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Accelerating SE Michigan's Business Ecosystem

Though it didn't get as much media attention as The Big Chill, another, more important competition was held in Ann Arbor this past weekend. True, it only drew 300 attendees, far less than the Guinness Book Of World Record -setting crowd that witnessed U-M's decisive victory over MSU's hockey team. But its impact on Southeast Michigan's future will probably be a heck of a lot more profound.

With a $500,000 no-strings-attached Grand Prize, The Accelerate Michigan Innovation Competition was a battle of business pitches and executive summaries, an American Idol for start-up companies that are interested in doing business in Michigan. Attracting personal appearances from U-M President Mary Sue Coleman, Wayne State University President Allan Gilmour, and Governor-elect Rick Snyder, the five-hour final day pitch-off featured 10 finalists vying for more than $1 million in awards and in-kind support services.

"For an entrepreneur who's out there, who needs the funding for, say, a prototype, that money can put some wheels on an idea and could help commercialize it," says Ken Rogers executive director of co-sponsor Automation Alley. "It's more than just a popgun effect, this is a substantial investment."

The international competition, the first of its kind in Michigan, attracted over 600 business plans from 13 states as well as Canada, Switzerland and South Africa. As you might expect, the majority of the finalists were in the life sciences sector, with good representation in defense, logistics, and alternative energy.

"For our first year we're pretty pleased," says SPARK president and CEO Mike Finney, whose organization spearheaded the event. "Given that we had entries from all over the country and world it really means Michigan start-ups can compete at that level."

Judged by investors, financiers, and the attendees, Armune BioScience, Inc., a Kalamazoo-based cancer tool company, emerged as the top winner. Arbor Photonics in Ann Arbor landed the first runner-up prize, worth $150,000.

But more important than the competition, cash prizes, and networking, was the way the competition came together and the identity of the players.

The brainchild of the recently-formed Business Accelerator Network for Southeast Michigan, the event was the result of a carefully planned collaboration between the region's four big business accelerators –Automation Alley, Ann Arbor SPARK, TechTown, and the Oakland University Business Incubator. Already successful in their own domains, each of the organizations had, at best, a casual relationship with another.

This dynamic changed when the New Economy Initiative (NEI) got involved. With encouragement by its director, Dave Egner, the leaders of the four accelerators started getting together to discuss  what was working and what wasn't working for their organizations. "Once they started to understand their self-interest in measuring themselves as a region instead of competing it was pretty easy to get them to start collaborating," Egner says. "They all have different strengths, they all have different needs. By combining their resources they become more competitive for Federal grants and it gives them more strength to service the region. And they figured that out."

Of course, it helped that NEI offered up a substantial financial carrot, committing $100,000 toward collaborative staffing and programs, with an additional $225,000 granted to each accelerator for the next three years – contingent upon their hitting ten self-determined benchmarks. The Accelerate Michigan competition was one of those benchmarks.

"The state was cutting more and more of their general operating money, so this was a way for us to help ...but also build a collaborative network," says Egner. "But I think the four CEOs have so quickly understood that they're going to do so much more together than they would have done separately that it's not a matter of more incentive money at this point."

To understand how important this collaboration is one must consider the context of Southeast Michigan's history. Whether it's multi-county services like mass transit, amenities provided by individual towns and cities, our state universities, or local economic development organizations, the region has a particularly poor track record when it comes to working together and sharing resources. Local control is king and the notion that a rising tide lifts all boats has been hard to sustain when every community wants its boat to rise first and fastest.

By focusing on business creation and engagement, the Business Accelerator Network may very well bypass many of Southeast Michigan's traditional obstacles to cooperation.

"The New Economy Initiative bet on the four accelerators because they were not mired in the politics of location," explains Egner. "They're in business to start businesses and incubate them for job creation. Getting the four to work together creates a defacto regional doorway. If you were to ask different municipalities or units of county government to collaborate you'd be talking about dozens and dozens of different units of government - a seemingly impossible task."

