Their efforts have been barely noticed, but a whole cadre of entrepreneurs, investors and others are helping to build a new economy for Milwaukee.
Wednesday 12/22/2010
by Erik Gunn
For 107 years, Harley-Davidson had been an icon of this city’s industrial might. Now it was threatening to move the production of “Milwaukee Iron,” as Harley riders had once dubbed their motorcycles, out of the town that named them. Could the company actually abandon the city where the Harley museum was located, where the Harley rallies were held, where Harley riders from across the nation gathered in honor of the motorcycle’s birthplace?
The answer, it turns out, was no. But only after the Harley union made sweeping concessions that gave the company – once an emblem not just of good jobs at good wages but of positive labor-management relations – the right to hire seasonal workers with no security, no benefits and with wages half those of the company’s established hourly workforce.
The drama was concluded right around Labor Day, adding an ironic edge to yet another retrenchment by an old-school manufacturer, and raising anew a question that public and private sector leaders have often asked: What will replace the scores of staid, old companies and metal-benders that once were the backbone of Milwaukee’s economy? Who is looking ahead to find and make possible a new economy?
The question is critical to the city’s future. And there is no one answer, no simple solution.
But there are people finding interesting answers to this question. A surprising number, in fact. And they see in Milwaukee the potential to create a new economy.
Indeed, some say this metro area has a lot more going for it than it realizes. “One of the things we do poorly in Milwaukee is speak of our own successes,” says Jay Mason, a five-time entrepreneur whose latest business grew from four employees to nearly two dozen in a year and is now growing quickly in seven states. “We’re hard-working, we’re innovative – and we don’t toot our own horn.” Adds Andy Nunemaker, who has a Harvard MBA and runs a national communications technology business from Milwaukee: “We have a mentality that, rather than celebrating our successes, we almost apologize for them.”
Mason and Nunemaker are among those involved in smaller-scale efforts that are getting relatively little notice. Instead, big economic development programs and ideas suck up the oxygen of public attention.
There’s the Wisconsin Technology Council. There’s the Milwaukee 7, an alliance of southeastern Wisconsin counties that markets the area, and the Milwaukee Water Council, which proposes to make this city a leader in water technology.
But Milwaukee’s emerging economy will not live by water – or by these splashy organizations – alone. And, it turns out, there are plenty of people who know that: innovators and creators, coaches and financial angels, who are pointing their efforts toward a new horizon but often flying below the radar.
Their work could be decisive in determining the economic future of Milwaukee.
THE COACHES
Remember the scene in The Graduate? “Just one word,” says the advice-dispensing neighbor to the adrift Benjamin Braddock. “Plastics.”
Dan Steininger has just one word, too: Startups.
Yes, it’s inevitable that the state and the region – through cooperative efforts like M-7 – will continue chasing smokestacks. Maybe it’s even necessary.
By themselves, though, they aren’t enough, says Steininger, the former chief executive at Catholic Knights Insurance. Reason No. 1: Luring companies takes time and energy. “It’s great if we can bring companies here, but it’s a tough sell,” he says. Reason No. 2: Even if a big company relocates here, its long-term destiny is, most likely, to shrink.
Take the recent announcement that mining shovel manufacturer Bucyrus International Inc. would be sold to Caterpillar Inc. for $7.6 billion. Great news for Bucyrus shareholders, but the result could mean a reduction in local jobs. The bottom line: Big companies mostly consolidate. Small companies grow.
“All new jobs come from startup companies,” says Steininger. “Wisconsin ranks almost dead last in startups. Milwaukee ranks 50th out of the country’s top 50 cities. This has been a 45-year trend in this state. Economic development in the United States comes out of new companies and new job growth.”
So Steininger – grandson of one of Milwaukee’s great Socialist mayors, Dan Hoan – has become a crusader for capitalism, teaming up with John Torinus, the former Milwaukee Sentinel business editor who left newspapers some two decades ago to lead a manufacturing company in West Bend called Serigraph Inc. Following the examples of Cleveland and Pittsburgh, which have also launched business-startup boosters, Steininger and Torinus initially formed BizStarts inside the Greater Milwaukee Committee, then spun it off as an independent nonprofit a couple of years ago.
