How 3 Detroit Founders Built Tech Startups Despite City’s Bankruptcy
On July 18th, 2013, the city of Detroit filed for Chapter 9 bankruptcy, becoming the largest city in American history to do so. Just four years earlier, Chrysler and General Motors—automobile companies that were long a staple of the Detroit economy—had filed for Chapter 11 bankruptcy.
“You hear stories about the Great Depression in the ‘30s, I can only imagine what we experienced here in Detroit matched that. It was a scary time with so many negatives. There was no credit, the auto companies were on the brink, and when the auto companies here go on the fritz, it reverberates throughout the community,” says Carol Cain, a Detroit native and reporter for the Detroit Free Press.
While the nationwide unemployment rate had fallen to 7.3 percent by July 2013, Detroit’s remained well above 20 percent.
“Detroit’s decline is a distinctively capitalist failure,” asserted The Guardian following Detroit’s bankruptcy. Vice magazine called Detroit “a striking and large-scale instance of something that has become persuasively wrong in America.”
Once a beacon of American innovation and ingenuity, Detroit had turned from the industrial heartland to an industrial wasteland. The future looked bleak for a city that had built itself on automotive manufacturing.
Yet over the past five years, Detroit has experienced a quiet resurgence, turning itself into a burgeoning tech hub that has attracted the likes of Microsoft, Google, and Twitter. According to EntryPoint’s 2018 Detroit Entrepreneurial Ecosystem Report, over a quarter of high-tech companies in Michigan are now located in Detroit, and 37 venture-backed startups in the city have raised nearly $200 million in venture funding in total. High-tech jobs in Detroit have experienced a 26 percent growth in the last three years, the report found.
Many attribute Detroit’s tech transformation to the right combination of talent, culture, and cost of living. The state of Michigan has the highest density of engineers in the US —1,400 per 100,000 residents, according to EntryPoint. The city of Detroit itself is within a 100-mile radius of six of the top 20 engineering schools. A culture of entrepreneurship reverberates through the city—once home to Henry Ford, founder of the Ford Motor Company, Detroit has given rise to the personal car, the assembly line, the traffic light, and has innovated just about every genre of music, from punk rock to hip-hop and beyond. Native Detroiter Dan Gilbert, founder and chairman of Quicken Loans, has poured billions of dollars into the city’s downtown core, boosting real estate, renovating the landscape, and revitalizing nightlife. And cost of living in Detroit remains relatively low, allowing employees to live comfortably and companies to generate higher returns for less capital to scale.
Below are the stories of three Detroit entrepreneurs who chose to build their startups in the Motor City.
It was 2012, and Nathan Labenz was struggling to make it in the Bay Area with his startup, Stik.com. That was when a TechCrunch article about Twitter opening a new office in Detroit caught his eye.
“I knew a lot about Twitter, but I didn’t know a lot about Detroit. It had been ten years since I left home for college. This article prompted me to delve deeper into Detroit,” he says.
Labenz had grown up 30-minutes from Detroit but never seriously considered it the place to build his career. After graduating from Harvard University, where he lived in the same house as Mark Zuckerberg, Labenz had pursued a career in consulting at Oliver Wyman before leaving to found Stik.com, a social review tool for local businesses and individual professionals.
Intrigued by the idea of moving his company to the heartland, Labenz reached out to a startup that had moved from the Bay Area to Austin for advice. What he got back was plain encouragement.
“What we heard from the founder was, ‘If you are considering leaving the Bay Area, you should absolutely do it.’ The guy basically said, ‘Small business is everywhere around the country. It doesn’t make a whole lot of sense to be in the most expensive area when you’re trying to serve pretty budget-conscious customers,’” he says.
While Labenz worried about the distance between Detroit and Silicon Valley, the nation’s tech epicenter, he figured proximity didn’t matter much in the 21st century. A car ride from San Francisco’s Marina District to Sand Hill Road in Palo Alto, after all, could take 175 minutes in traffic—the same amount of time as a plane ride from Detroit to San Francisco.
After deciding to relocate operations to Detroit, however, Labenz and his co-founder, Jay Gierak, found themselves dealing with a new problem: Investors were pulling out of their Series A investment round. Despite soft-circling a million dollars, Labenz found that Bay Area investors were unwilling to support in a Detroit-based startup.
“Most of them said some version of, ‘I only invest in companies I can help. And I’m not going to be able to help in Detroit. So I can’t invest in you.’ Some of them also said, ‘I’ve never heard of a successful startup being built in Detroit. Therefore I’m not going to invest in this one.’ So we lost of most of those California guys,” Labenz recalls.
