MiBiz Crystal Ball 2018 by MiBiz

Crystal Ball Insights, economic sentiment and forward-looking strategies from West Michigan’s business leaders

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DECEMBER 26, 2017 | Special Year-End Edition: MiBiz Crystal Ball 2018

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2018 CRYSTAL BALL

MOMENTUM

n the dozens of interviews with West Michigan executives for this special edition, the notion of momentum — whether within the overall economy, their industry or their company — seemed to dominate their outlook for next year. Generally, executives have dropped “cautious” from their optimism for the first time in the post-recessionary years. They believe in the fundamentals of their businesses and their ability to generate strong cash flows and profitability. They’re not overly worried about navigating bumps in the economy, higher interest rates or other changes happening in the industries where they compete. In fact, most of our sources seem to be trusting their guts that their companies have some runway left and that the national growth spurt has some legs left to it. Few executives or economists think the overall economy will crash, although they do admit some uneasiness with the increasing length of the current recovery. As a result, we’ve started to hear business owners across a range of industries taking action now to bolster their companies for the future. It’s not that they’re betting a major downturn will occur, but in West Michigan, it’s in our DNA to be fiscally conservative and not make the same mistake twice. That’s why many companies are building up reserves, paying off debt and being cautious not to over-leverage. And, as Portage developer Rick DeKam points out, “The winners from the last recession were those with cash.” It’s not just the financial capital they’re focused on right now. Almost universally, executives cited talent (i.e., human capital) as the largest factor that’s reining in corporate growth. The winners of the next few years will likely be the companies that can attract and retain good workers. It’s the one area in which no one seems to have figured out the silver bullet. Or, if they did, they’re keeping it extremely close to the vest. That is also a quintessentially West Michigan trait. Even so, many of the executives we spoke with could barely contain their scorn for the devolution of the American political system playing out in Washington, D.C. among members of both parties. Many voiced particular contempt

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for the Tweeter in Chief, a self-acclaimed businessman who seems unable to grasp many of the global complexities they face on a daily basis. They’ll take the tax breaks, thank you very much. They appreciate the easing of regulations. But for the sake of all that is holy, will someone please take away that man’s smartphone? Closer to home, they largely praise the work term-limited Gov. Rick Snyder has done to improve Michigan’s business climate. Here, the momentum narrative carries over, considering the state’s entering year nine of what’s projected to be a decade-long economic recovery. But the University of Michigan forecast does have one sobering reminder of the expansiveness of the state’s economic malaise: After nine years of economic growth, Michigan still has only recovered 80 percent of the jobs it had at its peak in 2000. Michigan’s next governor, who will be elected next year, will face a tall order in recouping the remaining 20 percent of jobs, but the person should focus on sustaining the efforts that have brought us back so far, according to most executives. As Snyder himself told us in an interview last week, Michigan’s next governor needs to work above the divisiveness of national politics and show some civility. While he also recommended the next governor balance budgets early, work on infrastructure and so forth, he perhaps best summed up what’s needed to keep Michigan’s momentum going when he said: “We don’t need fighters, we need people that show how people can work together.” Here’s hoping that the momentum continues and we’re all feeling as good at the end of next year. Cheers,

Publisher Brian Edwards / bedwards@mibiz.com Associate Publisher Denise Schott / dschott@mibiz.com Editor Joe Boomgaard / jboomgaard@mibiz.com Senior Writer Mark Sanchez / msanchez@mibiz.com (finance, health biz, life sciences) Staff Writers Mitch Galloway / mgalloway@mibiz.com (manufacturing, agribiz, econ. development) Nick Manes / nmanes@mibiz.com (real estate & development, small biz) Associate Editor Josh Veal / jveal@mibiz.com (nonprofits, web editor) Contributing Reporters Andy Balaskovitz, Jane Simons Copy Editor Claire Boomgaard Photographers Katy Batdorff, Jeff Hage Director of Marketing & Audience Development Kristi Kortman / kkortman@mibiz.com Senior Advertising Consultant Shelly Keel / skeel@mibiz.com Advertising Consultant Renee Looman / rlooman@mibiz.com Editorial Designer & Ad Traffic Coordinator Rachel Harper / rharper@mibiz.com Circulation For address corrections or subscriptions, contact MiBiz at 1-877443-1977 or subscribe@mibiz.com MiBiz ISSN 1085-4916 • USPS 017-099 Established 1988

Brian Edwards Publisher

Joe Boomgaard Editor

BLOEM LIVING

WINNER | DEAL: LESS THAN $25M

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Ryan Mast, founder and president, Bloem Living. PHOTO BY KATY BATDORFF

Bloem Living ‘swallows whale’ with carve-out acquisition from Fiskars By JOHN WIEGAND | MiBiz jwiegand@mibiz.com

Mast founded Bloem in his basement in 2012 along with his sister and a handful of investors. After gaining traction with a handful of key accounts, the company hile Bloem LLC had been hunting for quickly launched an acquisition strategy to capitalize in-house production capacity that on the consolidating lawn and garden market. While Bloem had made two previous acquisitions would allow it to grow, the company found its solution in an unlikely place: — DuraCo Brands and BloomBags — the deal with an unsolicited email from one of its Fiskars was different. In its two prior deals, Bloem largest competitors. built the acquired companies from the ground up, Fiskars Brands Inc., a Finland-based public- whereas this deal was for a mature operation with an ly-traded global consumer brands company, con- established book of business, Mast said. tacted the Hudsonville-based manufacturer of “Being it was a carve out from a larger organization planters and other outdoor lawn and garden prod- made it more challenging because there were costs ucts in a bid to spin off its American Designer associated with it that we had to assume or make Pottery business, headquartered in Apopka, Fla. assumptions on to drive up that working capital numJoining MiBiz for a roundtable on M&A were (top left to right) Kurt Barr of Cascade Partners LLC, Max Friar of Calder Capital LLC,For JeffBloem Helminski of Auxoand Investment Partners Johnthe Kerschen founder president Ryanand Mast, ber,” Mast said. of Charter Capital Partners; (bottom left to right) Matt Miller of BlueWater Partners LLC, Peter Roth of Varnum LLP, Tami Rua ofinquiry Rua Associates LLC and Sean Welsh of PNC Bank. PHOTOS BY JEFF HAGE.That meant Mast relied heavily on his group of came as a surprise. “I couldn’t believe it. Honestly, I was a bit shocked advisers to help analyze and drill down into American at first,” Mast said. “It should have been them buying Designer Pottery’s financials to ensure the best mulus. It really was the fish swallowing the whale. They tiple on the deal. were one of the main players in the industry, and we “At that point, it’s all due diligence,” he said. looked at them as being a very difficult to displace “Working through the due diligence process with competitor and we were beating our heads against (advisers) who have done it at that scale was the the wall for several years.” ticket.” Bloem’s acquisition of American Designer Pottery The scope of the deal also presented chalfrom Fiskars won the company the top spot in the lenges when it came time for Bloem to close on the 2016 MiBiz Deals and Dealmakers of the Year Awards acquisition. for transactions of less than $25 million. Although the deal with American Designer Pottery would give Bloem much-needed access to in-house production capability, the prospect of striking a deal with a publicly traded, international firm seemed daunting, Mast said. Company: Bloem LLC “You’re dealing with a publicly traded multinational By MARK SANCHEZ | MiBiz a little bit the last few quarn Peter Roth, an M&A attorney and partner Top Volumes executive:are Ryandown Mast, President company (that’s) very buttoned up in their organizaAnnual Between $40 million and $50 million healthy msanchez@mibiz.com ters.sales: Regarding 2017, we’re expecting at Varnum LLP, which sponsored tion and procedures,” he said. “Then you have more Total employees: in Westby Michigan; deal activity15 driven a lot of the same factors the roundtable of an entrepreneurial-spirited company coming into 150 that in Florida thethe mix here looking to take over a carve out.” rofessionals working in mergers and have been driving a strong market for n Tami Rua, managing partner at Rua Business description: Hudsonville-based The size disparity between the companies also preacquisitions in West Michigan expect last few years. (Companies have) limited growth Associates LLC and NuVescor Mergers Bloem manufactures a variety of molded plastic sented communications challenges as Fiskars could strong deal flow to continue in 2017, opportunity, a need address disruption and & Acquisitions decorative planters, bird bathstoand other outdoor dedicate departments of people to the acquisition, maintaining a seller’s market. transformation rea-Bloem had only a handful of employees able to n Sean Welsh, regional president for West while garden accessories. in industries for … strategic workofon the deal. The group brought together sons, and —Johnson as we all knowDWH — the availability Michigan at PNC Bank Advisers: Miller (legal); Group “Aligning those individuals on each side to move Huntington by MiBiz for an M&A roundtable discussion creditand and the cashBank on balance sheets of corpoHere are the highlights of what they had to say. (financial) (the deal) along expeditiously was challenge number

“It should have been them buying us. It really was the fish swallowing the whale. They were one of the main players in the industry, and we looked at them as being a very difficult to displace competitor and we were beating our heads against the wall for several years.” —RYAN MAST FOUNDER AND PRESIDENT, BLOEM LIVING

— M&A Roundtable —

MORE OF THE SAME? WINNER as | DEAL: LESS THAN Seller’s market largely unfazed by rising interest rates, politics deal flow$25M keeps pace

generally offered favorable views of Presidentelect Donald Trump’s pro-business policy agenda and doubted that rising interest rates would slow activity. Participants in the roundtable discussion included: n Kurt Barr, a director at Southfield-based investment bank Cascade Partners LLC n Max Friar, managing partner at Calder Capital LLC n Jeff Helminski, managing partner at private equity firm Auxo Investment Partners n John Kerschen, managing director at Charter Capital Partners n Matt Miller, managing partner at BlueWater Partners LLC

What’s the current state of M&A and where do you see it going? FRIAR: I see the market as extremely strong, at least in the segment that we play in, which would be sub-$500,000 transactions — so typically very small transactions. Interest rates are obviously low and banks seem to be extremely eager to finance transactions. I feel like buyers are out there in droves, and sellers continue to enter their 60s. In most of the top transactions that we do, the sellers are doing it for retirement reasons. Overall, I’m extremely confident. (2016) has been a great year and I think (2017) is probably going to be more of the same. MILLER: We’re essentially seeing the same thing. Values are up at or near historical highs.

