From craft distilling to artisan food to retailing to niche publishing firms, West Michigan’s small business executives are genuinely upbeat as they look to 2017.
As the region’s economy continues to perform among the best in the state, business owners are finding consumers are willing to trade up for premium products and higher levels of service. But lurking beneath the surface is not just a sense of economic uncertainty, but also a genuine desire to right some of the wrongs associated with vast racial and economic disparities still found in the community.
Joining MiBiz for a roundtable discussion on the state of West Michigan’s small businesses were:
- Thomas Coke, vice president of North America at U.K.-based fundraising platform Hubbub Ltd.
- Alan Hartline, president at Grand Rapids-based Kingma’s Market
- Scott Hill, partner at Varnum LLP, the Grand Rapids-based law firm that sponsored the roundtable
- Rob McCarty, partner at Grand Rapids-based The Image Shoppe Ltd.
- Mike Morin, CEO at Grand Rapids-based Start Garden LLC
- Jon O’Connor, co-owner at Long Road Distillers LLC and Grand Rapids 1st Ward City Commissioner
- Chris Reinbold, owner at Six/Ten Ventures Inc. and The Funky Buddha Yoga Hothouse Co. who also helped launch the Grand Rapids chapter of Entrepreneurs’ Organization (EO)
- Shelby Reno, owner at Grand Rapids-based CKO Kickboxing and associate at Grand Rapids commercial real estate brokerage X Ventures
- Kasie Smith, president at Serendipity Media LLC, a Grand Rapids-based niche publisher of a range of local and national titles, including West Michigan Woman
Here are some highlights from the conversation.
What’s the outlook for 2017 for West Michigan’s small businesses?
Coke: I have an extremely positive outlook for 2017. I think a lot of great things are going to happen here in West Michigan. We just won $1 million dollars in Venture Clash. I think that helps West Michigan because it shows that a little company from here can be a part of something that people in places like New York are taking a look at. I just see a lot of momentum going on, and a lot of positive things. All my friends that are investors and the people I regularly talk with are ramping up for a big year, expanding their efforts. In Chicago, they’re going to double the amount of investment they made last year, so that’s pretty exciting for the Midwest.
Hartline: The good news is people will still be eating next year. (Laughter.) We’re bullish as well. I think with buying behaviors and the economy being so robust, people are choosing to eat healthier and buy organics, which can be 20 to 100 percent more. But it’s important to them and fortunately with the economy, they’re able to afford that. Even from a beer standpoint, there’s lots of customers in the neighborhood that are buying six-pack craft beers at $12.99. We’re seeing lots of folks trade up into indulgent categories — even in wine. I think the customer is feeling pretty good about things these days.
Morin: With the alignment we’re getting between small business, local business, the city, I feel like we’re in a good place to have some growth. Compared to six or seven years ago, the focus on entrepreneurship and private business ownership — promoting having your own business as an option — has just continued to be elevated. We’re just seeing more focus and emphasis on it. Whether that’s an economic development strategy for the southeast side or for high-tech, high-growth stuff or in the artisanal space, I just feel like there’s more attention.
Reno: On the real estate side, we’ve never seen rates like they are. One of my veteran colleagues … said this is the first time he constantly hears $20 per square foot for office. And it just blows his mind. Part of that which I think we’re a little bit leery of is a slowdown — sort of a bubble — and then the issues with parking. There’s only so much we can pack into certain areas, including Bridge Street, because of the tight parking situation.
With the rising rates for offices and other real estate, what challenges do small businesses face?
Morin: I’d say for sure, we’re pricing startups out of downtown. I think that’s one of the challenges. We’re trying to create density (and) startup ecosystems. Our space at Start Garden downtown, when people move out of there, that next step is tough. I also think if you look at some of Downtown Grand Rapids Inc.’s plans … to create business diversity — (beyond) a bunch of ATM machines and law offices — (it’s tough for) markets or artisanal goods. Those are tough businesses to run at $20 per square foot.
Overall, would you consider West Michigan a good place for small businesses to be? How do we stack up nationally?
Morin: If you’re a white guy, yeah. If you’re an African-American, no. I think that’s a big deal for us and we’ve got to work hard to level that playing field.