The goal is to change the culture, Steininger says. “There’s a mindset in this region that’s almost depressing. This was the manufacturing capital of the world. We were trained to build a résumé and get a job. But nobody trains kids on how to make a job. We want to create an innovation culture that facilitates starting new companies.”
New companies can be born in many ways. They can spin off from an established company that begets a new venture. Or from an academic institution, where a researcher gets a bright idea in the lab that leads to a new business. Or from some guy with a gizmo in the garage.
But they need guidance to grow and money to make it happen. “Nobody knows how to start a company,” says Steininger. “You need help for entrepreneurs – experience and advice. That’s what BizStarts provides. You hook ’em up with experienced entrepreneurs who can help them launch a company.”
On the front line of that effort for BizStarts is Chelsea Krause, who runs Venture Track, the day-to-day engine for the program.
Krause is “a boomerang,” she says – an ex-Milwaukeean who returned when her husband took a job here. Her previous experience includes running a research park affiliated with the University of Louisville Medical Center and helping various life-science businesses that were spun off from the center’s research.
Venture Track targets entrepreneurs with business ideas that show promise for high growth – to eventually reach $20 million in annual revenues. Some may have little more than a brilliant idea; others are well into developing it but have gotten stuck, lacking resources or the right expertise.
“We’re trying to prepare them for some sort of equity investment,” Krause says. That means helping them develop and prepare presentations to venture capitalists and “angel” investors who can help finance a new company, as well as connecting them to advisers who can help guide the development of a new venture.
“I tell my entrepreneurs, ‘You might have to kiss some frogs,’ ” Krause says with a smile. “Some of these advisers may not be the best for you. They may be intelligent or have a great background, but sometimes the chemistry’s not there. You need someone who can row with you instead of telling you to row a little harder.” Unlike the Water Council or the Wisconsin Technology Council, which target a specific cluster of industries, BizStarts casts a much wider net. “It’s very difficult to predict where the next big idea’s going to come from,” Steininger notes. “We serve any sector of the economy.”
BizStarts’ efforts are starting to come to life for businesses like Lightweight Structures, based in Hartland. Jim Jendusa launched it as a spinoff from his engineering firm, Jendusa Design and Engineering Inc. The plan is to build lightweight, steel and concrete prefabricated floors and walls, some with built-in heating systems. Jendusa is convinced the idea has promise for residential and commercial properties, both because the walls and floors are cheaper to install and because they may save on insulation and energy costs.
“When you have a down economy, people are looking for value,” he says. “They’re willing to try something new if it’s less expensive. We’re looking at knocking 10 to 15 percent off the cost of a building.”
These building components can be produced very efficiently – but his upfront tooling costs are expensive, exceeding $200,000. Jendusa has turned to Venture Track for aid in getting financing for the equipment he needs.
BizStarts connected Jendusa to the Wisconsin Entrepreneurs’ Network, which helped him create a business plan to solicit funding from investor groups. He projects an eventual revenue stream of $250 million a year. “Our goal is to develop this product locally, get some sales, develop a foothold, and then take it national,” he says. “I think it’s important, if I am going to get an investment, to have that investment come locally.”
Another Venture Track prospect is something called Megatron Electromagnetic Systems. It’s quirky but fascinating stuff. Founder Kurt Brandt, with a doctorate in physics from UW-Milwaukee, is spinning Megatron off from his primary company, Brandt Innovative Technologies. This company sells specialized software and related technology for industrial uses, including testing high-voltage systems. In the process, it developed other technologies to protect electronic systems and gear from something called electromagnetic pulse, or EMP.
EMP – shockwaves that can be generated by solar flares, nuclear explosions, or either military or homemade weapons – may sound like a science-fiction threat, but Brandt says it’s a real hazard. It can disable all kinds of technology.