rations and private equity dry powder. ROTH: I saw a lull mid-year, and was kind of won-

one,” Mast said. Once the deal closed in January 2016, Bloem began integrating American Designer Pottery’s manufacturing into its operations. Initially, Mast was concerned about how American Designer Pottery employees would integrate with the culture at Bloem. “We found the people to be culturally an incredible fit for us,” Mast said. “They were hungry for more focus on their flower pot category. They were committed to the organization and the facility in Apopka, they came with years of experience, and we really hit it off well with them.” Since acquiring American Designer Pottery, Bloem has invested approximately $1.5 million in facility upgrades and new equipment into the operation in Florida. Bloem plans to make similar investments as the company continues to grow, Mast said. “The employees appreciated the love we were showing them,” Mast said. “It really gave us the opportunity to ride in on a white stallion and that was unique. So often these acquisitions folks come in and they’re looking for cost savings. For us, that’s a long-term goal, but at the same time, they have an identity — they’re Bloem.” ■

COPYRIGHT 2016 we © MIBIZ. findend. out more dering whether were atTothe I’veabout seenWestern a tre- Michigan’s leading business publication, including subscription and advertising information, visit MiBiz.com

mendous pick-up in the last couple months, and the pipeline going into ’17 is probably stronger than it was going into ’16. I’ve kind of reversed course from thinking we’re tailing off a little bit to (thinking) 2017 is going to be an even better year than 2016. The one overlay I would have on that is that while I’ve seen people jumping into deals, I’ve seen buyers be a little pickier on the diligence. I saw more busted deals in ’16 than I have in other years, and where people doing deals are being a little more careful in due diligence. A few more people were willing to kill deals after they’ve gone a ways down the path. HELMINSKI: What we see in the market is a

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Special Year-End Edition: MiBiz Crystal Ball 2018 | DECEMBER 26, 2017

2018 CRYSTAL BALL

BRAD DAVIS

Owner of Industrial Woodworking Corp.

TED LOTT

Co-owner of Lott3Metz Architecture LLC

NELSON JACOBSON

Chairman, President and CEO of JSJ Corp.

JIM TEETS

President and CEO of ADAC Automotive

— EDITOR’S NOTEBOOK —

FOUR PERSPECTIVES ON 2018 By JOE BOOMGAARD | MiBiz jboomgaard@mibiz.com

hen Brad Davis looks ahead to 2018, he gets very excited about the future of his company, Zeeland-based Industrial Woodworking Corp. The manufacturer’s MedViron division, a brand of furniture for health care environments, has been gaining steam in the marketplace, earning recognition from customers and competitors alike for its innovative, high quality products. “I’ve never been as excited, even when we were just starting as a company,” he said. “I don’t believe I’ve worked this hard since I first started the company, either. It is foot-to-ass all day long, every day.” It’s been about a decade since I first met the ever-quotable and gregarious Davis, an industrial designer and entrepreneur who wears his heart on his sleeve. He’s opinionated and frank, but in a way that breaks the mold of a stereotypical Zeeland industrialist. In other words, he’s just the kind of person I put on my list to talk to for an end-of-the-year gut-check for the annual Crystal Ball edition of MiBiz. Back in November, I gave myself an assignment that would allow me to meet with a smattering of executives from all over West Michigan to get a pulse on where they see the economy and their businesses as the calendar inches ever closer to 2018. Here are their stories.

GOING DEBT-FREE Industrial Woodworking Corp. has carved out a niche as a contract manufacturer of wood casegoods for the office and health care furniture segments. While the Zeeland-based company long served as a Tier 1 supplier to various big furniture OEMs, Davis out of necessity had to reinvent the business about five years ago, around the time the provisions of the Affordable Care Act kicked in and his business ground to a screeching halt. Davis recalls some “pretty dark” times after the the ACA upended hospitals’ spending for items like furniture, throwing his company into standstill. That led to the creation of MedViron, a line of overbed tables, bassinets, casegoods and other health care furnishings.

“Seriously, I can’t believe what’s happening with this brand. It’s really kind of cool.” — BRAD DAVIS Owner of Industrial Woodworking Corp.

After returning from a health care design show in November, Davis said the positive reception and orders show the company’s investment in the brand is starting to pay off with real cash flow. “Fortunately, I’m not a publicly held corporation so I don’t have stockholder equity challenges that I have to deal with,” he said. “I can go ahead and take the long approach and say I can lose money for a year or two or breakeven — which is what we did basically, just breaking even for a couple of years. “Seriously, I can’t believe what’s happening with this brand. It’s really kind of cool.” While he’s bullish about his company, Davis keeps watching the overall economy and the unbridled growth in the stock market with healthy suspicion. The same goes for the financial industry, which explains why he also sought to take control of the company’s financial destiny. “I have no financing at all — none,” he said. “We have no debt, even on our physical plant. Our last two major pieces of equipment, which were CNCs that are well over $100,000 each, we bought those with cash. “We’ve just developed a business and products that we can scale up or down depending on the economy. We can still be here and we’re

DECEMBER 26, 2017 | Special Year-End Edition: MiBiz Crystal Ball 2018

not going to be crushed by a level of debt that is unserviceable when the economy goes south.” As for the ACA, the law that changed the course of his business when orders dried up from his OEM customers: Davis said the pain his company and his industry went through was worth it because it meant millions of people received access to health care who previously could not afford it. “I’m just one guy, and there’s 35 million people out there that have care. That’s a lot bigger than me,” he said. “That’s what made our country great, that we cared about each other.”

“I suspect there are ways to be certain or to have certainty in your life, but owning a business, to me, never seemed to be the way to do it.”

— TED LOTT Co-owner of Lott3Metz Architecture LLC

TED TALKS After last year’s Crystal Ball edition dropped, I saw my Twitter mentions light up with comments from Ted Lott, co-owner of Grand Rapids-based Lott3Metz Architecture LLC. The loquacious Lott took to social media to call out the number of mentions of the word “uncertainty,” which executives cited as driving their outlooks for 2017. Lott didn’t buy it then, and still doesn’t today. “I suspect there are ways to be certain or to have certainty in your life, but owning a business, to me, never seemed to be the way to do it,” he said. When asked if he thought business execs use uncertainty as an excuse for not having to take a stand on the record, Lott said: “Call it what you will, I just don’t understand.” Fair enough, so I teed up the question we’ve asked hundreds of executives again this year for Crystal Ball: What’s your outlook going into next year? “I think we’re bullish,” Lott said. “I feel like we still have a lot of capacity in our local market. I think there’s still a ton of great work that needs to be done. I hope that we’re going to be able to do some of it. At a very basic level, I have to be optimistic.” Lott3Metz is coming off a year in which it’s seen movement on several “flagship projects,” including the Museum School at 54 Jefferson Ave., the site of the former Grand Rapids Public Museum, as well as the future home of the West Michigan Center for Arts & Technology as part of Rockford Construction’s “super block” development on the city’s west side.

The company’s focus is inherently local, with most of its projects coming within the Grand Rapids city limits. As such, Lott said policy and leadership at the local level most shape how his company does business. That’s why he’s “hugely concer ned” about two executive vacancies within the city bureaucracy, for city manager and leadership at Downtown Grand Rapids Inc., which administers the city’s Downtown Development Authority. “That will absolutely affect our day-to-day operations, because we deal with the city every day,” he said. “We’re very hopeful for change in the city and we’re looking forward to it, but it absolutely will require us to change the way we do some things. Those are two really big leadership changes in the city right now that will absolutely affect our work.” As an urbanist, Lott also would like to see cities like Grand Rapids control more of their own destinies, which would require state government “walking away from all of the regressive, anti-city policies” it’s enacted in recent years. “Grand Rapids needs to be able to have a sales tax so we can fund transit. The state won’t allow us to do it, and that needs to be changed,” he said. “If we decide we want inclusionary zoning, we should be able to have inclusionary zoning. If we decide we want to ban plastic bags, we should be able to ban plastic bags. That kind of crap from the state government is bullshit. “The real issue is, get your hands off our stuff. It’s just ridiculous. I’d much prefer them to allow us to govern our city the way we see fit.” Visit www.mibiz.com

2018 CRYSTAL BALL PEOPLE PERSON Next year will mark the 99th year in business for JSJ Corp., a third-generation closely held diversified manufacturing business based in Grand Haven. That intertwined corporate and family legacy weighs on Chairman, President and CEO Nelson Jacobson, as he observes the current nationalist rhetoric coming out of Washington, D.C. “I am three generations removed from Sweden,” he said, referencing his grandfather, Alvin Jacobson Sr., who co-founded what would become JSJ Corp. with Paul Johnson in 1919. The business today includes local companies GHSP Inc., Izzy+ and Dake Corp. “My grandfather and Mr. Johnson, they were Swedish immigrants, so I don’t know what right we have today to say people can’t come in,” Jacobson said. “We are a nation of immigrants. The Statue of Liberty says, ‘Give me your tired, your hungry, your poor’ and I just don’t know why we have a right to say, ‘No, we’re closing the doors now.’” Jacobson acknowledges the need for the country to protect its borders and to have rigorous vetting in the immigration and refugee process, but he dismisses as “an easy political statement” the notion that immigrants — whether legal or otherwise — are taking jobs away from American workers.

“Business is just really strong, and it’s strong here in Michigan, it’s strong nationally, and it’s strong globally. I just think that gets lost.” — NELSON JACOBSON Chairman, President and CEO of JSJ Corp.

With much of the country at near full employment and companies struggling to find skilled workers, it doesn’t make much sense to restrict the labor pool even more, he said. “It’s a global marketplace, it’s a global need for talent. I think it’s very, very short sighted.” He u s e s t h e e x a m p l e o f Hu d s o n Technologies, a Daytona Beach, Fla.-based division of JSJ Corp. that specializes in tooling and forming for hard metals like titanium. The company has had success hiring from the area’s refugee and immigrant population, including displaced skilled tradesmen from Guatemala, Ukraine, Czech Republic and Slovakia. “There’s 20 different nationalities working on that floor,” Jacobson said. “We have a map down there, and there’s pins all over the place. We’re getting this great talent, but you have to embrace they’re all these different (cultures).” Jacobson draws similarities between the immigration debate and the trade protectionism surrounding the Trump administration’s calls to repeal NAFTA. “Does it need to be evaluated? Are there things that we learned that should be different? Of course,” he said. “But this idea that we’re somehow taking jobs, I think it’s really a misnomer. Tell me what’s specifically wrong and imbalanced. I just think it’s a very naïve view.” His prediction is that NAFTA will be preserved after the “highly declarative statements” fade into the Twitterverse. Despite the unknowns, Jacobson is struck by the strength JSJ Corp. continues to demonstrate as he looks ahead to 2018, particularly as the company comes off growth in the “high teens” and a highly profitable business this year. Couple that optimism with federal tax reform that will create “more free investable cash flow” and it makes for another bullish forecast. “What’s really exciting about that is next year’s going to be another very, very strong year,” he

said. “Business is just really strong, and it’s strong here in Michigan, it’s strong nationally, and it’s strong globally. I just think that gets lost.”

