Michigan: The right mix for hungry startups?
CHICAGO (Reuters.com) - For decades the Big Three have cast a large shadow over the Michigan economic landscape, but with the automotive industry in turmoil, a new breed of startups is emerging from the darkness.
Ironically, some of the best talent appears to be coming out of the auto industry, where job losses have propelled Michigan to the highest level of unemployment in the U.S., tracking at 14.7 percent in November, well above the national average of 10 percent. There is likely a correlation between the high rates of joblessness and a push into entrepreneurial ventures.
"The influence you're seeing by new firms and smaller firms is apparent," said Mark Lange, executive director of the entrepreneur-focused Edward Lowe Foundation. "It's the influence of small business and the fact that people are leaving large companies to start their own businesses."
Between 1998 and 2007, Michigan lost 215,800 jobs, but the state also added 143,000 new establishments in the "stage one" category, or those with less than 10 employees, according to foundation data.
Consider Mandy and Pandy, an early-stage Ann Arbor, Michigan business that teaches children Chinese in a fun and easy way, by integrating books with CDs, DVDs, toys, fashion and television. It saw 2009 revenue of about $130,000 and forecasts a healthy increase for this year.
The company, which printed its first book in June 2007, was created by former Ford executive, Chris Lin. Lin, a 40-year-old American-born Chinese, is leveraging the skills he learned as a marketing director for the automaker in China and later as a consultant with Deloitte.
Even so, Lin credits much of the success of his new venture from the guidance he received from groups like Ann Arbor SPARK, an organization that supports local entrepreneurs involved in innovation, through funding and training programs such as a boot camp for startups. Mandy and Pandy received $244,500 in matching funds from the Michigan Pre-Seed Capital Fund, which is administered by SPARK.
The group's chairman "sat down with our business plan for half a day and just critiqued how we could make it better. He showed us how to improve the business plan and take it to an A level," said Lin, noting he sees a lot of laid off auto workers at these sessions.
For its part, SPARK, which receives funding from state and local governments, private investors, universities and corporations, said things have become very busy in recent months.
"We are getting more and more entrepreneurs raising their hand and saying ‘help,'" said Skip Simms, managing director of the business accelerator for the group. "For anyone to say entrepreneurialism isn't happening, they haven't visited Michigan, because it very much is. There's no indication that it's going to let up."
With fledgling ventures running the gamut from nanotech to alternative energy, activity seems robust. A sampling includes Axenic Dental, which has created a disposal high-speed dental drill; Algal Scientific, which offers advanced nutrient removal for municipal and industrial wastewater; and Accio Energy, a developer of new technology to harvest wind energy without moving parts, using electrically charged particles against a voltage gradient.
"We're hearing from all across the state that there's higher levels of activity in the past year, particularly in the last six or eight months," said Greg Main, president and CEO of the Michigan Economic Development Corporation, the state's foremost economic development agency. He added: "We still think there's a significant constraint in capital. We're trying to encourage more angel activity."
Paul Neeb, who helps run the Southwest Michigan First Life Science Fund, a $50-million venture fund targeting early-stage bio-tech companies, said a rise in entrepreneurial activity is crucial for the state to weather the current recession.
"I've seen a definite uptick and maybe it's by necessity," said Neeb, an entrepreneur himself and the CEO of RealBio Technology Inc., a startup that develops new technologies for the tissue cultures used in stem cell research and related applications. Neeb has helped RealBio raise a total of $2.5 million from investors, including the fund where he serves. "The state needs to move in that direction."