Policy

Struggling Cities, From Detroit to New Orleans, See Startups as Saviors


A test table at one of Ford's product development sync labs in Dearborn,
Michigan.

Photograph by Jeff Kowalsky/Bloomberg

A test table at one of Ford's product development sync labs in Dearborn, Michigan.

After graduating from the University of Michigan, Greg Schwartz worked in New York at Warner Music Group as director of digital business. Then the entrepreneurial bug bit him, and he tried to turn a calendar app he had created into a business. But instead of staying put or moving to a tech mecca like Silicon Valley, he returned in 2011 to his hometown of Detroit to found UpTo, inspired by Dan Gilbert, founder of Detroit-based Quicken Loans and majority owner of the Cleveland Cavaliers.

“Like so many others, I left Detroit during a massive brain drain. But I’d been hearing a lot about what was happening here, and when I thought about this being where my family was and looked at the cost of living and doing business, I came back,” says Schwartz, whose company has attracted $2.3 million from hometown backers Detroit Venture Partners and Ludlow Ventures. “I didn’t believe it at first, but there is access to capital here and incredible talent resources from the Michigan universities.”

While the bulk of venture capital dollars go to Silicon Valley and New England, cities little heralded for their tech scenes have been successfully coaxing technology entrepreneurs to set up shop in recent years. That includes Detroit, New Orleans, and St. Louis, where municipal and private initiatives are attracting newbies and natives returning from the coasts. (The Kauffman Foundation, a nonprofit that encourages entrepreneurship, just launched a new site to spotlight places where similar efforts are in the works.) Supporters acknowledge perceptions about blight and brain drain are big hurdles but say saving their hometowns keeps them motivated.

In Milwaukee, Daniel Isenberg, founding executive director of the Babson Entrepreneurship Ecosystem Projects, is heading up a project commissioned by American Express OPEN (AXP) to determine how community and business leaders can work together to help new and existing businesses grow. He says that while entrepreneurship is an “organic process” that can’t necessarily be imposed on a community from outside, it can be accelerated and facilitated. Once key stakeholders are identified this month in Milwaukee, he hopes to have a blueprint to extend the program to other struggling Wisconsin cities later this year.

Such places as Milwaukee, where the once-thriving manufacturing sector has faded, have a strong “sense of pain, frustration, and urgency and a strong, strong desire to change,” Isenberg says. “Silicon Valley is really interesting, but I don’t view it as the standard or model to be emulated. Somehow there’s the concept that if you’re not Silicon Valley, you’re not entrepreneurial, and I think that’s wrong.”

Robert Mandel, who spent 10 years in Washington, D.C., as a technical writer before returning to his native Chicago, sought funding locally but hasn’t gotten any interest; instead, he has traveled to California and New York to pitch investors on his startup. He figures he’ll need about $3 million to get his database for government acronyms, Govlish.com, fully operational later this year. “A lot of the investors here are not necessarily focused on technology and are looking at other areas, like agriculture,” says Mandel.

There is venture funding in such places as Chicago, but it’s “different money,” says Logan LaHive, founder and chief executive of Belly, a 100-employee company that creates digital loyalty programs for small and midsize businesses. He is a San Francisco native who moved to Chicago for work and stayed after he married a local woman. He launched his business there in August 2011 and says he has 100 employees and 5,000 customers. “The reputation is that Chicago investors are more practical and grounded, with a Midwest mentality where they’re looking for established revenue growth and noticeable traction,” he says. “In Silicon Valley, it’s enough to talk about how you’re going to change the world. In Chicago, you’re required to talk about how you’re going to make money.”

Tim Williamson has been pushing to make it easier for entrepreneurs in his hometown of New Orleans to land financing. After he graduated from Tulane University in 1987, he was lured by New York’s financial industry, where he spent more than a decade before returning home to be near his ailing father. “Our parents all said to get out of here. There was no opportunity, no jobs, high crime, and the education system was the worst in the country,” he recalls.

In 2002, he and a group of others returnees founded the nonprofit Idea Village to encourage entrepreneurship, which was at the time “nonexistent” in the city. They faced an uphill battle against entrenched business and government institutions that were antiquated and corrupt, he says. Then disaster struck: “The day after Katrina happened, everyone became an entrepreneur. They all had to restart their businesses and rebuild their homes with limited resources. People reconnected with the spirit of risk.”

Last month, during his organization’s New Orleans Entrepreneur Week event, 51 local entrepreneurs participated in strategic consulting sessions and a pitch fest. Over the previous nine months, Idea Village’s efforts helped 975 local startups get consulting help, cash, and support services from corporations, mentors, business experts, and private investors.

Of course, entrepreneurs face stigmas setting up shop in struggling places such as Detroit, which Schwartz says has a reputation as a “rough, tough place. Getting people to come down here and see it first hand isn’t easy.” But being back home has its advantages, too, Schwartz says: “In New York or San Francisco, we could be doing the exact same thing we’re doing now, and it’d be so easy to get lost in the noise. We have an opportunity to really stand out here.”

Karen_klein
Klein is a Los Angeles-based writer who covers entrepreneurship and small-business issues.

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