When was the last time you thought about Detroit?
You probably think you already know the story of the city — and that it’s over. From the golden age of American invention and productivity to $50 houses and “ruin porn,” in less than 50 years.
And you’d be right. Detroit is not what it once was. Founded in 1701, called the City of Champions in the 1930s (and “Detroit Rock City” by Kiss in the ’70s), it’s a city long in decline, plagued with decay and lack of opportunity.
Some 1.9 million people lived within the city limits in 1950. Now fewer than 700,000 people fill the same space. Detroit went bankrupt. Giant factories have lain stagnant for decades. Arson fires burn every night. There’s only one major grocery store in the entire town.
What killed Detroit? Municipal incompetence, labor conflicts, crime, race tension and global competition. Hubris and innovators’ dilemmas and brain drain.
But Detroit, especially downtown Detroit, is rebounding — and fast. For two centuries, the city’s motto has been “We hope for better things; it will arise from the ashes.”
Today, it might actually live up to the ideal. Near-death experiences like the 2008 automotive crisis (GM and Chrysler went bankrupt and were bailed out, while Ford took a big loan and restructured) and municipal bankruptcy (completed in an efficient year and a half this past December) have effectively wiped the slate for what’s next.
Like elsewhere across America, Detroit fits into the modern narrative of young go-getters with new ideas migrating back to urban centers. Unlike other regions such as San Francisco, the usual barriers to growth and reconstruction are much lower.
Billions of dollars are pouring into real estate, renovation and startups — notably, technology startups. But for Detroit’s resurgence to be sustainable, today’s up-and-comers need to turn good ideas into an actual industry. For the first time in decades, that is not such a crazy long shot.
What better place than Detroit to stage the next wave of innovation? It lives at the intersection of arts and invention. It is the birthplace of the personal car, the assembly line, the escalator, the paved road, the urban freeway and the radio news broadcast. It was the epicenter of music innovation: Detroit blues, gospel, jazz, rock, R&B, house music and hip-hop. We’re talking Motown and Madonna.
Today, people mainly go to Detroit because they have business or family there. In my case, it was both. My father was born and raised in Detroit, and my family has been running a steel-cutting plant in Detroit since 1959. I visited Detroit over the past several months to report this Re/code special series about a city in transition.
In 2014, some 248 new technology companies were started in Michigan, and private investment in tech startups totaled $770 million, according to the Michigan Economic Development Commission. In 2014, for the first time ever, there was more venture capital activity in Detroit than Ann Arbor.
In many ways, Detroit’s present has little to do with its past. Those new urban workers are invading the husk of a city built on automotive jobs and the single-family houses they paid for.
The next Detroit is a city of startups, growing like a coral reef built on top of the shipwreck of the last generation.
Downtown Detroit has a lot in common with downtown Las Vegas, the site of one of the installments of Re/code’s Innovation Nation series, in which our reporters document how technology innovation is flourishing across the United States. In both places, change is being driven by charismatic billionaires who sold their companies and are pouring money into urban development and recruiting. Both are obsessed with company culture to a cultish degree, and inspire followers to rebuild their lives in new cities.
Silicon Valley veterans are likely more familiar with the story of Las Vegas’s Tony Hsieh, who sold online shoe store Zappos to Amazon, and then funneled $350 million of his money to erect a sort of tech-led colony in a tired neighborhood off of Las Vegas’ main strip.
In Detroit, the patron is Dan Gilbert, the 53-year-old billionaire, who, after buying Quicken Loans back from Intuit, relocated the company to the city. Beyond his online loans business, the native Detroiter has spent more than $1.6 billion fixing up his hometown. Gilbert now owns or controls more than 70 buildings. To the rest of the country, he is more widely known for his investments in Cleveland, where he recruited four-time NBA MVP LeBron James to rejoin his Cavaliers this season.
In just five years, Gilbert has spent nearly five times more than Hsieh’s investment in Las Vegas. His contributions to the city of Detroit are remarkable. And they are easy to see: One of the first stops on the free walking tours he offers visitors of his downtown holdings is a conference room laid out around a scale model of the area. The buildings he controls are lit up and marked with an orange roof.