REVVED UP While it may seem counterintuitive, ADAC Automotive President and CEO Jim Teets is fired up for what will be a down year in 2018 at the supplier of automotive door handles and exterior mirrors. He projects sales for the Grand Rapids-based company will be down 7 percent next year, an anticipated blip resulting from the vehicle platforms ADAC supplies and where they are in their life cycles. “We knew it was coming — it was a huge launch year for us,” Teets said. Still, he bases his optimism on where ADAC sits today, and how far the company’s come since essentially breaking even in 2009 at the depths of the recession for the automotive industry when the company’s future looked decidedly bleak at times. In particular, the company is ramping up to supply a new high-volume General Motors contract for the redesigned platform that underpins everything from the Silverado/Sierra pickup trucks to SUVs like the Chevy Tahoe and Suburban, the GMC Yukon and Yukon XL and the Cadillac Escalade. For the first time since the pain of the downturn, Teets’ outlook has turned from measured positivity to outright exuberance. “We’re having our best year in our 42-year history, with record sales and profitability,” Teets said, crediting the company’s investment in improving its lean manufacturing operations with accelerating its performance. “Sales blew past the budget by 30 percent, and with the lean work we’ve done, that’s allowed the additional sales to move even more to the bottom line. “I will have been with ADAC for 25 years in March of ’18. I’m truly excited about next year.” Part of that excitement stems from the

“I will have been with ADAC for 25 years in March of ’18. I’m truly excited about next year.” — JIM TEETS President and CEO of ADAC Automotive

unprecedented period of investment ADAC has planned for the coming years that he teased will reshape how the company will be able to attract talent. More on that to come, he said. Teets’ upbeat outlook also hinges on the company executing on major supply chain opportunities with its global manufacturing footprint, which spans Michigan, Mexico, China, India and Brazil through various partnerships and alliances. But still, the company will need to remain disciplined in 2018 because of the off year, Teets added, noting ADAC plans to add fewer than 10 salaried positions next year. Not even talk of tearing up NAFTA can stanch his optimism. While the supplier operates two plants in Mexico, Teets notes that most of the components from Silao and León ship in-country to OEM customers. “We serve our customers with our footprint,” he said. “There will be changes and we might have to pay a tariff or something, but I don’t think we’ll be materially affected by any changes with NAFTA.” He’s also betting that, given the way Washington, D.C. operates these days, any action on NAFTA will likely fail to live up to the heated rhetoric. “Trump’s barking and sending a strong message, and then Wilbur Ross and the rest of his team have to get to work on the ground,” Teets said. “I think what gets negotiated is less than his bluster.”

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Special Year-End Edition: MiBiz Crystal Ball 2018 | DECEMBER 26, 2017

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ECONOMIC OUTLOOK

COMEBACK CONTINUES Michigan growth extends through 2018 even as talent concerns intensify By MARK SANCHEZ | MiBiz msanchez@mibiz.com

ichigan will largely follow the U.S. economy in 2018, with continued job growth and low unemployment. Economists say the state will record a ninth straight year of economic growth after bottoming out in 2009, although with slower job gains in an already tight labor market. “When we’re looking at Michigan’s growth, we’re really looking at a mirror of the nation,” said Jim Robey, the director of regional economic planning at the W.E. Upjohn Institute for Employment Research in Kalamazoo. Robey predicts job growth in West Michigan will slow next year. In a recent outlook sponsored by The Right Place Inc., Robey predicted a 0.7-percent growth rate for total employment in the Grand Rapids area for 2018 and 0.4 percent in 2019. That would compare with total job growth in the region of 2.5 percent in 2017. Robey projects the Gross Regional Product (GRP) for Grand Rapids to expand 1.8 percent in 2018 — nearly half this year’s rate — before ticking up to 2.3 percent in 2019. That’s off from an estimated 3.5 percent GRP for 2017. Paul Isely, the associate dean and a professor of economics at

the Grand Valley State University Seidman College of Business, expects regional economic growth of 2 percent to 2.5 percent in 2018. Employment in the region should grow about 1.2 percent, or half the rate of 2017, Isely said. The lower predicted rate for employment growth stems from several reasons, Isely said. One is the tight labor market that has employers pursuing alternatives to hiring the new workers they need to handle higher volumes. Many markets in West Michigan already have unemployment rates of 3 percent to 4 percent, he said. “There are just no workers. We have nothing really available worker-wise that could get us to the larger growth rates that you would see,” Isely said. “You have a choice. You either have to raise wages to get more workers, or you have to shift to other ways to create growth. So even though we’re seeing the employment growth slowing down, we’re seeing the sales growth speed up. “What’s happening is (employers) have been deploying some of that capital they’ve been building the last few years, or at least they’re planning on doing that.” With some business economists predicting the start of a recession for the U.S. around the beginning of 2019, companies likely will tend to avoid growing their workforce too much next year and go into the period overstaffed, Isely said. Robey at the Upjohn Institute calls the West Michigan labor market “incredibly tight” with just 21,000 people available for work, many of whom may have barriers to employment. Statewide, University of Michigan economists predict job growth dipping from an estimated 1.2 percent in the latter months of this year to an annualized rate of 0.9 percent in the first half of 2018, then gradually moving back to 1.2 percent by the end of 2019. “Michigan’s economy has continued to grow in 2017, and we foresee at least two more years of growth ahead,” according to the latest Michigan economic outlook from U-M’s Research Seminar in Quantitative Economics. The predicted statewide growth should bring Michigan 80 percent of the way back from the “trough” of 2009, economists wrote in their outlook. “That means that there is plenty of work still to be done in

‘MORE OF THE SAME’ U.S. economy should continue growing, but concerns over wage inflation emerge By MARK SANCHEZ | MiBiz msanchez@mibiz.com

xpect the U.S. economy to maintain steady growth through 2018 with continued low unemployment, an even tighter labor market that drives up wages, higher business investment and additional increases in interest rates. That’s the general view of economists for next year, as the national economy stays on track with moderate growth and gets an expected bump from federal tax reform. “In a lot of ways, more of the same,” said Jeff Korzenik, senior vice president and chief investment strategist for Fifth Third Korzenik Investment Management Group, referring to his expectations for the U.S. economic performance in 2018. The difference next year comes in the form of more wage inflation resulting from a tightening labor market and higher capital expenditures as businesses invest in equipment or machinery to drive up productivity, he said. “If you have a limited labor force, you have to make them more productive, and the way you do that is through investment,” he said. “So overall growth numbers may look not all that much different to what we’ve seen this year, but we think that the behavior of business decision makers in the economic environment may be a little bit different.” Korzenik expects U.S. GDP growth of “around 3 percent” in 2018.

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Paul Isely, the associate dean and a professor of economics at the Grand Valley State University Seidman College of Business, sees GDP growth of 2.5 percent next year, an outlook that aligns with what many economists predict. Federal tax reform could bump up GDP growth by 0.2 percentage points, according to Isely. “The U.S. economy is going to be in pretty good shape in 2018,” Isely said. “Right now, we’re closing out the year pretty strong, we have some good consumer confidence driving it, and we’re looking at 2018 probably as a whole being slightly better than 2017.” The latest consumer confidence index from The Conference Board was at a 17-year high at 129.5, which Isely calls an “extremely strong number.” Isely’s outlook for 2018 does come with a caveat. The long period of U.S. economic growth may finally start coming to an end toward the end of the year or at the beginning of 2019. Among his concerns are increasing wage pressures, plus the potential for an inverted yield curve between short- and long-term interest rates, which would make it harder for banks to lend and could lead to a tightening of credit. “We’re getting long in the tooth. A lot more of the markers are showing that we are getting very close to that next hurdle,” Isely said. “What we show right now is the probability of a recession starting to grow right near the end of 2018 and it continues to grow through ’19 and into 2020.” At Comerica Inc., Chief Economist Robert Dye projects Real GDP growth of 2.8 percent in 2018, versus an expectation that 2017 will finish at 2.3 percent. In an updated U.S. economic briefing this month, Dye also predicted unemployment nationally will end up at 4.4 percent for 2017 and then drop further to 3.9 percent next year. Interest rates will go up as well. Dye predicts three increases next year of a quarter-point each in the federal funds rate.

building and sustaining a world-class economy for the 21st century, but it should also serve as a point of pride for Michigan, which has demonstrated impressive resiliency after a very difficult start to the millennium,” according to the outlook. “We believe that the outlook remains favorable for Michigan to continue its comeback story. If our forecast proves correct, Michigan’s economic recovery will extend to over 10 years — among the longest continuous stretches of job growth in the state since the Great Depression.” U-M predicts North American light vehicle sales will hold steady in 2017 at 17.1 million units, versus the same level in 2017, both down from 17.5 million units last year. They expect Isely sales to dip to 17 million units in 2019. Unemployment “will continue to be incredibly low across the state,” said Robey, predicting a rate of 4.2 percent next year and 4.1 percent in 2019. As of October, unemployment in Michigan was 4.2 percent, which compares to 4.5 percent in September and 4.8 percent a year earlier, according to the state Department of Technology, Management & Budget. The agency’s most recent data also show the civilian labor force in October was 4.86 million people, down slightly from a year earlier. GVSU’s Isely expects the job growth West Michigan experiences in 2018 will likely come from people moving to the area. “We’re seeing movement into West Michigan that is supporting continued job growth, just not as fast as it was before,” he said. Service jobs in the Grand Rapids area are forecast to grow at a slightly higher rate than manufacturing. Robey at the Upjohn Institute projects service-producing jobs in the region to grow by 0.7 percent in 2018 and 0.6 percent in 2019, which compares to an estimated 2.1 percent in 2017. He predicts goods-producing job growth of 0.5 percent next year and 0.3 percent in 2019, well off the strong 3.9 percent growth rate in 2017. MiBiz Staff Writer Nick Manes contributed to this report.

More than 50 economic forecasters responding to a monthly survey by the National Association of Business Economists estimate that in 2018, the U.S. economy will experience Real GDP growth of 2.5 percent. University of Michigan economists also expect 2.5 percent Real GDP growth next year with unemployment of 4.2 percent. For 2019, they project Real GDP growth slowing to 2.1 percent as the national unemployment rate ticks down to 4.1 percent.

