I spent a few days in March in Ann Arbor Michigan as a guest of Professor Thomas Zurbuchen, Associate Dean for Entrepreneurial Programs, and Doug Neal, Director of Center for Entrepreneurship in the Engineering School at the University of Michigan.
I gave a keynote on entrepreneurship to MPowered,the student Entrepreneurship Organization, spoke on a panel on Entrepreneurship and the Aerospace Industry, and gave another keynote at the Ann Arbor New Tech Meetup andA2Geeks, the regional startup network.
I got smarter about engineering and innovation in "flyover country", met some wonderful people and shared some thoughts about what it might take to spark an innovation cluster in Ann Arbor.
This post is a personal view of what I saw in Ann Arbor -- in no way does it represent the views of the fine institutions I teach at. Read this with all the usual caveats: visiting a place for a few days doesn't make you an expert, I'm not an economist, and the odds are I misunderstood or misinterpreted what I saw or just didn't see enough.
One Hand Clapping -Creating an Innovation Cluster -- The Ann Arbor Experiment
In my short time in Ann Arbor, I spent time meeting with:
- Faculty; I met with the Dean of Engineering, held faculty lunches and roundtables in the Engineering School, and met one-on-one with several engineering and med school faculty who wanted to turn their research into a company.
- Students; presented to entrepreneurship classes teaching technology-driven Scalable startups as well as students interested in Social Entrepreneurship. Held office hours and met lots of passionate students with great ideas.
- Business School, met with the entrepreneurship center in the Business School,
- Entrepreneurs; presented to MPowered the University of Michigan student Entrepreneurship Organization, the Ann Arbor New Tech Meetup andA2Geeks, the regional startup network (talk here.)
- Venture Capital; met with the local hardware/software venture capital firm.
- Incubators: toured the TechArb, the engineering student accelerator, and the Michigan Venture Center in the University's Tech Transfer Office
The good news:
Entrepreneurship and innovation has been embraced big time at U of M. The Engineering School has 5,600 undergrads and 3,000 graduate students. It' s probably no coincidence that the Dean of the Engineering School founded a company and gets what "startup" means first hand. The Center for Entrepreneurship in the Engineering School is akin to Stanford's STVP program. It offers 35 entrepreneurship courses.
Everyone I met in this program "gets" the principles of Agile, Lean and Customer Development big time. The TechArb is the engineering student accelerator/incubator (cofounded by the local VC) and also embraces these ideas. Finally, I was impressed to find a robust local entrepreneurial community centered around A2Geeks and the Tech Brewery (after I met Dug Song I understood why.)
(I didn't have enough time to connect with the entrepreneurial groups working on medical devices and life sciences, but they are another big component of the startup pool coming out of the University.)
What needs work:
It's been 33 years since I was last in Ann Arbor. (I call it the best school I was ever thrown out of.) I was incredibly impressed with how far the University has inculcated innovation into the fabric of the Engineering School. However the challenges that still needed to be addressed were pretty apparent.
You Can't Start a Fire Without A Spark -- A Lack of Venture Capital
For an Engineering School so focused on innovation and startups the lack of sufficient numbers ofventure capitalists in the local community for Cleantech, hardware, Web/Mobile appsand aerospace was noticeable. Given the interesting things going on in the engineering labs I visited and the startups I met, one would have thought the school would have been crawling with VC's fighting over deals. Instead it seems that students who graduate simply pick up a plane ticket with their diploma. (Of course, some do stay. The spin-outs from Center of Entrepreneurship are impressive. Many of those companies are still Ann Arbor, but the ecosystem is a limiting factor.)
While one can't recreate all the happy accidents that made Silicon Valley, it doesn't take a rocket scientist to realize that it's the combination of technology entrepreneurs and risk capital that are two of the essential ingredients in any cluster. (I list some of the others in the diagram below.)
Therefore the lack of critical mass in Venture Investors in Ann Arbor was palpable -- and incomprehensible. This place could support at least one or two seed funds like 500 Startups, and a couple of True Venture/Floodgate-type of VC's as well as more Cleantech investors. Getting them in Ann Arbor would solve the other missing piece; the lack of a startup culture.
A Lack of a Startup Culture in the Community
Visiting Silicon Valley you can't mistake that its primary business is innovation. In Ann Arbor and southeast Michigan entrepreneurship is a small part of a more diverse business culture. One of the characteristics of a cluster is that it isn't hard to find other like-minded individuals. In Ann Arbor, they're scattered in between the auto industry, biotech, hospital workers, etc. As a consequence Ann Arbor lacks the culture of risk-taking and respect for failure critical in an innovation cluster.You see it in the existing angel groups and VC's. They feel more like banks than risk capital. And that lack of tolerance for failure and comfort with the status quo gets fed back to the entrepreneurs. Getting a few experienced super-angels and/or VC's seeding 5-10 Lean Startup deals here a year, with a couple of Cleantech/energy deals as well, could kickstart the culture.
Not My Problem
The interesting thing is that no one seems to own the problem. The University of Michigan tech transfer office has an incubator but 1) mixes software, hardware, med devices and life sciences deals in the same program, and 2) takes no ownership of figuring out how to get a risk capital ecosystem in place. Surprisingly, the same with the entrepreneurship center in the Business School. I would have thought they'd be leading the charge.
The new governor of Michigan, Rick Snyder was a venture capitalist in Ann Arbor, so I'm surprised he hasn't jawboned some combination of Michigan alumni working in venture capital in Silicon Valley to return, and paired them with the old-school money from the Auto industry, that's hiding under mattresses. (If the old money doesn't get the new mobile/web app space, note that new money is pouring into Cleantech/energy VC funds in the Valley.Silver Lake Kraftwerk's Fund just raised $1.3 billion for a Cleantech/Energy growth fund. Bet Ann Arbor and the Detroit Metro area have a few startups in that space. Where are the investors?)
The real test of a cluster "catching fire" is not when it provides local employment, but when people from outside the area start coming to work and invest there.
These guys are this close to making it happen. It would be a shame if it didn't.
Reprinted from SteveBlank.com
Steve Blank is a prolific educator, thought leader and writer on Customer Development for Startups, the retired serial entrepreneur teaches, refines, writes and blogs on "Customer Development," a rigorous methodology he developed to bring the "scientific method" to the typically chaotic, seemingly disorganized startup process. Now teaching Entrepreneurship at three major Universities, Blank is the author of Four Steps to the Epiphany. Follow him on Twitter @sgblank.