Entrepreneurs are surviving—and thriving—in Detroit

On the third floor of the historic Madison Building in Detroit, rows of young entrepreneurs sit in front of computer screens. They represent the hub of a burgeoning tech start-up scene in Detroit: 15 infant companies hoping to launch the next big idea.

Are You a Human founders Paxton, Tatoris, and Blackmer. (Image courtesy of the Zell Lurie Institute for Entrepreneurial Studies at the Ross School of Business.)

Among the first to occupy this space were Tyler Paxton, MBA ’11, Reid Tatoris, MBA ’11, and Benjamin Blackmer, MBA ’12. The three graduates of the Stephen M. Ross School of Business founded Are You a Human (AYAH). They’ve developed an alternative to CAPTCHA, those distorted letters online users are forced to type to authenticate their existence. AYAH’s application, PlayThru, seeks to identify the difference between humans and computers through simple gameplay. Tasks that are easy for a person to complete—like dragging a piece of pepperoni on top of a virtual pizza—are difficult for artificial intelligence to execute.

Paxton conceived the idea prior to business school, when a co-worker complained that tickets to a Hannah Montana concert he was trying to purchase for his daughter sold out in record time, the likely result of automated scalpers bypassing CAPTCHA. “I wanted something more secure, but also usable,” Paxton says of the application’s game-like design.

Since PlayThru launched in January, it’s been installed on more than 4,000 websites. The company has served some 20 million games already, doubling its growth monthly. The founders now have five employees; all except one of them are under 30.

Our town

AYAH could have set up shop anywhere, but its founders made a conscious choice to headquarter in Detroit. Four out of their five employees live in the city.

“A company is a lot more than the product you have. It’s the culture of your employees and the environment you’re in, which includes the city,” Blackmer says.

The three co-founders all hail from Southeast Michigan “and we believe in the future of Detroit,” says Blackmer. “There is a profound change happening here and we wanted to support and be a part of it.”

They seem to relish being at the center of all this entrepreneurial action. When AYAH moved in to the Madison last October, the incubator space was virtually empty. Today it’s filled to capacity. Cross collaboration is the norm, as each company’s employees can pop in on seminars held in the building geared to providing skills to startups. AYAH hosts “Waffle Wednesdays” each week, inviting fellow entrepreneurs to join them in conversation.

Carving a niche

The firm’s founders envision technology as the catalyst to diversify the state’s economy. One reason? Tech startups are easy to launch. “All we really need is a desk, wifi, and talented people to do what we do,” Paxton says. And with Amazon Cloud, there’s not even a need for servers. So, could Detroit become the next Silicon Valley? Paxton says no. “We’ll create something different here.”

Founding a company in Detroit does bring unique pressure to succeed, Blackmer adds. One more proven venture helps validate Detroit as a viable economy supportive of new companies. The hope is that AYAH can be to Detroit what Starbucks was to Seattle or Groupon was to Chicago. “One or two successes can make a huge difference” generating wealth that can be reinvested in the city and spawning more success, he says.

Detroit also provides unique advantages. For one, a new business has a greater opportunity to make a significant impact on the surrounding community, Paxton points out. In Silicon Valley, he says, this business would get lost as a “tiny part of a huge community.” There’s something compelling about being part of the movement in Detroit that allows you to “break the mold,” he says. And, unlike an emerging economy, Detroit offers the chance to recruit phenomenal talent, retain them, and keep them in the city. Paxton admits he was surprised that out of the 80 people he interviewed for internships, a number of them expressed genuine interest in being part of the city. A big appeal is that, unlike other major urban centers, Detroit is affordable. (Two of AYAH’s employees pay $400 a month to live in a co-op.)

Another advantage to the Detroit home base is proximity to the founders’ alma mater. At about an hour away, the Ross School offers access to a pool of experienced mentors, eager interns, and the Zell Lurie Institute for Entrepreneurial Studies, a critical partner in taking AYAH from business plan to actual business.

As with any startup anywhere, balancing work and home life is a constant challenge for the people in charge. Paxton, 30, is married to an “awesome wife” and is the father to three children between the ages of two and six. They live in Rochester, and though Paxton says work is ingrained in his life, he still manages to volunteer with the Boy Scouts, coach his daughter’s soccer team, and participate in church activities. Blackmer, 32, commutes daily from Ann Arbor and hangs out with his wife in his spare time, but he does little else. “I don’t watch TV and haven’t seen a movie in the last two to three years,” he says. But both agree the extensive time spent working is worth the gratification they get from launching this new venture.

“I love making a difference for how people use the Internet,” Blackmer says. “I love the opportunity to create a company of like-minded individuals striving to accomplish a shared goal. I like working with people who I get to choose. I like being able to make decisions quickly and without bureaucracy.”

The team, the team, the team

(Image courtesy of AYAH.)

As for those like-mindeded individuals striving for a shared goal: Tatoris focuses on getting larger companies and websites to adopt PlayThru and handles most finance and human resources activities. Paxton oversees the tech team, investor relations, recruiting, and partnerships. Blackmer handles customer relationships, tech support, and advertising sales. And while business school helped them learn how to work with teams, Paxton notes building a team that will excel over time is a skill that comes with time and practice.

On a recent Tuesday in November, Blackmer and Paxton conveyed an anti-corporate vibe, dressed as usual in jeans and sneakers. (Reid was on a New York sales trip).

“We keep it very comfortable among the humans,” Blackmer says of his group, which resembles college students convening for a casual get-together. Stuart VandenBrink, a developer with the official title of “bouncy ball wrangler,” sports a beanie hat—he “literally wears many different hats,” notes Blackmer—while sole female, Cara Jo Miller, the website designer known as the “pixel wrangler,” wears polka-dot headphones while typing at her computer.

Every day at 10 a.m. the staff meets for 15 minutes to touch base in what they call a “scrum.” They convene around a giant whiteboard, efficiently taking turns and quickly moving from one topic to the next. There’s discussion of a brand study for advertisers, making links to support portals, and redoing demo pages. A requirement that everyone stand is a clever strategy to keep the meetings short, Blackmer says.

The shared space is informal, energetic, and conducive to collaboration. (Image courtesy of AYAH.)

The trio feels at ease in this sophisticated urban space, with floor-to-ceiling windows, concrete floors, and exposed brick walls, located across the street from Comerica Park, home to the Detroit Tigers. They sit a mere 30 feet away from Detroit Venture Partners, which aims to lure young entrepreneurs to the city and which has invested $750,000 in their business.

For now, the company’s co-founders are focused on making sure their product is readily available to customers and is easy to install and use. “We’re always hungry to accomplish the next goal,” Paxton says.

Of course the young entrepreneurs hope to succeed with Are You a Human. Admittedly, the start-up space is tough, and it will be hard to give up the venture for another job if they don’t make it.

But Blackmer’s got the entrepreneur’s credo down, regardless of the final outcome: “If it fails,” he says, “we’ve still learned a lot.”