FED RATE HIKES EXPECTED After the Federal Reserve made an expected 0.25-percent increase in the federal funds rate in mid December, U-M economists expect “a measured pace of two hikes per year in 2018 and 2019,” according to their recently released annual outlook. The continued increase in interest rates has been widely expected and represents a return to normal after they were dropped to emergency levels in the wake of the 2008 financial crisis, said Korzenik at Fifth Third. He expects little effect on the U.S. economy from the higher rates. “It’s not so much tightening as just normalizing interest rates. That’s not going to have a huge economic impact,” Korzenik said. “The Fed is increasingly confident in economic conditions.” In a Dec. 13 statement after the latest rate hike, the Federal Reserve Open Market Committee said U.S. economic activity “has been rising at a solid rate” with a strengthening labor market. The FOMC “continues to expect that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market conditions will remain strong.” The Fed projects Real GDP growth of 2.5 percent next year, followed by 2.1 percent in 2019 and 2 percent in 2020. Unemployment nationally will dip to 3.9 percent in each of the next two years, from an expected 4.1 percent for 2017, according to an outlook the Fed issued this month.

WAGE INFLATION EMERGES Inflation should “remain somewhat below 2 percent in the near term but (should) stabilize around the

Committee’s 2 percent objective over the medium term,” the FOMC said in its statement. Both Comerica and U-M project the 2018 consumer price index to increase 2.1 percent, up from an estimated 2017 rate of 1.7 percent to 1.8 percent. Korzinek at Fifth Third believes wage inflation will grow at a faster rate than general inflation because of the tight labor market. Wage inflation “has become a little bit more visible” in 2017 amid low unemployment, and “we think it will become increasingly visible” in 2018, he said. “For business owners, retention of employees and turnover will become a more critical issue in the year ahead,” Korzinek said. “This problem will be worse and it will be more apparent, and you couple that with your best workers are more likely to be recruited and are open to recruitment in a tighter job market. So these become big challenges for managing businesses in ways that there have not been challenges in the past.” Korzinek pointed to a median wage tracker by the Atlanta Federal Reserve that has been running at a rate of about 3.5 percent growth during 2017. Economist Jim Robey, director of regional economic planning at the W.E. Upjohn Institute for Employment Research in Kalamazoo, noted in a presentation this month in Grand Rapids that during the last recession, there were seven people for every job. At present, there’s one person in the workforce for every job, he said. “That is an incredibly tight labor market,” Robey said. The U.S. from 2011 to 2014 had a period of “relative wage stagnation” with annualized increases of just 2.1 percent. Between January 2015 and September 2017, as the labor market tightened, wages took “a bit of a step up” to an annualized rate of 2.6 percent growth, Robey said. “When you start to look at inflation at 1 percent, wages aren’t going up, and the thing that we worry about is with reservation wages — that’s the wage that you’ll do a job,” he said. “Are these doing enough to pull people into the market?” MiBiz Staff Writer Nick Manes contributed to this report.

Special Year-End Edition: MiBiz Crystal Ball 2018 | DECEMBER 26, 2017

ECONOMIC OUTLOOK

2018 ENERGY OUTLOOK:

Putting laws into action and eliminating barriers to clean energy By ANDY BALASKOVITZ | MiBiz abalaskovitz@mibiz.com

year ago, Gov. Rick Snyder signed a pair of comprehensive, bipartisan energy bills that expanded the state’s clean energy standards and charted a new course for how various utility programs are overseen by state regulators. Over the course of 2017, Michigan Public Service Commission staff led working groups on more than a dozen energy-related topics, from net metering for ratepayers who generate their own solar energy to the way utilities file long-term generation plans with the state. Essentially, the working groups made up of a variety of interest groups and utilities are putting the new laws into action. Through 2018, utilities will file rate cases under this new framework, which is already generating opposition from utility critics. For example, independent power producers across the state are challenging the way the MPSC is setting “avoided costs,” or the amount utilities pay independent companies for their generation. A waste-to-energy facility in Kent County has been on the front lines of the fight throughout the year. Observers expect this process to play out on other issues throughout 2018, particularly in changes to the state’s electric choice program. With the heavy legislative work completed in 2016, those interviewed about 2018 expect most of the action playing out with regulators. “I frankly suspect it won’t be all that active of

a year legislatively,” said Brandon Hofmeister, senior vice president of governmental regulatory and public affairs for Jackson-based Consumers Energy. “The big stuff at the state level will continue to be implementing the new energy laws at the MPSC.” Hofmeister said Consumers is in the middle of unrolling a “clean and lean” generation strategy that depends more on renewable energy, natural gas and energy waste reduction following the closure of the utility’s “classic seven” coal units, including the B.C. Cobb plant in Muskegon. Consumers has five more units operating at its Campbell plant in West Olive and in Bay City, which at this point are scheduled to stay online until 2030. “We’re really proud of the way we’ve approached the redevelopment and the efforts in those communities to replace economic activity and tax revenue those plants served for decades,” he said.

ELECTRIC VEHICLES Solving key questions about the build-out of electric vehicle infrastructure — and who will pay for it — emerged as a statewide issue in 2017. In August, the MPSC and Michigan Agency for Energy convened a group to start looking at these questions after Consumers Energy withdrew its plans for a $15 million, ratepayer-funded pilot program. Liesl Eichler Clark, president of the Michigan Energy Innovation Business Council, says

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a growing consensus among companies and ratepayer-interest groups is discussing how to build the infrastructure to spark more EV adoption and the role of regulated utilities and the private sector. “We’re definitely going to come out of the gate and be robustly active on the electric vehicle infrastructure space,” she said. The MEIBC recently brought together 19 companies and associations in a joint filing in the MPSC’s electric vehicle docket, Eichler Clark said. “That’s a diverse group around some broad principles,” she said. Hofmeister said the utility will likely pursue a pilot program in an upcoming rate case. “(Utilities) are enabling a huge transition in the vehicle industry that will be cleaner and better for people. We want to push the envelope there,” he said.

BREAKING DOWN BARRIERS More broadly, Eichler Clark said her group’s focus will continue to be on “reducing barriers” to acquiring clean energy. This includes supporting a pending bill that clarifies how residential solar installations are taxed, as well as being active in MPSC work groups on distributed generation, green-power pricing and integrated resource planning. “We made a lot of progress this year,” Eichler Clark said. “The good news about this (clean energy) space is there’s always work to do. By no means do we have it all figured out.” The Michigan Conservative Energy Forum, a clean energy advocacy group that includes a variety of politically conservative members, also is closely following proceedings at the MPSC. “They’ve got their plate full,” Larry Ward, the Forum’s executive director, said of MPSC staff. “Like all work groups, it’s a slow, arduous process. Are they making progress? I think they are.” The Forum plans to focus on one of its key principles to eliminate barriers for customers to generate their own electricity and get it into the market. How those ratepayers and companies are compensated by utilities for the excess electricity they send to the grid will be closely watched in the coming year, particularly as the cost of solar continues to decline. At the national level, though, solar supporters express some anxiety about a pending trade case before President Trump that would impose tariffs on imported panels. The complaint was filed by Georgia-based Suniva — which also had a plant in Michigan — arguing that cheap panels made overseas are harming U.S. manufacturers. However, some solar advocates say — at least in Michigan — the MPSC’s recent ruling on avoided costs paid by Consumers Energy could jumpstart the sector as smaller-scale solar projects could replace hydroelectric and biomass facilities that have historically been under avoided cost contracts. However, critics say the MPSC’s recent order

will close some hydro and biomass facilities in the state, which generate a form of baseload renewable energy. The Independent Power Producers Coalition of Michigan also plans to appeal the ruling.

OTHER ISSUES Meanwhile, perhaps the most contentious energy-related issue in Michigan is Enbridge’s Line 5 pipeline through the Straits of Mackinac. Those interviewed for this story are not directly involved in the debate, but environmental groups are waging a major campaign to shut it down. A coalition of businesses formed earlier this year are also calling for the pipeline to be shut down, while the Michigan Chamber of Commerce said this summer that the Great Lakes can be protected while the pipeline continues to operate. “‘Shut Down Line 5’ may be a clever bumper sticker for environmental extremists and a handy slogan for politicians, but it ignores the facts,” Rich Studley, Michigan Chamber president and CEO, said in a statement in June following the release of a state-commissioned alternatives study. “To keep Michigan moving forward, environmental policy and important regulatory decisions must continue to be based on sound science, not bumper stickers or emotional political appeals.” The Snyder administration recently announced an agreement with Enbridge to further study the potential of tunneling the pipeline beneath the Straits of Mackinac, among other provisions. Snyder is expected to make a decision on the future of Line 5 by August. At the national level, advocates continue to monitor the declining costs of building renewable energy and how that is affected by low natural gas prices. Even with a significant change in direction under the Trump administration — such as ending President Obama’s Clean Power Plan and a proposal to give financial support to struggling coal and nuclear plants for the baseload qualities — Hofmeister said Consumers would not be directly affected by the changes. Offering financial support to coal and nuclear plants wouldn’t directly affect regulated assets like Consumers’, and the utility is “already wellpositioned to comply with our share of Michigan’s (renewable energy) commitment,” he said. Longer term, Consumers — like utilities across the country — is rethinking the traditional utility business model of building large, centralized, capital-intensive power plants that run on fossil fuels. “Our view is very different,” he said. “Going forward, on the supply side of the electric business … we want to make sure we don’t overbuild and build modular in nature to avoid major capital expenditures. We’re very interested in how we can save our customers money by avoiding capital investments.”

