The Death of a Modest Man of Greatness

My friend Frank Samuel died yesterday in a one-car accident not far from his home in Geauga County. He was driving alone, wearing his seatbelt, in the middle of the day on a familiar road. His car slipped on a turn, spun clockwise, rammed into a guardrail, and his life was extinguished. The police have said that alcohol was not a factor, but anybody who knew Frank would have known that anyway. I occasionally saw him sip a single glass of white wine, but never more.

Frank was my first friend when I moved from Silicon Valley to Cleveland. I was introduced to him by Bill New, inventor of the pulse oximeter and founder of the great medical technology companies Nellcor and Natus. Bill had known Frank from his days leading the Health Industry Manufacturer’s Association, HIMA, in Washington. When I met Frank in 1997 he had returned to his home state of Ohio to lead the Edison Biotechnology Center, a statewide organization tasked with creating life sciences entrepreneurship in Ohio. It was also mentioned by somebody that Frank had returned to Ohio to dutifully take care of an aging mother, though it wasn’t something he talked about. He wouldn’t have.

It was during his tenure at the Edison Biotechnology Center that Frank hired me as a consultant. I was between jobs and needed work and Frank found a project for me. That was the kind of man he was. Frank hired me to conduct a study of how to make Cleveland an entrepreneurial metropolis—again, he repeatedly pointed out. In the early part of the 20th Century, Frank would say, Cleveland was the hub of entrepreneurship in the U.S. Of the 50 millionaires in the country in the 1920’s, 30 hailed from Cleveland, he would point out. Cleveland produced such luminaries as John D. Rockefeller, Jephtha Wade, and John Severance. Their legacy included Millionaire’s Row along Euclid and Prospect Avenues (remnants of which still remain), cultural institutions like the magnificent Cleveland Symphony Orchestra, leading foundations such as the Cleveland Foundation, and Lakeview Cemetery, where Rockefeller is buried beneath a tall obelisk and the Wade Chapel memorializes the leader of Western Union with scenes from the Old and New Testaments composed by Tiffany of thousands of pieces of glass.

Frank’s spirit of joy and wonder permeated his tenure at EBTC, as it was known, and he did a lot to advance the cause of regional entrepreneurship. The study he paid me to conduct had its run, along with other studies, but it did lead to an introduction to Jamie Ireland, who through his leadership at the Generation Foundation had financed the study. Jamie was instrumental in coaxing Cleveland’s many foundations to remember the source of their endowments and to reinvest some of their capital back into the regional economy. Jamie and Jim Petras and I decided that a study was fine, but taking action was better. We formed Early Stage Partners, an early stage venture capital fund, to invest in Cleveland’s start-up companies. Frank was instrumental in getting us going, administering a grant application to the Governor’s Technology Action Fund that was the formation capital for Early Stage Partners.

Frank’s influence expanded further when, during the Governorship of Robert Taft, he was appointed as Science and Technology Advisor to the governor, a position which he held from 2000 to 2007. Among his accomplishments were marshalling the Third Frontier through the legislature. This was a voter-approved bond measure that raised billions to invest in technology development in Ohio. Whenever I traveled to other states, I was always asked about this program—what it was, how Ohio had done it, how it was managed, how they could do it in their state. I always told people to call Frank. Frank was also instrumental in creating an environment of support for the Ohio Capital Fund, a fund-of-funds that was instrumental in bolstering Ohio’s Venture Capital community.

When the Taft Administration was termed out, Frank returned to Geauga County, where he again formed an organization focused on community revitalization through entrepreneurship—the Geauga Growth Partnership. I didn’t see him much during this time, but starting about two years ago, I sought him out to gather his ideas about how to further bolster Ohio’s entrepreneurial and venture capital industries. Support for these initiatives had fluctuated in Columbus, and some of the signature accomplishments of the preceding decade seemed to be in danger. As usual, he was fully informed, thoughtful, incisive in his opinions, and action-oriented. I asked him if he thought that Ohio would support a statewide venture organization and he was qualified in his response. The state needed such an organization, of this he had no doubt, but he wasn’t sure that the disparate parts of the state could be brought together behind one organization, or that there would be sufficient financial support.

A group of trustees on the board of the Ohio Venture Association persevered with the idea, however. We determined to conduct a venture fair and use the profits to finance Frank as Executive Director of a newly formed statewide venture organization. We thought he would be perfectly suited to the role, and he was, it turned out. The Great Lakes Venture Fair was held in October of 2012, just two years ago, and the profits were sufficient to engage Frank as a consultant on the project.

