The line between hype and pessimism: 24 hours in Detroit with Steve Case
Late at night down the Ohio turnpike, a giant bus emblazoned with a red logo forges through the rain. It stands out on the highway filled with trucks and cars going about their business in the midwest.
At first glance, the tour bus looks like it might house some famous rockstar trekking across Middle America. Not quite. It's housing a tech rock star from the 1990s, his crew, with yours truly as the only journalist aboard. The name gives away how un-rock-and-roll we are: RISE OF THE REST: ROAD TRIP WITH STEVE CASE.
But to economic development wonks, local politicians, local entrepreneurs and designers and dreamers, this is huge. This is validation that someone cares. Not just "someone"-- a famous tech billionaire.
This is the massive publicity bonanza, put on by former AOL founder Steve Case’s Revolution investment firm. Revolution has partnered with UP Global, a non-profit that promotes entrepreneurship, and Google for Entrepreneurs.
Over four days, the bus will visit Detroit, Pittsburgh, Cincinnati, and Nashville to check out local startups, incubators, host pitch competitions, shmooze with mayors, and generally promote entrepreneurship in the Midwest. It’s not exactly the country’s sexiest cities to tour — last I checked the Internet had nicknamed Cincinnati "Cincinasty" — but that’s the point.
Case is trying to bring his investor-founder-rock star cache to Middle American entrepreneurship, shipping in some coastal star power to try to raise attention to the fact that — hey! Middle America exists too. And has startups. And with more attention and capital and smart policies, it could have more. And, Case argues, that could save America.
Pando is along for the ride (paying our own way, in line with our policy on traveling for stories) to try to vet just how true such a hype fest is. Are Detroit, Cincinnati, Pittsburgh, and Nashville truly overlooked gems of innovation that investors and other founders should be paying more attention to? Or are they, like many cities around the world, just trying to get a piece of the ever-frothier Silicon Valley action?
This is personal for Case. His mantra for years has been the “Rise of the Rest,” telling anyone who will listen that America’s economic future depends on entrepreneurial ecosystems outside of San Francisco flourishing. Case got his start in his career in the Midwest — first in Cincinnati as an assistant brands manager at Procter & Gamble, and then Wichita, Kansas as “manager of new pizza marketing” at Pizza Hut. He cares about and believes in the potential of entrepreneurial ecosystems outside the coasts, to the point where his firm has made that the basis of their investment strategy. A whopping 90 percent of Revolution’s investments in the last ten years have gone to companies based outside of Northern California.
That brings us to day one of this trip. After a morning spent hobnobbing with both the governor of Michigan and the mayor of Detroit, Case held a fireside chat with Dan Gilbert, founder of Quicken Loans — arguably Detroit’s biggest success story. In a discussion that more closely resembled a football rally than a fireside chat, they discussed the rising tide of Detroit and the Midwest, pausing every few minutes for shouts of approval from the crowd. Hooting, hollering, and laughing filled the room and everyone performed imaginary mind toasts to Detroit’s bright bold new future.
It felt more like a rally than a steely-eyed discussion about Detroit's business future. But that was the point. Case wants people to believe in some hype. At the fireside chat, Case told the room full of entrepreneurs something like, “When you hear about a new company, is your instinct to think of everything that’s wrong with it? We need more people thinking about everything that could go right with it.”
On the bus later that night, Case explained to me that many ecosystems outside of Silicon Valley need more blind optimism, perseverance, and sheer recklessness of experimentation. Their timidness to take chances, to consider all the possible problems before ever taking the first step, is part of what stymies them. Not just in the Midwest — you can look to Europe for exactly the same fear factor.
But my job is to do exactly the opposite of positive thinking, and search for the truth. Over ten hours in the city and conversations with a handful of local business leaders and the Revolution gang, I kept trying to steer my discussions back to this central question: How much is the Detroit rah-rah-rah rooted in reality? Is it really a city on the cusp of a revival simply because some startups have launched there?
Case is optimistic on Detroit in part because the city has so little to lose, and that's galvanized a movement among young people. Many of them are moving into Detroit’s city center to take advantage of the initial surge of company building, and several local VC firms have sprung up in the last half decade. “These young people want to be the ones to make the change, not come in after the tide has already turned,” Case tells me on the bus.
Speaking with residents after the pitch competition, I heard the same vision, but the mood was a little more tempered from the football-like rally of the earlier speeches.