McCarty: If there’s one thing that’s not a radar item right now — and it needs to be — diversity in our business needs to be out there. From gender to race to income inequality gaps that exist inside of the city, they are major barriers. And frankly, if you’re on the ground and you listen enough, you hear that people are thinking about it. They’re thinking about where they’re going to be in five, 10 or 15 years, and Grand Rapids is a place where a lot of people don’t feel welcome right now. Get your stuff together. If we’re not taking that seriously as business owners and (determining) how to cross that divide, we may not see the hurt for two or three or five years, but there’s a point in time where we’ll have a reputation tied to us. I don’t think it goes down good for us if we ignore it.
Reinbold: I think that reputation is there already. Forbes named us the worst city in America for African-American professionals.
McCarty: I would agree that it’s there, but I don’t know that it’s set in to the point that we can’t change the trend or change the stories that come out. You could also go on the other side and say there’s 100 stories that Grand Rapids is like Disneyland. But I think that’s a very serious issue that gets swept to the side a lot more than it should.
What can West Michigan business owners do to address these racial and economic disparities?
Hill: One thing we’re doing with our diversity and inclusion council is thinking about it from a lateral hiring standpoint. Where we’ve fallen down in the past from a diversity recruiting standpoint is doing well at law schools and with entry-level hiring. Then they come to the firm and say there’s nobody that looks like me here. Where are my mentors in the community? There may be some, but not enough. So thinking laterally at a high level and not just entry level. When we think about the entrepreneurial opportunities here and a young person wants to come here and start their business, well, where are the mentors?
Reinbold: To me, a lot of this is that the entrepreneurial community and the ones making things happen in the city are the ones that will lead the charge. And so if there are dynamic, interesting things happening, it will bring in dynamic, interesting people. Those will be people of all walks of life. And as that entrepreneurial community gets younger, those people are interested in having diverse people around them and having things that don’t look like they have in the past. In a lot of ways, the people sitting here are the ones responsible for this.
McCarty: This isn’t just a Grand Rapids issue, it’s a national issue. … The reality is that if all people looked at it, of course they’d (be more inclusive). But the connection between ‘I should do this’ and doing it, you don’t have anybody giving you any metric to tell if you’re really making a difference.
From conversations with executives, 2016 seems like it was a year of planning for growth. Is next year the time to make new investments or to double down on what you’re already doing?
Hartline: We’re building store two (in downtown Ada). We found the access to capital readily available and folks courting us. As we look at store three and lay the plans for 2018 — whether it’s downtown, lakeshore, etc. — there’s lots of interest and lots of capital available at pretty great rates.
Reinbold: My MBA friends tell me we’re not nearly leveraged enough. We carry zero debt, so it will be doubling down and organic growth.
Smith: We’re trying to do a bit of both. We don’t carry debt and we’re trying to make investments in new products. It’s doing both at the same time.
O’Connor: We recently acquired a new warehouse and storage facility. We’ve outgrown what we had here already. We started with a little less production space than we probably needed and now we’re looking at the long-term prospects for this type of business. You have to put (spirits) away for awhile. We needed a much larger footprint. Unfortunately, it’s in Wyoming because access to warehouse space is pretty much dried up at this point.
Morin: I would say most of the venture capital in the region is going to be following on things it invested in three or four years ago. We had over $20 million in venture capital raised in the first quarter of 2016 by startups, but the majority was by five companies. They’re getting bigger and eating more capital, so I think that’s going to be the trend for the year as far as capital.
Hill: We’re moving into more consistent second-stage growth. We started our (MiSpringboard) program in the entrepreneurial space but we’re finding repeat customers. Those clients are very bullish on 2017.
This perception that West Michigan is known for carrying little to no debt, is that a cultural thing that will change over time?
Coke: I think new startups are getting smarter about not thinking that instantaneously their job needs to be building a pitch deck and go raise a million dollars, but let’s go build a business. That’s the good side of that, instead of focusing on whether we’re conservative Dutchmen that don’t take loans. There’s a lot of companies … that are understanding that it’s not about how much money you got to start your company. It’s about what you’re actually doing and that the investment should be down the road, not at the onset. I think that’s a great positive.
Hill: Where we see interest rates going in 2017 — northward — that’s not going to help in terms of adding more debt load to our business.
While Grand Rapids is getting a reputation as a bad place for African Americans, Detroit is getting its own reputation as a hub for startups and entrepreneurs. What does that cross-state dynamic look like going forward? Is there bridge-building happening or is the divide widening?
