By Ezi Adibe
Lansing Star special correspondent
Michigan’s small businesses rely on recent changes in legislative measures and consumer trends to survive. The state government’s new focus on growing businesses from within is key to the success of local businesses in Michigan.
Small Business Association of Michigan (SBAM) President and CEO Rob Fowler said that the state government administration’s move toward economic gardening or, growing businesses within Michigan instead of looking for business elsewhere, is key to job creation in Michigan.
“People tend to think that job creation only happens when there’s a big company in town,” he said.
After SBAM promoted economic gardening to Gov. Rick Snyder, it was included in his state of the state address in January as part of his plan to improve Michigan.
The Small-Business Advantage
“Small businesses face a different challenge in trying to build systems and trying to build the capacity to grow their company,” Fowler said. “The advantages that small businesses tend to have are customer service, knowing the local market better than the big guys do and really being in touch with the customer a lot better.”
Store Manager Tammy McDaniels of retail clothing store Dots, LLC, calls this relationship with the customer the girlfriend experience.
“I feel like smaller businesses like us are excelling where larger businesses are not based on the fact that we can focus more on the customer service in a smaller environment better then the big-box retailers,” McDaniels said.
McDaniels said that Dots is trying to expand the brand to appeal to a younger crowd while retaining the older demographic that the company started with more than 30 years ago.
“We provide a variety of styles that work for different sizes and types of customers,” she said. “We are really building on the brand and expanding on what we have already established.”
Dots has more than 400 stores nationwide and, according to McDaniels, the company is rapidly opening new stores to serve a growing market. Locations in Michigan include Jackson, Kalamazoo, Lansing and Grand Rapids and in August, 2011, a location was added in the Frandor Shopping Center in East Lansing.
Another Perspective on Michigan Business Growth
While Fowler says that Michigan’s small businesses are in a growing phase, Tom Scott, senior vice president of communications and marketing at the Michigan Retailers Association, has a slightly different perspective.
“I don’t think we are saying different things, I think we are just looking at different pieces of the economy,” he said.
Although Scott said it is encouraging that the Snyder administration is talking about economic gardening, he also said Michigan still has a long way to go.
“We lost over 850,000 jobs and there haven’t been the number of startups or any really new businesses that we had before that would make a healthy economy,” he said. “The number of retailers declined and the number of manufacturers declined even more than the number of retailers.”
Keys to Improving Business Growth in Michigan
According to Scott, there are several important elements to improving the health of Michigan businesses, starting with improving government incentives to help encourage businesses to develop in Michigan. Scott said the government should move away from economic hunting or, bringing in large companies from outside Michigan.
“Hunting can be important because you can attract a large company that can employ a lot of people, but you should not be doing that at the expense of Michigan-based businesses that have been here and created jobs,” he said.
Scott said one of the main problems with growing businesses in Michigan is that the state government has never really provided enough incentives for businesses that are here.
“What kind of message does that send when you are dangling all kinds of economic incentives for companies to come in and they come here paying lower taxes and taking advantage of other incentives that Michigan-based companies that have been here a long time are not getting?” he asked.
Scott said supporting Michigan businesses is important to creating jobs.
“Small and medium-sized business create the most jobs,” he said. “They have been the real job engines in the economy for a number of years.”
According to the most recent U.S. Census Bureau’s statistics of U.S. businesses, there were 499,797 small and medium-sized businesses providing 4,177,012 jobs and generating $142,877,124 million for Michigan in 2009.
Scott also said that talent retention is important.
“Talent is really the key to the future growth of Michigan’s economy,” Scott said. “Growth is really in areas where there is a high retention of college grads and Michigan’s is still way too low.”
Details on the Direction of Talent Retention
Lansing Economic Development Corporation Talent Retention Director Andrea Ragan said that retaining college graduates is a necessary part of financial growth in Michigan.
“It has been proven that higher levels of education increase the per-capita income for households in an area,” she said. “If we can increase the education level of our workforce, then people are going to have more money in their household, which is better for the economy all around.”
Ragan said that to increase education levels, retention rates have to increase.
“We are just trying to focus on remedying this one piece of our labor force that seems to be missing and that’s a workforce with the education that we are looking for,” she said.
Ragan said that although outside investors are an important part of Michigan’s economy, growing businesses using talent from within the state has a greater impact.
“There is so much we can do to encourage local entrepreneurship, which translates into talent retention,” she said. “If we can get college graduates coming out of the university and starting businesses here, then we can free up some additional local resources, because that relationship is there.”
New Talent Brings New Business and New Battles
Restaurant co-owners Jared Lawton and Seth Tompkins are Michigan State University graduates who returned to East Lansing to open What Up Dawg restaurant in February, 2011. What Up Dawg, 317 M.A.C. Ave., sells beer, chicken wings and snacks, along with a wide variety of hot dogs and sausages.
“We opened in February, but I would say September is when we officially introduced ourselves to the students of Michigan State University,” Tompkins said.
Tompkins said that the restaurant was built for students and families to come and enjoy the food and the atmosphere.
“We wanted to make this a place where students can come in between classes and sit down and enjoy a Faygo and a snack and use the free Wi-Fi or grab a beer,” he said.
The restaurant sells 10 sausages, eight of which are made in Michigan, Michigan-grown russet potatoes and Detroit-made Faygo pop, Better Made potato chips and buns.
“We hope that people realize that by supporting us, they are supporting a lot of local businesses that we buy from, as well,” Tompkins said.
