The Detroit News holds an annual event to recognize select Michigan citizens for their efforts of enriching the city’s culture, economy, and future developments. Amongst the twelve honorable Michiganians, Dan Gilbert, the founder of Quicken Loans and the majority owner of the Cleveland Cavaliers was one of them. The award ceremony was held in Downtown Detroit last Monday at Seldom Blues, a riverfront restaurant located in the Renaissance Center. Gilbert was uncertain if he would be able to make it to the event due to his son’s baseball game; he had Ross Sanders, the Executive Director of Bizdom U, on standby to accept the award on his behalf. Luckily, Gilbert made it to the restaurant just in time to present the evening crowd his acceptance speech.
As Gilbert described the goals one of his latest ventures, Bizdom U, the audience applauded at the words “in Detroit.” On stage receiving the plaque, Gilbert boldly stated, “These entrepreneurs will be provided with the knowledge and capital funding to start new business here in Detroit.” He also talked about the creation of wealth and Detroit’s need to understand the concept rather than depending on our old “muscle-intensive” economy.
Other award recipients included multiple Grammy winner Anita Baker and one of Detroit’s premier designers, Dominic Pangborn. Pangborn was also a guest speaker of Bizdom U.
USA Today recently reported that U.S. airlines arrived late more often in the first four months of this year (2007) than in any other year since the government has been tracking these numbers thirteen years ago. According to the Department of Transportation, only 72% of domestic flights amongst the top twenty largest airlines arrived on time in these first four months. US Airways performed the worst with a 68% “on-time” rate. The problem lies in the fact that there are too many travelers, approximately 209 million, and not enough space to mobilize these people efficiently-there is a great need for more runways, taxiways, and gates.
So what exactly are possible solutions to this problem? First and foremost, federal regulators say that there needs to be at least four new airports built in the next twenty to thirty years. In fact, in the past forty years, there have only been two new additional major airports: Dallas Fort Worth and Denver International. Secondly, these commercial airlines could benefit from advanced global satellite positioning systems to track aircraft, which would cost approximately $15-20 billion. Better tracking will enable airplanes to maneuver in and out of airports more efficiently. Money could also be invested in increasing the number of runways on existing airports, especially in major hubs. A lot of time is wasted waiting taxiing on runways waiting for other planes to take off. In addition, Congress should offer tax incentives to spur the development and production of small private aircraft carriers, which would decrease the amount of traffic in large airports.
Air travel is a $1.2 trillion dollar industry in the U.S. and in order to support its constant growth, actions need to take place in terms of improving air travel. Airlines also need to refocus their attention on focusing on the customers rather than trying to cram as many people in one cabin as possible.
Many small businesses in Michigan are heavily affected by free trade and globalization due to the increase in competition. Laurie Schmald Moncrieff, owner of Schmald Tool & Die in Burton, Mich. has already invested in the latest machining and quality-control equipment. However, her sales dropped from $4.5 million in 2005 to $3.5 million last year. Moncrieff is hesitant to expand her business abroad because she doesn’t have the budget for a large marketing campaign; she wants help from the federal government. “We need to focus on the effect free-trade agreements have on small business,” Moncrieff says, hoping for trade restrictions and regulations that would give her business a boost. “They say ours is a service economy,” she adds, “but manufacturing is what grew this country, and I don’t think you can base a viable economy on service alone.”
Moncrieff is right. Manufacturing is what developed this proud country, but manufacturing is no longer what it used to be and she needs to accept that. Instead of crying for help to the government, Moncrieff needs to think of new ways to be more innovative. From the consumer point of view, the beauty of free trade is that it drives companies to compete for lower prices and better products. The governments role in regulating businesses is important, but it shouldn’t be a excuse for entrepreneurs to lack in their creative drive.
