“By 2022, computer science is the only discipline where there will be more jobs available than there are students with that degree.”
Just weeks ago I sat down for my first day as a student in Electrical Engineering and Computer Engineering 183, the University of Michigan’s introductory programming class, and was confronted with the facts: Getting a job after graduation is not easy, but it might be easier if you major in computer science. Though the United States’ unemployment rate is the lowest it has been in eight years, millennials are still struggling to find jobs. The U.S. Census Data show that 40 percent of our nation’s unemployed are millennials. In the face of rising college tuition prices, statistics like these are frightening to many students.
While that first EECS 183 lecture did not persuade me to abandon my economics major, I was struck by the vitality of the tech industry. Though the number of new computer science majors peaked around the time of the dot-com bubble, that number has again been on the rise in recent years.
“I think the first time I taught as a TA in 2009, EECS 281, which is kind of like the seminal computer science course, that course was probably numbering around almost 200 students,” Hector Garcia, the computer science professor teaching my EECS 183 course, said. “Now, seven years later, the 281 course is up to almost 400 students. So there’s been great growth.”
The resurgence of the tech industry is reflected in the increasing number of startups nationwide. Startup is a broad term used to describe an emerging business, but is most often applied to tech companies. While many of these startups are concentrated on the coasts, Ann Arbor has begun to cultivate a startup ecosystem of its own. In 2015, Ann Arbor SPARK, an organization focused on developing the economy in the Ann Arbor region by assisting fledgling businesses, assisted 266 startups, according to their annual report. Though not all startups are tech startups, tech startups tend to garner a great deal of funding and attention.
In 2016, citing a business growth rate of 12 percent and an employment growth rate of 13 percent, livability.com ranked Ann Arbor as the sixth best place to be an entrepreneur. Over the past 10 years Ann Arbor has ranked highly on lists published by the likes of Forbes, MSNBC, and U.S. News and World Report naming the brainiest, most inventive and healthiest places to live. Given the extensive ties between this hip town and its well-endowed, research-oriented University, it’s no surprise that Ann Arbor has begun to cultivate a vibrant start-up culture of its own.
The Price of Silicon Valley
Over the last several decades, Silicon Valley has become a hotbed for innovation. Seen as one of the top research and development centers in the world, it attracts some of the brightest minds and the most ambitious startups. Much of our generation’s most impactful technology — the iPhone, Google and the desktop computer, to name a few — were born in what was once known only as the Santa Clara Valley.
However alluring and mystifying the region has become, the Santa Clara Valley’s transformation into Silicon Valley — at first adopted in reference to the region’s high number of silicon chip innovators and manufacturers — did not happen overnight. Historians have attributed Silicon Valley’s rise to a wide range of circumstances and events. For one, during World War II the San Francisco Bay Area became a hub for developing and manufacturing weapons. The military continued to be the sole customer of semiconductors and vacuum tubes produced in the Bay Area throughout the 1950s. With funding from the Department of Defense, the region was able to develop state of the art manufacturing facilities and attract top innovators.
The military, however, was not the only institution cultivating technological talent. Nearby Stanford University was focusing its efforts on the research and study of electronics, spearheaded by Frederick Terman, the dean of the engineering school. In 1939, two Stanford graduates who were mentored by Terman, David Packard and William Hewlett, founded an electronics company in a Palo Alto garage. Their company, Hewlett-Packard, would go on to become one of the largest information technology firms in the world, and that garage would be considered by some to be the birthplace of Silicon Valley. Terman then focused his efforts on luring top tech companies to the Bay Area. One of the founding fathers of the Stanford Industrial Park, Terman designated a 700-acre plot of land owned by the university and to be rented to high-tech firms. Hewlett-Packard, General Electric and Varian Associates were among the first firms to move into the park, helping to create a culture of innovation in Silicon Valley.
But despite its allure, all that the modern Silicon Valley has to offer comes with a price. In 2015, the median home price in the San Jose-Santa Clara County metropolitan zone, which includes the affluent towns of Palo Alto and Los Altos, hovered around $1 million. This means that for burgeoning companies the cost of operating is steep. Given Silicon Valley’s vast startup ecosystem and funding opportunities, it remains an enticing place to be a young company. New York City and Boston are popular among startups for similar reasons. Some entrepreneurs, however, are starting to look beyond Silicon Valley, New York City and Boston in search of more affordable headquarters — which is where Ann Arbor comes in.
