Published: Saturday, January 07, 2012, 6:00 PM Updated: Monday, January 09, 2012, 8:13 AM
CLEVELAND, Ohio — The lecture title no doubt helped draw the throng to Shaker LaunchHouse on a cold and rainy November night. “Launching a Billion Dollar Company: The Story of OfficeMax.”
More striking than the size of the crowd was its youthfulness. Young professionals, college students and even some high schoolers filled more than 300 folding chairs arrayed across what was once the service garage of a car dealership.
They came to hear local businessman Bob Hurwitz describe how he built from scratch a chain of office superstores. First, Todd Goldstein, the 29-year-old co-founder of LaunchHouse, reminded everyone why that mattered.
Standing before the audience dressed in the uniform of the tribe — blue blazer over a white collared shirt and blue jeans — Goldstein stated the obvious.
“Billion-dollar companies are not coming to Cleveland,” he said.
Then he stated the not-so-obvious.
“And the next great idea may be in this room tonight.”
The appreciative murmur that swept the crowd was further evidence that Goldstein and his friend and business partner, Darragh “Dar” Caldwell, also 29, know well the passions of their peers. They have spent much of their young adulthood steering youthful zeal into business acumen, a quest they see as critical to the city they love.
The new economy is built on innovation and if Cleveland wants to join it, the founders of LaunchHouse argue, it needs the techies and tinkerers who hear a different drummer. It needs the next generation of job creators.
Their hip and youthful business incubator has not yet spawned a company like OfficeMax. But it has become the home to dreamers who might have gone elsewhere. Many see a powerful new economic development stream coursing just outside the mainstream.
Opened in May with the support of Shaker Heights, the region’s most casual business accelerator has quickly gained followers. LaunchHouse is home to about 90 young companies, ranging from animators to energy-bar makers to designers of cloud computer systems. Some of those startups are partly owned by LaunchHouse, which invests in ideas it deems promising.
LaunchHouse draws growing crowds to its networking events and product showcases. It has also displayed an ability to attract cash, bringing in enough revenue to cover its costs. Meanwhile, the incubator has invested $130,582 in 30 companies. That investment, in turn, has attracted $1.8 million in follow-up funding, the partners say.
This month, they expect to celebrate a seminal moment, the first LaunchHouse-launched company bought by outside investors.
The business outlook is encouraging, Caldwell and Goldstein say, but they take more pride in setting the stage. Their dream, they said, was to build something wholly new to Cleveland: an ecosystem that nurtures young entrepreneurs.
Coffee is free, along with advice
To step into LaunchHouse is to enter a dynamic new business environment. It’s a bright, 24-hour world of laptops, smartphones, iPods and whiteboards; sort of a cross between a college dorm and the Union Club. Twentysomethings with backpacks flow in and out of the door, as do their mentors, briefcase-bearing retirees.
Rent is a low $100 a month for a work space, $500 for an office, $15 for a day pass. Coffee is free. So is the advice, which comes from all directions.
“We’re really building a community and a culture where people connect with each other,” says Goldstein, whose earnestness is amplified by a baritone voice. His grandfather, Buddy Spitz, ran the networking hotspot of a previous era, the legendary Theatrical Restaurant downtown. Now the grandson is carrying on the family tradition of social catalyst, offering coffee and energy bars instead of scotch and sirloin.
“The whole idea is to put these entrepreneurs in front of a range of people who can drive their business forward,” Goldstein said.
Then give them a push.
“We like people to fail quickly,” he added. “So they can get started on the next idea.”
Caldwell, an Ivy League graduate with a trace of his mother’s Irish brogue, said he wanted to replicate some of the vibe he witnessed in Silicon Valley. He suggests stopping by LaunchHouse at 2 a.m., when the lights still burn bright.
“And some people are jamming away on code. And the place is packed. It’s just a beautiful feeling,” he said. “That wasn’t happening enough in Cleveland.”
To his credit, it’s happening now. But to what end? Can LaunchHouse, and incubators like it, create wealth and jobs?
Scott Shane, a professor of entrepreneurial studies at Case Western Reserve University, is skeptical. Entrepreneurship is a tough way to generate jobs because most startups fail or never employ many workers, he said.
“People have this myth in their mind that one of them will be the next Google,” Shane said. “Lightning can strike anywhere. But the chances of that happening at LaunchHouse are not good.”
Still, you can’t win if you don’t play the game, he acknowledges. And jobs are not the only payoff.
