Dean Barber

Grow the Island

In Economic Development, Places on July 28, 2013 at 8:14 am

Last week, I attempted to provide some context as to why the House of Detroit had fallen onto hard times, resulting in the largest municipal filing for bankruptcy in U.S. history.

I went through a litany of principle causes — an overdependence on the automotive industry, which has had its own trials and tribulations, population loss thereby resulting in tax base loss, racial tensions and overtones, political corruption and malfeasance. All of these factors are intertwined, are decades in the making, and represent pretty complicated stuff.

So it would take a lot of cojones (a Tejano term which rightly applies to many Texans) for me to pronounce that I have the answers and solutions. No, it is doubtful that anything I have said or will say about Detroit is altogether new.

Still, I am gratified to report that the Detroit Regional Chamber has taken me up on my offer to provide 20 hours of free consulting time. More on that later.

I am emotionally drawn to Detroit, hence my offer. Maybe it’s because of what the city once was that has captured my imagination. There was a time, not too long ago, when Detroit was ground central to our manufacturing might. It was the “arsenal of democracy” during World War II and the fourth largest city in America.

Today, it is the poster child of urban decay and the pain, having shrunk from 2 million souls in 1950 to about 700,000 today.

Now we can study the what-the-hell-happened until we are blue in the face (and I think already have) or we can lean forward with what we have learned and forge a new Detroit that represents opportunity. Actually, that Detroit, or at least a small segment of it, already exists. You are just not hearing about it much.

And Now the Rest of the Story

I did not tell the whole story last week. (Nor could I.) I only scratched the surface, and to some extent, was just piling on. But the good news is that there are market forces currently in place that could transform Detroit into a much better place. This is not the same old top down renaissance hype, a path that we’ve all been lead down before. 

No, this is real and it is actually happening. There is a bona fide story here about a surge of private and civic investment and business and residential growth that is taking place in a seven-square-mile downtown and midtown core, which admittedly represents only a small fraction of Detroit’s nearly 140-square miles.

But within this relatively small island in the city, there are roughly 5,400 businesses, employing more than 135,000 people. And there are also 29,000 students there from Wayne State University.

Dan Gilbert, the founder of mortgage provider Quicken Loans, recognized the opportunities on this downtown/midtown island. In 2007, he moved his company’s headquarters from suburban Farmington Hills to downtown Detroit.

Gilbert and his firm Rock Ventures now own or control more than 30 properties downtown, totaling 7.5 million square feet. That’s a huge bet by anyone’s measure.

Enlarge the Beachhead

So that’s what you build on. That downtown/midtown area is your beachhead to be enlarged. In my capacity as an economic development consultant (I also do corporate site selection consulting), I tell communities to leverage their strengths and work on their weaknesses. That might sound obvious or even trite, but it’s foundational to making positive things happen.

So if you build on success, you follow in the footsteps of success. In that regard, you listen carefully to those who are risking capital on this island. It’s hard for me to think anything that would be better for Detroit than other business people following Daniel Gilbert’s lead by investing entrepreneurial capital into the city. Of course, it’s got to be a good bet. 

Gilbert’s purchases and building plans are all part of his Detroit 2.0 revival vision, “a lively live-work-play district in the heart of the city based around entrepreneurial companies in the digital economy.”

That type of economy will attract a young, upwardly mobile group people, and we are seeing young entrepreneurs and creative people moving in the downtown and midtown as a result. Rundown buildings are now being converted into loft apartments, hotels, restaurants, and offices.

Freshmen to the Rescue

Now you could argue this young creative class is acting rash and foolish by choosing to essentially live on an island surrounded by a sea of economic despair.  But sometimes ignorance is bliss.

Many of these young creative entrepreneurs simply don’t follow the same rules, largely because they don’t know the rules. In a sense, they have not been conditioned to know what doesn’t work, and that can be a good thing. However, they do recognize opportunity, often in the form of cheap real estate, when they see it. Detroit offers that many times over.

