Motor City Mojo: The Startup Renaissance In Detroit

http://techcrunch.com/2011/09/23/motor-city-mojo-the-startup-renaissance-in-detroit/

by pitdesi • 15 years ago

32 23 15 years ago

sneak• 15 years ago

Having grown up there and still having roots there, I can say that indeed, the burn rate in Detroit is very low.

It could be zero, though, and it wouldn't be worth it to put one's company there. All the cheap rent in the world doesn't make up for having to choose between car-required suburbia hell (where all the white people live) or the crime-ridden, dysfunctional dystopia that is The City Of Detroit proper.

In the 'burbs, cops drive around looking to fuck with people and everything is boring. In the city, you're looking at 45-60 minute response times from 911 calls, if the police or ambulance arrives at all.

One upside is that Michigan gun laws are relatively permissive, which you'll be thankful for if you opt not to live in an endless boring grid of white people in subdivisions (i.e. actually live in Detroit).

SwellJoe4• 15 years ago

I just spent two weeks in Detroit. I don't plan to go back anytime soon.

The first day I got there, chock full of excitement to see the city and get a feel for the place (really, people were laughing at my extreme enthusiasm about going to visit Detroit), I biked downtown for the jazz festival and was nearly mugged, or worse, on the way back around midnight (a bunch of guys in a van kept trying to get me to stop and approach the van, to help them get gas...there were gas stations within three blocks in either direction, and the guys in the van were young and looked perfectly capable of walking a couple of blocks to get gas...and the van seemed to be running fine and the guys were giving off seriously nefarious vibes, whispering to each other, etc.). I've biked through the tenderloin in SF in the middle of the night, walked through Brooklyn and the Bronx at 1 AM, and spent time in numerous so-called sketchy places; I travel full-time, so I've been to some interesting places, and I don't travel like a tourist. I try to see the real side of the places I go. I've rarely felt threatened in the nearly two years I've been travelling. I felt threatened in Detroit, on more than one occasion.

Detroit has a reputation for being a scary place because it is a scary place. And, while I enjoyed some aspect of my visit, like finding a walk-up outdoor movie theater setup among old abandoned buildings, and seeing little farms in urban areas (though they seemed to be in a somewhat bedraggled state; they seemed more like a media ploy that has played out rather than an actual sustainable community effort in some of the cases I saw), and the music scene is good, it doesn't make up for the sadness of the place itself.

Also note that those $6000 houses (and even less) will have property tax of several thousand per year. Detroit is still valuing houses at the rates of 10+ years ago, and the tax rate has climbed drastically in the past several years to try to keep revenue up to the level required to keep schools running, roads in decent condition, and police on the streets. Despite all the increases, the city is still experiencing significant budgetary problems. I looked into buying a house there, as it's cheap enough to be damned near an impulse purchase, but the cost of buying, restoring, securing (because you're going to need bars and cameras if you have a decent house within the city of Detroit), and paying the taxes on it will make it much more costly. Still incredibly cheap, but nowhere near $6000. And, you'll be living in Detroit. Not worth it.

Oh, and starting a tech company there? Madness. Notice that only one of those companies is actually worth more than a few hundred thousand (and it's not a startup, anymore, and hasn't been in a couple of decades), or maybe a couple of million, at best. That's not a coincidence. Those would be also-rans in the valley. I've noticed the same thing about most "look at us, we can be a startup hub, too!" articles. They mention a half dozen websites no one has ever heard of, as proof positive that the city can compete with actual startup hubs for tech companies.

It's cool that Detroit is improving. I'm sure some people will make solid money on real estate in the coming years in Detroit. And, I'm sure with an investor making a number of investments in Detroit-based companies, they'll eventually churn out a few decent-sized businesses, and they may improve the city further. But, it's not where you go if you want to start a tech company and you want it to succeed.

angkec• 15 years ago

Couldn't agree more. I'm from Detroit area, and just got back from a month long tour around Seattle and Bay area. I must say metro detroit feels so outdated and dead compared to the above too. It's almost a worldly difference.

