News Column

Entrepreneurs Try to Recapture Detroit's Glory

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Scarred by decades of political corruption and neglect, Detroit has begun what many people believe is a painful yet necessary transition.

It's change that is focused more on the spirit of entrepreneurism and less on the comfort of traditional manufacturing jobs and labor unions. It's change that is forced on a city government, which has allowed Detroit to rack up $14 billion in long-term debt and ended last year with a $327 million deficit.

Gov. Rick Snyder picked Kevyn Orr, a partner in the Cleveland law firm of Jones Day, to help lead Detroit out of ruin as the city's new emergency financial manager. He will have sweeping, virtually dictatorial powers to run the city for what is expected to be an 18-month appointment.

Mr. Orr, who represented Chrysler in its successful restructuring, has a monumental task ahead of him:

-- Detroit's budget problems are tied to the city's declining population. Reaching a peak of 1.85 million people in the 1950 Census, white and now middle-class black flight has caused a loss of more than 60 percent of its population. The population fell to 713,000 in 2010 and is believed to be less than 700,000. As people left, property assessments were increased to make up for revenue losses. Many services were gutted, which made Detroit less safe and less desirable.

-- Sixty percent of Detroit's children live in poverty. Forty percent of the households do too. Half of the households have a combined income of $25,000 or less.

-- The Motor City, of all places, is one of the nation's most transportation-challenged cities. One of every four households in the city limits does not have access to an automobile. Public transit is lacking, which leaves the city's poorest residents land-locked. Many residents struggle just to find rides to supermarkets.

-- Nearly half of the city's population is functionally illiterate, according to one study. Eighty percent of births are to single mothers. The city has three times as many retired workers as active ones.

"It's still difficult to understand how Detroit has let things go as far as they have," said demographer Kurt Metzger, director of a research firm called Data Driven Detroit.

DETROIT

Current population: Less than 700,000

Peak population: 1.85 million (1950 Census)

Percentage drop: 62.2 percent

Finances: $14 billion debt, ending last year with a $327 million deficit

Percentage of residents living in poverty: 40 percent

Main racial makeup: 82 percent black, 10 percent white

Little-known factoid: One in four households in the Motor City has no access to an automobile.

SOURCE: U.S. Census and Data Driven Detroit, a private rm that focuses on demographics

Numerous warning signs went unheeded. The city's once-reputable school system plunged far below mediocrity.

"It's been going on for 50 years," said Sheila Cockrel, 65, a lifelong Detroiter and a Wayne State University professor who spent 16 years on Detroit City Council. "It's the can that's been kicked down the road by various mayors and city councils."

Detroit is trying to move forward while licking the wounds left by former Mayor Kwame Kilpatrick's disgraced administration. Kilpatrick faces many years in prison after being convicted earlier this month on two dozen charges that include racketeering and extortion.

Detroit City Council President Pro Tem Gary Brown, a former Detroit police officer who blew the whistle on Mayor Kilpatrick, said a "culture of corruption" has existed far too long.

"Eyes from around the world have been on this city, detracting from the progress we are making. It's time for Detroit -- for all Detroiters -- to close the era of wrongdoing, corruption, and lack of integrity within our city," Mr. Brown said after the verdicts.

Signs of misery

Detroit has regained the distinction as America's most violent city while also having some of the highest taxes. Its signs of misery -- hundreds if not thousands of burned out, abandoned, and boarded-up homes and buildings among them -- have drawn comparisons to New Orleans in the aftermath of 2005's Hurricane Katrina. The difference is Detroit's hurricane was in part self-inflicted and one of gradual economic decay.

Many of those with the ability to flee did so long ago, leaving some neighborhoods so barren the city has turned off traffic lights and street lights to save money. Locals complain there are so few police officers to canvass the city's vast 139 square miles that waiting time for 911 calls are 30 minutes or longer.

Residents seem to have less faith in city government and more in fearless entrepreneurs who have persuaded them that they have embraced the city's iconic soul.

Detroit's pride goes beyond what the city felt when Chrysler's now-famous Super Bowl ad of 2011 featuring hip-hop star Eminem with an in-your-face script, one that defied conventional marketing strategies by playing up the city's toughness.

It transcends the stirring echos of Aretha Franklin's soulful voice and that of other Motown stars who revolutionized the music industry in the 1960s.

It's an invigorating, powerful feeling deep in the bones of anyone from street musician Toney High to tech superstar Josh Linkner, a Detroiter who has become one of the business community's biggest movers and shakers.

Those two have more in common than what meets the eye.

Mr. High is a 52-year-old homeless trombonist known to perch himself on a folding chair at a busy corner in Greektown and hold court with those who pass by.

