From Michigan's Transition to TRANSFORMATION! (AND YOUR ROLE IN IT)

Michigan’s Transition; Entrepreneurs lead the way as the state reinvents its economy
Sunday, September 27, 2009

By KATHY BARKS HOFFMAN
Of The Associated Press

FLINT — Sometime next year, Michigan will lose its 1 millionth job since the state’s economy began its downward slide in mid-2000.

With a frenzy born of desperation, the state is trying to rekindle the entrepreneurial spirit that made Dow, Kellogg and Ford household names.

That trio founded the state’s famous chemical, cereal and auto companies a century ago. These days, the state is doing what it can to foster a new generation of innovation.

At universities and community colleges, in downtown office spaces and 15 “SmartZone” technology centers designed to spark collaborations between universities and industry, Michigan is working to encourage the creation of new industries to provide the middle-class jobs that made the state a mecca for generations of workers.

There’s lots of room for improvement. The state ranked just 27th nationally in the 2008 Kauffman Index of Entrepreneurial Activity, lagging behind most western states and national leader Georgia in the survey’s measure of adults creating businesses each month.

To boost its standing, the state has awarded millions of dollars to high-tech firms through its 21st Century Jobs Fund, and companies are sponsoring contests that reward new “green” technology ideas. Business incubators are sprouting up from the urban streets of Detroit to the snowy streets of Michigan’s Upper Peninsula.

“You had Henry Ford, you had (Charles Stewart) Mott, you had Herbert Dow, you had W.K. Kellogg — all entrepreneurs with new ideas that created a new economy for Michigan that lasted us pretty much the last century,” said William Rustem of Public Sector Consultants, a Lansing think tank. “Now, we’ve got the same situation. We need that entrepreneurial spirit.”

Here are some young entrepreneurs who may help make this happen:

Making lemonade

Paul Knific started an arcade business when he was 18, but shut it down to focus on an Internet service provider and software development company he and his then-18-year-old brother, Eric, launched last year in their parents’ basement in Flushing.

Now 23, Knific and his brother, who’s still a student, run Epic Technology Solutions out of a converted bank building in downtown Flint that’s the site of LAUNCH, a program for student and community entrepreneurs run by the University of Michigan-Flint. Epic serves 50 customers in the United States and abroad with 150 servers in Flint, Southfield and Atlanta, Ga.

“The cost of labor is so cheap. The cost of living is less, too,” Paul Knific said of his decision to base the company in Flint. “We’re growing faster than expected.”

That doesn’t mean there haven’t been hurdles. Outstate Michigan doesn’t have the fiber optics infrastructure found in Chicago, Los Angeles or even Detroit, and Eric Knific said the two are having to upgrade in a city that “has the infrastructure of the 1950s.”

But that hasn’t stopped Epic from attracting customers throughout the United States, Europe and Australia, in part because the cost of Epic’s services are “half the price of the U.K. (United Kingdom) and Chicago,” Paul Knific said.

Local spirits

The Grand Traverse Distillery in Traverse City uses rye grown in northern Michigan to produce True North Vodka in handcrafted batches, and taps the area’s cherry crop to make flavored vodka. It also just began selling a wheat-based vodka and has 45 barrels of whiskey aging.

Owner Kent Rabish buys hundreds of pounds of Michigan-grown grain for the micro distillery he opened in 2007, and his vodka won two gold medals last year in blind taste test competitions against hundreds of domestic and foreign brands.

His latest advertising campaign is aimed at getting buyers to pick up his $29.99-a-bottle premium vodka rather than pricey imports: “End your dependence on foreign alcohol.”

“You don’t necessarily have to buy something from France, Poland or Russia,” he said. “We can do world-class distillation right here in Michigan … and support Michigan agriculture.”

Rabish, 52, hasn’t quit his day job as a representative for French pharmaceutical company Sanofi-Aventis SA. But he hopes to eventually make the distillery his full-time job as he gradually ramps up his annual production from 2,000 cases of vodka to 10,000.

He’s the only commercial distiller in Michigan distilling grain-based spirits — others are making fruit-based brandies in small batches — but he thinks the state could support many more micro distilleries. He’s already is looking for a bigger building where he can expand and add a space for customers to sample his vodka and whiskey.

“This is what’s going to put the Michigan economy over ... manufacturing something rather than passing things through,” Rabish said.

Creative thinking

Goeff Horst was out on Lake Erie collecting algae with his father for some biofuels research when they began kicking around the idea of using the fast-spreading aquatic plants to suck up nutrients at wastewater treatment plants.

Now Horst, a 30-year-old doctoral student at Michigan State University, has joined with three current and former University of Michigan graduate students to try and commercialize the process at the company they founded, Algal Scientific Corp.

The company is growing algae and doing research at a lab in a former Pfizer Inc. pharmaceutical plant in Plymouth. Horst hopes to use the plant to soak up nitrogen, phosphorus and other nutrients from wastewater instead of sending the water into lakes and rivers, where the nutrients lead to environmentally damaging algae blooms.

“Our objective is to reduce the amount of pollution that’s going into the waterways,” said Horst, who envisions using the algae twice — once to soak up the nutrients, and then to produce fertilizer or biofuels.

This spring, the fledgling company won the $65,000 Clean Energy Prize awarded by Detroit-based DTE Energy Co. to encourage the commercialization of clean energy technologies.

“Wastewater treatment is a huge market in the U.S., several billion dollars a year, and it’s probably going to become a bigger market in the future,” said Horst. Being an entrepreneur “is a little scary, really. But it’s … so much more exciting than the typical job.”