Yes I'm moving my startup to either Seattle or Bay area in a few days from Detroit.

rick888• 15 years ago

If you are interested in tech, Ann Arbor is really the place to be in Michigan. Lots of startups and also a great university.

Some areas of Detroit are OK, but if you don't know your way around, it can get real bad real fast. I know at least three people that got robbed at gunpoint in the last couple of months.

SwellJoe4• 15 years ago

I hit the road to see the world that isn't involved in technology. I was in Mountain View, CA, when I moved into the motorhome. I wanted to escape the tech echo chamber for a while. I mostly seek out interesting music and America's remaining wild places. So, I went from Detroit (which has a great music scene, all things considered), to Mammoth Cave National Park, to Nashville. My next stop is Austin. If there happens to be technology, or a conference that's useful to my business, on the way, I'll get involved...but, mostly I'm trying to achieve an appropriate work-life balance, that doesn't revolve around tech.

Ann Arbor sounds nice, and I know Google has a sizable office there, but it's not high on my list of places to visit (no music scene to speak of, no wild places). If one had to start a tech company in Michigan, I reckon that would be the place to do it. But, why start a tech company in Michigan, at all?

jonbischke• 15 years ago

Thanks for this commentary. I'm the author of the article and certainly didn't mean to gloss over some of the really big problems Detroit has. But I was impressed with the energy there (I also co-hosted a dinner for education innovators in the city during my time there and felt a similar energy). I do think we have two options with cities like Detroit. We can give up on them and move elsewhere and let them become ghost towns. Or we can fight to keep them alive, similar to what people did in New Orleans post-Katrina. I'm a believer that the latter is what we need to do. It's not going to be easy but I'm really proud of the folks there who are committed to sticking around and doing whatever they can to help make the city better.

SwellJoe4• 15 years ago

That's an admirable position. But, I'll point out that when starting a new tech company, you have two options. You can do everything you can to make it a success. Or, you can start it outside of a major tech company startup hub, such as in Detroit.

If your priority is to help save Detroit, by way of starting a company that provides jobs in Detroit, that's cool. Good on you. But, odds are very good it's not going to become a big tech company.

There are a lot of ways to frame the world as "two options". We have two options with regard to poverty in Africa: Give our savings away to help feed the poor, or buy a new TV or car or whatever it is we were planning to do with that money. We have two options with regard to the environment: We can sell our cars and start biking everywhere, or we can continue doing what we've always done.

Just because a cause is worthy does not mean I'm the person to take it up. I'll leave solving Detroit's problems to the people who have reasons to love Detroit. For people in Detroit who are starting tech companies, and care about the success of their company more than the recovery of Detroit, the smart money is on leaving Detroit for greener pastures.

By the way, I'm not really criticizing your article. I think it's an interesting story; I think a lot of what's happening in Detroit right now is an interesting story, which is why it was high on my "places in the northeast to visit" (right below NYC).

reduxredacted4• 15 years ago

Also note that those $6000 houses (and even less) will have property tax of several thousand per year. Detroit is still valuing houses at the rates of 10+ years ago

I'm curious about this statement. From what I recall of state law, the houses State Equalized Value would fall to 50% of the purchase price of the home assuming it is not a foreclosure. In the case of foreclosure, fighting a over-valued home (an experience I only have outside of the city) is pretty easy. In addition, in Michigan, a homeowner's SEV increase is capped per year until the property changes hands (known in these parts as Proposal "A", the third rail of Michigan politics). I'm not calling you out or anything. If you could explain that in greater detail or have a reference, I'd be interested to understand since I know some great, honest, giving people who also happen to be lawyers who would love to use their skills to help the city.

It's cool that Detroit is improving.

When Mayor Archer was in charge, the city underwent some pretty serious improvement, especially in overall "image". This is important. Mayoral candidates tend to run on the platform of pitting the folks who live in the city against the folks who've left the city (a technique honed and mastered by Mayor Young that resulted in near life-time tenure as mayor). It was the first time that I've ever noticed a trend of suburban folks actually wanting to explore some of the rare and interesting restaurants in Detroit. Under Mayor Kilpatrick, the city declined dramatically (this was not all his fault, it happened to coincide with a general economic decline, but he certainly didn't help the city's image). Under the new mayor, the image of the city of Detroit has improved. Again, an important thing.