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ECONOMIC OUTLOOK

2018 POLICY OUTLOOK: Tapping into Michigan’s talent and controlling unfunded liabilities By ANDY BALASKOVITZ | MiBiz abalaskovitz@mibiz.com

usiness and local government advocates aren’t always aligned on policy issues, but both groups say 2018 will require concerted efforts to attract and retain talent in Michigan. “Talent is a top issue for the business community,” said Andy Johnston, vice president of government and corporate affairs for the Grand Rapids Area Chamber of Commerce. The same goes for the Michigan Municipal League, which advocates on behalf of local governments across the state. “The League is really invested in building places that will drive economic development and attract talent,” said Chris Hackbarth, director of state and federal affairs at the MML. For MML, Hackbarth said this means focusing on the “concepts of placemaking and housing talent — building areas where businesses want to move into and where college graduates and young talent want to move to.” Hackbarth said fixing the way local governments are funded in Michigan is at the heart of the issue, particularly because local governments are highly dependent on revenue sharing from the state as well as property taxes, which are limited in how fast they can rise after a recession. “If a county lost 50 to 60 percent of its tax base due to recessions, they’ll never get it back, which hinders the ability to invest in core services,” Hackbarth said. Johnston said one of the key talent initiatives under Gov. Snyder is funding for skilled trades training, which has continued to increase in recent years. In fiscal year 2018, employers in a seven-county region in West Michigan (Allegan, Barry, Ionia, Kent, Montcalm, Muskegon and Ottawa) will receive $8.4 million in training funds, a 56-percent increase over last year, according to West Michigan Works! data. Johnston said this will benefit more than 7,000 workers in West Michigan. “We had incredible employer feedback about this helping to move the needle in addressing our talent needs,” Johnston said. Johnston said the GR Chamber was also part of the Good Jobs for Michigan Coalition that worked to “put Michigan in the game when it comes to competition for economic development projects.” The chamber is also hoping to see bills passed in 2018 that expand career tech opportunities and create “better relationships between students, job providers and teachers,” Johnston said. “We’re in the midst of our 2018 government affairs survey, and talent is coming through again as the No. 1 issue,” Johnston said. “Our businesses need more talent to compete — the stakes are high for Michigan to address this.” Wendy Block, senior director of health policy, human resources and business advocacy at the Michigan Chamber of Commerce, said providing better opportunities for K-12 students to enter the workforce “can be hard to legislate,” but it could include more curriculum flexibility and exposure to career and technological training. Block also said reforming the state’s personal property tax system, repealing the Health Insurance Claims Assessment and reforming the rules-making process at the state Department of Environmental Quality are also priorities for 2018.

UNFUNDED LIABILITIES Both statewide and local business groups, as well as the Michigan Municipal League, said fixing local governments’ unfunded liabilities Visit www.mibiz.com

for retirees will continue to be an issue in 2018. At the outset of 2017, business groups said unfunded liabilities would be a top priority for the year. On Dec. 12, the Legislature passed bills that give more local control over how municipalities deal with retiree pension and health care costs. Originally, some lawmakers pushed for expanded emergency manager provisions that would give the state more power to step in and resolve shortfalls. Those interviewed for this story characterized the bills as a good first step that falls short of addressing the issue long term, which will likely continue after Snyder leaves office at the end of 2018. In July, a Snyder-appointed task force found areas of “limited consensus,” but that “doesn’t necessarily reflect the problem,” Hackbarth said. The task force found roughly $18 million in retiree pension and health care costs that are unfunded. The latest bills are “incomplete,” Hackbarth added. “We need to diversify local revenue streams and give more control over revenue streams.” Johnston said the GR Chamber “wants to work to identify a path to legislation that will provide solutions to the problem at the local level.”

ELECTION YEAR With elections this year for statewide office, including for governor, observers don’t expect much controversial legislation to be pushed. Hackbarth hopes the debate tied into attracting e-commerce giant Amazon’s second headquarters will make it into the gubernatorial election. “That’s exactly what the League is talking about: strong places and strong communities to attract that level of business investment in Michigan,” Hackbarth said. The MML also is considering opportunities to codify in state law a favorable court ruling involving a case between the city of Escanaba and Menard Inc. In October, the Michigan Supreme Court denied an appeal from Menard that effectively ends the “dark store” property valuation process that threatened to strip municipalities of property tax revenue. “The court deciding not to take that up was a major victory,” Hackbarth said. The bigger policy storyline developing for 2018 could be which initiatives qualify to get on the ballot (see sidebar), or which receive attention directly from the Legislature if it decides to act. Those issues include legalizing recreational marijuana, repealing prevailing wage, creating a part-time Legislature and establishing an independent redistricting commission. The state and regional chambers have already come out in support of the Legislature taking action to repeal the state’s prevailing wage laws on its own. The Michigan Chamber of Commerce is opposed to the language that’s been approved to legalize recreational marijuana, and both the state and regional chambers are opposed to plans increasing the minimum wage, requiring employers to provide paid sick leave to employees and creating a part-time state Legislature. Amid statewide issues, however, Johnston said the GR Chamber will “enhance” its advocacy on local government issues, such as parking in Grand Rapids and the city of Wyoming’s exploration of an income tax. “We want to ensure we’re continuing to focus on strong core services of government, and that’s something we’ve been hearing from our members on local-level issues,” Johnston said. “The growth of our community can’t be taken for granted — we can’t become complacent.”

Marijuana, redistricting and prevailing wage: Ballot initiatives underway for 2018 By ANDY BALASKOVITZ | MiBiz abalaskovitz@mibiz.com

t least nine campaigns are in various stages of development to put questions before Michigan voters in 2018. The initiatives are setting up what could be major policy changes on issues like legalizing recreational marijuana, repealing the state’s prevailing wage law and establishing an independent redistricting committee. The Secretary of State’s Office lists nine active initiatives or constitutional amendments, although none have been formally cleared to appear on ballots. As part of the process, the state Board of Canvassers must approve petition language. The campaign then has 180 days to gather about 252,000 qualified signatures to get on the ballot. If the Board of Canvassers verifies the signatures, the Legislature then has 40 days to enact or reject the proposed law, or to “propose a different measure on the same question.” If the Legislature does nothing, the proposal goes before the voters. According to the Secretary of State, the following proposals were filed as of Dec. 7: n The Coalition to Regulate Marijuana Like Alcohol is the primary effort to legalize, tax and regulate recreational marijuana for those age 21 and older and control its commercial production and distribution. On Nov. 20, the campaign submitted 360,000 signatures, well beyond the 252,000 necessary to get on the ballot, to be verified by the state Bureau of Elections. The regulatory structure is modeled after rules that took effect in 2017 for medical marijuana. The proposal has backing from major national and statewide groups, including the Marijuana Policy Project and the ACLU of Michigan. n Protecting Michigan Taxpayers would repeal Michigan’s prevailing wage law of 1965 for state-financed construction projects. Similar initiatives and efforts in the Legislature to repeal prevailing wage have failed in recent years, although the campaign submitted more than 380,000 signatures in early November and could be verified by January. The Michigan Chamber of Commerce doesn’t have a position on the initiative, but hopes lawmakers will take up the issue on their own to repeal the law. If so, the plan could avoid a veto from Gov. Rick Snyder, who supports keeping the current law. n Voters Not Politicians is a proposed constitutional amendment to create the Independent Citizens Redistricting Commission, which would have the authority to redraw congressional, state Senate and state House districts in a way that doesn’t benefit one political party over the other. New boundaries would be drawn up every 10

years by four Democrats, four Republicans and five members randomly selected by the Secretary of State. The group said it submitted more than 315,000 signatures to the Bureau of Elections on Dec. 18. n Michigan One Fair Wage seeks to gradually increase the state’s hourly minimum wage from $10 in 2019 to $12 in 2022 for regular minimum wage earners and by 2024 for tipped workers. As of mid December, the campaign said in a statement that it’s still collecting signatures and hopes to have the necessary number by spring 2018. n MI Time to Care is a campaign to allow workers the right to earn sick time for “personal or family health needs, as well as purposes related to domestic violence and sexual assault and school meetings needed as the result of a child’s disability, health or issues due to domestic violence and sexual assault,” according to petition language. The proposals are backed by progressive groups in Michigan who failed to get the issue to voters in 2016. The proposals face opposition from many state business groups. Petition language for the proposals was approved in August. n Clean Michigan seeks a constitutional amendment to create a part-time Legislature, a plan supported by gubernatorial candidate and Lt. Gov. Brian Calley. The idea has faced opposition from business groups. Additionally, in December The Detroit News issued a scathing editorial railing against the plan after the committee distributed petitions in the mail asking residents to collect signatures. n Abrogate Prohibition Michigan is a proposed constitutional amendment that would legalize marijuana for “agricultural, personal, recreational, commercial or other purposes” but, unlike the other marijuana proposal, does not include a 21-year-old age restriction. As of late November, the campaign was in the early stages of collecting signatures. n Protect Michigan Jobs is the most recent petition filed with the Secretary of State, in late November. The initiative would create the Construction Workers Fair Wage Act, requiring prevailing wage and fringe benefits on state projects. Organizers have called it a counter-petition to the effort of repealing the state’s prevailing wage law, which could be taken up by the Legislature in early 2018. n Keep Our Lakes Great would enact the “Great Lakes Pipeline Safety Regulation Act” to terminate a 1953 easement allowing for an oil and gas pipeline in the Straits of Mackinac. The proposal looks to shut down Enbridge’s Line 5 pipeline. While the state Board of Canvassers approved petition language in April 2017, the campaign announced in early November that it was drafting a revised proposal for the spring.

Special Year-End Edition: MiBiz Crystal Ball 2018 | DECEMBER 26, 2017

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MANUFACTURING

MANUFACTURERS WORK TO ADDRESS ‘IMAGE PROBLEM’ AT ROOT OF TALENT CRUNCH By MITCH GALLOWAY | MiBiz mgalloway@mibiz.com GRAND RAPIDS — After a decade of growth in manufacturing, the sector still finds itself having to defend its worth to parents and high school counsellors. For industry watchers, this challenge in developing a talent pipeline points to more foundational issues the companies and society must address. “It’s frustrating that we cannot get through people’s heads — parents, teachers, etc. — what good jobs really are out there,” said Birgit Klohs, president and CEO of Grand Rapids-based The Right Place Inc. “The image that continues to be around skilled trades — it has to be valued again, like we used to. That is, if you are learning how to be an electrician, that has as much value as studying English.” The image problem is all too familiar to David Cole, chair of the Detroit-based AutoHarvest, who’s spent his career studying and analyzing the automotive industry. “One of the things that we have done is sort of denigrated the hands-on type of jobs. That’s particularly true of parents,” Cole said. “The only hands-on I want my kids to do is punch keys into a computer.” Now more than ever, manufacturers must combat that image if they are to solve any of their acute workforce challenges, particularly as Michigan’s unemployment rate drops to an expected 3.2 percent to end 2017, according to University of Michigan economists. “It’s a sales job that we have to do,” Cole said. “It’s kind of ironic. I grew up and went to public schools in Detroit, and in grade schools, I had a woodshop class. In high school, (I had) metal shop, a machine shop, drafting. They are really rare in schools today.” Cole advised manufacturers to get active in advertising their companies to future employees, just as they would to potential customers. For many manufacturers throughout West Michigan, this solution starts in small steps, like offering tours of their shop floors to various schools. “If we can get these kids in the factory and give them a walk around, no, it doesn’t fit everybody, but for those that it does fit, they’re hooked,” said Patrick Greene, president of Cascade Die Casting Group Inc. “We’ve got to create opportunities, and then we need to keep recreating ourselves and find new ways to keep them motivated. I firmly believe that automation is one of those things that keeps them interested and motivated in what they’re doing because it’s ever-changing.” As issues like NAFTA and taxes dominate Washington, D.C., industry advocates cite one issue — talent — as trumping all others for the manufacturing sector. “The biggest challenge facing manufacturers is the skills gap and the talent gap,” said Mike Johnston, vice president of government affairs at the Lansing-based Michigan Manufacturers Association (MMA). “With the aging demographic and not a robust talent pipeline in terms of the K-12 system delivering the talents that the largest sector needs, there truly is a challenge for companies to find workers to grow. “If you don’t have workers, you can’t grow.” Consequently, companies are working more closely with their

“The biggest challenge facing manufacturers is the skills gap and the talent gap. With the aging demographic and not a robust talent pipeline in terms of the K-12 system delivering the talents that the largest sector needs, there truly is a challenge for companies to find workers to grow.” — MIKE JOHNSTON Vice president of government affairs, Michigan Manufacturers Association

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2018 FORECAST, BY THE NUMBERS Here’s a look at the national forecast for light vehicle sales, GDP, unemployment and housing starts, according to economists at the University of Michigan.