In person, Gilbert is at once full of Midwestern “aw shucks” charm and tightly wound. This is the man who threw an epic public tantrum over losing LeBron James to the Miami Heat in 2010, accusing the player of “cowardly betrayal” in a surreal and infamous rant, only to woo James back four years later. When Gilbert wants something, he gets it.
And unlike downtown Vegas — which exists on the sidelines of Sin City as an oasis in the desert for homesteaders and misfits — downtown Detroit has a different momentum and feel to it: People are returning home to reimagine and rebuild the once-great American city.
After sporadic family visits to Detroit throughout my Silicon Valley childhood to see my father’s side of the family, I made three trips to Detroit this fall to report this series.
My dad grew up in Detroit, and never came back after college. He was drawn toward the tech industry, and settled in Silicon Valley. Meanwhile, his brother stayed home and carried on the family steel business. My own ties to Detroit were loose. We flew across the country to visit our cousins in the suburbs every few years and went into the city to see the Thanksgiving Day parade. We knew we were supposed to feel guilty about buying cars from non-American automakers.
But this past year, even to a relative outsider like me, there were noticeable differences in the old city from month to month. The first two times I was there, the downtown portion of Woodward Avenue was a construction zone, the first segment of a new three-mile light-rail line connecting downtown and midtown that reincarnates a rail line torn up at the behest of the auto lobby in the 1950s.
Downtown Detroit is laid out like the bottom half of a wooden boat helm, with the Woodward spike at the middle, extending north and bisecting the town into east and west sides, so I had to navigate the torn-up sidewalk, metal barricades and gaping construction holes many times when I was walking and driving between meetings with startups and techies.
When I got to town for my third visit in December, Woodward was back to normal. In fact, just over two months into construction, the first segment had been completed in time for the city’s Thanksgiving parade.
I mention this because that kind of efficiency is so unexpected for a public construction project. For 30 years, the publicly funded Detroit People Mover rail has listlessly circled downtown on a 15-minute loop, two stories above the ground, almost always with embarrassingly few passengers on board. But the M1 light rail isn’t your normal public project. Nontraditional civic funding is overhauling Detroit, particularly at its core; the light rail is largely privately funded by Gilbert, other private individuals, and foundations.
During that December visit, I noticed more holes in the downtown streets — new ones. It was for yet another civic improvement project, this time about high-speed Internet access.
A new beginning
There are about 100 technology startups in Detroit, nearly all of them founded within the last five years. It’s modest by the standards of other areas, but it’s something. There’s Detroit Labs, which makes apps for companies like Chevy and Domino’s, and is already up to 70 employees in less than four years, with 22 of them hired from an apprenticeship program that brings in motivated locals who don’t have programming experience.
And there’s LevelEleven, which helps companies that use Salesforce motivate their teams and track their performance, and has hundreds of customers as well as investment from Salesforce.
Then there’s Locqus, which brings Uber-like tracking and billing to companies in blue-collar service industries.
Locqus founder Sandy Kronenberg started his last company in the burbs, and sold it for $34 million. This time around, he’s on Woodward Avenue in downtown Detroit. “If you take me out, the average age of Locqus employees is 22,” he says.
Outside of the city are some startups that are further along — in part because they are older, and the downtown Detroit resurgence is so new — in Royal Oak, Crowdrise (the fundraising platform used by Red Cross, Ironman and many others), and in Ann Arbor, Accio Energy (a non-turbine wind energy company that says it can cut off-shore wind farm costs in half), Sakti3 (maker of solid-state batteries that could enable the tantalizing premise of cheaper electric cars with longer ranges) and Duo Security (provides two-factor authentication to Facebook, Etsy, Random House and some 5,000 other companies).
As the Detroit startup scene grows, the ideas are getting more diverse — and not all of them are funded by the Gilbert empire. Some recent additions are SkySpecs (assisted flying for drone pilots), Sentinl (fingerprint unlocking for guns) and Tome (a sensor system for desks that tracks and rewards workers for standing).
Detroit vs. Everybody
Though Detroit is hardly out of the woods — it still has the largest homicide rate among big American cities — the good news seems to be piling on, for once.