However, the scene on the ground is not yet improved, and I'd subjectively assert that it's not as good as it was during the worst days under Archer. The poorest neighborhoods are getting much worse. I have a friend who moved her whole family to the Brightmoor area to help prostitutes and drug addicts. That area has gotten significantly worse and more dangerous in the last two years as have most of the poorest areas of Detroit.

It's terribly sad, and I can't say that I'm, personally, doing anything to make it better.

EDIT: Fix a cut/paste sentence error.

SwellJoe4• 15 years ago

Before I got to Detroit, I researched neighborhoods, house prices, etc. I was seriously considering buying a house. The nearest RV park to Detroit is 43 miles away, so I was considering buying a house to park at for three months, while doing some repairs and such, and either putting it in the hands of a rental agency when I left (coming back for a month or two each summer in the future), or simply putting it back on the market while living there (this was before I had actually been there and knew I didn't want to live in Detroit). But, every time I found something promising, I'd check the backtaxes situation on the property using Detroit's own property lookup tool and find that $3000 to $9000 was often owed on the property, and that annual property taxes were usually $2000 and up. I was looking at houses in the $3000-15000 range, as that seemed to be what it cost to get a block or two over from some of the seemingly recovering areas. The purchase price seemed to have no relation to the property taxes, and sometimes the cheapest houses had the highest tax rates (and the most backtaxes owed, which explains the low sales price).

I don't know much about the law or the process of correcting overvaluation. But, if it's as easy as you say, why have none of the people selling these properties gone to the trouble to get the rates fixed and adjusted for past taxes? These are insane taxes for property with such low value. I paid about $3000/year in property taxes on a house in Austin several years ago, which had a valuation orders of magnitude more than anything I was looking at in Detroit (and Texas has no state income tax, so has very high property and sales taxes, relatively speaking).

If it is actually easy to get the valuation corrected, and start paying reasonable property taxes in Detroit, then there are many bargains to be had. But, some folks were giving away houses for free, because they had more in backtaxes owed on the property than it was conceivably worth (even compared to other dirt cheap houses with backtaxes owed), for example.

Seems to me that things are badly broken in Detroit. I'm not an expert on how to save cities, by any means, but I don't think things are going right in Detroit, and I feel like punishing people who might be considering buying some of those horribly depressed properties by charging stunningly high taxes is gonna have to have unintended consequences.

Thanks for the history lesson on Detroit and its mayors. I planned to spend some time on the ground there to get a feel for the place, but I knew relatively quickly Detroit was not for me, so only stayed two weeks. Part of the problem was weather...it was already colder and wetter and rainier than I like, even in early September when I was there. So, I didn't really learn much about the place. I checked out Dally in the Alley, the jazz festival (which got shut down due to weather minutes after I arrived downtown), did some bike exploration (never at night after that first day, and never in areas that seemed at all sketchy), and then drove south. Detroit has its charms, but nothing to make up for the brokenness of the city.

I didn't really want to say it, since my experience is so limited, but during my short time there, I just couldn't see how Detroit could pull out of its nose dive, despite many well-meaning people in Detroit who'd like to improve things. Your closing comments seem to support this theory. My research into buying property, and then the research into why property taxes could be so outrageously high on such low-priced properties, led me to realize that Detroit is constantly on the edge of utter bankruptcy, supporting infrastructure that was designed for a big city at its prime on revenues of a poor small city. It just doesn't add up to any sort of good resolution in the next decade or two, as far as I can tell. Given the illiteracy rate, the poverty rate, and the unemployment rate, in the city, it looks destined to dig itself further into the hole it's in rather than climb out. I'd love to see that proven wrong, and there have been a number of really cool films and articles about Detroit's renaissance as an artistic mecca in recent years...but, it looks like a long climb still remains.

rickdale• 15 years ago

The only businesses booming in Detroit and elsewhere in Michigan is the medical marijuana business.