In the 19th century, says Brandt, an EMP set fire to a telegraph office and electrocuted the operator. Twentyone years ago, an EMP shut down the province of Quebec’s entire power grid. And solar flares are increasing, even as there is far more technology that could be disabled, including billions of cell phones and millions of servers on the Internet. A 2008 report to Congress outlined the potential for problems. “For us, it’s almost like a marketing report,” Brandt says.
Megatron has developed 32 different technologies that range from simple enclosures that shield equipment to much more complex and sophisticated systems, all aimed at preventing an EMP disaster. Currently, the company employs about a half-dozen people, with another two dozen at various manufacturing firms that make components for Megatron’s systems. But once he can get financing and find customers, Brandt predicts, “I think it’s going to be hundreds of jobs over the next few years.”
For established companies that are trying to do new things, there are other resources. One is the little-known Wisconsin Manufacturing Extension Partnership – a Madison-based nonprofit that helps small and midsized manufacturing companies grow. It’s funded by the Wisconsin Department of Commerce, the National Institute of Standards and Technology, and through fees from companies it advises.
Mike Klonsinski, WMEP’s executive director, says the conventional wisdom that Milwaukee is dying as a manufacturing center is dead wrong. “Manufacturing will continue to be the linchpin of the economy,” he says. “We may manufacture different types of products and our firms may look different than 20 years ago, but the ability to turn raw material into value-added, customer products is still the best way to create wealth and jobs.”
New technology can help keep manufacturing companies at the top of their game, he says. The key is to “make sure the research developed here is manufactured here,” Klonsinski notes. “Milwaukee can still be aglobal leader in manufacturing excellence, along with the jobs, income growth and quality of jobs associated with it.”
Klonsinski’s group was a great help to Mike Erwin. Erwin started his work life 37 years ago as a second-shift steelworker. Today he owns two companies: One, Tailored Label Products (which has twice made this magazine’s list of Best Places to Work), makes a wide range of specialty labels at a factory in Menomonee Falls and sells them worldwide. The other, Proven Direct, is a specialty printer for Shutterfly – the Internetbased service that lets people store, share and print their snapshots. One Shutterfly service lets users buy customized calendars based on their personal photos. Proven Direct prints them, all from a little plant in the redeveloping Menomonee Valley.
Tailored Label has 70 employees, Proven Direct 50 – but that doubles in seasons when demand shoots up, as it does in advance of the year-end holidays. Six and a half years ago, Tailored Label turned to Klonsinski and WMEP for advice on innovation. For one product line alone, the payoff was huge: Revenue on that line has gone from $750,000 a year to $5 million, and employment has grown fourfold, to 17 people.
Erwin has been so enthused by how WMEP imparts skills like lean production and strategic planning that he wound up joining its board of directors and now heads it. The group’s philosophy of focusing a company’s efforts on innovation and value rather than just bidding conventional work – a working-smarter-not-harder ethic – could be responsible for as much as one-third of the jobs his company has created in the last five years, Erwin says.
His one big fear is that the new push to cut the state budget could result in trimming the funding for groups like WMEP. “I just hope they don’t fall under the radar with the changing of the guard.”
CHIPHEADS
John Byrnes has been building companies for more than 25 years. In 1982, he organized the private equity arm of Marshall & Ilsley Corp., which he spun off into the company Mason Wells in 1998. Mason Wells packages money from individual and institutional investors to buy smaller, privately owned businesses that it then builds into more profitable companies.
Byrnes has seen firsthand how important it is for high-tech companies to have the right IT resources. “You can’t build manufacturing facilities unless you have electric power or natural gas,” he says. “You can’t build foundries without energy. The utility infrastructure for the high-tech world is information technology.” Byrnes served for several years on the board of the Wisconsin Technology Council. But he grew weary of seeing Milwaukee get the back seat. “Every idea I gave them, they wanted to do in Madison,” he complains. So Byrnes decided to launch some of his ideas in Milwaukee. Working with Jay Bayne, an information technology consultant who used to head Johnson Controls’ IT department, the two created the Milwaukee
Institute in 2007, a nonprofit that now has an annual budget of about $500,000. Simply put, the Institute seeks to build metro Milwaukee’s high-tech muscle by creating a communitywide IT infrastructure for the metro area. The Institute boasts an energy-efficient data center,
integrated broadband and wireless networks spanning the region, and shared high-performance computers, data storage and software.