Reinbold: To me, I’d say it’s a threat to Grand Rapids. What does a resurgent Detroit mean? People are making buying decisions out of college on what city they want to live in. Is a resurgent Detroit good for Grand Rapids? Obviously, for the state as a whole, it is but we’re in a battle to attract talent and a resurgent Detroit in some ways makes it so we need to make sure we’re stepping up our game in that battle for talent and bringing people to the market and getting people to stay here rather than going to Detroit or Chicago.
Reno: If we had to pick a market that comes here, it’s primarily Detroit — just the cold calls or agents calling from Detroit and looking to expand in West Michigan. … And we see those calls for all those markets from Detroit firms expanding. They’re looking to West Michigan as a solid expansion opportunity.
Reinbold: We’ll know we’re doing it right when we hear that firms from Grand Rapids and West Michigan are starting to kick ass in Detroit. My friends at Gazelle Sports, they just opened a couple stores in the Detroit area. I’d love to hear the talk that Detroit is sending their things here and Grand Rapids is exporting to Detroit.
O’Connor: We spend a lot of time in Detroit doing sales. Beer has been so big in West Michigan, the distillery business has taken a while to connect here. We go to Detroit multiple times per month to sell and their willingness to accept change in Detroit, it’s a whole other world over there. They want people who are authentic in what they do and they don’t want you to bullshit them. They know good from bad.
Our business isn’t like beer. With beer, there’s the perception that big is bad and you have to be small to make something good. In distilling, it’s the opposite. Traditionally, the big companies make the best stuff. We’ve only been open 18 months so I don’t have eight-year-old products, so I have to make something that’s unique, different or authentic. Or I have to sell a story and not actually make anything. I would say a majority of the distilling market are people who don’t make anything. They’ve caught on to that in Detroit. So we spend an inordinate amount of time there and they appreciate it.
Given the talk about talent, it seems that wages have to be part of that discussion. Grand Rapids businesses have historically paid low wages compared to many competitive places. What’s being done to address the wage problem?
Smith: I do think we have a wage problem. But as a small business who started here, we’re kind of grandfathered into that wage problem in creating our business. We’ve tried to do anything we can. Yes, we’re going to accelerate wages, but what can we do from a culture perspective? We’ve migrated to an unlimited PTO policy for all employees other than part time and completely flexible workspace. Overall, it makes a difference but I still think we have a ways to go.
Morin: People who are tired of paying $3,000 for 600 square feet outside of San Francisco, all of a sudden Grand Rapids starts to look attractive again. As we start to compete for that talent, I think that will take care of the wage thing. Because even with the startups, I’m not hearing that wages are the biggest issue in terms of them attracting talent. It’s being able to find the talent that’s interested and knows enough about the Midwest to be interested. The opportunity cost is killing them. They can’t grow without them. It will take care of itself if we do the work we need to recruit the talent.
Hartline: Having lived in Chicago and Connecticut, cost of living plays a huge factor in that dynamic. We’re fortunate — food is fun. We’re able to attract some folks that love food and engaging in the environment. So retention is very, very high. When we announced the Ada location, the phone has been ringing off the hook with folks disenchanted by other chain stores.
What’s keeping you up at night?
McCarty: There’s a lot to be seen over the next 12 to 24 months and how things are going to shake out. Obviously, there’s a lot of pent-up dollars trying to hit the street right now and it’ll be interesting to see how that all rolls out between potentially changes in regulations, standards, tax code, whatever it may be. How does that play out over the 12, 24, 36 months? … Another recession, slowdown, or pinch — those are the things I think about.
O’Connor: From someone that creates something that’s a premium priced product, it’s economic uncertainty. Is discretionary income going to be available to buy a $30 bottle of vodka or a $50 bottle of whiskey? They always say liquor is supposed to be recession proof. (Laughter.)
Any predictions of what we may be talking about at this time next year?
Coke: Some of the investment we’ve done is in the cannabis space, and there’s been some significant changes in what’s been voted in and what could happen here in Michigan and in other places. I’m kind of excited about that. I’m not really in that day-to-day anymore, but it’s exciting to see where it goes. And it’s not just a service industry. There are people growing stuff.
Joe Boomgaard also contributed to this story.