Frank was at first skeptical of support for a statewide venture organization. He traveled the state talking to people and asking for indications of financial interest. He conducted surveys. He concluded that the organization could expect a modest budget sufficient to support a part-time executive director and a consultant on policy affairs. And then Frank traveled around Ohio asking for funding commitments, formed a board of directors, delegated an exercise to develop a mission statement, and engaged with constituents around the state to increase support for Ohio venture capital and entrepreneurship.

Within six months, Venture Ohio, as the new organization was named, had more members and far more financial contributions than anybody had thought possible. I attribute this to Frank’s skill at both creating a vision and operating at the tactical level to bring people of many interests and perspectives together behind shared goals. The culmination of Frank’s success in creating VentureOhio was on evidence just over a month ago, at the organization’s first annual dinner at the Blackwell Inn and Conference Center on the campus of Ohio State University. The room was packed—far more attendees than had been anticipated. Networking occurred; awards were given; food was consumed, and the state’s venture and entrepreneurial communities had a chance to look at themselves and say “Wow, we’re bigger and more significant than we thought we were.”

In my last exchange with Frank, I sent him an e-mail congratulating him on the success of the VentureOhio dinner. He responded, as he always did, by trying to give me some of the credit. That’s who he was.

Nobody thought at the time that this event would be the capstone to Frank’s career, but if it had to be, it was a fitting one. Frank was a modest man, self-effacing and eager to give credit to others. But the hundreds of people in the room at the Blackwell Inn were a testament to his skill. He was a singular force in Ohio’s transformation from a Rust Belt economy to an entrepreneurial one, and he will be missed. I will miss him, my friend, Frank Samuel. I do not know how you replace a person like Frank.

At Quicken, Culture is Everything

I had the opportunity last week to tour a dozen or so of the more than 40 buildings in downtown Detroit that Dan Gilbert and his various associates and companies have bought and refurbished. It was an amazing experience. Building after building, interconnected by walkways and underground passages, has been repurposed into really cool workspace for young tech workers (with a few of us seasoned types sprinkled in for good measure). Nobody in Silicon Valley has it better.

I was attending Detroit Venture Partners’ annual Demo Day with more than a hundred other people, including many out-of-town VCs, most of whom were originally from Michigan but had to leave after school to find suitable jobs. There is a subtle—perhaps not-so-subtle—attempt to recruit these talented people back to Michigan to help rebuild the economy.

Such a tour is one of the standard components of any visit to this special kingdom. It’s usually led by Bruce Schwartz, the fedora-wearing tour guide who describes himself as a devoted advocate of Detroit; a childhood friend of Dan Gilbert; and the former CEO of a company in the mortgage business. Recent visitors, he reports, have included Madonna; Michael Bolton, who is directing a documentary on Detroit’s rebirth; and Warren Buffett.

The tour has a few interesting touch points: on the eighth floor of the former headquarters of Chase Bank—their logo is still on the outside—is the main cafeteria for employees of Quicken Loans and the many associated Dan Gilbert companies. It is as good as any Silicon Valley food court, and I have toured those at Google, Apple, and Pixar. Chase still has some operations in the building; you can tell which floors they occupy by their corporate dullness and lack of entrepreneurial energy.

Similarly, the building in which Dan Gilbert keeps his office, and the model of downtown that shows all the buildings that are being repurposed, is the headquarters for the venerable last-generation software company Compuware. Riding up the open glass elevators you can see where Compuware ends and Quicken begins. Bruce points it out. One is dull, grey, colorless and lifeless; the other is vibrant, colorful, energetic, and buzzing with activity.

“Culture is everything,” Bruce says, quoting a few of his favorite corporate sayings. They call them “isms.” Various of these are painted on walls throughout the tour, and passing employees, when asked, can cite a favorite one. This is one way that people are selected in, and out, of the interrelated companies.
Three of the locations stand out most in my mind. One is the security center of the 20 or so square blocks of downtown Detroit. In it are dozens of monitors that link to cameras dotting downtown. “You can’t take pictures here,” Bruce warns.

In this basement command center, personnel can monitor pretty much anything that goes on in the area. For our benefit, security personnel bring up a picture of a hoodlum who grabbed an iPad out of a tech worker’s hands one day in Campus Martius, the center of the zone. A picture of him was taken off a camera and, when he returned the next day to the same park wearing the same shirt, he was arrested. (Whoever said criminals were smart?) The message spread to this dumb crook’s associates, says Bruce, is that this is not an area to do crime.

