As startup scene grows, Detroit faces new challenges

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By Rachel Premack, Senior News Editor
Published November 11, 2014

Internet memes typically don’t reflect complex urban issues or hint at long-running race and socioeconomic issues. Yet, upon glancing at the White Detroit Entrepreneurial Guy meme, a viewer can tell. It’s a response to often misguided public giddiness over “revitalizing Detroit.”

The image, which surfaced in April 2013, features a background of buildings, set behind a white man smiling into the distance. The text on each meme varies, with satirical phrases like, “Everything tastes better when you’re across the street from an abandoned building” or “Those that have the capacity to create change have the right to do so, like me and Dan Gilbert.”

Detroit-based blogger Aaron Foley wrote about the meme last year in car culture blog Jalopnik Detroit, owned by Gawker Media. He affirmed the meme’s message, which intended to show that Detroit’s problems cannot be solved by tech startups and microbreweries.

Moreover, revitalization efforts have been focused in Greater Downtown — a 7.2 square mile region that are comparatively whiter, wealthier and better educated than other positions of the city. The Downtown area accounts for 40 percent of the city’s total employment, despite being just over 5 percent of the city’s space, according to a 2013 data report from the Detroit-geared Hudson-Webber Foundation.

“We haven’t really seen the effect yet on the rest of the city,” Foley said in an interview with The Michigan Daily. “It’s not quite like it’s spreading outward. There’s development going on here and here and here, but there’s no rolling through.”

While 98 percent of Midtown and Downtown apartments are occupied, blight continues to be a problem in many other parts of the city. The majority of jobs in these neighborhoods pay more than $40,000 annually, but 38.1 percent of Detroit residents citywide live below the national poverty line.

Incorporating the other 132 square miles into the Greater Downtown’s economic comeback, which has been hailed by nationwide media, may soon come. Leslie Smith, president and CEO of TechTown, Detroit’s first and biggest tech accelerator, named this a key priority at her organization.

“For me, if that’s not the outcome, we can’t declare a success,” Smith said.

At the very least, Foley noted there hasn’t been another White Detroit Entrepreneurial Guy meme since last year.

The Michigan Daily

A new industry

Detroit Free Press business reporter and author of Reimagining Detroit John Gallagher said that Detroit’s startup scene was integral to the city’s rebranding.

“It’s part of the culture that gives Detroit this reputation as on the comeback trail,” Gallagher said. “Startups are sort of a lively phenomena and they help give Detroit this air that it has now of a very interesting urban experiment that’s taking place.”

Following decades of racial tensions, a notoriously high crime rate and setbacks in the auto industry, Detroit is looking for a new economic driver. And it might just come in the expanding startup scene, where millions have been invested from the public and private sector this decade.

Detroit has lost more than 20 percent of its population 25 years and over in the last decade, according to U.S. Census Data. But a more shocking statistic indicates a different narrative: the population of college-educated residents under 39 year-olds increased by 59 percent in the 7.1 square mile area of Greater Downtown from 2000 to 2010, according to a Forbes report from 2011.

“There is a certain demographic that comes to Detroit that is well-educated, affluent and white and wants to do something,” said Associate Prof. Nick Tobier, who teaches topics like social entrepreneurship in the University’s School of Art & Design. “I mean that in good and bad ways.”

Now, Detroit is building an ecosystem of entrepreneurship, including venture capitalists — those who provide early-stage funding to promising startups — entrepreneurship-focused non-profits; lawyers; a tech-savvy Chamber of Commerce; office hubs, the vibrant urban areas that innovators crave and months-long programs that provide funding and mentorship to innovators.

Jim Martinez, Detroit Regional Chamber director of communications, said tech entrepreneurship in Detroit has grown in the last 10 years, particularly in the past three to five years. He affirmed that the public and private sector were making a “concerted effort” to develop the entrepreneurial ecosystem. Martinez added that Michigan universities, which provide talent, are also a key part of that growth.

Most cities began their entrepreneurial push in the ’70s or ’80s. Until recently, the Motor City’s fortunes were based almost exclusively on the auto industry. Large manufacturers and suppliers dominated much of Detroit’s economic history, and leaders were apt to keep their money rather than invest in creating new businesses.