One developer, who had been around for two years, says that he’s seen things transform in his time here. He argued the “proof” that Detroit is making its comeback can be seen in the rising rent prices around the city center. It’s hard to afford a place to live next to the buildings Detroit startups call home, including the famed Grand Circus coworking space and entrepreneurial training center. However, he admitted that outside the circle of downtown the city was a far cry from a bustling metropolis. It still fit the burned out, abandoned warehouses-plants-and-storefronts stereotype the rest of the nation associates with Detroit.
Another Detroit resident who does marketing for a 3d visualization company based in Troy, Michigan, Alex Southern, bristled at the implication that Detroit wasn’t in the midst of a rebirth. He pointed me to Growdetroit.com, an organization trying to propel Detroit startups into the limelight via events and news outreach. The site holds a list of all the Detroit startups — with some entries from the rest of Michigan — currently in existence. I counted a little more than 90, including the blog Texts From Last Night (can we count that as a startup?) and Living Essentials, the company behind the 5-Hour Energy Drink. It should be noted that the moment Texts From Last Night took off, co-founder Lauren Leto fled Detroit for the more cash-flush shores of NYC. Not entirely a Detroit success story.
No companies leaped out as a Silicon Valley household name, but Case would argue that's the whole point of his tour: To bring some attention to them. As a member of Growdetroit.com, Southern told me he was in the process of analyzing the data to see how many such companies were around a few years ago in Detroit. Unfortunately for our readers, he’s not done yet, so there's no quantitative proof of an upwards trend.
At the pitch competition itself, ten out of roughly 100 companies were chosen to compete for a $100,000 investment from Case. There were some intriguing ideas, but the one that seemed most suited to the Detroit landscape was not the one that won.
Detroit Aircraft Corporation (DAC), a drone making company that focuses on delivering supplies to hard to reach areas, already had a huge customer: Lockheed Martin. “Before us, Lockheed Martin was 3D printing the material for drones at 9 percent higher cost,” says DAC board member R.J. King.*
DAC is able to make use of Detroit’s natural resources: Cheap land, skilled manufacturing labor, connections to bigger commercial manufacturing companies. I nearly cried when King told me the company pays $1,000 a month for rent for a huge airport hangar for its manufacturing. I pay $1,100 a month for a 200 square foot studio in San Francisco that can’t fit a real fridge.
When it comes to hardware tech and the need for space, equipment, and talent, there’s no knocking Detroit, particularly as the costs of manufacturing in China rise higher and higher.
But DAC, despite its playing to Detroit's particular strengths, didn’t take home the grand Steve Case investment prize. Instead, the company that won was Stik, a startup that initially launched in San Francisco before realizing it would be far easier to recruit technical talent if it moved to Detroit. After all, in Detroit the founders could draw from surrounding schools like University of Michigan, Ann Arbor, and the University of Chicago without nearly as much competition for new hires. Stik allows businesses to target ads to consumers that are positive reviews written by their friends.
Case explained later that DAC was certainly in the running, but the presentation was "squishy" and didn't have enough concrete details about the Lockheed Martin partnership. Stik, on the other hand, had already raised substantial venture from local VC firms. "I'm pretty sure they'll be raising more money from outside firms later this year," Case told me on the bus.
Stik isn't the one I would have picked, but it was a feel good choice for an event that was meant to leave everyone dreaming and feeling good. After announcing Stik the winner, Case lauded them for their reverse story. At the happy hour, Case said something like, “Usually companies start in Detroit and get big enough they need to move to Silicon Valley. But Stik started in Silicon Valley and got big enough it needed to move to Detroit.” The crowd erupted in cheers.
There’s something to be said for the fact that the winning team was picked partially because they chose Detroit, and not because they started in Detroit, capitalizing on the particular benefits of the city. It should be noted, however, that the founders are Michigan natives, which certainly contributed to their decision to move back.
Detroit may slowly be coming into itself, but it’s a long ways away from a thriving and self-sustaining startup hotbed. It’s still a place that is asking for people to pay attention to it, instead of a place that’s so important the tech community has no choice but to pay attention to it.
[Feature illustration by Brad Jonas, photo by Carmel DeAmicis]
*CORRECTION: An earlier version of this story misquoted King as saying Lockheed Martin 3D printed drone materials at 90 percent higher cost, not 9 percent.