tech sector has dramatically increased. … But the
missing piece will be the capital. Will there be enough to optimize this
The trend of venture capital is moving toward
established business and away from some of the more riskier investments –
meaning first timers. For instance, five years ago a venture capitalist
might have invested in a company that is two years away from real
revenue. These days the investor will wait until it is established, as
much as two years in, and reliably generating cash. Angel investors,
early-stage investors who typically precede venture capitalists, are
also drawing back a bit and waiting.
The consensus is that the capital isn't there like it used to be. The
state has tried to step in with modest funding efforts, but most people
are finding other ways to launch their projects. "There are a lot of
companies that are seemingly working out," Rizik says. "Some are funded
by hefty severances. Some are able to bite the bullet and work for free.
Others are pulling double duty with a regular job plus their startup.
Either way, these companies will need to find a source of income.
They'll hit a point and at that point we'll know where we're at."
Phillips is one of those entrepreneurs funding his project through a
severance check. He was the marketing vice president for Therma-Tru Doors
Toledo before the company, as he says, cut the marketing budget back to
1970s levels. They let him go, giving him a hefty severance package.
"It's given me the freedom to explore. I knew I wasn't interested in
getting back into a big company and so here I am," he says. "I've
started my own."
Phillips, a tenant at SPARK Central in Ann
Arbor, started Meadowlark Energy Efficiency. The company audits homes
for energy efficiency and then will either do the work needed or provide
the client with referrals.
Phillips and his partners are 30 to
60 days away from pitching to investors. "SPARK brings in venture
capitalists to educate us on our proposals," he says. "They tell us one
percent of all deals get funded nationwide. It's tough but motivating."
Right now Meadowlark will be aiming at pre-seeders and angel investors,
as well as what he calls the three Fs. "Friends, family, and fools," he
says with a smirk. "But we don't want to get hooked on OPM," – actually
saying "opium" – again with a laugh. "OPM, you know … Other People's
The Midwest is quite conservative when it comes to
financial risk. People here are used to being employed, not employing or
starting their own companies. But, as more and more people become
unemployed, more and more entrepreneurs are born.
been a loss of entrepreneurs because of the recession," Simms says. "The
recession drives people to entrepreneurship, to find their dreams. You
lose entrepreneurs when everything is OK. Then people get lazy."
is why the state has struggled to develop an entrepreneurial culture.
Too many recall the lessons of Thomas Knoll,
who created Photoshop here in 1987 but had to venture west to find
But you can't emulate or compare – at least not yet –
Boston and Silicon Valley to Ann Arbor, adds Simms. "We're different
than the coasts. They've been doing this a lot longer. But we're
learning to take risks and also learning from failure and not repeating
it. We're modifying our mindsets."
The companies born over the
last two years are merely seedlings and have yet to sprout and mature.
Simms says it could take five to ten years to see what becomes of the
seeds planted yesterday, today, and tomorrow. But, he says, the good
news is that they've been planted.
Terry Parris Jr. is the
utility infielder for Concentrate and its sister pubs Metromode and Model D. His last feature was Metro Detroit Is Abuzz.Send comments here.