One legendary Bay Area venture capitalist, Tim Draper, however, maintained a more expansive view. Draper was fine with Stik’s move and agreed to back the company under one condition: they find two Detroit-area investors.
Stik eventually closed a $2.3 million Series A round co-led by Detroit Venture Partners (the venture arm of billionaire Dan Gilbert) and North Coast Technology Investors, an Ann Arbor-based venture firm. Because only five venture firms exist in Detroit (Detroit Venture Partners, Invest Detroit Ventures, Ludlow Ventures, the Renaissance Venture Capital Fund, and Fontinalis Partners), capital can be hard to come by.
“I don’t think it’s easy [to raise capital] anywhere, but it’s definitely more of a challenge here [in Detroit],” Labenz says. “There just aren’t that many people locally in the venture investing business. If you’re just starting out, it’s definitely harder here. But if you’re as fortunate as we’ve been to get that first deal done with someone like a DVP, it’s not that much harder.”
Following its Series A round, Stik would evolve into Social Proof Marketing and then Waymark, an automated marketing platform for local businesses. In Waymark’s infancy, talent was not easy to find.
“When we first showed up here, not many people were moving here. There wasn’t a lot of lead flow,” he adds.
After several years of population decline, however, metro Detroit grew by 0.3 percent between 2013 and 2017, with an influx of 7,000 new residents in 2017. In the same period, metro Detroit saw the second-highest growth among peer cities for populations between the ages of 24 and 35, with positive growth of 9.7 percent.
“We have this whole ex-pat community of people who grew up in metro Detroit or went to the University of Michigan and live in L.A., San Francisco, New York, who want to move back to Detroit. And they reach out to us and we connect them to our portfolio communities. Three or four times a week I talk to someone like that,” says Jake Cohen, partner at DVP.
As Detroit ex-pats and millennials look to move to the Motor City, Waymark’s talent search struggles have reversed. The company, which now totals 32 employees, has team members from Squarespace in Brooklyn, Apple in the Bay Area, and Rackspace in San Antonio.
“The people that are coming from other places too, they come from good companies. They’re showing up with credibility,” he says.
In fact, Labenz is happier with his employees in Detroit than he was in the Bay Area. Labenz notes that since relocating, Waymark employees’ job satisfaction and tenure are both up.
“People in the Bay are getting poached and re-poached. There’s a culture there — a sort of expectation — that you’re going to be all in 100 percent of the time. But there’s a reality that people jump ship often. So maybe there’s not as much of expectation here that you go balls out everyday, but there’s a higher expectation that you’ll be here next month,” says Labenz.
Waymark has also benefited from a downtown revival in Detroit that has made the city more attractive to millennials. While the city still has a long way to go to catch up to New York or San Francisco, it no longer resembles the “ghost town” of just ten years ago.
“The number of bars that have opened up around here, it’s pretty easy to take people out and show them a good time. There are so many businesses opening up and on the weekend it’s kind of like a madhouse here. A weekend night around here, good luck finding a place to park. You can tell times have changed when parking is 30 dollars,” he says.
Detroit’s tech culture, Labenz believes, can be summed up by its camaraderie. Whereas the Bay Area can feel individualistic, he says a “strength of network” exists in Detroit.
“People will help each other out just cause [or] have a conversation just cause, for example, much more than they would in San Francisco. When someone’s not a good fit for us, we still try to pass their resumes along. We all try to chip in a bit and rep the place,” Labenz notes.
In September 2018, consumer marketplace startup StockX announced that it had raised $44 million in Series B funding—the most-ever raised by a Detroit startup. The company had been backed by Google Ventures, Battery Ventures, and celebrities like model Karlie Kloss and DJ Steve Aoki. In just over two years, the company had grown to over 400 members and was averaging over $2 million dollars in daily transaction value.
Yet few would imagine that the man behind StockX would be Josh Luber, a backwards basketball hat-wearing CEO. Luber doesn’t cut the typical profile of a leader of a high-growth startup; along with a hat, Luber generally wears a warm-up, sweatpants, and slides or sneakers depending on the day.
Born in Philadelphia, Luber holds three degrees from Emory University—an undergraduate business degree, a JD, and an MBA. Before StockX, Luber founded three startups—one that he sold for a nice profit, another that he sold for next-to-nothing, and one that he shut down—and lived in five cities over the course of his professional career.