Shaker Heights mayor pleased with results
The former Zalud Oldsmobile dealership was 23,000 square feet of emptiness on busy Lee Road, near Chagrin Boulevard, when Goldstein pitched his idea to Shaker Heights Mayor Earl Leiken in 2010. He and Caldwell had a track record and a problem.
Their business address, the old Brunswick Florist building on Carnegie Avenue in Cleveland, was being razed for a parking lot. They needed to relaunch.
Leiken envisioned young professionals with lunch budgets, foot traffic in a major retail district, an infusion of cool. His city spent $500,000 renovating the dealership and handed the keys to Goldstein and Caldwell rent-free for four years. In exchange, Shaker gains a small equity stake in LaunchHouse companies. And something more.
“It’s been a terrific addition to the surrounding neighborhood,” the mayor said, noting that some of Shaker’s home-based business owners are now LaunchHouse regulars. “And it really strengthens our image as an entrepreneurial community.”
On a recent weekday morning, the former showroom stirred with about 20 people, some working in pairs, some talking at tables, many — like Mickie Rinehart — sitting alone behind a laptop.
Rinehart, 44, started her line of beer flavors, Hops Drops, last summer after being laid off from her job as an administrator for a non-profit education agency.
“I just pitched this morning [to potential investors],” the Lakewood woman said breezily, still pumped. “I had to decompress. So I had to come and be among entrepreneurs.”
James Gifford, a 15-year-old home-schooled tech wiz, was talking computer code with Dan Robinson, a weathered 49-year-old who has an idea for building wind turbines from junk.
Katen Pabley, the 39-year-old chief executive officer of Good Greens Nutrition Bars, walked by in a suit. He paused and opened his laptop to show a clever, animated video promoting his product. It was created by another LaunchHouse tenant, Tiny Giant Studio, led by Dave Fleischer, a former teacher of animation at the Cleveland Institute of Art.
“We had no idea you could do this,” Pabley said.
Friends, partners, change agents
Goldstein and Caldwell began sparking that kind of collaboration four years ago, soon after coming home from college. Caldwell, who grew up in Bainbridge and graduated from Cornell University, was working as a landscape architect. Goldstein, a Lyndhurst native who studied finance at Rhode Island’s Johnson & Wales University, was running a real estate investment firm.
They met on a rehabilitation job and, over beers, lamented the state of their hometown. All of their friends seemed to be leaving for startup-friendly cities. They saw a need to help young innovators find some love in C-town.
“We’re kind of obsessed with Cleveland,” said Caldwell, who lives the single guy’s life in Shaker Heights, sharing an apartment with other young entrepreneurs. “We love it here. We wanted to raise kids in a world-class city. But it’s not quite that, yet.”
In 2008, they started Goldstein Caldwell & Associates above a pizza parlor in University Heights and established their business model as early-seed venture capitalists. Typically, they make modest investments in promising ideas, surround the founders with seasoned advisers, and push them to bring a product to market. They’re aim, they say, is to raise a fledgling company to the next level or attract a buyer who can.
They hit a nerve. Networking crowds spilled onto the sidewalk. They moved to the roomy Brunswick Florist building, attracted more investment, and caught the eye of established economic-development specialists.
“They did it all by themselves, that’s what’s amazing,” said Baiju Shah, CEO of BioEnterprise, a nonprofit agency focused on growing the region’s biomedical economy. “There’s only a couple others like them, who are just jumping in and doing it.”
Last year, the duo became a trio when Sam Krichevsky, also 29, quit his job running a nursing home and joined LaunchHouse as its third managing partner.
Krichevsky, a Pittsburgh transplant, said he believes in the model and is eager to see it grow.
The partners, who run the place with seven paid employees, plan to expand the cubicle ranks into the old service bays to squeeze in 10 more companies. Plans are in the works for a LaunchHouse Institute, which would teach business skills to rookie CEOs.
Meanwhile, the larger, original goal still guides the mission.
Just before it opened last spring, Shaker LaunchHouse hosted an international delegation from Serbia. The educators and business leaders from Belgrade were interested in nation building. They said they needed ideas for shaping a society that could keep its best and brightest.
In a former auto showroom in Shaker Heights, they met a young man who understood completely.
“Typically here, kids graduate from college and don’t come back,” Goldstein told the group, as eyebrows arched and heads nodded in recognition. “We want to give them a reason to come back home and stay.”