Five Things Michigan Entrepreneurs and Innovators Are Already Doing to Invigorate the State’s Economy

Gerry Roston|Xconomy

I recently had the honor of being interviewed for an Xconomy article. When I finished reading the article, I read a number of the related posts. One of them, “Five Things Entrepreneurs and Innovators Can Do To Invigorate Michigan’s Economy,” bothered me because, in my opinion, it leaves one thinking that Michigan is completely missing the boat with regard to invigorating its entrepreneurial community.

I expressed my concern to the article’s author, Sonya Erickson, who replied that her assignment was “to suggest five areas that can contribute to entrepreneurial growth in any city,” and in this regard the advice she provides is quite good.

What she missed, however, is that Michigan is making significant progress in the five areas she mentions. That these successes were overlooked is perfectly understandable given that the majority of the national media coverage regarding Michigan is negative.

Michigan is executing a vibrant and productive turnaround story. And that is the purpose of this article—to show Sonya, and others, the untold story. I will show how Michigan has been pursuing many of the activities discussed by Sonya and consequently may well become the epicenter of the “North Coast” entrepreneurial community.

Before addressing Sonya’s five points, just two quick comments: First, I have been immersed in the Michigan entrepreneurial community for the better part of the past decade and have an insider’s vantage point from which to address these points.

Second, the tenor of this article will be mostly positive (because there is a lot of positive to report). However, I am also fully aware of the challenges that face the state as it continues its difficult transition from a 20th century economy to a 21st century one. (With regard to this—a simple plea to the state’s leaders in Lansing—please focus your prodigious energies on leading the charge into the 21st century as opposed to continuing to fight a rear-guard battle for the economy of the 20th century.)

1. Focus on areas of competitive advantage: The state of Michigan has addressed this head-on. Simply look at the homepage of the Michigan Economic Development Corporation (MEDC). This page shows six sectors of competitive advantage, but those of us in the (technology-focused) entrepreneurial community speak to four sectors. How do we get from six to four? Automotive engineering and advanced manufacturing are typically treated as being a single sector; and the film sector, well, that just doesn’t count!

Four sectors. How much more focus could one ask for? Importantly, we are seeing successes in each sector. For example: Peter Kim, CEO and vice chairman of LG Chem, one of the world’s largest producers of advanced chemicals and materials, recently stated, “Michigan is becoming a world capital for advanced batteries.” Eighty-five percent of all vehicle-related research happens in Michigan, approximately $1 billion in life sciences research is conducted in Michigan each year, and the U.S. Department of Defense has relocated all robotics research to Michigan.

2. Establish a local venture and/or angel fund community: While not yet the size of the equity investment communities on the East and West Coasts, the number of VC firms headquartered in Michigan (currently 16) has more than doubled over the past decade.

The funds are increasing in size, with a total of $1.1 billion under management. Since 2000, there have been 20 exits of Michigan-VC-backed companies, including such notable ones as Esperion Therapeutics, Arbortext, Aastrom Biosciences, and HandyLab.

The angel community is also growing, with six active angel groups in the state, and with the pending passage of the angel tax credit bill, their activity level should increase significantly. Nothing breeds success like success.

As more Michigan firms have successful exits, and as Michigan VCs provide meaningful returns to their LPs, we can expect accelerated growth in this community. (The data in the previous few paragraphs come from the Annual Report of the Michigan Venture Capital Association, which is leading the charge to strengthen the equity investment community in the state.)

3. Promote the University of Michigan (U-M) and Michigan State University (MSU): Let me start by saying that this statement is incomplete. While it is true that U-M, MSU, and Wayne State University (WSU) account for 95 percent of the research dollars brought to Michigan by public universities ($1.4 billion in 2008), most all of Michigan’s universities have programs focused on readying today’s students for tomorrow’s economic realities.

But focusing just on the aforementioned three universities (which have created theUniversity Research Corridor), consider the impact they have on the state: a $14.5 billion impact on the state’s economy; 20 spinout companies a year (on average); and third in patents granted, fourth in technology licenses issued, and the third largest number of high-tech degrees awarded (compared to other regions in the country). It is believed by many that these technologies and companies are the future of the state.

4. Invest in an “ecosystem” to serve the startup community: Here, unfortunately, I will be a little parochial. The support ecosystem in the greater Ann Arbor area is second to absolutely no place in the country. We have a cadre of nationally recognized professionals—lawyers, accountants, former CEOs, etc. Importantly, there is an extensive network of professionals who generously donate significant amounts of time to support the entrepreneurial community.

For instance, this past April alone, more than 1,000 volunteer hours were provided to Great Lakes Entrepreneur’s Quest (GLEQ) contestants, Ann Arbor SPARK Boot Camp attendees, and Michigan Growth Capital Symposium participants. Many of these volunteers are member of the New Enterprise Forum (NEF), a 24-year-old, all-volunteer organization that focuses on connecting entrepreneurs with the resources they need to succeed. NEF is a model for similar groups throughout the state and region. Ann Arbor leads in this, not because it is better than the other communities, but simply by virtue of having been supporting entrepreneurs for decades.

Around the state, in Detroit, Lansing, Midland, Grand Rapids, and probably others, entrepreneurial support communities are being established. Importantly, these communities and Ann Arbor realize that success in any community is a win for everyone, and inter-regional cooperation is happening like never before.

5. Get the state government more involved: It is heartening to see that a person from far away Washington state has heard about the good work being done by local government and government/industry/academic collaborations.

Local efforts, such as the Smart Zones, are quite successful. Just recently, an announcement was made that four Smart Zones in Southeast Michigan are going to be funded to further support entrepreneurial activities, and that these funds will draw the four even closer together.

We already have state-supported funding for early-stage companies—the Michigan Pre-Seed Capital Fund, the various microloan programs, etc., provide access to critically needed capital. (In one of those good-news/bad-news deals: some of the funds have already been completely expended—they are being used, but more is needed.)

Even more encouraging, several companies have already grown sufficiently that they have paid back their loans even though these programs are only a couple of years old! We also have entrepreneurial incubators sprouting up across the State, many of which are at capacity. There are also groups, such as the Michigan Small Business and Technology Development CenterBioTechnology Business ConsultantsSCORE, and others, which provide top-quality services to the entrepreneurial community. While several of these organizations receive State support, the total amount of spending on them is actually quite limited. Hopefully, the legislature will see the value added and not only reauthorize support for these programs, but increase the level of support.

Gerry Roston lives and breathes high-tech startups. He is currently serving as the CEO of InPore Technologies, a Michigan State University spinout, a partner at Pair of Docs Consulting, the vice president of New Enterprise Forum, and the chair of the ACE ’11 planning committee. During any given year, he mentors dozens of companies, entrepreneurs, and students seeking to grow tech-focused businesses in Michigan.

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