U-M Prof Trash Talks Silicon Valley Model, But Likes Detroit

Detroit Free Press

For decades now the Silicon Valley district in northern California has loomed in the imagination as a sort of Garden of Eden for entrepreneurs, a maker of fortunes and a font of innovation.

But Jerry Davis, a professor at the Ross School of Business at the University of Michigan, believes that today Detroit — yes, poor Rust-Belt-just-out-of-bankruptcy Detroit — offers a more interesting model of entrepreneurship.

“I shall be trash-talking Silicon Valley a bit,” Davis told me last week as he previewed a keynote address planned for Oct. 10 at a commercial real estate forum in Detroit.

Based on his own life experiences — he went to graduate school at Stanford in Palo Alto, Calif., in the heart of the Valley — Davis noted that the cost of living in Silicon Valley has priced out almost everyone but near-millionaires and those betting to cash in on stock market initial public offerings, or IPOs.

There was a time when Silicon Valley produced both landmark computer firms and chip makers, but more and more it seems focused on youngish entrepreneurs barely old enough to drink crafting digital apps, somewhat like the denizens of the HBO comedy show “Silicon Valley.”

“It’s ludicrously unaffordable, and I think it enforces a mind-set of IPO or sell or die,” Davis told me. “There’s some dark clouds on the horizon for that model. The whole thing depends on the ability to go public or threaten to go public. The only way you make that 10x or 100x that venture capitalists are demanding is you either sell to Facebook or Google or you go public. But if you look at the IPO market, it’s in a death spiral. It’s been bad for several years.”

Davis, whose latest book is “The Vanishing American Corporation: Navigating the Hazards of a New Economy,” makes the case that betting everything on an IPO for young digital entrepreneurs isn’t what the stock market was designed for, anyway. “The reason why you go public is you need to build factories or stores or railroads or rolling stock or server farms,” he said.

“But the contemporary version of entrepreneurship at least in Silicon Valley doesn’t require that. You can rent server space, you can hire contractors.

“So the idea of going public and making a trillion dollars seems like a misfit with what the public markets are meant to do. If the public markets become so inhospitable or uninviting that you can’t really go public anymore, it’s hard to see how the Silicon Valley models continues.”

By contrast, Davis likes what he sees in Detroit lately, a place where several bicycle makers have opened shop and Shinola is assembling high-end watches and the city’s cheap real estate allows all sorts of small-batch manufacturers to set up in business. And those entrepreneurs often go into business with a commitment to spread their profits in their community in many different ways, from sponsoring urban farms and art projects to creating real jobs for Detroiters.

“I think that the Detroit model is a lot more interesting, which is to create an enterprise that’s going to contribute to your community, maybe create some jobs, and maybe last awhile,” he said.

Steve Morris, managing principal of Axis Advisors and organizer of the upcoming event, said Davis makes an ideal keynote speaker because of his focus on the new manufacturing entrepreneurs in Detroit.

“With the prolific resurgence in Detroit with thousands of new tech-related jobs in just 5 years, we need a professor like Gerald Davis to provide as perspective as to where we are today and where will be in the next five years,” he said.

“These new tech firms are taking advantage of a well-educated workforce and much lower business operating and living costs,” he said.
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So far, the wider world has hardly noticed Detroit’s manufacturing re-emergence, Davis said, obsessed as the world is with Detroit’s ruin porn and its brush with municipal bankruptcy. But that narrow view misses the really interesting models that are bubbling up here.

“Everywhere you go there are interesting new worker-owned co-ops or maker spaces and hacker spaces,” he said. “And it’s a lot cheaper to live in Detroit, so there’s a much longer runway to do arguably more interesting business models that don’t require large capital investment.

“So I’m enthusiastic about that,” he said. “Who know where it will go, but at the moment it seems like a lot of exciting things are happening in Detroit.”