The Hot Dog War
Although What Up Dawg is a small business that sells unique and locally made food products, it faces competition from across the street from a larger restaurant chain, Leo’s Coney Island, at 333 Albert Ave. Leo’s opened Nov. 5, 2011.
Leo’s Coney Island General Manager Sean Morris said the Coney dogs and the Greek salads are the number one and two sellers.
“We also sell breakfast, burgers and pitas; we have a wide variety in our menu,” he said.
Morris said that his restaurant benefits from being a part of a Michigan chain that includes 40 locations with each location customized to the community it serves.
“Being a small-business owner, it’s nice having the backing of the Leo’s name so once we move into the community, people already know who we are because of the chain,” he said. “But each store is specifically tailored to the community itself.”
Morris said any competition between him and What Up Dawg will play out just fine due to the difference in the menu options.
“They have their product and we have ours,” he said. “But we could definitely have a nice, friendly little competition from across the street.”
However, Tompkins and Lawton both said they are not afraid of the competition.
Lawton said that the fact that What Up Dawg is independently owned instead of a chain is what really sets it apart from Leo’s Coney Island.
“I know I am personally not a fan of the restaurants and stores that sell 8 million of the same thing,” he said.
Lawton also said that delivering food and selling beer along with its wide variety of hot dogs and sausages also sets What Up Dawg apart.
Although Tompkins acknowledged the competition’s larger menu, he said What Up Dawg has superior hot dog selection.
“If someone wants a real hot dog, they know where to go,” Tompkins said.
The Buy Local Trend
Much like what the What Up Dawg owners stated, Scott of the Michigan Retailers Association said that buying local is an important part of supporting Michigan businesses.
“There has been a more serious movement in the buy local trend in the past two to three years,” Scott said.
Michigania gift shop, 112 S. Washington Square in Lansing, sells Michigan-made products that store owner Alice Foster-Stocum said provided a great way for customers to support the local economy.
“It’s always important to buy local,” she said. “It’s not just a fad.”
Foster-Stocum said that Michigania proves Michigan is not just an automobile producer and that the state has a wide variety of food, wines and other locally made, high-quality products.
“We prove that Michigan grows better then any other state,” she said.
Michigania also provides arts and crafts products that are unique to the state.
“We ship packages to people who have moved away and want to be reminded of what Michigan is like,” she said. “If you want something special, you go to a specialty store.”
Michigania exemplifies Scott’s idea that buying local is one of the best ways to support Michigan-based business.
“It keeps small businesses growing,” Scott said. “The dollars stay in the community and help everybody, instead of being shipped out to some other state.”
The Retail Concept
According to Scott, small retail businesses always start with a good concept that needs only a strong customer base to grow into something profitable.
“If you have a good idea, you don’t need to have a million dollars backing you up in order to start your own business and prove that your business works,” he said. “Getting into retail is a very low hurdle.”
When it comes to being successful, Scott said start-up businesses have to be willing to take chances.
“Small business is a great experiment,” he said. “It’s a great way to test different concepts.”
The Rethreads Concept
Recycled clothing is a concept used by Rethreads, a thrift store 543 East Grand River Ave. that opened in February 2011. Manager Katrina Rhea said the store accepts vintage, designer clothing and gently used and new clothing, shoes and accessories for men and women.
“It’s a great concept because it’s good for the environment,” she said. “There’s a lot of waste in textiles every year and when you buy clothes here, you are cutting out the middle men between the brand, the department store and the customer.”
Rhea said customers are actually getting the real value of the merchandise because they are not paying the costs associated with the corporate brand and department store mark-ups.
“You’re not paying more than the worth of the clothing,” she said.
Rhea said Rethreads is not a consignment store and people can bring in merchandise to get cash on the spot.
“We are very competitive with the value of the merchandise and take into consideration, the brand and the material,” she said.
Rhea also said that because there is no tax on trade, customers can upgrade their wardrobes with vintage, high-fashion labels and unique foreign brands without the high cost associated with larger retail stores.
“We get a lot of international students that can’t possibly take all their clothes back with them, so we get a lot of high-quality European and Asian brands that are unique to everyone else,” she said.
Much like other small businesses, Rethreads is faced with the challenge of marketing on a budget. According to Rhea, there is only one other competitor that is not a consignment store, but does not offer the same variety of styles.
“Our demographic is age 16 to 96,” Rhea said. “We have opened our doors so there is really something here for absolutely everyone budget-wise, style-wise and age-wise.”
Rhea said that she thinks the main challenge the store faces is a lack of awareness.
“I think if people know what a gem it is, they will come in,” she said.
The Future of Small Business in Michigan
“There’s always innovation and reinvention going on from top to bottom,” Scott said. “But it’s a lot easier to innovate with a small business than with a large chain that is going to have to invest millions of dollars in order to implement a new idea.”
Scott said he has observed a loss in the middle range of business chains like Jacobson’s Department Stores, a Michigan-based retail chain that went bankrupt in 2002.
“You either have to be really large and sell on price or you have to be really small and unique,” he said. “It’s a dynamic industry and it’s always changing and making winners and losers all the time.”
However, Scott said he does not see any particular trend where small businesses are forced to transform into large businesses.
“There’s always going to be a place for small business,” he said. “Maybe somebody opens a store hoping someday they will be the next Target.”
Scott also said he doesn’t see small businesses getting run out by larger businesses.
“As long as they’re successful and as long as they’re employing people and creating new jobs and creating new wealth for the state, there’s always room for both small and large businesses,” he said.