In the three months starting in September, while I was reporting this story, Detroit had its city art collection dramatically saved by foundations like Ford and Kresge built on glory-days wealth, emerged from bankruptcy, won a $50 million federal grant to fight blight, opened a $148 million lightweight manufacturing institute, and attracted the pioneering Galapagos Art Space to relocate from Brooklyn. In January, Barack Obama came to town to speak at a Ford plant and offer words of encouragement. “America’s rooting for Detroit,” the president said. “We want the Motor City strong.”
In many ways, Detroit is well prepared for a comeback. The state is already stocked with employable tech workers. Southeast Michigan awards about 10,000 STEM degrees per year, which is more than Silicon Valley, according to national education data analyzed by Anderson Economic Group. And some 14.4 percent of Metro Detroit jobs are already in technology, well above the national average.
Plus, it’s cheap to do business in Detroit. The average leasing rate is $20 per square foot, versus $60 in San Francisco, according to real estate watchers. The average software engineer in Detroit makes $69,294 per year, versus $103,367 in San Francisco, according to Glassdoor. But that money goes a lot further. The average two-bedroom apartment in Detroit rents for $600 per month, versus $4,400 in San Francisco, according to Apartment List.
There’s also a surprising amount of state funding for technology, with a Michigan economic development arm dedicating $25 million annually to technology accelerators, incubators, venture funding and grants.
These forces have helped the region foster a vibrant investment environment. In 2013, there were 33 venture capital firms headquartered or with an office in Michigan, up 50 percent from 2008, with $1.6 billion under management, up 45 percent.
Silicon Valley has taken notice. TechCrunch founder Michael Arrington announced that he will hold a Detroit startup conference in May. The elite Y Combinator startup program recently admitted Detroit startup Cribspot, a search engine for college housing. Elon Musk in January showed up at the Automotive News World Congress to voice support for other automakers building electric vehicles. He said he’d maybe think about setting up a factory in Michigan — but first perhaps the state could pull back its protective ban on selling Tesla cars.
A generation ago, entrepreneurial people left Detroit and the surrounding areas for more supportive environments — namely, Silicon Valley, with a dash of Seattle. Twitter CEO Dick Costolo, Nest CEO and Google executive Tony Fadell, former Microsoft CEO Steve Ballmer, Sun co-founders Scott McNealy and Bill Joy, and Google CEO Larry Page are all natives.
“When you went back [to Detroit] as recently as three years ago or so, you didn’t hear or see any of this. You heard all the negative stuff instead,” says Costolo.
Costolo grew up in Troy, Michigan, in an automotive family. His dad worked at Pontiac; his uncle worked at Ford, his other uncle ran a dealership. He returns to Detroit often. Twitter now has a sales office in one of Gilbert’s buildings in downtown Detroit.
“It’s awesome to see the city really starting to come back,” Costolo says. “I would definitely place a bet on it being a vibrant entrepreneurial community in pretty short order.”
“In my generation, Detroit was really about large corporations and not starting businesses,” says Fadell, whose grandfather worked at a Jeep plant and taught him how to work with tools, and whose grandmother was lead chef for legendary auto exec Lee Iacocca.
But after all the recent hardship, the balance is tilting back toward bottom-up innovation, Fadell says. “There’s a spirit borne out of near-death experience and make-it-happen Midwest culture.”
His take: “Detroit was born in two generations, died in three, and it’s going to take a generation or two to come back.”
Don’t forget the Motor City
Long before there was Silicon Valley, there was Detroit. At the beginning of the last century, Detroit was a town of entrepreneurs — Henry Ford, the Dodge brothers, Henry M. Leland of Cadillac and Lincoln — all the names that adorn the hoods and trunk lids of American automobiles.
Detroit was a hotbed of invention. In 1903, David Dunbar Buick created the overhead valve engine, which was more compact and lighter than the side-valve engines it replaced, and is still in use today. Charles Kettering, holder of 186 patents, invented the electric starter to replace hand cranks, used in Cadillacs starting in 1911 and by everyone else soon after.
