Growing the tech industry in West Michigan

July 6, 2009
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Growing a new industry requires all the right components: entrepreneurialism, support from business and the community, funding for start-ups, the right talent and out-of-the-box thinking.

The technology industry has been planted in West Michigan and already is home to growing companies. As a whole, however, the industry has struggled to take root.

“I feel like we have a lot of strong tech companies right now in West Michigan, and that would be tech companies of all types,” said Carol Lopucki, state director at the Michigan Small Business and Technology Center.

Lopucki said it’s important to have a variety of tech companies as the industry builds up its “ecosystem.” She said the region has solid tech companies in the dot-com sector and in sectors such as product, software services, commerce, infrastructure services and user-groups.

“I have offices all over Michigan and counterparts in every state, so I have an opportunity to interface with the likes of other state directors,” she said. “I’m always looking for whether we’re building that kind of an ecosystem here, and I feel like we are.”

Still, Lopucki said the West Michigan technology industry faces some tall hurdles.

“Raising capital in Michigan is tough for these kinds of companies. It’s a hard thing to keep a tech company in West Michigan, because the lure is to go to the East or West Coast,” she said, listing both angel and venture capital as the bait.

Talent also is an issue for budding tech companies, she said.

“Finding the talent — we hear that all across Michigan right now. We’ve got talent sitting out there on the shelf that can’t find jobs, but it doesn’t match with the talents that are sometimes needed,” said Lopucki.

“Part of it is the matchmaking. I think we’re kind of at a deficit even when we turn out the brilliant young people that we do — finding the right matches in some of these companies that are doing some of these things.”

Keith Brophy, vice president of RCM Technologies, a business and technology solutions company, agreed with Lopucki about the lack of capital for technology start-ups in West Michigan. He listed some of the region’s drawbacks and strengths in terms of the tech industry.

“There is a shortage of seasoned high-end experts in West Michigan. A lot of them do tend to go out of the area, and the ones that are here are often … pinned down — (they) have a good role at their company and aren’t going to move too much. That does lead to a scarcity of resources here,” said Brophy.

“The other thing that is somewhat a West Michigan drawback is raising visibility on industry best practices,” he said. “On the East Coast and the West Coast, there are just more frequent highlights and examples. There’s more of a best practices exchange on the coasts, I would say.”

He referred to the conservative nature of the area as a detriment to the success of tech industries here.

“It takes a lot of patience to sell on the West Michigan market,” he said. “There’s typically many, many meetings — a lot of dialogue on a pursuit that, in another market, might be a meeting, a proposal and a decision.”

The bogged-down process, Brophy suggests, could be due to “a lack of understanding the return on investment equation,” he said.

“Typically, if a business does decide to do a software initiative, it’s because it’s going to give the business value. It would be in their benefit to ‘rock and roll’ on it and get it done. I think there’s a lot of extended analysis on return on investment with software technology as kind of a conservative market here.”

Part of that conservatism may come from the region’s manufacturing heritage, which Brophy said also exerts a positive influence.

“There are many advantages to our manufacturing culture in terms of understanding investor needs. We understand entrepreneurialism from so many great West Michigan examples. We understand the value of brand. We understand the value of relationships … a committed work force and hard work,” said Brophy.

In his role at RCM Technologies and also in previous positions with other companies, Brophy has noted that these traits set West Michigan apart from other parts of the country.

But the manufacturing culture here also may contribute to investors failing to understand how a tech company’s products are valued.

“The manufacturing perspective tends to value a company based on hard assets like machinery, buildings and inventory. These are relatively meaningless in looking at a software tech company,” he said. “The value of software tech companies shifts dramatically in a compressed period of time. Manufacturing business typically evolves more slowly. Therefore, the financials of a manufacturing company have more relevance, in some respects, than the financials of an emerging software company.”

Brophy pointed to talent as an issue, as well.

“The cost of access to — and sustaining — high expertise and creative talent is very hard to subjectively justify, but it is the strength of a software technology company,” said Brophy. “Factoring the value of the right, sustained ‘people power’ uses different intuition and formulae than manufacturing.”

He went on to say that the industry moves so quickly that “the product today may be obsolete tomorrow. Even when protected by patents, software value propositions can change rapidly.”

Brophy said that pilot and first-step clients are make-or-break propositions in software technology. The industry requires quick feedback and adjustments.

“There is often not enough recognition placed on the value of the pilot software clients and positioning. In manufacturing, once a product is built, it can hit a mass market. Software technology sales build much more incrementally.”

Brophy commented on the need to unify and build up the technology ecosystem in West Michigan in order to create a culture that will promote and sustain economic growth. He believes that will result from out-of-the-box thinking and investors who are willing to take risks.

“As we look ahead 15 years and say, ‘Who are those top 25 (West Michigan) businesses going to be?’ there’s going to be many new players in those top 25. Potentially, some of them could be a miniature Google or a miniature Yahoo — technology success stories that we couldn’t even envision today,” he said.

“That’s really the promise of West Michigan — we have that creative thinking. We have that potential investment, whether it be from West Michigan or Ann Arbor or beyond. We have the strength here to be a leader — the work ethic, the integrity, a very embracing community and a very collaborative business environment. We know the world is going to be different, so if we can just find a way to foster that out-of-the-box thinking, I think we’re going to get there.”

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