I am reminded of the American doughboys of World War I. They didn’t know that they couldn’t storm German trenches, so they actually went ahead and did it, to the disbelieving awe of the war-weary French and British.

These freshmen don’t know what they don’t know, but in a perverse sense, it actually gives them an advantage. Certainly they will experience failure, which I believe is a prerequisite of success, but they will not be put off by talk of what cannot be done.  If any of us listened to such defeatist language, none of us would be in business today. Rather, we would all run for city council.

Roadblocks to be Breached

Speaking of city council, it is clear to me that a dysfunctional city government in Detroit has come into being, because it is largely run by people who have not a clue as to why private investment happens. Their lack of knowledge is not helpful.

Bankruptcy can provide for a platform for growth, but only if and when a dominant political class that has run things is essentially replaced wholesale.

So I am hopeful that executives who have a track record of fixing things will step forward. Almost by definition, these people will come from the private sector, men and women who have developed almost instinctual knowledge as to why and when and how private investment takes place. In short, the future leaders of Detroit will come from the ranks of the risk takers.

But it will not be easy. There are long-term historical roadblocks to be breached with racial divisions and suspicions at their root. Justin Fox, the executive editor of the Harvard Business Review Group, put it aptly when he wrote:

“To an extent unparalleled in any other major American metropolis, private economic activity in metro Detroit came to almost completely bypass the actual city. This was very much a racial divide; whites avoided the city, while blacks gravitated toward the government jobs that were the best things on offer within the city limits. The result was a city governing class clueless about and to a certain extent disdainful of economic reality and a regional economic elite with few ties and little loyalty to the region’s main city.”

This divide, this gulf, has to be repaired, and I am confident that it can be with a younger generation taking the lead.

No Choice But One

While not addressing this aspect specifically, Gilbert said bankruptcy  represents a “first step toward a better and brighter tomorrow” for Detroit.

“Bankruptcy will be painful for many individuals and organizations but together we will get through it and come out stronger on the other side. We simply do not have a choice,” he said in a prepared statement.

Gilbert is right. What other choice is there? Next month, I will be in Detroit for a few days, talking with business leaders who have made their choice. I want to know why they have drawn a line in the sand and have essentially said, we choose to stand and build here.

I want to know what they see and how they think their city can be transformed. I am looking forward to this trip, and I want to thank again the Detroit Regional Chamber for extending the invitation to me.  I have pledged to give the Chamber 20 hours of free consulting time.

Maybe my best advice before arriving will be the same after leaving — leverage your strengths. Enlarge your beachhead, grow your island, build upon the gains that already have been made by reducing capital investment risk whenever possible. I’ll grant you that it’s not especially brainy advice, but in my world of corporate site selection consulting, risk management takes center stage.

I will be piggybacking my visit to Detroit with the Pure Michigan Test Drive, an event that will allow me to visit with companies and communities in Michigan as well as attend the NASCAR Sprint Series’ Pure Michigan 400, which is always fun. I already know that Michigan has done much to improve its business climate and have to believe the Gov. Rick Snyder has been largely responsible. He is a fix-it kind of guy.

On the day that the city filed for bankruptcy, Dan Gilbert published a prepared statement, a portion of which I quoted here. He went on to say that “we are all in.”

That’s key. For Detroit to have a future, private investors have to be all in and vote with their money in the sincere belief that their investments are safe and sound for the long term. From where I sit, I can see that is already happening, despite the horror stories.

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a site selection and economic development consulting firm in Plano, Texas — Telephone: 972-767-9518

If your company needs an optimal location for future operations due to expansion or consolidation, we can help. If your community needs to improve its competitive standing by leveraging strengths and addressing weaknesses, we can help. All requests for information are considered confidential.

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  1. Dean, I enjoy getting your weekly insight on what’s going on around the USA. We are members of the Regional Chamber and regularly travel into the “Island” you discuss. We have seen it grow and change over the last ten years. Located in Windsor, we are very interested in Detroit as an icon for the continent. Dean, May I use excerpts from this post on my Facebook that is focussed on the small business market?

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