Hyena2• 15 years ago

I love how they mention employing the locals even after noting that about half are illiterate and presumably even less have a college or even high school education.

rmason2• 15 years ago

What you're not understanding is that Michigan's universities are graduating thousands of very bright engineers every year. Kids who love the state and would prefer to find a job in Michigan. Promise to keep them in Michigan and your recruiters gain what is known as an unfair advantage.

Likewise there are experienced people available that would gladly work for half what they're paying in the Valley. People can't sell their houses so they are in effect trapped.

Why more Valley companies don't open Michigan offices baffles me. Easier recruiting and getting two developers for the price of one? Does Detroit's reputation handicap it that much?

Hyena2• 15 years ago

I don't think companies locate to collect graduates from nearby universities, they locate to collect on positive externalities from aglomeration. How many times has PG statetd that being around other hardworking, innovative people is important? That's the agglomeration externality you want to cash in on.

Naturally, this leaves a catch-22 for would-be hotspots for any industry.

jerf• 15 years ago

"Why more Valley companies don't open Michigan offices baffles me."

I suspect it's because people don't realize that from a tech company's point of view, Detroit isn't the center of the world anymore. It may be notionally the "Greater Metropolitan Detroit" area, but that's just tradition now, not a reflection of reality. In reality, the "suburbs", many of which would be cities themselves if they were isolated (not large, world-class cities, but still definitely "cities" as opposed to "villages"; think Palo Alto vs. San Francisco) are where the action is, as well as Ann Arbor. You don't locate in Detroit; at most, a few of your employees may live somewhere that is theoretically called "Detroit", but that's all the dealing with the city you'll have. (And if you provide them a stable job, they'll probably move to be closer to it and further from Detroit.)

Detroit is a sinking non-entity now, but the area itself is carrying on.

saturdaysaint• 15 years ago

"Detroiter" here (actually just across 8 Mile in Ferndale).

In short, the area is an interesting conundrum - there's actually a concentration of technical people (engineers and designers), some great culture (think about how many genres of music started in Michigan), and some great schools (mostly referring to U of M), and a fair amount of money. There's also a complete lack of entrepreneurial spirit (except for packaged foods and restaurants, for some reason). Everyone is the child of a mid-level engineer/accountant/manager in a faceless corporation. As in large, faceless corporations, there's a sense of social segregation between the artists, workaday engineers, and business owners.

But, really, it's not even worth getting into for the same reasons it's barely worth bringing up anywhere outside of Silicon Valley and New York (which only enters the conversation by virtue of having all of the money and a lot of the media industry). The social connections, venture capital system and expertise in the Valley are too much of an advantage for anyone with a serious product to stay away. I mean, many regard being in Chicago as a serious liability to Groupon...

reduxredacted4• 15 years ago

I'd like to speak as the man on the ground and in dire confusion while reading this article.

The author has fallen into the trap that most of us living here have fallen into. We all claim to be "from Detroit" but in reality, most of us live 15 miles or greater from Detroit and rarely visit. When we do, it's: The greek town/Cobo/Downtown area, and the theatre/new football and baseball stadiums. Not coincidentally, a short distance from the new home of Quicken Loans and Compuware. When people talk about how bad Detroit is, they are not talking about these areas. There's plenty of police coverage, it's well lit, it looks acceptable (sections of Downtown are a wreck, but it's mostly OK).

I've read of a previous Detroit start-up on Hacker News that turned out to be an Ann Arbor start-up (home of the local school of University of Michigan which isn't local). Culture and demographics of Ann Arbor couldn't be more different than that of Detroit. Ann Arbor is home to rich folks or college students and just about nothing in-between. It's a fantastic city to visit. I know of an online vitimin retailer that opened up in "Detroit", but they're located 20 miles from the city limits in an upper class area (http://www.evitamins.com/ecommerce-careers), granted they were a start-up in 1999. As for the couple of non-automotive companies in Detroit. I've met the CEO of Compuware and was able to ask him why they up and moved. It was small talk prior to a meeting so take his response in that context, he summed it up as he got the property "for a buck" (exact words) and the location is profitable due to tenants renting portions of it.