Recently in Philadelphia, Rosenbaum-Cunningham International, a janitorial firm, was caught employing illegal immigrants that worked in major restaurants such as the Hard Rock Cafe, Planet Hollywood, and Dave & Busters. Rosenbaum-Cunningham and three top executives were indicted this year in Michigan on federal charges for hiring illegal immigrants and failing to pay the federal government more than $18 million in employment taxes. The firm took in $56 million dollars of revenue from 2001-2005 without keeping hold of any timesheets or payroll records. “People should be aware of the kinds of exploitative situations that are happening out there, in particular with immigrant workers,” said Nadia Hewka, a lawyer at Community Legal Services in Philadelphia. “Someone who worked 80 hours a week should get paid fairly for those hours, no matter their immigration status.” Many of the illegal employees claimed to have worked up to 80 hours/weeks working long shifts every day of the week cleaning kitchens and bathrooms. Typically, these workers earned less than the federal minimum wage of $5.15/hour and received no overtime pay.
The biggest question of the case is this: Should illegal immigrants share the same rights as those who are legally employed? In my opinion, yes. There is a huge debate whether or not illegal immigrants should even be protected by the government or if they should have any rights for that matter. But just because someone is illegally employed doesn’t necessarily mean that employers should exploit their desperation to live a decent life. Rather than being a debate of legality, I think the core of the matter boils down morality and the values of humanity. Humans are humans regardless of their citizenship or ethnicity and therefore, they should be treated with the same decency by their employer whether they are working legally or illegally. After all, these employers are saving millions of dollars by not reporting payroll taxes on these employees- the least they could do is pay them a comparable wage.
By no means am I encouraging illegal employment, rather I am advocating that all employers treat their workers with utmost respect by compensating them for their hard work. To me, it doesn’t seem like these people are working long treacherous hours to lavishly spend their money on useless things. Instead, they are only trying accomplish a mere sustainable life that will get them from one day to the next, feeding and supporting their families. Therefore, at least pay them what they deserve.
Magic Johnson was not only a basketball superstar and an HIV survivor, but he is also a business guru when it comes to urban America. He said, “Many people told me that I was crazy when I told them that I want to do business in urban cities.” Magic found in his research that there are 75% less options when it comes to retail in urban America, which is growing seven times faster than the general population. In addition, he discovered that there is approximately $1.5 trillion in spending power in urban areas.
One of Magic’s first business ventures was opening a Cineplex movie theater in Los Angeles. In his early stages, many investors turned down his idea of opening a movie theater in the “hood” due to the possibility of gang violence, vandalism, drug use, etc.. However, Magic has now been operating the theater for fifteen years without a single case of violence and with record breaking revenue reports. In fact, the theater has been overly successful because of Magic’s ability to understand the people his company serves. For example, during the opening week, his consultant told him that they have enough hotdogs in stock to sustain the theater for the first month of operation. Magic disagreed because he knows that people in urban America don’t go to the theater to just watch movies, but they also have dinner there too. Within the first weekend, the theater sold out of their months worth of hotdogs (note: movie theaters make most of their profit on concession rather than ticket sales).
Magic Johnson’s business motto is this: “Always make your business about the customer.” In his 110 Starbucks, he doesn’t sell scones; instead, he sells chocolate cake, sweet potato pie, and pound cake-things that people in urban America love. Not only that, his cafes don’t play fancy jazz music, rather their customers come in and drink coffee to some R&B.
Magic is always thinking of new businesses that have potential in Urban cities. He is also owns TGI Fridays restaurants, 24-Hour Fitness centers, Burger King restaurants, and major real estate developments. Magic is one of the few athletes that have truly leveraged their basketball stardom and money into a business empire.
