The State of Ann Arbor's Start-Up Culture

Jim Price is a bit of an oddity in Michigan's entrepreneurial ecosystem. He's a serial entrepreneur that works from an ivory tower. He's a Michiganian by choice instead of by upbringing. And he's a new economy entrepreneur who smiles to himself when his colleagues from the coasts ask him yet again why he stays in Ann Arbor.

 

"I just sort of chuckle," says Price. "I realize we have some real advantages here compared to what they have in Silicon Valley and Boston. We all have a great talent pool but our talent pool doesn't turnover quite as fast. We all have a great quality of life but I can walk to work or take a short drive to where I need to go."

 

Price is a adjunct lecturer of entrepreneurial studies and a member of the executive committee at the Zell Lurie Institute for Entrepreneurial Studies at the University of Michigan's Ross School of Business. He didn't have a clear path to Ann Arbor. He got his MBA from Stanford University and worked as a serial entrepreneur in both Silicon Valley and Boston for years. He washed up in Ann Arbor in 1988 when he came to turn a University of Michigan-developed technology into a start-up business. That effort began a string of entrepreneurial local successes for Price. Among the feathers in his cap is growing Mechanical Dynamics from $3 million in revenue to $21 million in revenue before taking it public in 1996. 

 

Today, Price is working on a start-up so new that he says it is in "stealth mode" and only goes as far as to describe it as an "Internet software start-up." 

 

Teaching at the U-M Ross School of Business for the last 11 years, Price has taken a special interest in helping grow the next generation of Great Lakes State entrepreneurs. "This has been a great place to raise my kids and a superb place to grow a businesses," Price says. "I have great, loyal employees."

 

Price recently spoke to Concentrate's Jon Zemke and answered a number of questions over email about Michigan's growing entrepreneurial ecosystem.

 

 

That tells me we're doing two things right in our public university system: attracting great young talent, and probably more importantly, fostering an environment where it's safe to explore, safe to push the envelope, and safe to fail. That's how we learn to be entrepreneurs.

 

 

As a CEO, I hate to go to market saying that my value proposition is that my product's cheaper. Not very compelling, right? But what's super compelling about Michigan is that we offer an unbelievable quality of life; it's a place you want to live. We offer an astounding talent pool that's being constantly replenished. You can be surrounded by people who stimulate you, intellectually and culturally. And as an entrepreneurial start-up, if you hire people here in Michigan, those folks will tend to stay with you; your professional staff turnover here is far lower than in the Valley, Austin or Boulder. And yeah, it can be less expensive, too, which is cool. Everyone is about lean start-ups these days.

 

 

Now that I've been teaching Ross MBAs for over a decade and keeping in touch with a lot of my 1,500-plus alums, I'm finding that even 24 to 36 months out, folks have their financial sea legs and are more confident about breaking off on their own. But it would be interesting to encourage more potential entrepreneurs to pull the trigger immediately after graduation. How? What if, for the sake of discussion, the state offered graduates of Michigan-based colleges and universities to cover their first three years of student-loan interest payments if they stayed here and built a qualified business? That could be a real competitive differentiator for the state.

 

 

We're all cheering our great auto OEMs and suppliers in their hard-earned rebound. But this is not your father's assembly line state. We all need to recognize the economic and social sea change we're witnessing in the Great Lakes region. I'd highlight three related, irreversible megatrends: First, the permanent decline of the factory-worker middle class; second, the rise of the information-worker; and third, the evaporation of the career employer. So what we've been doing here in Michigan to build up our ecosystem and infrastructure of healthcare employment, life sciences businesses, tech and IT businesses, alternative energy, and even tourism – that's all spot on for creating a vibrant, resilient economy in this state for the 21st Century. Meanwhile, we've got to continue to invest in our K-12 and higher education system in a big way to remain competitive.

 

 

I'd love to say, "absolutely, it'll continue." On the one hand, it's really encouraging to see a generational changing of the guard in venture capital in the state, with the firms you mentioned along with Huron Venture Partners, the new fund being raised by Detroit Innovate, and so on. But, you know, the older grizzly bears who've been playing this game for years really know what they're doing, and VC is a brutal business. The new firms are raising relatively tiny first funds, and the economics of a small fund aren't pretty. Then, if you don't achieve top-quartile or better investor returns with your first fund, you'll be hard-pressed to raise money in a follow-on fund. Let's cheer for every single one of these young VCs, because our entrepreneurial ecosystem really needs them.

 

 

It’s a blip. Roger's an entrepreneurial rock star, along with just a handful of others in the state such as Jen Baird and Jeff Williams. I swear these people could do a composted sewage sludge deal and turn it to gold. You just have to stand back and admire their work. But let's be clear: IPOs in general are super rare.Year to year, the U.S. has a pretty consistent rate of new business births of a half million each year, according to the Bureau of Labor Statistics. Meanwhile, over the past 6 years, we've averaged 46 IPOs a year. Now granted, many of these new business births are flower shops and plumbing outfits or two-person CPA shops; but the point is that of all start-ups, the proportion that goes public nationwide is tiny.

 

 

Generally speaking, I personally think it's bad juju to import outside C-level folks (which is strange coming from me, since I was an import back in the day). I've seen too many instances where the outsider rents a condo, commutes in 5-10 days a month, or worse yet, moves the headquarters to where he lives. The only viable long-term strategy is to grow our C-level talent pool organically, and that has three prongs. First, support start-ups and growth companies, and when a start-up experiences a liquidity event, support the 3-6 strongest managers in each launching their own new venture. Second, continue to teach and mentor and coach entrepreneurship – both in the colleges and universities, as well as through our smart zones, NEF, GLEQ, and other venues; it needs to just be in the air, in the water. And third, mount an active campaign to attract back the Michigan entrepreneurial diaspora – senior management talent thriving in Chicago, Silicon Valley, New York, D.C., L.A. or wherever, but who grew up or went to school here, would love to have their kids grow up near Grandma and Grandpa, want to get back to the Spartan or Wolverine sporting events, really miss the seasons.

 

 

In hindsight, so much of that sort of thing ends up being grass-roots and entrepreneur-specific. For instance, the primary reason craft brewing took off in Massachusetts in the mid-1980s is that Jim Koch woke up to realize that the consulting life at the Boston Consulting Group wasn't feeding his soul, ignored his dad's warnings, quit his day job and started brewing beer in his bathtub that became Sam Adams and Boston Brewing. What's our Sam Adams going to be? Who knows? Let's encourage smart people to create and take risks, and then stand back and watch.

Jon Zemke is the Innovation and Job News editor for Concentrate, Metromode and Model D. He is also the managing editor of SEMichiganStartUp.com.