Sorry, Michigan tech startups…

A complete reveal of tech startup scene in Michigan

This post is an extended version of my previous post talking about the tech startup scene in Michigan ( Michigan Tech Startups. Are you joking?) which get 1.5K reads from Medium and Reddit in less than 5 days. The comments were vastly different. Some people criticize my intention for writing this post, and some appreciated the useful information in it such as what to know when starting a tech startup in Michigan and what is the small business ecosystem like in Michigan. So I think it would be necessary to re-write it and elaborate more on the points I already made plus some new points. (A bonus for the best business to start in Michigan)

Before reading this post, please be mindful about

1. This post is an extraction of my personal experience in the tech startup scene in Michigan and talking with / seeing other dozens of tech startup founders in Michigan
2. Even though I’m mainly talking about tech startups here, but I think everyone who wants to start a business in Michigan will benefit from it
3. My intention is to inform current tech entrepreneurs in Michigan or someone plans to start a tech startup in Michigan with the basic knowledge. To that intention, if you have more things to add on to help them, please leave your thoughts in the comments section.
4. My personal purpose for this post is to encourage tech entrepreneurs in Michigan not to give up their startups or even a startup idea so quickly if things get hard. Most often, it may not be your personal problem or your startups’. Keep grinding because the world needs entrepreneurs like you to constantly improve.

Let’s Start

Before writing this post, I literally searched “Michigan Startups” on Reddit, There is 0 subreddit group result, The closest one isAnn Arbor Startups with 22 subscribers and the last post was 2 years ago. Put it into a perspective, there is another subreddit group called Michigan Beerwith 5,000 subscribers and the last post was 10 hours ago.

I think that can somehow give us a sense what the startup scene looks like in Michigan

Before sharing my tech startup experience, let me tell you a little bit about myself. I am a software developer and moved to Michigan from California a couple of years ago. The reason for moving was for work at that time. I had experience generating startup ideas, turning it to a product (software, or a mobile app) and running and growing to a sustainable business. I’m currently running a tech startup. I mostly stay in Oakland County and Ann Arbor area.

Ok, let’s get into the meat.

Smart Zone

I assume if you are in the startup field, no matter tech or non-tech or event small business in Michigan, you probably heard about Smart Zone.

The difference between a startup and a small business is the scalability. For example, a local barbarshop can only serve limited amount of people in certain areas, but startups such as early stage Uber or Spanx had the potential to reach people globally

Back to smart zone, it is basically a concept that the whole Michigan is divided into 20 areas and each area has a business service center to help ambitious entrepreneurs start or grow their businesses. Some of them even have an incubator program to provide some business and financial related seminars, lectures and other related services.

However, if you are in tech such as software / mobile / internet, you are in bad luck, because

1. To get their help especially financially, you have to register your company in certain areas in Michigan and you have to stay there for at least 2–5 years, which is like a locked contract.It doesn’t seem like such a big deal. However, it will not benefit you in the long term if you choose to register in Delaware instead, which has tax advantage and better legal support for businesses
2. They do not give you cash. They pay for your non-technical services, such as marketing and legal stuff (note: marketing doesn’t include your Facebook or Google ads, it only pays for marketing agents’ work), Basically, the money they pay will eventually go back to their own people or people who they have connections with. So, if you are not a tech founder, or do not have a tech co-founder in your team. You are screwed because you still need money out of your own pocket to build your product.
3. You have to know the primary goal of the smart zones is to increase job opportunities and support some native industries such as defense, automotive, mobility things. As a tech startup, you probably want to stay lean as long as possible and will not hire anyone besides paying yourself and your co-founders until you start making a good amount of money. So how can you get along with them in a long term? Different goals!!

Incubator / Accelerator

It is surprising that Michigan actually has accelerator programs. To name a few: Desai and Sparks in Ann Arbor, Conquer in Lansing, and TechTown in Detroit

From these locations, you may already figure these accelerators are tied to universities: U of M is in Ann Arbor, Michigan State University is in Lansing, Wayne State University is in Detroit. These programs are mostly for students in these universities or for their alumina. It is hard for outsiders to get in, I personally tried and people who I know have the same experience. So, if you are not connected with these schools somehow, you will probably not get accepted, even if you have a great idea and a working prototype.