By the 1910s, consolidation swept the industry. More than 20 of the startups, including both Kettering’s and Buick’s, were bought by General Motors. Then Chrysler bought Dodge in 1928. Before the Great Depression hit, the Big Three — the auto titans Ford, GM and Chrysler — controlled three quarters of the market. By the mid-1930s, they owned 90 percent. The advent of automation in the 1950s drove off the remaining independent carmakers who couldn’t afford the upgrades.
World War II defense production brought hundreds of thousands of people to the city, many from the American South, seeking work in auto company plants and earned Detroit the title “arsenal of democracy.” But then, Detroit lost 40 percent of its manufacturing jobs between 1947 and 1963, disproportionately affecting black workers as part of racial discrimination that would shape the city for decades to come.
The Big Three took hit after hit. Neither large-scale corporate management nor their nemeses at the unions were forces of technological innovation. Alongside the energy crisis in the ’70s, Toyota and Honda took a slice of the market with fuel-efficient cars and widened it with better quality product.
But the near-death experiences never stuck. Even after the bailout and bankruptcy in 2009, GM today still vies for the title of world’s largest automaker with Toyota and Volkswagen — one it had previously held continuously for 70 years.
Like Silicon Valley today, Detroit at its peak saw itself as the cradle of American ingenuity. In the 1920s, before the markets crashed, Henry Ford even built a monument to American innovation in Dearborn, just outside Detroit: The Henry Ford Museum. He rounded up the bricks from Thomas Edison’s original New Jersey laboratory, the frame and equipment from the Wright brothers’ bike shop from Ohio, Luther Burbank’s California garden office.
Today, the original birthplaces of invention are all clustered together on streets stained by the historic Model Ts that you can ride for $2, next to candy shops and a farm run like it was still the 1880s.
Ford built a museum to preserve his legacy. But his enduring mark on Detroit was built into the structure of the city: 140 square miles of single-family homes erected for and owned by the working class — many of them now burned out, abandoned and torn down — and the massive highways that make the city extremely friendly to cars and not much else.
One of the icons of the Detroit skyline is the epic ruin of the Michigan Central Station, jutting 230 feet into the sky a mile and a half from the center of the city. Trains haven’t stopped there in 30 years. But as local gonzo journalist Charlie LeDuff points out, the station was doomed much earlier, by a momentous wage increase that gave employees the ability to afford the cars they were making.
“Three weeks after it opened in 1913, Henry Ford announced the $5 workday, causing the ascension of Detroit and the inevitable bust of the train in America,” LeDuff writes in “Detroit: An American Autopsy.”
Today, the Big Three are still the largest employers in the region, supported by a network of suppliers, creative agencies and other parts of the car food chain. The economy of Southeastern Michigan remains automotive, through and through.
Detroit’s resurgence, however, doesn’t come primarily from cars.
Led by Gilbert, wealthy developers are buying up old buildings, restoring them and reopening them. And technology startups, many of them funded by Gilbert’s venture capital arm, are quickly hiring and filling those long-abandoned spaces.
“A 100-year cycle”
Rick Snyder is well-qualified to talk about innovation in Michigan. The governor of Michigan was the president of Gateway Computers. He also started one of the first venture capital funds in the state. His Twitter handle is @onetoughnerd.
“We’ve gone full-cycle — it’s been a 100-year cycle,” says Snyder, who has a thick mop of white hair and a bit of a Kermit voice. He’s in town to meet with Detroit Mayor Mike Duggan as the city successfully closes out its bankruptcy chapter, and we’re talking in a conference room at Detroit’s NBC affiliate.
“The precursor to Silicon Valley was Detroit,” Snyder says. “As a relative percentage of the economy, we were more successful here than the Valley ever was. But that’s how we ended up where we were at, because we were too successful.” Snyder laughs a wheezy laugh.
“The modern corporation was born here in Michigan,” Snyder says. “And then it grew to be so large and successful, it sort of killed off the entrepreneurial spirit. People spent so much time fighting and blaming one another, and we went to the bottom.”
Now, the only way to go is up. “We’re reinventing Michigan,” Snyder says. (It rolls off the tongue so smoothly because it was his campaign slogan.) “We’re seeing that entrepreneurial spirit reemerge.”
Detroit is turning into a case study for the broader urban renaissance movement.
In a May 2014 report on what it calls Innovation Districts, the Brookings Institute predicted the spark of the American economy will move from the corporate campus — best exemplified by Silicon Valley — to dense urban centers.