Excited to talk about this drive toward regional cooperation, as well as the competition and where Michigan's economy needs to go next, I spoke with Egner, the CEOs of two incubators –Mike Finney* and Ken Rogers, and Chris Rizik, Chairman of NextEnergy and CEO of Renaissance Venture Capital Fund on the phone and over email. Their answers have been condensed and edited for the purposes of this article.

So, what is the intended real-world impact of The Accelerate Michigan Innovation Competition?

Egner: The competition was set up for three purposes, in this order: (1) Highlight Michigan as a place of innovation, where companies can grown and thrive. (2) Spotlight the work that's already under way here. (3) Fill the pipeline with companies that could take off here. But even those that don't win, we're hopeful that they can receive resources find a home in Michigan.

Rogers: By having a prize of a $1 million we're certainly going to attract some attention. We're looking to enhance the image of Michigan as an entrepreneurial state.

The competition attracted a respectable amount of notice in a very short time, bringing in entries from all over the U.S. and even Canada, Switzerland, and Africa. So, once the winners set up shop here how do we guarantee they'll stay?

Egner: Well, 80% of those who have entered are from Michigan, so they're already here. But the real answer to your question is: You can't. Unfortunately, indentured servitude is no longer legal. You're rolling the dice that they'll stay and you're hopeful that you can build the type of place people want to be in, and the type of environment where businesses can thrive.  

Ken Rogers: If you want to make something in the U.S. you want to come here. We have 300,000 technology workers in this region alone. We're graduating roughly 10,000 engineers and scientists on an annual basis. Our Universities invest about $1 billion a year in R&D. There are a lot of reasons why you should come to this area to be successful.

Some have argued that the government shouldn't be investing in companies by providing start-up grants, that we shouldn't be picking winners and losers. What's wrong with that criticism?

Rogers: There isn't a lot of money invested in what we do in the private sector. From a community standpoint the investment is small and the return is great. Whether it's private of government investments, it's prudent to invest in areas that are productive, that bring about jobs and business creation. It isn't a bad thing to invest in job or company creation, whether it's government or private dollars. That's how our country moves.

Finney: It's more than just questioning whether these resources should be made available to these companies. If someone is opposed to the idea, then please propose an alternative so that businesses are motivated to grow in our state. It's nice to say that it's purely organic, that things will just happen if we do nothing. Unfortunately, that has been proven wrong on so many fronts. Building a better mousetrap is probably the best analogy others can come up with. People will not beat a path to your door just because you've created it. You need to find better ways of promoting that mousetrap. And communities are like any other product that you have to effectively sell to whomever your target customer is. There is no doubt in my mind that businesses see a value to what we do.

How do you get the internal cultures of your individual organizations to work together? It's one thing for the CEOs to get together and play nice, but to get your organizations to collaborate seems like it'd require a whole other skill set.

Finney: It's a process. We've set up some planned meetings for our teams that don't include our participation. That's becoming a regular part of what's happening. We like to practice what we call Open Source Economic Development. We've really tried to instill that in the culture of our organization.

Rogers: Candidly, I think what's happened when people try to collaborate is that they want to go from Point A top Point B at 100 miles an hour. There's an "accomplish it all, do everything, get it done right away" mindset that ends up in frustration. With too many initiatives in front of you, things tend to collapse. I think when you're actively finding things to partner on as an objective it gives you time to create a relationship, and add a step at a time on the ladder in collaboration.

Rizik:Success in Wayne County should be seen as success in Oakland, Macomb,and Washtenaw, as everything is intertwined. The rest of the countrysees us as a single region, and we undercut our economic developmentefforts when we create artificial divisions and "win-lose"situations. There are also limited resources available, so we canoptimize our impact as a region by all working in a coordinatedfashion.

In pursuit of evolving and transforming Michigan's economy we have: MEDC, Business Leaders for Michigan, SPARK, Venture Accelerator, TechTown, Automation  Alley, University Research Corridor, Blackstone Foundation, DEGC, Aerotropolis... I could go on and on. Aren't all these initiatives and organizations just repeating the same fractured silo model we've been struggling to navigate for years?