“The region needs an organized and competitive information systems ‘commons,’ ” says Bayne. The Institute rents its IT resources at cost to area businesses – like HK Systems in New Berlin.
This company spun off from the crane manufacturer Harnischfeger Industries (now Joy Global) in 1993. HK designs and installs automated material handling equipment – warehouse and factory conveyer systems, automated fork trucks, storage and retrieval systems, and robots that load and unload pallets. In September, HK was acquired by Belgium-based Dematic Group and took the parent company’s name.
To help potential buyers visualize the equipment it can create, Dematic relies heavily on high-end animated computer graphics. Drawings are only so helpful because they’re two-dimensional; animations add “depth and credibility,” says Jeff Jacobs, a senior project engineer with the company. “They show how the technology will work.”
Early on, those animations were a lot more Steamboat Willie than Avatar. But just as digital advances have revolutionized animated movies at the multiplex, computer animation for industry has become increasingly powerful, able to render images that are ever-more complex and detailed. But that comes at a price. The computer software to make those images chews up huge amounts of processing power and memory.
“When we first started, we were using a bunch of old computers to do this,” Jacobs says. “It would typically take three to four weeks to do a single three-minute video.”
Enter the Milwaukee Institute. HK Systems, and now its successor, Dematic, became a customer. Those animations that once took a month to produce? “Now we can do it in about 24 hours,” says Jacobs. “We take an archive of files, zip them up, and transfer them over to the Institute.” A day later, the animation video comes back.
What many people don’t realize, Byrnes and Bayne say, is how much technology is present in Milwaukee’s businesses – touching as many as six out of every 10 jobs in the region.
“Milwaukee already is a high-tech center for information technology, but it’s not recognized because it’s embedded in insurance and banking and hedge funds and manufacturing and media arts and all those sorts of things,” says Byrnes. “There’s a lot of IT expertise in Milwaukee, but it’s not promoted.”
Bayne compares computer power today to electricity a century ago. Once upon a time, every big company had its own power plant to produce its own electricity. By the 1950s, power was the product of public utilities like Wisconsin Electric. Bayne expects information technology to move in the same direction, becoming a huge communitywide resource as business relies more and more on “cloud computing” that draws on outside shared hardware and even applications housed elsewhere instead of investing huge sums of money in their own equipment.
The Institute is helping lead the way to the creation of an “MGrid,” or metrowide IT infrastructure. The Institute has set up a High Performance Computer Cluster housed at Tushaus Computer Services in Milwaukee. Begun in April 2009 with 16 servers, the cluster has already nearly doubled in size to 29 servers and seeks to grow by 50 percent each year. Fifteen different research groups now use the cluster, and two of the biggest are private companies.
It’s a powerful resource that can help attract and keep companies in need of IT support. The Institute will also teach businesses “how to use and adopt this technology,” Bayne notes.
But there’s more to come. The new Menomonee Valley Data Center is expected to open soon. It will house 90,000 square feet of computer hardware in condos that could be leased or sold to potential users of computing services, from researchers to private industry. The center is a development of Boston-based Source IT Energy, says Herb Zien, senior vice president for the firm. But the Institute will be a customer of the data center and is a noncommercial partner in the venture.
Meanwhile, Milwaukee already has in place an extensive network of fiber-optic cable used to transmit information and network computers throughout the region. Some 100 miles of cable were installed in the 1990s as an initiative of then-Mayor John Norquist; most of it is “dark” or unused. There’s also an extensive network of other private and public fiber networks, including those operated by AT&T and Midwest Fiber Network, and one that the Wisconsin Department of Transportation has installed bordering local highways. “There’s a capability that’s untapped here,” Bayne says.