A second location is the basement of the old First National Bank building. Vaults no longer needed in the age of digital currency are left open and surrounded by tech worker space—couches, open cubicles, art work. When the building was bought, it didn’t come with keys to the many safe deposit boxes in the vault, most of which remain unopened. “We didn’t want to deface it by breaking them open,” Bruce says. Warren Buffett, fittingly, was the only person to ever open a safe deposit box on a tour and find something—a dollar. “It figures,” says one person on the tour. The vault is furnished with chandeliers and a long table, and can be rented for dinners.

The third location that stands out in memory is the fulfillment area for Quicken Loans. It’s in a basement somewhere—I got dizzyingly lost after a while, but it might have been beneath the old Federal Reserve Building on West Fort Street. Bruce showed us the loan documents that a Quicken customer gets: neat, tidy, clear instructions, all in a cardboard mailer the size and shape of a portfolio case; everything in its place.

“We reimagined the mortgage fulfillment process,” Bruce says. Who takes the time to reimagine the package of papers a homebuyer gets on closing a mortgage? Someone who believes in this: “Obsessed with finding a better way,” which is one of the aphorisms Bruce quotes to us.

I have bought a few houses in my life, and the process is horrible. The documents are mind-numbingly opaque; the person explaining them is motivated by a commission, not by serving me; the documents get filed away and never seen again. Lawyers wrote them and were, apparently, paid by the word. Not so here; the documents are clearly labeled, concise, and simple to understand.

It’s good business to do mortgages this way, too. In the wrap-up to the recent mortgage crisis, mortgage originators and banks paid billions of dollars in fines and were prevented by courts from foreclosing on houses due to poor documentation.

The fulfillment area is staffed by young workers, with a seasoned manager or two. They’re used to tours and they greet us warmly. They seem genuinely happy, too, which is hard to imagine for somebody who basically works in a mailroom in a basement. How could this be?

As Bruce says, “culture is everything.”

Detroit Comes Alive–and Still Has A Way To Go

I spent last Thursday and Friday at TechWeek Detroit, which coincided with the first extended nice weather of the spring. It was a great event, bringing energy and vitality to a downtrodden city that is experiencing a rebirth. Detroit is on the way back, and in a big way. The scale of what is happening surprised me. Here are some impressions:

  • I stayed at the recently renovated Pontchartrain Hotel on the Detroit River, parked my car, and walked the city. You can’t really experience the life of a metropolis except on foot.
  • The hotel renovation was a success (with one exception): the lobby, restaurant, and rooms are modern and appealing; my room was large, well laid out and attractively furnished, with nice views in two directions of the river and Windsor, Ontario. The sound-proofing was a failure, though; a car waiting for one of the staff to get off shift, pounding hip-hop twelve stories below my room, disturbed my afternoon nap. This was a regular feature of my stay, pretty much around the clock.
  • The juxtaposition between what is good and new about Detroit, and what remains to be fixed, was a theme for the week.
  • From a passing car, downtown Detroit looks much the same as it has for years–rutted streets, empty storefronts, ruined buildings, with the fortress-like Renaissance Center looming overhead in rebuke. A disturbingly high number of scary-looking people stroll the streets. This is the Detroit the national media has covered.
  • At ground level, at a slower pace, signs of rebirth emerge. Walking past the old Federal Reserve Building, I’m suddenly in Campus Martius Park–and I’m in the middle of a big, thriving city. People spill out of the Quicken Loans Building, with its big glass front. The decision by Dan Gilbert to move the company downtown, seen as risky at the time, is now seen as visionary. Young tech workers, wearing headphones, dressed in “skinny casual” breeze by, walking in all directions. This generation doesn’t lift weights.
  • Each block has its own panhandler, each with a different approach. Aggressive; supplicating; faithful; silent; wheedling. These are the people who are being left behind by Detroit’s tech-enabled renaissance. Some of the passing young tech workers give the panhandlers money and some don’t. Nobody has a long-term solution for them.
  • The pace of development is so fast that fully leased, renovated offices stand beside gutted shells. They’ll probably be finished and rented next week. When Dan Gilbert speaks at TechWeek, he says that there is 95% occupancy in the 40-some buildings Rock Ventures has bought and refurbished. He also makes a point of talking about downtown security. He reads a report nightly, and there is much less crime than people think. Rock has its own security service, highly visible on Segways. He doesn’t say it, but the implication is that the decimated public safety department cannot be relied on. This is what it looks like when the private sector leads.
  • I arrive at the Hudson Cafe on Woodward, a breakfast place I found on-line. I have to pick my way over construction rubble, but it’s worth it. I instantly decide that it is a better breakfast place than anything in Cleveland, which the decor, food and coffee confirms.
  • I stop by The Madison Building 1555 Broadway Street, where I office when I’m in Detroit. It was the first building Rock Ventures bought and rehabbed–an old theater–and it is full of young tech companies from the Detroit Venture Partners portfolio. There is a good coffee shop on the ground floor, and a super rooftop party area.
  • Behind the Madison Building, on Woodward Avenue, is the office of Bizdom, the accelerator program that is part of the same family of Dan Gilbert companies. They’re full, too, in part from absorbing spillover companies from the Madison Building.
  • TechWeek is in the old Federal Reserve Building. There is a gutted area on the left where most of the action is, and an elegant marble lobby and elevator stack that is nicer than most offices I have worked in. Why did the Federal Reserve leave, anyway? How much did their new building–much further from downtown–cost taxpayers?
  • TechWeek is jam-packed–the exhibit space, the sessions, the corridors. Young tech workers mingle with a smaller group of older people who have weathered the storm and are smiling at Detroit’s rebirth. Others left, but they stuck it out.
  • Many of the young people I talk with or who are on the panels are Michigan returnees. They left after college to Chicago or New York or San Francisco. They were beckoned back by opportunity, by the desire to be part of something special, to be near family, and to raise their own families comfortably without having to be millionaires–though being tech entrepreneurs they all expect to be millionaires anyway.
  • There are some really good panels, but what everybody is waiting for is Dan Gilbert to speak. He begins at 2:30, some 1,500 people packed in to hear him. Dan has asked Greg Schwartz, founder and CEO of DVP portfolio company UpTo to join him on stage, but Greg doesn’t say much. “Nobody wants to hear me,” he tells me later, but Dan is subtly sharing the stage with a company he favors.
  • Dan talks about his vision for downtown Detroit. It’s staggering in scope, but I believe that it is going to happen. He says it will take some time to clear up the blight, but a lot has been done since the desolate night three years ago when I and some colleagues searched in vain among dark streets for an open restaurant at 7 pm.
  • The day ends with a reception on the rooftop of the Madison Building, a venue that holds a couple of hundred people. Congressman Gary Peters is a center of attention; a troupe of Venture for America summer fellows takes a picture with him. The sky is clear blue, with a few wisps of cottony clouds. It’s warm but with a breezy edge of cool. “San Diego weather,” somebody remarks. “Yeah, we have a hundred days a year of it,” somebody else says.

Something big is happening in Detroit. It’s not finished and it’s not perfect. There are bumps in the road–I suppose Rock Ventures will have to repave the city streets, too, given Detroit’s well-publicized fiscal problems. But it’s exciting and it is working.

Bizarro World Comes To The Solar Industry

Fans of DC Comics and Seinfeld will remember that “Bizarro World” has come to mean a situation or setting which is weirdly inverted or opposite of expectation. This is what immediately came to mind as I was reading an article about the Spanish solar industry in yesterday’s Wall Street Journal.

After heavily subsidizing the solar industry for years, the Spanish government has now completely reversed course and is charging citizens who have the temerity to produce their own energy a fee as punishment. They don’t call it a punishment, of course, but justify it as private individuals carrying their share of the load for maintaining the national power grid. The people who installed solar panels, being good citizens and supportive of government policy, are left a bit mystified by the whole experience–which is opposite of what they expected. One wag on the WSJ Web site has characterized this as “a tax on sunlight.”

Here, in brief, is the sequence of events:

  • Spanish politicians decided that it would be “good” to artificially promote the use of uneconomic solar energy;
  • The Spanish government massively subsidized the installation of solar panels at taxpayer expense;
  • People, being people, responded to the incentives by installing solar panels;
  • The Spanish economy went into a recession which both reduced demand for power and made government subsidies of solar energy impossible to continue;
  • To balance engorged budgets the Spanish government cast around for “new revenues” and decided to tax people who were producing their own energy with solar panels.