2017

2018 (FORECASTED)

2019 (FORECASTED)

LIGHT VEHICLE SALES (IN MILLIONS)

17.1

GROSS DOMESTIC PRODUCT GROWTH

2.2%

2.5%

2.1%

UNEMPLOYMENT RATE

4.4%

4.2%

4.1%

1.2

1.3

HOUSING STARTS (IN MILLIONS)

SOURCE: University of Michigan Research Seminar in Quantitative Economics

WHERE THE JOBS ARE Here's a look at the state and Grand Rapids forecast for the change in overall employment, and employment in the goods-producing/manufacturing, services and government sectors.

GRAND RAPIDS MICHIGAN

EMPLOYMENT CHANGE

GOODS-PRODUCING SECTOR

SERVICE PROVIDING

GOVERNMENT

0.74% -0.05%

0.48% -0.08%

0.73% -0.24%

1.53% 0.97%

SOURCE: W.E. Upjohn Institute for Employment Research

school systems, Johnston said. One way the MMA is addressing this need is by partnering with the SME Education Foundation’s Partnership Response In Manufacturing Education (PRIME), an initiative that identifies the needs of manufacturers and then trains the next generation of workers, Johnston said. “The PRIME program … designs a customized curriculum for local schools,” he added. “The high schools will be creating a talent pipeline designed for the skill sets needed by the local manufacturers.” Even though finding talent continues to be a paramount challenge in Michigan, business and consumer optimism remain high, according to Johnston. “I think people are feeling confident in the strong economy through (2018) and looking positively into (2019),” he said. “I think the last downturn did a lot to educate businesses about what it takes to survive, and, frankly, the strong survived and are really in the process of actually sucking up other businesses that maybe didn’t survive.”

OFFICE FURNITURE SEES GRADUAL GROWTH Meanwhile, West Michigan’s office furniture industry is preparing for growth in the year ahead. The Grand Rapids-based Business and Institutional Furniture Manufacturers Association (BIFMA) projects sales growth of 4.5 percent to 5 percent in 2018 for the corporate, education and health care segments. That follows modest gains in the range of 2 percent to 2.5 percent this year, according to BIFMA, which bases its forecasts on IHS Markit data. BIFMA President Tom Reardon said the gradual growth for the industry can be attributed to workstations getting smaller,

real estate prices increasing and employers and tenants maximizing their space. “Like the economy, it’s been a sluggish return from the (200809) recession — a gradual trudge out of that hole,” he said. “We are a very transient workforce. You don’t have to sit in the office. You can sit down and plug in wherever you value a workstation.” One customer shift in recent years has been the blending of residential and commercial designs, Reardon said, noting that more casual offices are driving demand for products like couches, love seats and lounge furniture. “The trend to the open (office) plan and trying to increase collaboration among workers created a lot of distraction, visually and acoustically,” Reardon said. “The residential-ization — the casualization of the workplace — and branding it to be a cool place to work, we see that trend continuing.”

AUTOMOTIVE FLAT FOR 2018 Despite a slight pullback in the automotive industry in 2017, U-M’s Research Seminar in Quantitative Economics projects light vehicle sales to level off around 17.1 million units, down from a record-high 17.5 million units in 2016. In 2018-19, U-M economists are calling for essentially flat automotive sales. That comes as no surprise for many automotive suppliers, who saw the writing on the wall for the industry after consecutive years of growth. “We started to see signs of the plateau in ’16,” said Jim Teets, president and CEO of Grand Rapids-based ADAC Automotive. “We knew it was coming, … but this plateau is nothing compared to ’08 and ’09.” MiBiz Editor Joe Boomgaard contributed to this report.

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MANUFACTURING

Joining MiBiz for a manufacturing roundtable were (left to right) Patrick Greene of Cascade Die Casting Group Inc., Josh Shaw of GNS America Co., Michael Davenport of Jireh Metal Products Inc. and Mark Ermatinger of Industrial Control Service Inc. PHOTOS BY K AT Y BATDORFF

— Manufacturing Roundtable —

WEST MICHIGAN MANUFACTURERS PLAN INVESTMENTS IN TECH, CULTURE FOR 2018 By MITCH GALLOWAY | MiBiz mgalloway@mibiz.com

anufacturers heading into 2018 have made workplace culture a priority. Despite positive growth projected for the upcoming year, talent issues continue to be a leading concern for manufacturers across West Michigan, according to executives. When possible, their companies are adopting strategies to improve employee culture, including offering better wages and benefits, and they’re adopting technology to automate the kinds of jobs that are mundane or put their people at risk. Recently, MiBiz sat down with manufacturing executives from various industries to discuss their challenges, opportunities and uncertainties for the year ahead. Participating in the discussion were: n Mark Ermatinger, vice president of sales at Zeeland-based Industrial Control Service Inc., a provider of automation equipment and the sponsor of the roundtable n Patrick Greene, president of Grand Rapids-based Cascade Die Casting Group Inc., a supplier to the automotive industry with local operations in Grand Rapids and Sparta n Josh Shaw, operations manager with Holland-based GNS America Co., a supplier of automotive stampings n Michael Davenport, CEO of Grandville-based Jireh Metal Products Inc., a full-service metal fabricator and stamper for the automotive, furniture and hardware sectors Here are some highlights from the discussion.

How is 2018 shaping up for the manufacturing industry? GREENE: From an overall standpoint, the automotive industry, at least for suppliers, has probably not been stronger in my memory. The automotive market is very strong right now. We have the benefit of strong employment, low interest rates, low gas prices, low oil prices for the foreseeable future with fracking and shale oil. All those add up to people wanting to buy cars. … We expect it to be flat next year, (and) we don’t expect a lot more, nor do we expect a sharp fall off. SHAW: I’d have to definitely agree that it’s booming right now. We’re going to finish 2017 very strong. A lot of critics and people are saying next year is going to be soft or slow down, but they keep forgetting that we’ve been in a two-year stretch of 16-plus million vehicles. How big can the ceiling continue to go? I think the overall supply base in automotive could use a year, and you’re seeing that there’s not very many platform launches as you would typically see. Visit www.mibiz.com

Definitely for our organization, we’re not seeing too many platform or model-year changeovers in 2018. GREENE: There’s confidence. The consumer confidence has never been higher either. It does start with the consumer. SHAW: The gas prices really launched a couple platforms we were on. Some of the truck lines for Chrysler, these things are going great guns. But you’re seeing the opposite for cars. In 2017, what we’ve projected for some of our car platforms, we’re below budget on those. We’ve offset that on the truck line, so it equals out toward the end of the year. But definitely, we’re seeing some periodic slowdowns in the midsize car line compared to the truck and SUV. GREENE: What’s interesting too is I think 2019 is supposed to be an all-time high for the number of launches, but … we’ve seen a lot of delays in launches in the automotive industry. … There’s so much strain in the supply chain right now that they’re not going to blow a launch by not being ready, so they delay it.

We’ve reported on the strength of the automation equipment business. What’s the outlook there for 2018? ERMATINGER: What we’re seeing right now is a lot of retooling where the investments are being spent to get more throughput, and in 2018, it’s pacing itself to go crazy. From our standpoint, we see a three-times higher rate than we did in 2017. … We’ve got some projects in Detroit where they’re taking every printer off that prints a label to stick on a car part and they’re going to laser-mark everything. They’re talking 108 lasers at $25,000 apiece, and that’s a huge investment. So it’s just mind blowing the amount of money that’s gearing up to for ‘lightsout’ automation.

Do you feel any threats when your competition automates something that you didn’t? DAVENPORT: It depends on the price. We’re dealing with tooling now — American versus Chinese toolings. … You are trying to go now to a low-cost country, which is China. I’m a capitalist, but if you think about that, some of that outsourcing hurt us here in West Michigan. And so it depends on what they do with the money. We think about our world in really three buckets. I’ve got three constituents that I’m trying to satisfy: my people, my customer and our company. … You’ve got to fight for our people, you got to fight for the customer, and you’ve got to fight for our company, and I’m expecting you to do all of those things very well and to balance it all perfectly. ERMATINGER: We were at a plastic injection mold company, and

they’re looking to take self-driving robots to unload the boxes from the machines on their floor. … If they were to deploy that across their entire enterprise, the amount of efficiency that one company can get out compared to all the other injection molders could be substantial on a three-shift day. I was at another place the other day where they had a self-driving robot … and all of a sudden the sky’s the limit. And I asked the guy, ‘What’s the return on investment?’ He said, ‘It’s so stupid you don’t even want to know because it’s that fast and it’s going to change our industry.’