That kind of shared regional cybergrid can then foster more collaboration. “The problems the region has – economic development, workforce development, education, efficient government – are issues that can’t be solved by a single organization,” Bayne says. And by being completely independent – of government, academia or business – the Institute aims to be “an unaligned, unbiased, safe environment for people to collaborate in.”
Long-term, the Institute’s goal is even more ambitious.
“We want to be a regional research institute,” says Bayne. Not a creature of any of the city’s major universities – Marquette, UWM or the Milwaukee School of Engineering – but one that would work hand in hand with them, perhaps offering joint appointments to faculty members. “I’m going to start writing proposals for federal research to do here,” Bayne says.
Clearly, the Institute is an organization to watch.
ANGELS
If there’s one widespread frustration among people hoping to jump-start new businesses, it’s money. “This is our biggest challenge,” says Dan Steininger. “We need more early-stage capital.” Startup businesses need “angel investors,” the deep-pocketed people who step in to bless prospective new businesses with the money needed to give them some wings.
The biggest “angels” are still on the east and west coasts, and those investors may lean on entrepreneurs to relocate. “What you typically hear from funders is, ‘That’s a great idea. Move to Boston. Move to the Silicon Valley,’ ” says one veteran entrepreneur.
But Wisconsin has slowly been developing a taste for such investments. “There’s an increasing appetite for risk capital,” says Mark Witt, a mergers and acquisitions lawyer at Godfrey & Kahn who works with buyers and sellers of businesses, people who finance them and people who hunt for the money. “Our early-stage investment community is growing and becoming more sophisticated.”
Ask Jay Mason. Mason is an entrepreneur building a new Web-based service. It enables people who need to see a doctor and don’t already have one to quickly find a medical provider that’s in the neighborhood, has an opening, and accepts their health insurance – even if that’s BadgerCare or another public assistance program. The concept was the brainchild of the teenage son of Mason’s friend, an executive at Aurora Health Care.
The teen was a high school graduate who had been making hundreds of dollars a week reselling bulk items on eBay and suggested his father market doctors on the Internet. “His dad couldn’t talk him out of it, so he had me meet with him to talk him out of this crazy idea,” says Mason. But the outcome was just the opposite. “I came to the conclusion there is a fascinating business here.”
The result was My Health Direct – the doctors’ office answer to Travelocity. Its customers are hospitals and other health care providers, and its partners are community clinics and health insurance plans. Patients with insurance can get connected to a doctor by calling their health plans, whose personnel use the Web service to find and book appointments in the person’s own neighborhood and, if needed, close to public transportation. Meanwhile, for uninsured or public assistance patients – who often get health care in hospital emergency rooms – emergency room staffers use the program to connect patients with doctors’ offices for follow-up visits, reducing the number of return visits to the ER. “We’ve made over 20,000 appointments in Milwaukee since our inception,” Mason says.
Today, the company has two dozen employees – six times its headcount a year ago – and operates in seven states with its eyes on the other 43. But that growth depended on local investors who funded pilot projects, as well as later funding from a firm in Louisville, Ky. State investment tax credits – begun under outgoing Gov. Jim Doyle – were “very helpful when we got our angel financing,” Mason notes. “A lot of states don’t have that.” And as the federal health care reform law and its health exchanges begin to phase in, the firm sees a new marketing opportunity.
Mason, born and raised here, says he’s committed to keeping the business here. With a total of five business ventures under his belt, he’s seen a significant change in the availability of investment dollars, he says. It’s a lot easier than it was five years ago. The state’s investment tax credits have helped, but there’s also a growing pool of angel investment and aid from groups like BizStarts. “Those didn’t exist before,” Mason says. “Milwaukee, in that regard, has made great strides.”
At Marquette University, Tim Keane directs the Kohler Center for Entrepreneurship and also oversees the Golden Angels Network – an association of angel investors.
Keane became one himself after selling the software company he founded in the 1980s. Hired as an entrepreneur-in-residence at Marquette, Keane was soon offered an office. The angel network arose from casual conversations he had with others at the university.