“Detroit, for the last 100 years, was a big corporate market. We relied on big corporations, big government and big labor,” Gallagher said of business culture in Detroit. “The notion that someone would let just a little startup in was just a joke.”

Smith, the president of TechTown, said the corporate culture created a stable and thriving period for the auto industry in the mid-20th century. Entrepreneurial activity and innovation blossomed within the auto companies as the company enjoyed their heyday. In 1955, the bosses of General Motors weren’t losing sleep over their own job security as they dominated 50 percent of the American vehicle market and was the world’s largest employer. At its peak in 1979, GM employed around 600,000 Americans.

The Michigan Daily

In the decades following oil shocks, fierce new competition, and increasingly outdated technology and management practices led to the Big Three losing their prestige, market share and steady cash flow. And as that happened, their employees were laid off and needed new jobs.

“The biggest factor was that the change was forced on us,” Gallagher said. “We had to do it.”

The nascent stage of entrepreneurship is attracting young people who are excited about creating something new in a city with a complex past.

“There’s not a lot of followers,” said Jacob Smith, a University alum and director of Business Development at tech startup UpTo. “If you’re going to be in Detroit right now, you’re not a follower because it’s not popular among the masses. Everybody is here to make their impact.”

It’s easier to begin your startup in Detroit than in more prosperous cities due to cheaper rents for office space, and the presence of a wealth of non-profits keen on building Detroit’s startup corridor. The concept of opening a tech firm in Detroit is also still somewhat revolutionary and press attention is easier to attract, which concerns Foley.

University alum Michael Williams, a Detroit native, wrote his Afroamerican and African Studies honors thesis on gentrification in Detroit. He said there was a “hipster aesthetic” and drive for social justice to those who moved to Detroit.

“It’s hot to move to a place that’s struggling, that’s a bit off the beaten path, that’s unique or atypical. It has its appeal with all its challenge and struggle,” Williams said. “We have an opportunity here not just to work or have a job, but really be invested in something greater than yourself, a movement to improve humanity and quality of life.”

Gallagher said the culture and identity of Detroit is changing.

“Detroit’s public space is being identified a little bit more,” Gallagher said. “All else being equal, they (entrepreneurs) would probably take the chance on Detroit right now over other cities. It is viewed as a place where startups and entrepreneurs are welcome. It’s fun — it’s getting to be a fun place.”

The Michigan Daily

However, building a start-up in Detroit is not as clear-cut a process as creating one in, say, San Francisco or Austin. Here, Foley said, there are questions of what happens when a business that serves and employs almost exclusively college-educated people — like tech firms — in a predominantly middle and working class city.

Greater Downtown Detroit vs. everybody

Forty-two percent of Greater Downtown residents aged 25-34 are college educated, compared to 11 percent citywide, according to the data report from the Hudson-Webber Foundation and U.S. Census data.

The report also reflected that from 2000 to 2010 in Greater Downtown, the Black population decreased 5 percent — 12 full points lower than the rest of the city — and the white population increased 3 percent. The proportion of whites downtown is twice that of the the rest of the city.

The differences in privilege cause a chasm between old and new residents, as well as a difference in what each segment of the population can accomplish.

“A lot of entrepreneurs were sort of self-serving and not fully conscious of what their actions had on the community around them,” Foley said. “When people would move into a neighborhood and be completely insular to their neighbors and what not, it would create tension. A business would open up shop and say, ‘Okay, we’re gonna cater to a certain clientele without being conscious of what other businesses were doing.’ It created a problem that shouldn’t have to exist.”

Organizations like TechTown are starting to recognize the tension between the white, wealthy Greater Downtown and the nearly 132 square miles which don’t attract $40-dollars-a-plate Brazilian restaurants. Leslie Smith of TechTown emphasized the need especially to ensure economic developments in Detroit’s neighborhoods as its fractured transportation structure prevents all Detroiters from benefiting from jobs created downtown.

TechTown partners with community development nonprofits to assist initiatives in seven neighborhoods throughout Detroit. These businesses aren’t start-ups, but daycare providers, retail storefronts and small- and medium-scale manufacturers. One tactic TechTown employees might teach the business owners is how to effectively track sales, inventory and financials, easing the local business’ process of obtaining a bank loan.

More difficulty may come with reconciling longstanding racial tensions in the city, which Smith said has impeded opportunities in Detroit. It is a “priority focus” for her organization.