Hip, affluent and cutting-edge, the college towns that hold some of America’s most well-known and well-funded public universities — Boulder, Austin, Charlottesville, Chapel Hill, and Ann Arbor — have become attractive alternatives to the typical startup hubs. College towns, rife with intellectual talent and hefty endowments, offer appealing amenities for startup companies. After all, Stanford University and Harvard University have been partly credited with transforming Silicon Valley and Boston into the startup hubs they are today.
Between 2011 and 2015, Boulder, Austin, Charlottesville, Chapel Hill and Ann Arbor all reported business growth rates between 5 and 15 percent and employment growth rates between 10 and 87 percent, according to Entrepreneur Magazine. In recent years, top research universities, including the University of Michigan, have devoted a number of resources to encouraging entrepreneurialism and innovation.
A number of private tech companies have moved to Ann Arbor in recent years. Garcia, the professor who lectured about the virtues of a degree in computer science on my first day in EECS 183, later explained that these private companies might be the key to keeping startups and top students from leaving Ann Arbor.
“There’s a lot of start of start-ups, but eventually it gets to the point where they can’t get enough funding here so they have to take it to another place,” he said. “That is still going to be the case for a good while. Ann Arbor is in need of one additional tech company. Right now, since there’s not enough competition to keep them in the Ann Arbor area, most good computer science students when they’re done, they move away. That’s another reason why startups don’t really stay here, because the top talent moves away.”
Garcia, in addition to lecturing, works as a software engineer for Thinkorswim, a startup company bought by TD Ameritrade. TD Ameritrade’s Ann Arbor office is an innovation hub focused on increasing collaboration with the University.
“My idea is to have this connection between the software development that we do and then also teach to help with engagement, offer internships to top students and communicate the sort of initiatives that we might be running in the office that might appeal to both undergraduates and graduate students,” Garcia said.
According to Garcia, Ann Arbor SPARK, the organization working to develop the town’s economy, is a big reason TD Ameritrade decided to open an Ann Arbor office. Google also recently expanded its presence in southeastern Michigan by constructing a campus in Plymouth.
Business incubators — organizations which provide client companies with economic development resources that focus on everything from product commercialization to investment — have become popular on college campuses. In 2012, the National Business Incubation Association reported that nearly one third of the 1,250 business incubators in the United States are at universities, compared to one fifth in 2006.
The University’s Contribution
Since the turn of the 20th century, the University has overseen a number of entrepreneurship initiatives. The University’s entrepreneurship website counts eight student organizations, five centers and institutes, and seven incubators and accelerators as a part of its entrepreneurial ecosystem. Aside from providing resources to local startups, the University has spent the last five years developing academic programs focused on the study of entrepreneurship. Since the fall of 2011, the University’s College of Engineering and Ross School of Business have jointly offered a master’s in entrepreneurialism program. In the winter 2015 semester, LSA introduced a minor in entrepreneurship program open to all undergraduates.
“Our students are known for their interest in applying their talents and creativity in response to a need or problem,” University President Mark Schlissel said in a statement when the program launched. “This program will provide students with knowledge they can use to further ignite their imaginations and pursue creative solutions to real world challenges.”
Though the history of entrepreneurialism at the University dates back to the 1920s when the University first offered a few courses in business management, the turn of the 21st century brought entrepreneurship to the forefront of the University’s mission. In 1999, Samuel Zell and Ann Lurie donated $10 million to create the Zell Lurie Institute for Entrepreneurial Studies. The family pledged another $60 million to further the program in 2015.
Stewart Thornhill, a professor of entrepreneurial studies and executive director of the Zell Lurie Institute, said entrepreneurial activity has been increasing on campus in recent years.
“As entrepreneurship has become a dominant theme across campus, and so much more entrepreneurship has emerged from the School of Information, to Public Health to Music, Theatre & Dance, we’ve all looked for opportunities where we can get together so that we can do things that share all of our collective purposes which is to get people to talk about entrepreneurship,” he said.
When it comes to creating successful startup companies, Thornhill said the University has cultivated a culture of innovation that benefits Ann Arbor’s startup ecosystem.