How have your companies dealt with the situation in which a customer might also be a competitor depending on the job and your place in the supply chain? DAVENPORT: At least for us, we’re friendlier and more open to talk to our competition because we’ve all existed and done well. … Customers (want) to streamline the number of suppliers that they have. They want fewer suppliers, which means then that you get suppliers that will ultimately do more. … You’re limited because I’ve got equipment and I’ve got automation, or is it all of a sudden, ‘do I start to create these partnerships with folks who otherwise wouldn’t be partners?’ I think there’s more of that stuff that’s going to come about because it has to. We’re all faced with these same headwinds, particularly around people. There’s a lot of dollars that are going to go toward that. If I don’t have dollars to go toward an acquisition, maybe now there’s a joint venture that rolls along (or a partnership). SHAW: We see this a lot, especially in the stamping world … For our customer, we’re a supplier and we’re a competitor (to the company). Our value streams are all over depending on the job. … If they’re still our neighbors, it’s still our community, it’s still in the best interest of West Michigan. When they call because a press went down or equipment went down, or they’re struggling on a launch, if we’ve got the capacity, the space, resources, let’s work together. DAVENPORT: This is monumental in my estimation, as you start to think about it. … It’s like, ‘Hey we’re going to share sort of similar platforms. … I’ve got the customer I have to satisfy, and if that customer goes someplace else, we’re talking decades before I could possibly get them back.’ SHAW: I hope more companies start to look at that because a downturn is imminent. ’18 looks strong, but there’s been so much business so quick. (We tell customers,) ‘I can do that, let’s do that,’ but are we good at doing that? Is that one of our core things? Are we making money? See MANUFACTURING on page 14

Special Year-End Edition: MiBiz Crystal Ball 2018 | DECEMBER 26, 2017

MANUFACTURING MANUFACTURING Continued from page 13

Outside of innovative kinds of collaboration, how are your companies positioned for any upcoming downturn? SHAW: Diversification will always help you (during a) downturn, but it depends on where you’re at in that business (and) how far along you are. What type of overhead do you (need) to be doing all of these different avenues? … Say you need a press expert, and a welding guy. That cross-training is going to be important in the next year or two, so that way if something happens, when you have to inevitably shrink overhead, you can have the right people who can do everything. DAVENPORT: I think if you brought it up a level, what’s driving all of this … goes back to people. The fundamental sort of issue is that I’m challenged on the people side to get good-quality folks, and then it almost comes down to firstworld problems. There’s things that we can do, and there’s things that we don’t do so well … which in the downturn where the economy’s going south, we don’t want to let any of that stuff go. In today’s world … I’m strapped with my good quality folks, I’m strapped with my good engineers, I’m strapped with tool and die, and so now I’m trying to not only get new business in … but I’m also trying to make sure that I’ve got a good environment for the folks that come in.

How are you selling your culture to prospective employees? SHAW: Advertise. You’re selling yourself, but your people are selling it in all aspects. … One of the things that we’ve launched to push our culture and our vision is to the be the best structural component stamper. How do we get there? People. GREENE: Ours is a family atmosphere. I guess that sounds like West Michigan, and it does, but

I think we give people the flexibility to have a life outside of the office, so they can have Friday as a family day. We allow them to have overtime. We don’t mandate it, and we don’t tell them it’s all cut to zero. We allow them to have that because we know that’s a part of their lifestyle. SHAW: Our company wholeheartedly believes in culture and the people. … On the east side of the state, it’s hard to find employees to be a part of it. So a lot of companies are making decisions … that the automation has to happen on that side of the state. DAVENPORT: I’d even submit that there’s headwind on equipment. From a stamping perspective, we are an equipment-driven business. You can’t outsource this stuff. Even if we picked up and went to Mexico, there’s no saving because it’s not people-driven, it’s more equipment-driven. … So I think you have this piece now where we’re fighting for talent, and if you believe that people are lucky to have a job, then you’re dying, you’re going to be a dinosaur. We (want) good people working for us, and we have to make sure that they have a good place to eat, that their cafeteria is nice, they have a good environment to work. SHAW: I definitely think you see that … on this side of the state. Definitely the value in getting the person and coaching them, (and them) wanting to learn the next level of technology. We’re all competing in it. … Companies have to sell themselves. GREENE: We say the same thing. If we can get these kids in the factory and give them a walk around, no, it doesn’t fit everybody, but for those that it does fit, they’re hooked.

PHOTO: KATY BATDORFF

“A lot of the people get scared I’m going to take their job, and the reality of it is that (manufacturers) are going to repurpose these people. Just the other day when I brought (robots into a plant), I had to come through the back door and couldn’t go on the floor — still to this day — because they didn’t want anybody to see it. I thought that’s really strange because there’s so many other positions they could be doing.” — MARK ERMATINGER, VP OF SALES AT INDUSTRIAL CONTROL SERVICE INC.

How can manufacturers leverage the technology story with automation to attract more people? GREENE: We’ve got to create opportunities, and then we need to keep recreating ourselves and

finding new ways to keep them motivated. I firmly believe that automation is one of those things that keeps them interested and motivated in what they’re doing because it’s ever-changing. … Robots are really in the place of where those hands used to be that would get cut or burned or whatever it may be. So it’s changing and it’s changing fast. DAVENPORT: At the end of the day, we’re not looking to automate to get rid of the jobs, we’re looking to automate to maintain and become more profitable, and to get rid of the more mundane things that people don’t want to do. SHAW: We’re seeing and studying the jobs that have the turnover, and (trying to) understanding why. People always used to communicate turnover is turnover, and now we’re two or three years into a strong economy, and the companies that are going to advance aren’t going to keep blaming (their problems) on the worker pool. … If you look at where your turnover is happening, you can understand why it’s happening and then figure that out. ERMATINGER: It’s interesting how the conversation has shifted to people so fast, because when they see me walking into a plant, a lot of the people get scared I’m going to take their job, and the reality of it is that (manufacturers) are going to repurpose these people. Just the other day when I brought (robots into a plant), I had to come through the back door and couldn’t go on the floor — still to this day — because they didn’t want anybody to see it. I thought that’s really strange because there’s so many other positions they could be doing. But why would the worker want to be doing that? Maybe it says they don’t feel they can rise to the occasion to a higher position.

What are the expectations from your employees? GREENE: We have plants in Michigan and plants in North Carolina, and it’s actually a different culture dependent on where you are. … In Michigan, I find that people have a bit of an expectation that they like some level overtime, or at least the ability to have some overtime. In North Carolina, it’s not always that way. They have more of a value to quality of life, and they don’t necessarily always

DECEMBER 26, 2017 | Special Year-End Edition: MiBiz Crystal Ball 2018

want as much overtime. Don’t work them seven days … or you are truly going to lose them. SHAW: We encourage the cross-training big time, especially with the new people. It’s getting them intrigued. … We’ve got a lot of guys who come in as press operators, and it sounds good, but then they want to get into the die setting. DAVENPORT: The more folks that we can attract to the pool and to the community, the better off all of us are going to be. What should happen is if we’re good stewards of the resources that we’re given, I’ll bring folks in and then we’re going to help them grow and develop to the best of their ability. There comes a point where (people advance as far as they can in your company.) Am I going to be a hog and just try to keep them there? Or am I going to be the person that says, ‘Our community will be able to support you. I’m going to release you back out and so that you can go and become better somewhere else. There’s another opportunity.’ … We’ll have to get to this point where we’re thinking less about us and more about the community and the people that we serve. They’ve given us good time, and if your run with us is done, then I want you to go do the best that you can do, make the most that you can.

How is Michigan performing in preparing students for employment in manufacturing? SHAW: I think it’s the high school counselors (who really need to engage with the students). Yeah, the community colleges like Grand Rapid Community College are doing a great job. Ferris State is doing it, and Western (Michigan University) has got a huge program in this, but it’s not getting to the high school level. DAVENPORT: I think it’s a values issue. … I think we’ve placed this value on sort of going to college and getting an education, which there’s absolutely nothing wrong with getting an education, but I think people are already equipped for different things. There are some people that are just geniuses with their hands … but we’ve discounted the value of that. We’ve said that the architect or the lawyer is better than the tool and die guy and the quality guy. … If you look at what you see on television, you don’t see anything about CNC or Visit www.mibiz.com

MANUFACTURING being a welder or being a tool and die guy. SHAW: There’s bills being passed (in the state) that will allow that metal shop and the wood shop (class) … to count as a math credit. So it’s coming around. I think the industry and the state as a whole has seen (we need) this in order for us to be successful in manufacturing. They’re helping us push this. GREENE: I think our high schools do a disservice, they have the wrong indicator. Their key indicator is how many kids went to college. The key indicator ought to be how many kids graduated from college with a degree, and without student debt. Now that’d be the right indicator, because we end up judging this whole college system around (going) to college. (Think about if ) they chose instead to become a manufacturing employee, learn a skilled trade, make money day-one, move out of the family’s basement and have their own place, and not have student debt that’s going to plague them for the rest of their life. DAVENPORT: The parents were doing disservices to their children. … When I graduated high school from Ottawa Hills in ’87, there was no expectation that my dad was going to pay for college. I don’t know when that changed. GREENE: We really do need to take everybody to the next level, and (figure out) how can (our companies) grow. People are the limitation on growth. We know about equipment, we all find money to finance it, it’s the people that are limitations.

Given the people struggles, where do you look to deploy capital next year? DAVENPORT: We have to look at more equipment that’s faster. We’ve got to look at things that’ll take stress off of our people — the very repetitive motions that they’re doing. How can we do that in a different way? How can we use automation to come in and assist, and then how do you reward those people as well?

“At the end of the day, we’re not looking to automate to get rid of the jobs, we’re looking to automate to maintain and become more profitable, and to get rid of the more mundane things that people don’t want to do.” — MICHAEL DAVENPORT, CEO OF JIREH METAL PRODUCTS INC.

PHOTO: KATY BATDORFF

GREENE: The thing we’ve got to be invested in is being faster, being better, improving your quality, and improving your environment. And so I think you’ve got to invest, but you do have to be prudent with it because, as we said before, we’re in a cyclical business and that cycle will turn. SHAW: Research and development really is going to be what we’re going to use the time for. We’re looking at designing our own equipment, because if everyone else can get it off the market, then they have the same thing we do, so we’re tasking our technical people to really design our (future). If we build and design it in-house, I have a team of people who can go launch it and teach our own technology. And now those experts work for me. ERMATINGER: That’s definitely is a trend, to keep it in-house because you get to keep your

own intellectual property on your processes that you approve. But more so … your uptime is faster because your people know how it works because they built it. … There are instances recently where I’ve seen the manufacturer go and buy machine owners, just for the purpose to have their own built-in (team), and several of them that are in stamping industries right now have teams that deal with the day-to-day, and then they have another team that deals with R&D.

working, and hiring as many people as fast as I can. I’m trying to be prudent, but it’s hard to when the demand is so high. I feel like I’m short-staffed even though I probably could increase 30 to 40 percent this year. … So that’s a little scary. But politically, I think the only thing would be the tax reform. That could change everything.