Even if you get in the programs, the outcomes will not be as good as you may think (more on this later). Also, to be honest, it is not worth the effort to try to get in when you have other great accelerators out there such as Y Combinator, AngelPad, and TechStars which can truly help you grow, build strong relationships with investors and offer valuable advice.

Investors and advisors

Very straightforward, First, there are not many angel investors who actively look for startups to invest.There are some VCs who I guess gathered money from rich individuals like doctors and lawyers to fund some companies. Accelerators here usually play the angel investors’ roles, but I got insider information that so many startups in the accelerators were founded by local university students and failed so quickly due to many reasons (lack of commitment, bad idea, too small of the market…).

Personally, I believe doing a startup is a full time job, if you have a good product, you do not have other time than focusing on building and selling your product. You can not go to school / work and run your startups at same time. That’s probably Mark Zuckerberg and Bill Gates dropped out of colleges to start their companies.

So, due to the low quality of the startups they accept, these accelerators end up not getting their investments back.That’s why you do not find many accelerators / incubator programs in Michigan because it is a money-losing business.

VCs are super conservative, and most of them only invest in automotive, food, real estate, and other traditional business. I know a few who invest in tech company but only limited to enterprise software companies because Michigan still has the biggest automotive industry with OEMs and suppliers. Their internal software sucks.

If you are making some tech/digital products for end customers, you will hardly raise money from VC in Michigan. Put in this way, if Mark Zuckerberg raise money for Facebook in Michigan 12 years ago, he probably won’t get a dime regardless of the bad economy around that time in Michigan.

Compare to so few angel investors, there are so many advisors who are on the board of many startups. They are helpful in their own domains such as legal, finance, etc, but few of them had ever built/ grown / run a startup themselves, so their startup advice doesn’t carry much weight.

Developers v.s. Entrepreneurs

There is always a dilemma you need to solve if you want to start a tech startup in Michigan. “Entrepreneurs and developers do not go hand by hand.” Most ambitious entrepreneurs have no tech skills and most developers are employees who have no entrepreneurial spirits. For example, in Michigan, most successful entrepreneurs / businessmen/women are non-tech business owners ranging from CEO of a big franchise movie theater to a small bakery. Most of them do not care about tech. People in tech are mostly developers working at companies ranging from 5 people studios to giant auto OEMs. Most of them are happy with their paycheck so they will not think about starting a tech startup when they can make money by doing some fairly easy work. So be careful about who you partner with if you can’t do something yourself.

Ann Arbor — the tech startup hub

If you can guess a city that is most related to tech in Michigan, Ann Arbor should be on your top of the list. There are many good developers I encountered in Ann Arbor. They can code and make something but they lack the entrepreneurial spirits as mentioned before. Most people in Michigan who get in tech is to get a good paycheck, not to start a company or change the world for better.That’s why there are many coding boot camps or schools such as Grand Circus. (80% new developers in Detroit will tell you they are somehow associated with Grand Circus, and most of them start coding for the big check).

If your main goal of starting a tech startups is to make a lot of money, you probably will fail very quickly, because money is just not a big enough motivation to push your through startup hardships.

Part of the reason why Ann Arbor is tech hub in Michigan is because of U of M, which is ranked very high on any university ranking sites. There is no doubt that the school spends a lot of money on their buildings exteriors and interiors to attract students. However, just like most other universities, you do not really learn many practical skills from there even if you are a computer science student. Here is my personal experience. One day, I went to one of the biggest computer labs in the CS building and asked more than 30 students there if they know how to program in Swift ( the programming language used to make native iOS apps), everyone said no. When I got back home and search their curriculum, only one course is related to mobile development. However, stats show more than 75% of people are using mobile phones for personal use compared to 40% using a desktop. So just as most other universities in the US, students are not well trained to stay up to date.