But while rural fields can be pretty easily transformed into office parks and strip malls, it’s a bit more complicated to rejigger an existing city.
Except, perhaps, in a place like Detroit.
In its report, Brookings highlighted downtown and midtown Detroit as one of its promising clusters. It said the best way to revive Detroit would be at its core.
Brookings cited research that the prototypical suburban demographic of a married couple with school-age kids has shrunk to under 20 percent of the American population. At the same time, college-educated young adults are flocking to metropolitan centers, where their work and play and home lives intersect. That’s Detroit in a nutshell.
In Detroit, the migration is still in its early stages, with a small base of young educated urbanites totaling only around 10,000 people in the most recent, two-year-old census data.
But the influx of people who both work and live in the renewed Detroit has not been well-received by everyone. And the juxtapositions between newly remodeled and inhabited buildings and decaying ones are as stark as the edge of a movie set.
It’s all very incongruous. Techie urban Detroit has little to do with the emergent middle class that the car industry created a century ago. The “beta version” of the startup economy has little in common with the reliability and safety and massive operations required by the auto economy. Demographically, Detroit’s population is 83 percent black. Tech workers, here and many other places, tend to be white guys.
There are efforts to spread the tech opportunities around. Last year, the IT services company UST Global launched an 18-week coding class for minority women in Detroit to help prepare them for IT jobs that companies might otherwise send offshore. Some 1,000 women came to a recruiting event, and 70 were accepted.
The “onshoring” program showed promise. Step IT Up Detroit graduated 58 students in October. But it is still struggling to place many of them in jobs in Detroit, says Step IT Up director Myra Ford-Jenkins.
In the meantime, UST Global is footing the bill for its “bench” of graduates, paying them a $31,000 salary and benefits, and rethinking its approach for the next year.
“Candidly, we have realized that we cannot indefinitely continue to train these women in the hopes that Corporate America will step forward,” Ford-Jenkins says.
No car startups in CarVille
In June 2014, Silicon Valley venture capitalist Marc Andreessen wrote an op-ed with the headline, “Turn Detroit into Drone Valley.”
His point: Instead of becoming yet another Silicon Valley wannabe, up-and-coming regions should narrow their focus to a particular new domain, then remove local regulatory hurdles around it, and ultimately benefit from proximity to other people working on similar ideas.
“People here were offended by that,” says Jake Cohen, a partner at Detroit Venture Partners. “I wasn’t offended, but it was kind of like, ‘Detroit’s screwed, you guys should do something different, why not be the drone capital of the world.’”
The truth is, for the last century, Detroit has been defined by the automotive industry. It’s the Motor City. So it stands to reason that the city is well-positioned for working on what’s next in cars and transportation: Autonomous vehicles, connected apps, cyber security. Sure, drones, too. Meanwhile, just about every app maker in the world is trying to figure out how to get on new platforms. You’d think carmakers would be good partners.
It’s not just tech that’s coming to cars, it’s cars that are coming to tech. For the past few years, large swaths of the technology industry’s annual gathering, International CES in Las Vegas, have been taken over by automotive companies and concept cars. This year at CES, carmakers took up more exhibitor space than ever, both Ford and Mercedes-Benz keynoted, and Mercedes’ bull-terrier-shaped autonomous concept car was one of the most memorable gadgets of the week. “CES is now a glorified auto show,” says Chris Thomas, partner at the transportation-focused venture capital firm Fontinalis Partners.
But even as startups are cropping up as the new hotness in Detroit, the new technology scene is distinctly disconnected from the region’s signature strength. Strangely, in the land of the car there are no car startups.
There is no one answer for why. The sting of the auto bailout and the industry’s long history of job losses have deterred new young professionals from the sector. Then, there’s the simple fact that the leaders of the startup scene don’t come from automotive. Most of all, there is a hope for Detroit to become more than a single-industry town.
The future of mobility
Bill Ford, the executive chairman and former CEO of Ford, took the stage at the TED Conference in 2011, and gave a speech that did not make waves at the time, but was surprisingly prescient in retrospect. As if he was channeling Uber’s Travis Kalanick, the great-grandson of Henry Ford discussed how the future of transportation is really about the beginning of the end of traditional car ownership.