Working as an IBM strategy consultant in New York City, Luber began playing around with sneaker data. A lifelong “sneakerhead,” he wanted to create a price guide for sneakers. Because shoe companies often release only a limited supply of certain sneakers, their resale value can be quite high—and create an inefficient market for both buyers and sellers.
In early 2012, Luber created Campless, a “sneakerhead data” company which collected, analyzed, and published data and derived insights on the sneaker resale market. Operating as a “Kelley Blue Book for sneakers,” Campless soon became the de facto price guide among sneakerheads.
“But really the whole time I was trying to figure out, what do you do with this business? Like what is the bigger idea here?” Luber says.
Working to figure out a sustainable and profitable revenue model, Luber met with representatives from Nike and Footlocker. He quickly found, however, that shoe companies were uninterested in the stock-market model for sneaker sales that he was pitching. They just wanted Luber’s data.
“My idea was if you understood sneaker prices, if you understood the value of one sneaker, you could create sneaker portfolios. You could look at someone’s sneaker collection the same way you look at a stock portfolio. The logic was, if you know the value of one pair, if you know the value of a portfolio, you could operate the whole thing as a stock market,” says Luber.
Somewhat serendipitously, Luber connected with Gilbert’s team. Gilbert, who was interested in creating a “stock market of things,” had put together a small team to tackle the venture. Realizing the dynamics of the sneaker industry were a good fit for the stock-market model, Gilbert’s team had chosen to focus on sneakers.
“Dan put together a team, unbeknownst to me, to start working on a sneaker stock market. And those guys got a week or two into it and realized, ‘Woah, we need a sneaker guy,’” Luber says.
That sneaker guy, turned out to be Luber. Luber eventually sold Campless to Gilbert, moved to Detroit, and joined on as StockX’s fifth employee. StockX officially launched its sneaker marketplace in February 2016 and just over a year later, expanded to watches and handbags. StockX says it offers transparency, allowing buyers to purchase at rates set by the market rather than the seller and track the aggregate value of their collections (their “portfolio”) based on price fluctuations.
Detroit seemed like a natural place for StockX because of Gilbert. But the city also offered the chance to work synergistically with the Quicken Loans family of companies (run by Gilbert, who also owns the Cleveland Cavaliers basketball team) and access to some of the world’s foremost experts on sneaker authentication. Quicken Loans functioned as a de facto accelerator, introducing StockX to potential customers and taking care of StockX’s human resources and legal work, allowing Luber and his other co-founder, Greg Schwartz, to focus on the business.
“I doubt we’d be as successful if we were in a different city,” Luber says.
Detroit’s culture, too, reflected StockX’s startup nature.
“If you are an entrepreneur, a startup guy, now you get to be part of a startup city. And even in the few years I’ve been here, it’s like night and day. The city itself has this feeling of a startup—the excitement of like every day, of making monumental progress in a short period of time,” Luber says.
As the StockX headcount has grown from four to 400 in just over two years, recruiting talent has remained an important priority.
“The last three companies I founded had 12 people, eight people, and four people. We’ve [StockX] genuinely hired more people than that in the past two weeks,” Luber says. Only 10 percent of StockX employees have moved to the city to join the company. The other 90 percent come from the metro Detroit area.
“Being the big consumer e-commerce company in the city, we sorta get anyone who wants to be that. We get to be the big fish in a small pond. So if you want to work on cutting-edge, internet startup stuff, we’re the leader in the city,” Luber says.
Thanks to the partnership with Gilbert, capital has never been an issue for StockX. Yet the company has sought out strategic partners who could provide cultural cachet—like rapper Eminem, Kloss, and actor Mark Wahlberg— StockX now plans to hire 1,000 and invest in a European expansion. In October, StockX opened an authentication center in West London.
Kyle Bazzy has always had a special place in his heart for Detroit. Bazzy’s grandparents immigrated to the city from Yugoslavia and Lebanon and had businesses on Detroit’s East Side. Growing up, Bazzy regularly walked the city’s streets and attended Detroit Red Wings games with his father.
“For some reason, and I don’t know why, I just have always loved this city,” Bazzy says.
After graduating from Central Michigan University, Bazzy remained in-state, working in various leadership roles at Michigan startups.
“I chose to be a part of the solution. I’ve traveled a ton to New York and San Fran and Chicago for work, at the various startups I’ve been at, and what’s unique here [in Detroit] is the culture. The density actually does exist. We’re just very spread out. And when you bring it together, it’s one of the most incredible cultures you could see,” Bazzy says.
In 2015, Bazzy became the lead organizer of Techstars Detroit Startup Week.