He said he toured in years past with blues stars Johnnie Taylor, Little Milton, and Lucky Peterson, and once did a stint in Europe with Ike Turner. A local paper, the Detroit Metro Times, ran a story in 2010 about how he walked in off the street one night and got a standing ovation at Detroit's oldest blues bar and a popular venue for Motown stars, the Raven Lounge and Restaurant.

"I've been told I put smiles on some people's faces, so that's a start," Mr. High said. He said he moved to Detroit while broke that year, and is still broke, but won't leave because he sees better days ahead and is inspired by the city's energy.

"We're already at the bottom," he said, chuckling. "There's only one way to go, and that's up."

Many Detroiters believe the city's future lies not so much in a state-appointed financial manager as in venture capitalists with undying loyalty to Detroit, such as Quicken Loans founder and chairman Dan Gilbert.

Mr. Gilbert, who also owns the NBA's Cleveland Cavaliers, has bought 15 of Detroit's downtown buildings since 2010. He has a pending deal for control of the Greektown Casino-Hotel and owns two casinos in Ohio.

That sentiment was echoed by Mr. Linkner, who formed a group called Detroit Venture Partners with Mr. Gilbert and businessman Brian Hermelin, with an assist from retired NBA star and Michigan native Earvin "Magic" Johnson.

Incubator for start-ups

Located in a building on Broadway called The M@dison, near Comerica Park and Ford Field, Detroit Venture Partners provides an incubator setting for start-up tech businesses. Since 2010, the partnership has invested in 17 start-ups. It plans to take on eight to 10 more a year, Mr. Linkner said.

Detroit Venture Partners operates out of a building that had been vacant since the 1980s. It reopened in early 2012 after a $12 million renovation. It is fully occupied. It sits on the site of the historic Madison Theatre, which opened in 1917. The theater eventually came down to create more parking for a building that had been attached to it.

"To me, it's such a privilege to help rebuild such a great American city," Mr. Linkner, 42, said. "It's the kind of things you want to tell your kids about."

Mr. Linkner, Detroit Venture Partners chief operating officer, is author of a best-selling book Disciplined Dreaming, a call to action for companies to rethink their traditional business models. It urges more creativity and risk-taking. He is the creator of five tech companies, including the wildly successful ePrize, the world's largest interactive promotion agency. Now owned by Connecticut-based Catterton Partners, ePrize provides digital marketing services for 74 of the top 100 brands.

"We are in the midst of the greatest turnaround in American history," Mr. Linkner proclaimed. "We Detroiters have a grit and determination. We're like the Rocky Balboa of cities."

From its Ping Pong table to its smoothie-and-gourmet coffee bar, Detroit Venture Partners is anything but a conventional workplace.

Like Mr. High, Mr. Linkner gets his inspiration from music. In addition to being a tech visionary, Mr. Linkner is a jazz guitarist. He was trained at the world-renowned Berklee College of Music in Boston.

He said he is drawn to jazz because it is a truly American art form built on improvisation. Elements of it have helped him succeed in the business world, he said.

"In the past, business was run like a symphony, with the conductor giving out all of the instructions," Mr. Linkner said.

"To me, [business] is all about what a jazz musician does -- improvise and work in smaller teams. The culture of a jazz combo supports creativity, whereas a large group doesn't."

Staying on task

Ignore the Noise.

Those three words have become Mr. Gilbert's watchwords. The oft-cited phrase at Detroit Venture Partners is part battle cry and part encouragement to stay focused and forge ahead, in spite of the city's well-publicized problems, Mr. Linkner said.

"If you fail at something in Silicon Valley, it's a badge of honor," Mr. Linkner said. "Here, it's a Scarlet Letter. We have to change that way of thinking."

Mr. Gilbert was not available for an interview. But according to Mr. Linkner, he preaches opportunity, to act while property's cheap, and to not look back.

That sense of fearlessness is felt in new neighborhood businesses too, such as Great Lakes Coffee Roasting Co., which opened on Woodward Avenue in July.

"I knew in my bones something good was happening," said co-owner James Cadariu, 42, a lifelong Detroiter who holds three degrees from Wayne State University.

He said Detroit's starting to come back "in spite of the city [government] now."

"I've seen the decline, and now I've seen the city as it's getting its legs back," he said. "It's going to happen faster if the city ever gets its act together. But it's happening. It's just a matter of pace."

One of the more fearless entrepreneurs is Torya Blanchard, a Wayne State graduate and a lifelong resident who taught French for five years.

She cashed in her 401(k) retirement savings and, with the help of a business partner, opened a pair of restaurants across from the Detroit Institute of Arts. One is an eatery called Good Girls Go to Paris Crepes. The other is an art gallery/music club/restaurant called Rodin.

Both have upscale decor and French culinary themes.