To date, the Golden Angels have handed out about $13 million to some 15 businesses in 25 rounds of financing, says Keane. “We have 65 members with all kinds of experience that we plug into companies we work with.”
Some 35 to 40 of those investors live in the greater Milwaukee area, and most of the rest live in Chicago. “We have one in New York and one in Utah,” Keane says. To get in, you have to be an “accredited investor” under federal regulations, with $200,000 or more in annual income or a $1 million net worth. But the vast majority of investments come in much smaller amounts, perhaps $2,000 or $5,000 per person at a time, bundled into a single investment from the network of $100,000 to $600,000. “We pass the hat,” says Keane – although it’s actually a bit more formal than that.
Andy Nunemaker, 42 – “on Facebook, I’m 32,” he jokes – is one of those members. The Milwaukee native got degrees in electrical engineering and an MBA from Harvard, then returned home and got a job at GE Healthcare. He trotted the globe, rising to become CEO of GE Healthcare’s Australia, New Zealand and Southeast Asia operation. Coming back to Milwaukee eight years ago, he bought EM Systems, a tiny company with a million dollars in annual revenue and five employees. EM makes communications software used by hospital emergency rooms, ambulance companies and fire departments.
“I bought the company, then left my job at GE to go run it,” Nunemaker says. Aided by a series of investments from a few investor angels, the company has grown to 75 employees and was bought out in spring 2010 for an undisclosed sum by a Fort Lauderdale, Fla., company, Intermedix. By the time of the sale, Nunemaker says, the investors who had helped him out six years earlier got $25 for every dollar they had put in.
Milwaukee was designated headquarters for the parent company’s technology business, and Nunemaker was named president of Intermedix EM Systems Division.
There’s nothing special about Milwaukee that allowed the business to grow so phenomenally, Nunemaker notes: “You can do this type of business from anywhere in the world.” But what the city does have to sell is a low cost of living, a good quality of life (exemplified by its vibrant arts community) and a still-strong work ethic. “We have all the things that make it a better place to do business.”
Back when he worked at GE, he notes, the company surveyed managers about their cities of choice and got a pair of paradoxical answers. What city ranked nearly last as a desired place to transfer to? Milwaukee. And what city was the one managers would least like to leave? Milwaukee.
“Once you’re here,” Nunemaker says, “you realize how good it is.”
Indeed, there’s a whole cadre of coaches, chipheads, angels and entrepreneurs who like it here and harbor hope for the area’s future. They are unfazed by the city’s inferiority complex and the problems it has, and are focused on smaller-scaled steps to success. And the strides they’re making have largely come without the benefit of politicians and academics who churn out position papers and theoretical analyses insisting that this policy tweak, tax change or regulatory reform will usher in a new golden economic age.
That’s not to say the city’s big, established companies are irrelevant to the region’s economic future. While the startup companies produce net job growth, Witt notes, the big companies that are cutting jobs in one area may be adding jobs in others. “Most of the real entrepreneurial investments that go on in Wisconsin are by the companies that are already here,” he says. “That’s job-creating growth that’s good for the community, too.”
He cites the example of Johnson Controls, with its advances in batteries and building climate-control systems. In October, Johnson Controls and Hitachi announced a joint venture to build batteries for electric cars and other uses – a development that seems likely to add to the company’s Milwaukee employment even as production of older battery technologies has shifted to places like Mexico.
“There isn’t a city in the world that wouldn’t drool over having Johnson Controls in their backyard,” Witt says. “They’re going to have huge job-growth potential.”
Which brings us back to Harley. Erwin notes that for all the optimism small companies are gaining about their own prospects and all the pride they take as an engine of potential job growth, they were in no hurry to see the motorcycle maker ride out of town. Because for some, the company itself is a customer – an indicator of how every element of the local economy, big and small, is intertwined.
“There’s a lot of small businesses,” Erwin says, “that were rooting and cheering to maintain Harley in the region.”
Erik Gunn is a contributing editor for Milwaukee Magazine. Write to him at letters@milwaukeemag.com