Rogers: I don't think you can say, "You stay in and you stay out, you should be involved and you shouldn't be involved." I don't think you do those kinds of things in a free economy. I think the marketplace sorts it out, sorts out the value of organizations. And the marketplace sorts it out through productivity.

Egner: In some cases yes. What we have to do as a region in time is understand where we have the greatest strength for a specific task and for specific operations. But I'll give you the answer Ken gave – if a free market system is going to work you want to do away with redundancy by not having a tax base pay for the same service twice. But you also want to give an opportunity for anyone wanting to enter the business space to be able to find the services they need when they need them. Which might argue for more than just one or two overriding economic development agencies.

I look at the free market answer and have to ask: Why hasn't that philosophy borne out on the municipal level? Shouldn't the market override the biases that create some many economic inefficiencies?

Egner: Ah, but culture trumps policy and culture trumps logic. We've built this culture on how we historically drew lines in the sand in the past. The history is long and not very pretty in many cases.  I've got to admit that when looking at culture and betting people against what would be logical conclusions it's not a good thing. This happens everywhere. There's a whole lot of historical pieces of why we are where we are.

Chris, as someone who comes from the VC world, and understands that risk is an inherent part of economic growth, how do you persuade Michigan's risk averse culture that failure really can be another word for depth of experience? 

Rizik: I think the events of the past decade (and in particular the last two years) have been more persuasive than I could ever be. The fact is, we don't have the luxury to be risk averse anymore. It has been said a thousand times, but our grandparents weren't risk averse. They helped make Michigan the model of entrepreneurship, but we have unfortunately ridden on their incredible success and followed their generation of entrepreneurship with two generations of skilled and semi-skilled employees. We can't afford another generation without sufficient entrepreneurship.

You've written that transformation is a slow and rigorous process, that the coasts have as much as a two decade lead on Michigan. If what you're doing is seeding the ground for the future how do know if you're on the right path? More importantly, how do you minimize the impact of naysayers and finger-in-the-wind politicians on your efforts? 

Rizik: Every effort has to have measurable goals or we risk wasting a lot of time. We must establish a path that follows proven long-term growth strategies that sets and measures accomplishments along the way. Politics is often about selling an idea, and too often that involves overselling in order to win a short term battle. But the war gets lost because either strategies are followed that only yield short term wins or because improper expectations are set that make even successful results appear to be failures.

Finney: I don't think California and Boston own any particular space. Those states have similar challenges to us in launching and retaining companies. I can cite numerous examples of companies that started in California – where some 70% of the VC dollars reside-- and yet, when those companies get into a growth mode they choose to expand operations elsewhere, not necessarily because the environment is bad but because they need to grow someplace more strategic.

So, how does the Business Accelerator Network benchmark its success?

Egner: Well, there is the pornography quote.

Which anyone can lay claim to.

Egner: Exactly.

But how do you know you're on the right path?

Egner: I think there are a number of ways. One is the business competition itself. We want to follow the finalists. We want to know which of those businesses that got to the finals touched the Accelerator Network and got additional services, where they set up shop, how many jobs were created, what was their real impact.

In the broader sense, the accelerators are just starting to try to benchmark themselves against other places in the country. They're going to look at successful incubators and accelerators in other parts of the US and aboard then benchmark their ability to create companies, attract VC, create jobs, etc. Then we'll have a trend line analysis.

Rogers: Results. I don't think anyone can put a timetable on that, but you have to put yourself in a position to be successful. You're known by your deeds, not by what you say. Change starts withour own attitude.

*Michael Finney was recently selected to become the head of the Michigan Economic Development Corp. by governor-elect Rick Snyder. He is stepping down in his role as CEO and president of Ann Arbor SPARK.

Jeff Meyers is the managing editor for Metromode and Concentrate. He is also an award-winning film critic for Detroit's Metro Times. You can reach him with your comments here.
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