Ms. Blanchard said little gestures have firmed up her affection for Detroit, such as when the co-owner of another restaurant, Phil Cooley of Slows Bar-B-Q, helped install Rodin's slate bar. "We all pull for each other here," she said.

Ms. Blanchard had no prior business experience. She said she was amazed she could afford property across from one of the nation's largest and most prestigious art museums.

"If I worried about what's going on with the city, I'd never get anything done," she said.

Shawn Geller is one of the city's newcomers. Only 26, he's the chief executive officer of Quikly, a digital firm that connects people with short-term bargains.

Mr. Geller moved his company from Philadelphia when Detroit Venture Partners invested in it.

He said he wanted to be part of a high-tech business incubator trying to rebuild a once-great city.

In Greektown, there's a hodgepodge of decades-old private restaurants and corporate-owned ice cream, hamburger, and pizza joints.

The New Parthenon is new only by name. It opened 43 years ago. Owner Jimmy "the Greek" Pamagopoulos describes it as "the granddaddy of Greektown."

"Detroit is the heart of the United States. Everything starts in Detroit," Mr. Pamagopoulos said, adding he is proud to have served Michigan-raised celebrities such as Madonna and Bob Seger.

Detroit's 1967 blemish

And then there is race.

Detroit's infamous 1967 riot is cited by outsiders as the city's turning point. Forty-three people died and 467 were injured, one of the worst riots in America's history.

But many aren't aware of a 1943 race riot that preceded it, resulting in 34 deaths and 433 people injured, or the fact that the city's population was already starting to decline before the 1967 riots.

"There's a history of racism and lack of economic opportunity that has been an impediment," Ms. Cockrel said.

She said Detroit is one of the nation's most racially divided and segregated cities.

"How does that happen?" Ms. Cockrel asked.

"We have to acknowledge it's an issue."

Wayne County Commissioner Tim Killeen, a third-generation east-sider and a white Irish-Catholic, said people "can never discount how light or dark a person's skin color is when looking at Detroit's history."

"This is always a thread that runs through town," Mr. Killeen said.

He and others point to the federal interstate highway system created in the 1950s by President Dwight D. Eisenhower as Detroit's turning point. The multiple expressways, as well as several wide, multilaned thoroughfares, enabled those with affluence to easily relocate in the suburbs.

"There's so much concrete to get out of the city," Mr. Metzger said.

One of the stories in Detroit that has gotten little attention has been the number of African-Americans that have fled the city in recent years.

According to the 2011 Census estimate Detroit is 82 percent African-American and 10 percent white, the opposite of what it was in 1950, when fewer than one of every five residents was black.

Between 1990 and 2000, Detroit lost 2,500 African-Americans. That was the first time it had a decline in that demographic.

Between 2000 and 2010, the decline was much more dramatic. The city lost 185,000 more African-Americans, which Mr. Metzger noted was about 25 percent of the city's population.

Those between the ages of 5 and 9 decreased 47 percent that decade, he said.

"For a city's future, that's a very ominous trend," said Ms. Cockrel, the widow of a prominent African-American politician, Ken Cockrel, Sr.

"When the children leave, what happens?"

Decreased housing prices in the suburbs, coupled with record-low interest rates, encouraged those with enough means to get out, Mr. Metzger said.

"It's not white flight," said Jeff Counts, author of an explorer's guide to the Detroit-Ann Arbor area published in 2011. "It's middle-class flight."

The widening gap between the haves and have-nots raised serious questions about Detroit's future.

"The city I came to know is quite different. But to be fair, the country is different," said Osama Siblani, publisher of the Dearborn-based Arab-American News.

Campbell Ewald's recent announcement that it will move its 600-employee advertising agency from Warren, Mich., into Detroit created a new buzz. Some wonder if Detroit, with its low land prices, could compete against the suburbs for business.

This summer, construction is expected to begin on M-1 Rail, a light rail/streetcar along Woodward Avenue designed to make travel easier between downtown and businesses near Wayne State. The U.S. Department of Transportation announced a $25 million grant for the project in January.

To Mr. Killeen, Detroit's always been a tough town.

It revolutionized the world when Henry Ford invented the assembly line technique of mass automobile production, a symbol of American innovation and a hallmark of the industrial revolution.

It's been at the heart of labor movement struggles, such as when former United Auto Workers President Walter P. Reuther survived beatings and assassination attempts.

It stepped up when America needed factories to produce more armaments for troops during World War II.

"If it wasn't for Detroit, you'd be speaking German today," Mr. Killeen said.

He agrees the city's soul will be its savior.

"There's too much of a lack of belief among residents in this town that you can control your own destiny," Mr. Killeen said.

"But given all of that, I am optimistic. It's a matter of knitting the community back together again."

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