As SwellJoe mentioned, Detroit has a reputation for being a scary place because it is a scary place. He is correct. Short of a few small sections, it's scary. I've witnessed a barred up shop being broken into around noon on a sunny week day by a gang of four thugs. If you want a thrill ride, take Van Dyke from the core of the city north at dusk. You'll feel it's safe to stop running red lights about 7 miles out. You take I-75, the Lodge or some other highway to get in and out, not the surface streets. When I used to work as contractual support for a variety of businesses, I invested in a firearm and a concealed weapons permit (a permit that if you lived in the city at that time, you'd be denied ... state law has since changed that situation).

A few simple facts about the city of Detroit: There is not one major grocery chain store in the city limits (Whole Foods is said to be investing in a store near where Compuware and Quicken Loans is located). There are no real, feature film movie theatres in the city limits. There is an income tax in the city (I don't believe there's another city in Michigan that imposes an income tax). City services are terrible. Every winter the stories on the news are about how the roads in Detroit aren't cleared for snow. It's a running, very sad, joke. From the first snowfall most of the neighborhood and the roads that feed the neighborhoods will be covered in snow. And you'll get to hear about it every day if you watch any of the local news stations.

The good news for people who were originally "stuck" in Detroit, but working lower-middle class is that the suburbs, as of 2008, became significantly less expensive to live in. My neighbors across the street live in a tri-level. One of the children there beamed at me about how big his house is and how much nicer it is than the one they used to live in ... in Detroit. All the suburbs, especially in parts of Warren, are seeing migration of the poor out of the city and into homes in safer neighborhoods. They want out just like my parents wanted out when I was a child. This will further isolate and wreck the city.

rmason2• 15 years ago

One small fact correction:

Plenty of Michigan cities have city income taxes

http://www.michigan.gov/taxes/0,4676,7-238-43715-153955--F,0...

One addition and this comes from a fifth generation Detroiter living outstate who visits often. There are lots of young urban homesteaders moving downtown especially in neighborhoods like Corktown and they've given the city a huge boost. However what happens when they marry and have children?

There better be another group of young people willing to buy their houses because no sane couple will put their children in the Detroit schools. If they fail to fix the schools the boomlet will crash.

But personally I am bullishly optimistic on the city. Detroit has big problems but it also has grand canyon sized opportunities that exist nowhere else.

reduxredacted4• 15 years ago

Thanks for the correction. I was too lazy to look it up :).

Being from the suburban area and not much of a "Michigan tourist", we always hear of the income tax being the "big detractor" to investment in the city. There are so many other problems in the neighborhoods that pinning the issue of investment to income tax is to convenient.

As for the Detroit Schools issue, you're also dead on. It's a big deal. The folks that I know who have relocated (whether Boston Edison or Brightmoor) of Detroit have done so because they want to help the city for charitable reasons. The biggest problem was DPS.

The enabler for all but one of the families is two-fold: Michigan is a very homeschool friendly state. And even in the good neighborhoods of Detroit, all of the families were able to buy their homes without a mortgage (5,000 square feet in the Boston Edison neighborhood for $120,000, though requiring a lot of TLC). As you put it *no sane couple will put their children in the Detroit schools". Out of six families that I know of who have relocated, five homeschool, the sixth sends his two children to Detroit Country Day School (a good private school in Southfield).

clarkevans• 15 years ago

Here's a fun story...

While driving home on the Lodge, a car tire goes flat. Pulled over, out there switching the tire, some other fella pulls up. He gets out of his car, walks over and says: "You can have the hubcaps, I just want the battery."

dorkitude• 15 years ago

Thought you might find this interesting:

http://blog.dorkitude.com/post/10648678183/locale-and-the-go...

ahi• 15 years ago

As others have said, Detroit is a scary place. But I would much rather live in Detroit than the Valley. The "risk takers" of the Valley have nothing on living and playing in Detroit. The complete societal collapse of Detroit has provided amazing opportunities for entrepreneurs, artists, and assorted weirdos. You don't try to start your next <insert freemium business model startup> in Detroit. Leave that to the unimaginative valley folk. It would be a complete waste of the freedom offered by a lack of legal, social and economic constraints. There just aren't many places where ventures like the Russell are even considered let alone viable: http://ricdetroit.org/

Motor City Mojo: The Startup Renaissance In Detroit

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