“One of the obvious issues is that most of the action in downtown and midtown applies to a primarily white population,” Smith said. “How can you have a city center that doesn’t reflect the balance of the city?”

Smith said her colleagues in Pittsburgh, Philadelphia and other revitalizing Rust Belt cities are addressing the same concerns.

“I don’t think anyone has it solved.”

The Michigan Daily

A changing demographic

Not only does Greater Downtown differ economically and racially from the rest of the city, many argue that there’s a lack of integration within Downtown. The Black, working or middle class population and the white, wealthy newcomers are hardly mixing. Some even say these new firms, and the people they bring, are the harbingers of gentrification.

Williams is one person that argues that gentrification is occurring in Detroit. The controversial concept is defined as the buying and renovating of houses and stores by affluent people in a rundown urban center, raising property values but displacing poorer residents as they’ve gradually priced out of these neighborhoods. Williams proposed a new sort of gentrification called “cultural displacement.” This phenomenon is reflected by the strain occurring with the chasm between the affluent white demographic and lower income Black demographic.

Retailers in Greater Downtown are increasingly catering to a white, educated and wealthy demographic. Lunch spots in this area used to $5 or $6 for a meal, but now customers are expected to fork over around $10.

Even Smith, of UpTo, said his apartment building changed. When he moved in three years ago, it was a mix of families, elderly folk, Blacks and whites. Now, it’s increasingly young and white. And rent has jumped, too.

“It’s very noticeable how the demographics has shifted toward young white professionals,” Smith said.

This type of interaction is creating “a Detroit of old and a Detroit of new,” Williams said.

Williams lived in Midtown as a University student when he participated in the Semester in Detroit program. In a city that’s more than 80 percent Black, he often socialized with white people.

“By being based in Midtown and Wayne State, I felt like I was in a part of Detroit I did not know growing up,” Williams said. “I felt like I was in the same bubble that Ann Arbor represents that is shielded from different communities challenged socially and economically.”

Indeed, Smith, of UpTo, said his Detroit was a “contained community” of young people who work at QuickenLoans, Blue Cross Blue Shield, law firms, nonprofits or start-ups. Just about everyone is working on community projects.

“We go out and I know people everywhere we go,” Smith said. “It’s awesome. I love the community.”

Foley wrote in his blog last year that tech startups, microbreweries and vegan cupcake stands are not going help the city.

“That’s not gonna do anything for the old lady who goes to church on Sundays,” he said in the interview.

However, Thomas emphasized that bettering Detroit schools, police and other public goods requires cash. And that’s only going to come through property and income taxes.

“I used to have arguments with Michael (Williams),” she said with a small laugh. “He was trying to shape that thesis of gentrification, and my argument would always be but what’s the alternative? Detroit was being emptied out, completely abandoned. The quandary for is that in spite of what people might see as cultural displacement or discomfort, the fact is that Detroit was suffering.”

The Michigan Daily

The split of Detroit, into old and new, into decades-old storefronts and shiny new startups downtown, might be a necessary evil to rebuild the city and give it the funds it needs.

But Williams is still hopeful Black and white, rich and poor, college educated and not, will converge. He said Detroit is the place where it must occur.

“We offer an opportunity that allows us to shift our thinking and our spirit on how we define our community,” Williams said. “You have different, mixed communities coming together in a space. If we hone the power of that, it is a potential to seize on the challenges of Detroit and do it better than ever before.”

Back downtown, in Dan Gilbert’s M@dison Building, University alum Reid Tatoris works as the co-founder of Are You A Human, a service that aims to make the process of typing out words in an image before logging into a webpage fun.

Many of his employees live in the city. For Tatoris, the decision to live and work downtown was a no-brainer; he said Detroit was the most interesting place he had ever lived in.

“It’s not comfortable yet,” Tatoris said. “We don’t have a Target or a Starbucks on every corner. It’s kind of like a scavenger hunt, looking for bars or coffee shops. But when you find them, they're some of the most unique places you’ll ever see in the world.”

He opened in Detroit because he wanted to help rebuild the city. He said he has bad days all the time while growing his startup, but the exhaustion is ameliorated just from looking out his window.

“We think to ourselves, ‘Maybe this day was bad for us, but for this community we’re part of it was a good day,’” Tatoris said. “I find that really motivating.”