“On the good side of things, you are sitting on top of this incredible research factory that is the University of Michigan, and the amount of new technology and smart people that you will find is incredible, so just to be nestled in with all of that new thinking, new technology and innovation and interesting, exciting people coming from all over the world — and that’s how we get new ideas: We combine a whole bunch of diverse points of view and then you come up with a new way of doing things,” he said. “The critical mass of innovation around the University is huge.”
However, Thornhill also acknowledged that there are challenges to being a startup in Ann Arbor, in spite of the University’s support.
“The downside is that one of the ingredients to starting a lot of companies is investment dollars and the Midwest is notoriously conservative,” he said. “In the national spectrum we always talk about the two coasts, whether it’s San Francisco, Boston or New York, there’s simply more investment opportunities there.”
This lack of funding plagues many Midwestern startups, as investment opportunities tend to be concentrated on the coasts. Ryan Gourley, the director of TechArb, the student venture accelerator co-founded by the College of Engineering’s Center for Entrepreneurship and the Zell Lurie Institute in 2010, echoed Thornhill’s sentiments.
“There’s certainly no dearth of talent or University support here, so it’s a great place to be a student entrepreneur or even a University entrepreneur because we have such a large ecosystem of resources and talent here,” Gourley said. “What we currently lack that the coasts have is the investor ecosystem isn’t as built-out and so that’s the piece that is yet to fall into place. It’s certainly building and developing.”
One of TechArb’s graduates, Neurable, a company that has invented a brain wave interpretation system that allows those with disabilities to control devices such as toys and TVs, relocated to Boston in August to be closer to its funding partner. During the company’s time in Ann Arbor, it received support from different parts of the University, including Tech Transfer, another University venture center aimed at transforming student and faculty research into viable businesses.
In Tech Transfer’s 2015 impact report, the organization announced 422 invention reports, 160 patents issued, 19 new business startups and $78.8 million in revenue. Despite the high numbers, Ken Nisbet, the associate vice president of Tech Transfer, said the venture center is focused on quality, not quantity when it comes to creating new businesses.
“This is focused around research-oriented technologies that can form very viable startups, and the student entrepreneurship movement is a little different,” Nisbet said. “A large component of it is an educational process it’s wonderful, in the end you’re probably not going to form a company and live off it.”
Nisbet also pointed out that there is a difference between innovation and entrepreneurialism. Innovation, he said, involves coming up with a new idea, but entrepreneurialism involves turning that idea into a viable business. TechTransfer seeks to bridge that gap by offering licensing assistance to University researchers.
“We have a team of about 10 licensing specialists,” Nisbet said. “It’s a combination of having some technology understanding because you have to work with the faculty to understand this discovery. So these people are specialists in not only being able to talk on the technology side but trying to understand in the market place ‘Who cares?’ In addition, they have skill sets in protection, often patenting, so they have to understand if it’s worth investing and what the best approach is for investing.”
After a company is licensed, TechTransfer seeks to connect the founders with industry experts outside of the University.
“We put the elements of a company together and then we’re inviting founders, or other resources who then take it out and they finish the development," Nisbet said. "Often when a startup is licensed, they’re years away from revenue and lots of investment.”
Nisbet also acknowledged that Ann Arbor still has a long way to go if it wants to compete with the country’s most popular startup hubs.
“The availability of talent, funding — we don’t have a deep, robust set of investment firms, which is true of most parts of the country it’s really concentrated in Boston, New York and the Bay Area for the most part,” he said. “But we have some very good ones here. And I think reputation, to be honest. When people think of a great company they go, ‘California!’ and we’re changing that. We’ve decided what we need to do is develop better opportunities, and to do things that other universities like MIT or Stanford might not need to do and don’t do.”
Though staying in Ann Arbor is not ideal for every startup, Nisbet said the University’s resources entice many startups to stay.
“We realize that not every startup should stay because, in the end, you have to do what’s best for the technology,” he said. “Saying that, we definitely want people to stick around here and we’re lucky because most do. The connection to the University, if we can introduce local entrepreneurs and local funders or funders who are partners with others, they’re more likely to stay. So probably three quarters of the companies stay in the region, mainly in Ann Arbor. It’s a goal to maximize that, but it’s also not mandatory.”
As the cost of living in the country’s startup hubs continues to rise, companies will be looking for less expensive alternatives. The state of Michigan is also keen to attract talent to the region, hoping it will help to revitalize the economy. So for any students sitting in their first day of EECS 183 contemplating a startup idea or a career in computer science, they might not have to look much further than their own backyard.