According to the Detroit Free Press, Meijer, a $13.2 billion dollar privately owned retailer, had an accidental incident last Saturday with their 179 Midwestern stores. Due to a glitch in the computer system from 10pm-11pm, all items were scanned at a 50% reduction when in fact the sale was only intended for a specific line of oriental rugs. This small error turned out to be quite substantial considering that the retail giant produces approximately $1.5 million dollars in sales per hour, which translates to a loss of $750,000. Fortunately, the technical team at the corporate headquarters in Grand Rapids was able to quickly resolve the situation. The company spokeswoman, Stacie Behler, stated, “We became aware of it pretty quickly…We had lots of folks working on the problem, and within the hour it was fixed.” Furthermore, the company refused to take back any that their customers were offering to pay after they had noticed the error in their receipts. “It was our error, and there’s nothing that we would require or expect back from our customers,” Behler said.
The Meijer incident is an interesting story not because a few thousand people got lucky with a 50% discount, but because the issue was quickly taken care of. It would be hard to say that any large publicly owned company could easily have done the same- this is the advantage that privately owned companies have. They have the ability to make quick decisions with out having to worry about their shareholders or what Wall Street will have to say about their decision the next morning. This gives private companies more flexibility in terms of how they want to grow their business.
Another relevant example quick decision making within privately owned companies is Quicken Loans. I mention this company only because I am familiar with it due to Bizdom U’s affiliation with the Quicken family. Similar to Meijer, Quicken Loans has the ability to make big decisions without having to face the scrutiny of the media or bureaucratic investors. Within the company, there are no problems with simply getting things done whether there are technical issues or problems with the vending machines.
Behler’s final comments to the Grand Rapids Press was this: “This error actually gives us an opportunity to look back at the system and improve it.” There is no doubt that the mega retailer will have any problems preventing the situation from happening again.
The ticket distribution business started back in 500 B.C. A few centuries later, Camelot Ventures bought a small company called Flash Seats from a Californian inventor and decided to implement the business to a previous investment–the Cleveland Cavaliers. The business model is simple: make a consumer’s venue outing as convenient and safe as possible by preventing scalping and fraud. Flash Seats also allows its users to easily transfer and sell their tickets on the company website. The company’s long term vision is to capture a majority market share amongst the large competitors by entering new markets.
Sam Gerace, the CEO of Flash Seats, received a B.S. from Harvard University and has a lot of experience in launching startup. He is passionate about “growth businesses.” Rather than putting all the money in his own pockets, Gerace believes in putting the company’s profit back into the business in order for it to grow and sustain itself. He is a firm believer in finding the right people to manage and operate an organization. Gerace quoted Jim Colins’ book, “Good to Great,” by stating, “You need to put the right people on the bus.” Apparently, Flash Seats does not give their employees job titles; instead, each person is required to be flexible within their duties. The motto he lives by is this: “Identify today what you can do to make your company more successful in five years.”
Last Tuesday the private equity firm Cerberus announced its $7.4 billion dollar agreement with DaimlerChrysler AG for an 80.1% ownership of their failing sector, Chrysler. DaimlerChrysler paid an additional $700 million dollars to make the transaction possible. As Cerberus takes over majority ownership, they are also responsible for the $18 billion dollar health and pension liabilities.
For the last six weeks, Tracinda (Kirk Kerkorian’s investment group), Magna International, and Blackstone have all been bidding for the automotive company. In fact, Russian billionaire, Oleg Deripaska, invested $1.54 billion dollars in Magna in hopes to build a partnership with them in order to purchase Chrysler in the near future. This, unfortunately, is no longer an opportunity for the automotive supplier and Russian tycoon.
Tom LaSorda, Chrysler’s CEO, claims that this is a positive change for the revitalization of the fifth largest automotive company. Although the UAW was reluctant to support the buyout, they understand that previous buyouts of automotive-related companies have resulted in very few layoffs. Contrary to the union’s belief, Governor Granholm was pleased by news by positively stating, “Today’s announcement by DaimlerChrysler AG that it will sell the Chrysler Group to Cerberus is a solid announcement for the state of Michigan and Michigan workers.” She believes that the commitment and determination to revamp the automotive company will, in fact, provide more jobs for state of Michigan.