There are many great meetups, one of my favorites is AA New Tech, where every month you can see tech-related startups present their companies, then you can network with presenters. However, although the meetup place is in one of the UM Ann Arbor building, 70% of the audience are over 30 years old and from other cities outside of Ann Arbor. Very few students are in the audience. Students are not well involved in the entrepreneurial ecosystem in Ann Arbor

I feel for universities to teach entrepreneurship is like for Chipotle to sell Pizza. Because the initial purpose of public education is to train people for work, not to start a company. Even that, current universities obviously failed both ways. First, we are no longer in a industrial era and we do not need a lot of workers / employees (more than 50% of people currently are self-employeed or freelancers in the gig economy era). . Second, even if the purpose to train workers holds true, universities sill do not teach practical skills needed to perform at a job.

So in short, you can say AA is the Tech Hub in Michigan, but no way near compared to Silicon Valley’s standard and hardcore entrepreneurship.

Common people

I had experience running my own entrepreneurship meetup with 1300+ members in Michigan and personally talked to more than 300 of them. One of the things I found out is the entrepreneurial spirit is seriously lacking. Most people talk a lot, few of them take actions, and very few have the grit to persevere long enough to see some results.I guess it is a big environmental issue. Michigan is a heavily industrial state with the biggest automotive industry. So most people have the industrial worker mentality and are more interested in the traditional Real Estate business. The process looks like this; Graduate university -> Find a decent job in big companies -> Buy some mortgages -> Rent them out -> Start collecting money and save salary at the same time -> Hope to get enough money to quit a job as soon as possible

With that working employee mentality, few people have the courage to take the leap and start their own tech startup.

Bonus: what’s the best business to start in Michigan

After observing businesses around the lower side of Michigan, you will more likely succeed if you start the following business

1. Small food joints or food trucks: because

• People here love food to a different level. There is countless time I see many of my friends getting ready for 2 hours, driving for 30 plus minutes and waiting for 1 hour to dine in a popular restaurant in Detroit. Not even mention I saw people post on Facebook that they waited for 2 hours in a line for some free BBQ in a food festival. (yes, there are multiple food festivals in Michigan around the year.)
• There is not much to do in Michigan especially during the 6+ months of winter. I guess that’s why delicious food at a local restaurants become one of the best options.
• You can get investment and the odds are pretty high. Quick story, this summer June 22, there was a big Small Business / Startups pitch competition called Quicken Loans Detroit Dem Daywhere 15 entrepreneurs pitched their companies to win over 1 million dollar investment, These 15 companies are categorized into 3 different groups based on the age of the company. Each group has a tech-related startup. Guess what was the result? All 3 winners are in the food industry, Popcorn stores, bakery store, and frozen fruit plant. Did I say the last year winner was a cupcake store in Detroit too?
• If you keep the size small, such as selling at the farmers market at the beginning, you can make a decent amount of money and not need to worry about the operation stuff.

2. Coffee shops near universities

• Almost every coffee shops around college campus are full if not packed. Regardless of the taste of the coffee or whatever you are selling. If you have a cozy environment and a high-speed wifi. You are good to go.
• Just be careful about the revenue drop during the summer break. Even that, your business is still in a great shape

3. More….(you may know some too. If so, please comment your recommended business to start in Michigan)

Conclusion:

If you are a hardcore entrepreneur, you can make it happen no matter where you are especially for tech and internet stuff.The only difference is the amount of help and the quality of the help you can get from your surroundings.

In my personal opinion, I do not think Michigan is the best place to start a tech startup unless you are doing something closely related to the automotive industry. Even that, you probably will not be able to compete with other tech giants on the west coast. What’s new in the automotive industry? I guess self-driving car. Aren’t Google, Tesla, and Uber the leaders in the self-driving car industry?

Even Paul Graham (founder of Y-Combinator) said in his blog “ The 18 Mistakes That Kill Startups“ The number 2 mistake is the Wrong Location. In his words,

“Startups prosper in some places and not others. Silicon Valley dominates, then Boston, then Seattle, Austin, Denver, and New York. After that there’s not much. Even in New York the number of startups per capita is probably a 20th of what it is in Silicon Valley. In towns like Houston and Chicago and Detroit it’s too small to measure…

…Who knows exactly how these factors combine to boost startups in Silicon Valley and squish them in Detroit, but it’s clear they do from the number of startups per capita in each.”

Let me know what you think about the tech startup scene in Michigan and what other things you'd like to add on to inform other tech founders or founder-to-be in Michigan. If you find this information useful, please clap or share it so other people can benefit as well.