December 20, 2013 at 11:35 am

Bankrupt, Not Broken

Small businesses need city to get out of way

Detroit's policies work against an employment comeback built on an entrepreneurial boom

What is Detroit doing to attract the next Berry Gordy -- and keep them around after they reach success? (Detroit News file photo)

Berry Gordy Jr. launched Motown Records in a small, private home on West Grand Boulevard. The music label became one of Detroit’s most iconic symbols and the house, nicknamed “Hitsville,” now serves as a museum of the musical movement.

Good luck to the next Berry Gordy. Detroit’s zoning restrictions on home-based businesses would make it virtually impossible for Gordy to duplicate his start-up success today.

Jobs are a key ingredient in Detroit’s recovery. It’s unlikely that a giant manufacturer will site a new plant here, creating thousands of jobs at once, as they did in the city’s heyday. Rather, Detroit’s employment base will be built a job at a time by small businesses and entrepreneurs.

And yet the city’s policies make it one of the most cumbersome places in Metro Detroit for small businesses to open and operate.

The city’s laws and ordinances work against a turnaround built on an entrepreneurial boom. High on Mayor-elect Mike Duggan’s list of economic development priorities should be a complete regulatory reworking.

Phillip Cooley was in the first wave of young entrepreneurs committed to making downtown Detroit cool. The founder of the hugely successful Slow’s Barbecue on Michigan Ave. is now helping other start-ups take root through his Ponyride incubator.

“You have to go through a lot of ridiculous hoops,” says Cooley of the permitting process facing small businesses. “The people we deal with at City Hall are great, they want the same thing we want — lots of new businesses. But the process makes no sense.”

In many ways, Cooley says, Detroit is locked into zoning regulations better suited for suburban communities than a downtown looking to create an urban experience.

For example, Detroit requires small businesses to have a specific number of surface parking spaces, depending on the size of the enterprise.

“We don’t want a lot of flat parking lots in an urban environment where people are walking or using public transportation,” Cooley says.

City rules also prohibit two businesses that sell liquor from siting within 500 feet of each other, which makes it harder to develop an entertainment strip. Sugar House, the craft liquor bar next door to Slow’s, had to wrestle with the city for months before getting a waiver.

“Business owners have no problems with protecting public safety,” Cooley says. “But ordinances that add time and money to the start-up process need to be eliminated.”

It’s not just city policies that get in the way of job creation. Further down Michigan Ave., the Two James distillery faced a wall of obstacles from the state before it was able to open this year.

Michigan has among the most restrictive liquor laws in the nation, serving largely to protect the monopolies of distributors. It forbids a business from producing, distributing and serving alcohol from the same location. Two James got its permit after a year of frustration and some clever tactics to comply with the rules.

“We hired 15 people,” says co-owner Dave Landrum. “It shouldn’t be so hard to put people to work.”

Micro breweries and craft distilleries are the hottest thing in downtown entertainment districts across the country, but Detroit can’t capitalize because of archaic state laws. Proposals are pending in the Legislature to change those rules, but are meeting opposition from the liquor lobby.

Larry Mongo owns D’Mongo’s on Griswold. The restaurant has limited seating and is open for just a few hours a week. He’s locked in a four-year fight with the city over six small tables he placed on the lightly traveled sidewalk out front.

Mongo has a large stack of paperwork documenting his battle with the city, which first OK’d the tables and then slapped him with tickets for not fencing them in and providing too little room between seats.

“I want to be here, I want to be part of downtown,” says Mongo, adding he’d increase his summertime hours and hire more workers if he could keep the tables. “But they’re making my life miserable.”

A mind-set in City Hall that treats business owners as suspect is the first thing that must change if a city such as Detroit hopes to rebuild on the strength of entrepreneurs, says Michael LaFaive of the Mackinac Center in Midland.

“Lots of small businesses have the potential to be the next big thing,” says LaFaive. “But government has to get out of their way.”

LaFaive advocates for ending Detroit’s personal income tax. “Cities without an income tax grow faster than those with one,” he says.

Detroit, he says, should also look at cities such as Indianapolis, with a far more business-friendly regulatory structure, and mimic what they do.

And he said the city should spend more on public safety in business districts. That’s something business owners say is essential. Dave Stienke, who opened the Otta Via restaurant in Corktown this summer, says crime is Detroit’s Achilles’ heel in terms of nurturing a more vibrant business community.

“People will come downtown, but they have to feel safe and they have to know their cars won’t be broken into,” says Stienke, who is pooling with other businesses to hire private security for their neighborhood.

Small business owners say it takes eight months to a year to get permits necessary to open or expand in the city, compared to a couple of months in the suburbs. LaFaive says Detroit should adopt time limits for issuing permits. Across the city, a black market of sorts is growing of businesses that operate without full permits because the city takes so long.

“A lot of businesses get tired of the wait and go ahead and open and let the permits catch up to them, if they ever do,” LaFaive says.

Regulations should protect public safety, but they should also work to help businesses get started and grow. Big, flashy projects give the city an ego boost. But Detroit’s comeback will be built on small businesses.

The city must figure out what those start-ups need to become the next Motown, and make sure its doors are open to both ideas and capital.

Third of three parts
Businessmen like Larry Mongo make downtown Detroit vibrant, but the city ... (Ricardo Thomas / The Detroit News)