DaimlerChrysler’s German side seemed to be pleased/relieved with transaction, yet still intends to help aid the growth of Chrysler. However, they stated that they will now focus more on their new line of Mercedes vehicles and their under performing Smart mini cars. On the other hand, Cerberus plans to invest in better quality products and a new “green” line of cars. They feel confident that their management team’s combined experience and highly qualified leadership has the ability to turn the company around.
Hopefully, the governors optimism about buyout proves to be correct. There is no certainty that Cerberus will maintain in Michigan because it is a New York Based company- it has no particular ties or loyalties to the state. However, there seems to be substantial hope for Chrysler’s future in Michigan because of the already existing infrastructure throughout the state.
Kwame Kilpatrick and Dan Gilbert’s visit last Friday provided Bizdom U entrepreneurs important insight on the city’s tactics on improving the Detroit economy. The Mayor humbly acknowledged that politics only go so far when it comes to rebuilding a city. He voiced the need for major business people such as Gilbert to help rebuild the city of Detroit.
Among the various questions and concerns from the Bizdom U entrepreneurs, Mayor Kilpatrick effectively explained the reasoning behind the selling the rights to the Detroit-Windsor tunnel. The mayor stated, “Handing over our half of the bridge was a great deal for the city.”Apparently, the tunnel proves to be of great value to the Canadian side because it brings in over $12 million in revenue for them opposed to a lousy $600,000 revenue for Detroit, simply because more Canadians utilize the bridge than Americans. The rights for a 75-year ownership for the tunnel sold for $75 million; the money is intended to help pay for the city’s debt and school systems.
Interestingly, Dan Gilbert proposed a new development idea that he thinks will drastically improve the revitalization of Detroit. This “master plan” consists of the relocation of large corporations and major developments of retail and housing to a small concentrated area in the city. Gilbert believes that this will trigger some kind of domino effect of additional developments within the vicinity of that focused region, resulting in a newly developed city. However, it doesn’t seem like Gilbert is willing to make all this effort on his own.
Last January at the Crains’ Newsmaker of the Year award luncheon, Keith Crain nudged Gilbert about moving his companies to the city as he presented the award. Gilbert animatedly responded by quoting Jerry McGuire’s famous quote, “who’s coming with me?” Although there was a sense of humor behind his response, the underlying statement was straight forward. Who [business owners] really is willing to take a risk and commit to Detroit? And what will it take to make an effective change according to this “master plan?” Surely, it is going to take more than just the move one mid-size firm based in Livonia.
The Bizdom U class recently met with Andy Meisner, the Ferndale State Representative, and discussed his primary goal as a member of the state legislature to make Michigan the number one state for entrepreneurship. His proposal, the “Michigan Spirit of Entrepreneurship Initiative,” includes the following action plans: make training available to those who are interested in taking entrepreneurship classes at local colleges; open up bulk purchasing programs for small business owners; funding universities to hold classes on entrepreneurship; and provide health care tax credits for entrepreneurs. Meisner fully believes that by providing financial assistance, more people will be willing to take risks and open businesses in the state. “We must start by fixing the culture of this city.”
One of the greatest challenges in promoting entrepreneurship in Detroit is maintaining the college students on the verge of graduating. There needs to be a viable system that attracts young adults to stay in the city and launch new businesses. However, this is not a simple task because large corporations are continuously leaving the state, making Detroit a much less attractive city to live and work in.
According to Meisner, Detroiters need to stop relying on the state’s existing corporations and instead, take responsibility in creating new enterprises that will generate more jobs. The old economy is no longer reliable for a good means of living—people have to be more innovative and self-reliant. He confidently sated, “There is no reason why we can’t establish Detroit to be like cool cities such as New York City or Chicago. It already has the infrastructure.”
Meisner is a graduate of the University of Michigan-Ann Arbor. He grew up in Ferndale, Michigan and has a genuine passion to economically grow the city of Detroit.
