Small Business

Detroit bottom could spell boom for Motor City entrepreneurs

Alison Heeres shares her urban chef project at a recent Detroit SOUP gathering, a combination public dinner-pitch fest.
Source: Detroit SOUP

Detroit's historic bankruptcy has not fazed everyone in what was once the nation's fourth-largest city. A burgeoning community of entrepreneurs is seeing opportunity and the chance to rebuild the Motor City.

"Some people feel like 'Oh my God,' there should be panic in Detroit! But I felt a sigh of relief," said Amy Kaherl, who runs a unique program selling meals to fund entrepreneurial ideas. "Time to just move on."

Detroit's nimble entrepreneurs and community leaders haven't been waiting for a bankruptcy filing, or court resolution to determine their fate. From parsing out microgrants to repurposing old warehouses, entrepreneurs—some millennials—have been harnessing the business adage "there's opportunity in a bottom." And while some efforts are just beginning, they're collectively helping Detroit reinvent itself as a city less reliant on manufacturing and big auto jobs.

'Don't feel sorry for us'

Community leaders during the past few years began creating urban renewal, often with small projects. As a point of reference, Detroit is a sprawling city, about 140 square miles with diverse neighborhoods and needs. The days of corporate giants such as General Motors propping up the Motor City are over, some entrepreneurs say.

"We love GM. We love the Big Three (automakers) and the jobs they do create," said Phillip Cooley, a Detroit entrepreneur behind several city projects, including Slows Bar B Q restaurant. "But the idea those hundreds of thousands of jobs in manufacturing (will) come back here, that's absurd to think we can wave a magic wand and they will come back," he said.

"There's not one big industry that's going to come in and save us," said Kaherl. She runs Detroit SOUP, a combination community meal and pitch fest for aspiring business and community leaders. "We can be an innovation city. We love living in Detroit," she said. "Don't feel sorry for us."

(Read more: Detroit's bankruptcy battle likely to be long and painful)

Detroit SOUP's Amy Kaherl.
Source: Nate Harrison

Detroit SOUP

Launched in 2010, Detroit SOUP hosts residents for a monthly public dinner. For $5, attendees get a meal and an opportunity to pitch a project or business. Each night's winner pockets the proceeds from the meal and the money raised from selling drinks.

The monthly prize money has ranged from $900 to $2,000, with guests pitching projects and small businesses, including food distribution to seniors and mowing lawns to reduce blight. Another SOUP-inspired project recycles huge flakes of chipped graffiti paint and refabricates those pieces as handcrafted jewelry. The efforts collectively have led to some new jobs.

About 200 residents attended the July dinner. As the group's visibility has grown, Detroit SOUP has received funding from the Knight Foundation and United Way. And the group is replicating the meal model in other parts of the city.

At 32, Kaherl is a young community leader. But she's not naive to Detroit's massive challenges. The city's population, which in the 1950s reached 1.8 million, is hovering around 700,000. In recent months, the city has used state-backed bond money to meet payroll for 10,000 employees.

"No real change is going to happen with just $800" from a public dinner, Kaherl said. But it's a starting point, she added.

Kaherl's peers, hungry to change Detroit, include millennials, those between 18 and 34. "Can large corporations be social innovators? That's a conversation millennials are having," Kaherl said.

Millennials generally are skeptical that large organizations will solve our modern challenges, said Philip Auerswald, author of "The Coming Prosperity: How Entrepreneurs Are Transforming the Global Economy."

In the new book, he explores Detroit, GM and their ability to generate innovation. "There are a lot of conversations about what constitutes long-term viability among big companies," Auerswald said.

(Read more: Millennial train hopes to inspire a 'nation of tinkerers')

McClure's Pickles recycles old auto warehouse

Beyond sparking innovation and business activity, removing blight is another key challenge for the city. But again, leave it to crafty entrepreneurs, who have been repurposing cheap, under-used structures.

McClure's Pickles makes hand-crafted pickles. But when they outgrew its Brooklyn, N.Y. facility, they relocated its pickle factory last year to an abandoned American Axle & Manufacturing warehouse in Detroit.

Founder Joe McClure, a Michigan native, chose the warehouse for its sound structure; and no need for a new roof or floor. And the $250,000 price tag was far less than the cost of a new plant.

And there was a bit of history to the building, where parts once were made for the Big Three automakers. Those manufacturing jobs were moved to Mexico. The new pickle factory employs three, with plans for about five more hires by 2014. And McClure saved American Axle's old signage. "We kept a lot of the things they had up," he said.

The jar labels for McClure's Pickles, available in outlets including Whole Foods and Williams-Sonoma, proudly declare, "Brooklyn*Detroit."

(Read more: Best and worst U.S. cities for small-business workers)

Source: O&O


Cooley is also tackling blight by repurposing structures. During the depths of the Great Recession and foreclosure aftermath, the entrepreneur bought a Detroit warehouse for $100,000. With the help of fundraising and an army of volunteers, Cooley offers his business tenants a roughly 75 percent discount on rent.

Detroit's "landscape isn't conducive in its current condition for innovation and productivity," Cooley said.

The multiple-use space, called Ponyride, is home for about 40 small companies and community projects—some of them generating jobs. Tenants include music producers, Web developers, printers and clothing designers—with one business making domestically sourced blue jeans.

(Read more: Welcome home: 'Made in U.S.A. on the rise)

What went wrong in the Motor City?
What went wrong in the Motor City?

Tear down chunks of Detroit?

But another Detroit entrepreneur, Dan Gilbert, who founded Quicken Loans, told CNBC last week that he supports demolishing abandoned structures to move the city forward. Gilbert, among Detroit's largest landholders, estimates about 120,000 commercial and residential properties need to be removed. As chairman of Quicken Loans, he moved its headquarters to the Motor City in 2010. The company employees about 9,200 people in downtown Detroit.

Whether it's demolishing or recycling structures, the larger point is to act—not wait for a manufacturing miracle to resuscitate the Rust Belt. The court battle over Detroit's future, meanwhile, continues. On Wednesday, a judge ruled that a federal court can decide whether the city is eligible for Chapter 9 protection.

Beyond Detroit's borders, more Americans may be affected by the Motor City's financial crisis. One analyst already doesn't see Detroit as a one-off. "You can hold your breath and wait for government and big banks to save you," Cooley said. "Or you can change it."

(Read more: Youngstown's story: Rust belt turns to 'tech belt' for jobs)

By CNBC's Heesun Wee. Follow her on Twitter @heesunwee