“When you factor in population growth, it’s clear that the mobility model that we have today simply will not work tomorrow,” Ford said. “Frankly, four billion clean cars on the road are still four billion cars, and a traffic jam with no emissions is still a traffic jam.”
The solution for global gridlock, said Ford, is a new notion of mobility — one that incorporates public transit, shared car services and communication between cars.
What his great-grandfather stood for was not cars, Ford explained to the audience of muckety-mucks, but the freedom to move that cars once stood for, and decreasingly do now.
Recalling the speech now, it can be viewed as almost an acknowledgement by Motor City that it had lost the plot line. The car industry watched Asian carmakers thrive since the 1970s energy crisis. It was oblivious to the forces that would make services like the monstrously successful car-hailing service Uber ($40 billion valuation) an alternative to car ownership. It missed out on working with its own customers to collectively fight traffic, like Waze ($1 billion acquisition). And it has basically ignored Tesla ($26 billion market cap), even as the upstart electric carmaker racks up car of the year awards.
And perhaps even the stable but slow-moving automotive industry, with its seven-year car development cycles, is ready to step up its tech game.
For all the attention Google gets for its goofy-looking autonomous car prototype with no steering wheel or brakes, Google tapped Roush Enterprises, based just outside of Detroit, to assemble the vehicles. “To say Silicon Valley is the only place where innovation happens is wrong,” Chris Urmson, Google’s director of self-driving cars, told the Detroit Free Press. “It is not a crusty Detroit/shiny Silicon Valley. Anyone who thinks that is crazy.”
Two years prior to his TED Talk, Ford had set up a venture capital firm in Detroit called Fontinalis Partners that operates independently from Ford Motor Company. Fontinalis Partners has $100 million under management and has made 20-some investments in parking, bike-sharing and family location-sharing startups. Not a single one is based in Detroit.
Venture capitalists weren’t very interested in funding car-related startups, until recently. It’s partly because of the miserable financial failings of clean tech, including some car companies like A123 and Fisker. Another big factor is that venture capitalists want to see opportunities to sell the startups they’ve invested it. And car companies are not big acquirers.
There are a few exceptions. Daimler bought myTaxi and RideScout last year. Ford has only bought one software company, ever. It was in 2013. And it was a Detroit startup, believe it or not.
This was Livio, founded by Jake Sigal. It started as a digital radio device company, and morphed into software that helped apps connect to cars. Ford paid less than $10 million for the startup, open-sourced the software, and Sigal and his co-founder left. They now have a new company called Tome, also in the Detroit area, but it has nothing to do with cars. It makes connected desks to help office workers be more healthy.
According to Ford’s Bill Coughlin, who led the deal, the acquisition was more of a one-time thing than a strategy.
But venture capital is starting to flow into cars and mobility. The investment lust over Uber has helped rekindle the attraction to transportation. In San Francisco, where I live, the latest venture-backed crops are valet-parking startups and public-bus alternatives that can be hailed with an app (the city has approximately four of each). Venture capitalists are now seeking more places to make bets. A new fund called AutoTech Ventures, based in Palo Alto, Calif., just raised $100 million from strategic partners to invest exclusively in transportation.
The attraction has even spread to Motor City. In a move that the Detroit technology community was stage-whispering about this fall, the TechStars startup incubator plans to open a local chapter with partners Ford, Fontinalis and Detroit Venture Partners, as well as automotive supplier Magna International, Verizon Telematics and Renaissance Venture Capital.
Though TechStars already has programs in a dozen cities, this is seen as a major validation for Detroit. And, fittingly, the TechStars companies will explicitly work on projects in the space of mobility, as defined by Bill Ford’s TED Talk. In June, 10 companies will receive $120,000 in funding and a three-month mentorship program. And the whole thing will take place in downtown Detroit.
The goal is to uncover something about mobility and transportation that consumers don’t know they want yet. There’s a Henry Ford quote that has been cited by Steve Jobs and many others, and still resonates after all these years:
“If I had asked people what they wanted, they would have said faster horses.”
This article originally appeared on Recode.net.