Is Detroit the New San Francisco?

By Joel P. Engardio

The bridge that connects Canada and the United States at the Detroit River is usually filled with trucks transporting goods. But San Francisco residents Joel Luebkeman and his partner Mel Durana recently drove their rental car over it.

“What’s your business?” the customs agent asked on the U.S. side in Michigan.

“We’re on vacation,” Luebkeman responded.

“In Detroit?” the agent said with raised suspicion. “No one vacations in Detroit.”

Luebkeman wanted to see the place that revolutionized the world with the assembly line and automobile.

He was also curious how Detroit went from being the nation’s most innovative boomtown a century ago – much like San Francisco and Silicon Valley today – to the bankrupt, abandoned shell of itself now. And what cautionary tales he might learn.

Luebkeman was allowed entry. As he drove past the rubble and burned hulks of buildings in Detroit, he was surprised to see an old factory packed with young people. Someone had turned it into a distillery. It was just one of the thriving pockets of commerce he discovered rising from literal ashes.

“I got the impression that entrepreneurs are succeeding in spite of the city,” Luebkeman said.

If Detroit has a comeback, it will be thanks to a burgeoning tech community and the University of Michigan in nearby Ann Arbor that produces highly skilled engineers. The co-founder of Google, the CEO of Twitter and a creator of Apple’s iPod (who later founded Nest) are all University of Michigan graduates.

While they left Michigan for Silicon Valley, Twitter now has a Detroit office and Google is in Ann Arbor. And other Silicon Valley veterans educated in Michigan are moving their startups to Detroit, which has fallen so far that it is almost a blank slate. Costs are low, the University of Michigan talent pool is deep and opportunity has no limit.

That’s not the case in Silicon Valley and San Francisco anymore. Political forces seek to punish and extort the tech industry for its success. Retaining top employees is competitive and expensive. And home prices are above a million dollars, which tech gets blamed for when the entire region stubbornly refused to build for future demand.

Michigan is also attractive to tech entrepreneurs because it still has enough manufacturing infrastructure to produce the next generation of smart products. Every conceivable household, workplace and recreational good will have digital components and it won’t be cost-effective to make them all overseas.

But great challenges remain. Even San Francisco’s most inefficient and mismanaged city departments can’t compare to Detroit, which struggles to offer basic services and has a recent mayor serving 28 years in prison for bribery and fraud.

Then there’s the cold Michigan winter and the state’s discrimination against gay residents who are denied workplace protections and the right to marry.

Yet all of Michigan’s negatives can be changed (except the winter), if an influx of smart, accepting and creative talent makes it happen.

“Thomas Edison grew up in Michigan. So did Larry Page. Innovation must be in the water of the Great Lakes,” said Michigan native Doug Neal, who sold his Silicon Valley-based company and returned to Michigan to help run eLab, a tech incubator. “We need to identify the next Larry Page and keep him here.”

Until then, there are Michigan natives like Nathan Labenz who was at Harvard the same time as Mark Zuckerberg. Labenz saw the beginning of Facebook and moved to San Francisco to start his own company. Now he’s back in Detroit running

“Silicon Valley hasn’t jumped the shark yet, but everyone should be concerned about being too cocky or complacent,” Labenz said. “The political inertia in San Francisco is a massive disconnect with what the city needs to do for its future.”

Also published in San Francisco Examiner August 31, 2014

Innovation, TechJoel Engardio