“The first year we beat out Denver, Austin, L.A., and New York to host Startup Week. And we were the biggest Startup Week. Not because the number matters, but because it shows that we exist on the global map,” he says.
In January 2018, Bazzy became the chief operating officer of Grand Circus, a Detroit-based startup that offers coding bootcamps for those who want careers in software development. To date, Grand Circus has graduated over 1,200 students—a quarter of them Detroit residents—and has had around 200 companies hire its graduates. The city of Detroit has even agreed to pay the tuition for the training of any Detroiter who is accepted into a Grand Circus bootcamp.
What’s unique about Grand Circus is its market: metro Detroit residents.
“Everyone in San Francisco grew up knowing what technology is. We still get 10 emails a day asking what coding is. You’re in these blue-collar markets, like Detroit, and they’re realizing that technology isn’t just its own industry—it pervades every industry, whether you’re Quicken Loans [selling] mortgages or a coffee shop trying to better advertise,” Bazzy says.
Grand Circus helps its members overcome the requirement of needing a computer science degree to become a developer. In particular, the company focuses on helping those looking to make a career change.
“Theaverage age [of students] is between 25 and 30, but we have some in their 50s. If you look around and understand [our students’] backgrounds, it’s truck drivers, it’s lineworkers, it’s teachers, it’s waitresses, it’s everything,” he points out.
Grand Circus guarantees its graduates job interviews with companies looking for developers. Considering the amount of unfilled computer programming positions in the nation—one million by 2020—Grand Circus has found it relatively easy to place its graduates in developer roles.
“Quicken Loans had 105 open development positions because they can’t find [programmers]. It’s not just this market—it’s worse at the coasts,” says Bazzy.
When employers get over the hump of hiring one individual from Grand Circus, they accelerate hiring. One employer, for example, hired their first Grand Circus developer 18 months ago. They’ve now hired 38.
“When you look at the Top 50 fastest growing tech companies, many of them have figured out that it’s not product or sales that are the key to growth, but tech. If you don’t have developers, you can’t build. And so they’ve invested heavily in strong junior development associate programs,” Bazzy says.
While Detroit may not strike many as an optimal place to locate a coding bootcamp company, Bazzy argues that Detroit offers several competitive advantages. For one, the city’s blue-collar ethos means residents are more likely to stick with the same company, meaning companies who hire from Grand Circus don’t have to worry as much about their talent being poached.
“People in these blue-collar areas, where they’re used to working for 40 years at the same auto plant, when they become technologists, they’re much more likely to stay with the same company,” Bazzy notes. Second, Bazzy argues that Detroit offers the technical talent and capital necessary to grow a company like Grand Circus. Accenture, for example, opened up its front-end development program in Detroit.
“If you draw lines between [the University of] Michigan, Michigan State, [and] Central Michigan University, the amount of brain talent you have here is insane,” he says.
Bazzy also notes that metro Detroit ranks 12th in the country in terms of the number of millionaires (108,000), meaning that investment dollars exist to back technology startups. All that’s necessary now, Bazzy suggests, is for the “capital to get smarter in investing in startups.”
“We have a challenge getting money out of pension funds and 401Ks,” Bazzy says of Michigan’s conservative investment culture.
Bazzy also believes that the city will have a favorable regulatory environment as it works to rebrand itself as a technology hub. The city has already hired its first chief information officer and rolled out the [email protected] program, which provides full scholarships for Detroit residents to participate in Grand Circus bootcamps.
As Detroit rebuilds, Bazzy hopes its culture will better foster entrepreneurship than in the past.
“Growing up in the suburbs, I was constantly asked, ‘Why don’t you get a real job?’” Bazzy says, referencing the fact that many metro Detroiters are unaware of startups or uncomfortable with startup culture. He also hopes the city can do more to facilitate high-quality interactions among founders.
“When I’m in San Francisco, I can sit in a coffee shop and run into three people I know, just from Detroit. That doesn’t really happen here. We need more of those moments,” Bazzy says.
In addition to leading Detroit Startup Week, Bazzy has taken steps to building a tight-knit entrepreneur community by organizing a monthly “Founders Only” event. The event, which brings together more than 140 entrepreneurs across Detroit, allows founders to share and seek advice. Dug Song, the co-founder of Duo Security, which sold to Cisco for over $2B in August, is part of the group.
“The people that are actually achieving success, we need their time, and for them to pay it forward. And people like Dug are. To have that culture spilling into the ecosystem, for several months and years, we’re stupid excited,” Bazzy says.