Diamond in the rough

When Donyale Walton launched her first edition of Liv Lux Mag on Flint’s entertainment and fashion scene in 2007, the teenager found herself writing copy, laying out pages, even selling ads. It was an intense experience for the Mott Community College business management student, and she soon switched publication to the Web.

These days Walton and University of Michigan-Flint student Corey Stokes are publishing from an office provided by the LAUNCH program. The magazine’s Web site is hosted by another company at LAUNCH, the Knific brothers’ Epic Technology Solutions, while another LAUNCH entrepreneur helps with photos and graphics, building his business while aiding theirs. Walton, now 21, likes the collegiality she finds at the student business hatchery.

“It’s much better to walk down the hall and talk to someone than to call customer service,” said Walton, who hopes to soon turn her online magazine into a printed one that comes out every other month before expanding to other cities, such as Pontiac and Detroit.

The magazine, which is aimed at 18- to 25-year-old college students and gets about 300 new hits a day and 400 return visitors, is updated daily with help from a beauty writer in Los Angeles and a music writer in North Carolina.

But Stokes and Walton plan to concentrate most their efforts in Flint, a city struggling with shuttered auto plants, foreclosed homes and a seasonally unadjusted unemployment rate of 28.9 percent.

“I think it will give Flint a boost of confidence to know we can develop something of quality here that can be sold nationally. ... We want people to think differently about our hometown,” Walton said. “One of our main goals is to stay in Michigan.”

Tapping technology


MasTech Manufacturing in Manistee primarily made materials handling equipment for auto factories until it hooked up with Nevada-based Mariah Power to build the Windspire, a vertical wind turbine that can generate an average of 2,000 kilowatt hours of electricity a year.


The two companies recently installed a 30-foot Windspire on the grounds of the governor’s residence in Lansing. Over the next two years, MasTech plans to add about 120 jobs — for a total of 500 — as it ramps up production from 1,800 turbines annually to 12,000.


Although the company went to China to compare prices, John Holcomb of MasTech Wind said it ended up tapping around 40 other Michigan companies for 90 percent of the turbine’s components.


“We can do it just as cheap or cheaper right here in Michigan, and we have a better product,” Holcomb said.


The 56-year-old has spent nearly his entire career catering to the huge auto industry that in 2000 accounted for more than 350,000 manufacturing jobs in the state. But as 250,000 of those jobs have disappeared, Holcomb sees other possibilities for manufacturers.


“This is where the technology base is, and we really just have to learn to leverage that technology base into new products other than automotive,” he said.


The company just unveiled a new hydraulic fruit cart that helps Michigan growers get their fruit to the ground without damage after it has been picked.


Much of Michigan’s fruit used to be grown primarily for juice, so appearance didn’t matter. But foreign competitors have undercut U.S. growers with juice concentrates, so Michigan growers are switching to selling their fruit whole in grocery stores and farmers markets.


“This fruit cart works for apples and pears and peaches and plums and apricots and grapes,” Holcomb said. He added the potential for Michigan manufacturers to get back on their feet with new products is good since “there is no greater technology storehouse in the United States than there is in Michigan.”

Moving on

When Rolf Kletzien and Jerry Colca walked out of Pfizer’s St. Louis operations for good in 2005, the two scientists decided it was time to head back to Kalamazoo to start their own company.

Pharmaceuticals and Kalamazoo have been synonymous since 1886, when physician W. E. Upjohn and his brothers began making easily digestible pills after founding The Upjohn Co. Both Kletzien and Colca worked for Upjohn and the companies it later became, including Pfizer, eventually moving from the southwestern Michigan city to Pfizer’s St. Louis labs.

When Colca lost his job as a senior research scientist and Kletzien stepped down as vice president of genomics and biotechnology, heading back to Kalamazoo to pursue their own diabetes research seemed like a no-brainer. Pooling about $250,000 in severance payments, they started Metabolic Solutions Development Co. in 2006 in the spare bedroom in Colca’s downtown Kalamazoo condominium.

“We did have two conference rooms — they both were in Irving’s Deli,” joked Kletzien, 63, who still had a home in nearby Richland.

In 2007, the pair opened a business office and later a lab in downtown Kalamazoo. They’re also among the former Pfizer and Pharmacia employees involved in the more than two dozen life-sciences businesses at the Southwest Michigan Innovation Center, a business incubator at Western Michigan University’s Bioscience Research and Technology Park.

Colca and Kletzien are working on a drug they think will treat Type 2 diabetes without the side effects of some existing diabetes drugs. They hope the compound eventually could be used to also treat metabolic syndrome, so that people with the syndrome don’t develop diabetes in the first place.

The pair have fueled their research with the help of $22 million from investors such as Hopen Therapeutics, a private investment and management firm in Grand Rapids, and the state of Michigan, which gave the company $2.4 million through its 21st Century Jobs Fund.

They’re now rounding up $20 million to begin a new phase of patient testing with the goal of selling their product in four to five years.

The two men say they’re thriving in the life sciences research corridor that runs through Michigan from Grand Rapids to Kalamazoo, East Lansing and Ann Arbor. Colca, 59, wouldn’t be anywhere else.

“Within this area of the world there is more concentration of the expertise you need to take a small molecule from the bench to being a drug than anywhere else in the world,” he said. “Whether you came from a pharma company or whether you’re sitting in a university some place, if you have an idea and you believe you can turn it into a drug, our message is, ‘This is the place to be.”’