Dutiful citizens who responded to the noble goal of reducing dependence on carbon now find themselves scratching their heads in dismay at the capriciousness of politicians. Here is how one citizen responded. “After calculating the fee’s impact, Inaki Alonso opted to give away the three solar panels he had installed on his roof early this year.” (emphasis added).

The broader lesson here is that government policy is an inconstant basis for making investment decisions, whether at the personal or corporate level. People change; policies change; circumstances change; fads come and go—but company employees still expect to receive regular paychecks and investors still expect returns, irrespective of the shifting sands of public policy. Something that has to be subsidized may never be a good investment, and the subsidy may go away.

For these reasons, I never invested in cleantech or wanted to. My partners did, but were judicious in selecting investments that were not dependent on government policy. Richard Stuebi was particularly emphatic on this point.

At the microeconomic level, it is better to pursue customers who value a company’s products and services, and will pay for them, than to pursue government subsidies as a business model. At the macroeconomic level, voters should understand the limitations of a politically driven economy. That lesson is as germane at home as it is in Spain.

Government Is An Anachronism

In the last decades, technology has rolled through one sector of the U.S. economy after another, rationalizing processes like supply chains; enhancing factory productivity by replacing labor with automation like Linestream’s advanced motor controls technology; and creating new industries, new jobs, and tremendous wealth for the technologically literate.

Two sectors of the U.S. economy have been resistant to this trend: the federal government and the healthcare industry. Each has increased its share of the U.S. economy and added people as workloads expanded. The growth of Washington has been well chronicled; it has added jobs and wealth and, even during the mortgage bust and downturn, was the only metropolitan area where real estate prices rose consistently. The healthcare industry similarly has been adding jobs and has been touted as a bright spot in a weak jobs market—you have all seen the ads on television.

Perpetual growth in government and healthcare is not sustainable.  Both government and the healthcare industry have similar characteristics. They have been dominated by centralized, one-size-fits-all control from Washington, rules and regulations, and political decisions that defend old ways of doing things to protect them from market forces. This has inhibited innovation in both industries and driven up costs. While defending old labor-intensive business models has certainly increased jobs (which is what politicians care about) neither industry has matched its increasing costs to the U.S. economy with commensurate value creation.

The era of automatic growth in government and healthcare is coming to an end. Technology is now making it impossible for any industry to wall itself off from market forces, and this is all to the good. Both government and healthcare are experiencing pricing pressure, as the impasse in Washington clearly demonstrates. Government employment is down—albeit from a recently engorged level—and major health systems like the Cleveland Clinic and Vanderbilt University Medical Center have announced layoffs as reimbursement pressures ripple through the healthcare system.

While politicians in Washington argue and defend past solutions to past problems, industry is innovating. Yesterday Premise Data Corp. emerged from stealth mode to announce that it has created an inflation index that is an alternative to the Department of Labor’s Consumer Price Index (currently suspended due to the wrangling in Washington). Premise creates real-time inflation data using photos of store shelves taken by hundreds of mobile-device-empowered individuals.  Premise also scrolls through Web sites to gather price data. In contrast, the Department of Labor uses a half-century old centralized, top-down survey methodology for its CPI index.

During the government shutdown, businesses that depend on government statistics have been casting about for alternatives, and Premise Data Corp. is one such alternative. The question I have is: Once the small part of government that is closed reopens, will anybody notice? Or will we all have moved on to other, more current products and services that do a better job at low cost?

Similarly, healthcare systems are rapidly adopting information technology to improve productivity, lower costs, and improve quality. It is no accident that healthcare systems are laying off people at the same time that they are adopting big data solutions like Cleveland’s Explorys or infection control products from companies like Ann Arbor’s BioVigil.

In the next decade the healthcare system will become rationalized, and it won’t be due to Obamacare—although the politicians will take the credit. It will be due to technology.

Here’s one way to look at the struggle in Washington. The federal government’s business model is breaking down, and its ability to funnel resources to itself to be paid out in political rewards to supporters is being undermined. The real fear of the people in Washington may be that we, the people, will realize that we don’t need them for much of what they do at our expense and that technology and the private sector do a better job. Perhaps that’s why the battle in Washington is so fierce.

Here’s hoping at the end of the protracted struggle in Washington that the federal government is on a downward trajectory. It is too expensive; delivers too little value; and pulls too many resources from more productive uses in the private economy. It needs to be disrupted, rationalized and downsized. Why should it be immune to the productivity-enhancing technologies that have improved every other industry?