Does the volatile political environment of the past year in any way influence your decision making or your outlook going into 2018? ERMATINGER: It hasn’t affected us. We’ve been gear-

business and the people. I think it’s actually a positive, and it levels the playing field. Like it or not, we’re all competing internationally, and it levels the playing field if the tax rate is more reasonable. SHAW: That tax bill is so large. There’s going to be positives to the company, but there’s also See MANUFACTURING on page 16

ing up and we continue to gear up, so I’m buying as much demo equipment to show the process

Good or bad? DAVENPORT: That would be good for hiring. GREENE: (It would mean) dollars to invest in the

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MANUFACTURING MANUFACTURING Continued from page 15

negatives in there to your people. … The good businesses will look at that and say, ‘OK, there’s a gain here, (but) where did my people lose? What are they losing, and how can we help bridge that gap.’ DAVENPORT: If I put all (the tax savings) into the company bucket, you might as well just put a sign outside that says ‘Jireh Metal: slowly going out of business.’ That’s not the prudent thing to do. … If you want to be a company that’s going to be able to sustain itself, you must take care of your people. … We’ve got to figure out how to deal with that because our people, who we say are our most important asset, they are being impacted, and we need them to be able to do their thing. If they can’t do their thing, we don’t win. We’re all in this thing together.

On the trade side, President Trump has talked about getting rid of NAFTA. How are you watching those discussions from your companies? GREENE: I’m as pro-American as anyone, (but) NAFTA is something that actually has been good for the automotive industry. We make parts in North Carolina, we ship them to Mexico to be assembled, and then they go to Toledo to go into a Jeep Wrangler. The complexity of the automotive industry requires that there is some passage across the borders. SHAW: Is there really a market for some of the stuff that’s being outsourced? … Our plant in Canton sells into Canada to GM. The one in Mexico we put because GM has their plant there. … We’re a Korean-based company, and our owner has invested in the U.S. market and he’s assured us that the North American market is where he wants to grow the most.

It seems any discussion around NAFTA is most tied to the automotive industry. Do you see it affecting any of the other sectors that you are serving? GREENE: We don’t see it so much because there’s

“Research and development really is going to be what we’re going to use the time for. We’re looking at designing our own equipment, because if everyone else can get it off the market, then they have the same thing we do, so we’re tasking our technical people to really design our (future). If we build and design it in-house, I have a team of people who can go launch it and teach our own technology. And now those experts work for me.”

a real push in the appliance area for Americanmade, and even LG and the Samsung are now building plants here. DAVENPORT: I think about the American manufacturing and I’m bullish about it. Every country that’s ever been low-cost, the standard of living has always increased, and they’re no longer low cost. What we have to do is really figure out automation, people and equipment so by the time we all get this ready and get it figured out, the low-cost countries won’t be low-cost anymore, and we’ll be ready and waiting for them and say, ‘Come on back home, come on back over here because we’re ready for you.’ We’ve done very well with people on-shoring. SHAW: In West Michigan, most of us are supplying an assembly part of some kind, either automotive or appliance or whatever. The more that those stay in the U.S., or move back to the U.S., the stronger we’re all going to be.

— JOSH SHAW, OPERATIONS MANAGER AT GNS AMERICA CO.

A year from now, what’s something that we could be talking about that we aren’t talking about right now? GREENE: You just have to be so nimble today. You’ve got to be a well-oiled machine if you want to be able to be successful with this. You’ve got to be able to turn on a dime and face reality, whatever that reality is. It’s going to change everyday, but if we don’t face reality then we’re going to get surprised. DAVENPORT: I think consolidation is going to occur. … I think you will still see more collaboration as well. It’s kind of amazing that people who should be natural rivals are actually kind of coming together.

PHOTO: KATY BATDORFF

SHAW: The overall community atmosphere. West Michigan is an industry leader in office furniture and automotive, and if you do business outside of West Michigan or go around to other plants, people come here and they’ll tell you it is different. ERMATINGER: I think a big change for us is going

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to be the technology, even for us. It’s going at the pace that we can’t keep up. … What’s going to happen next year, I think it’s going to be that times 10. (It’s going to enable companies to say,) ‘I can change something that’s been in the industry for 50 years and do it differently right now and beat the competition.’

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MANUFACTURING How is technology driving investments, M&A and different kinds of partnerships in the automotive sector?

to companies that make seats, (they are) all getting involved. They are all moving into what’s next in the automotive world, whether it’s safety related or fuel system or electrification, and a lot of them are … opening offices in Silicon Valley, or are at least going out there and participating in events. Conversely, you have a lot of nontraditional players that are coming to Michigan. People like Google and Microsoft… they are all here now.

It’s the fasting growing sector, I think. If you look at the mix of products in vehicles going forward, the more traditional types of products, such as axles, are pretty static. Those are driven by sale lines and forecasts, but what you are seeing is a shift into (technology) and electric drive trains — those are the disruptors.

Is that trend sustainable?

Q&A

What should automotive suppliers be doing right now to embrace more automation?

TOM MANGANELLO SOUTHFIELD PARTNER, WARNER NORCROSS & JUDD LLP

arner Norcross & Judd attorney Tom Manganello understands that the automotive industry is making a push to incorporate more technology. Manganello, who represents automotive sector clients, thinks if companies are not participating in this industry-wide shift, they could be in for trouble.

Oh, absolutely. They have to be here. As much as we have to be exploring the resources of Silicon Valley, they have to be exploring our region because they don’t know how to make cars the way we do, and we don’t have the code writing and the number of people they have. It’s really an opportunity for each of those segments to exploit each other.

It depends on your market. It depends on your product. Eventually, everything in the car could be condensed. A lot of parts do have sensors in them already. It’s the dilemma facing everyone in the auto industry right now, and you have to keep your eye on the ball as to what you are making. You have to figure out what you can do to improve the technology in your product, because if you can create technology that’s of value and properly protect it through patents or trade secrets or copyright, you would have better leverage for negotiating good prices and also be on the leading edge of new product changes.

Given the current plateauing sales cycle, should suppliers brace for more price concessions? Yes. Suppliers over the last seven or eight years — some of them learned a very hard lesson in the downturn, and some of them became disciplined in managing their supply chains, both their customer expectations and obligations to their customers. Others haven’t been quite as disciplined, and when volumes are up and margins are pretty good, a lot can be forgiven. But as the SAAR (seasonally adjusted annual rate of sales) goes from 17.5 (million) down to 14 (million) or even

How do you see technology changing the industry? I think companies in all sectors are moving into technology. From companies that make door handles to companies that make door latches

13 (million) as an analyst predicted by 2021, you are going to see the lessdisciplined members of the supply chain enter into distress situations. But that is also going to be driven by the continued increase in global platforms. If you don’t have a global footprint, you’re in trouble.

What’s changed in OEM/supplier contracts over the last five years? I think the OEMs have not so much changed their contracts, it’s more of a change in their operations or modus operandi. They have become highly aggressive in recouping service campaign and recall costs.

What else should suppliers be watching going into 2018? You have three factors to deal with: Most people think there will be a decline in volume, you’ve got a huge … change in technology, and you’ve got — for the traditional OEMs — all these new players coming into the industry, and I guess for the suppliers as well. These are nontraditional competitors. Because of the industries they are in — cell phones and other computer technology — (they) move faster. But their product is not entirely engineered as a car (is). Where a car is an internal combustion engine consumer product that’s expected to last at least 10 years, that’s not true for the cell phone I have in my hand right now.

Compiled by Mitch Galloway. Courtesy photo.

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Special Year-End Edition: MiBiz Crystal Ball 2018 | DECEMBER 26, 2017

MANUFACTURING even more optimistic about the things that we’ve been investing in. We think we have a really strong pipeline of things, of new products, and we have a strong pipeline of improvements we’re making to the business, so I’d say we go into 2018 generally optimistic.

What’s giving you pause at this point? I think the only thing that makes you pause is there’s enough what I would describe as geopolitical noise around the globe, that you go into it optimistic, but a little nervous at one level wondering, ‘Hey, what could happen?’

It was about this time last year that you shared some similar concerns. What have you actually seen transpire since then?

Q&A

Actually, I think on one level, we’re almost surprised that there hasn’t been more negative impact so far from things like Brexit and all the noise around North Korea and all of those things. So I think so far, we haven’t seen any of those overwhelm what we’re doing or what we think the economy is doing. But you just can’t help but watch every day, the news flow.

BRIAN WALKER ZEELAND PRESIDENT AND CEO, HERMAN MILLER INC.

rian Walker continues to believe the overall fundamentals of the economy remain strong, but the ongoing wave of nationalism and demonstrations of military might cause him some degree of concern. The president and CEO of Zeeland-based office furniture manufacturer Herman Miller Inc. (Nasdaq: MLHR) counts on free and open access for the trading of goods for his company’s continued success. Meanwhile, the continued “geopolitical noise” from external events like Brexit only creates uncertainty, he told MiBiz at the recent Business Leaders for Michigan CEO Summit in Detroit.

From a high level, what does 2018 look like for Herman Miller at this point? I would say we are generally optimistic about both what’s happening economically in the United States and around the globe, and we’re

Based on what’s known so far, what would federal tax reform mean for Herman Miller? Well, I think if the current discussions that I’ve seen come to be, it would be good for us — like I think it would for a lot of manufacturers. The discussion is always about all the companies that aren’t already paying full taxes, but … we pay at the top rate for the most part. The ability to be able to have more cash flow going forward that we’re not paying in taxes, but that we can go reinvest in a business is actually really interesting as a thing for us.

Are there specific parts of the legislation you’re paying attention to? Certainly if they go after immediate deduction of capital goods, that should be helpful because that means for our customers, our products will suddenly be less expensive. … They’ll have more cash because they’re not paying as much in taxes, and … our stuff will look less expensive to them. So that should all be positive for both us and the industry.

Where might Herman Miller invest some of its tax savings? We have a significant investment going on in West Michigan in particular, in new manufacturing equipment. A lot of it’s to update things that will improve efficiencies, drive further toward automation, which we think is something we’ve got to keep doing because labor is very hard to find. Also, that will help us in a journey toward being able to do more customization easier, so we’re making a significant investment in West Michigan.

Given the struggles of traditional brick-and-mortar stores, how does Herman Miller approach having a physical retail presence these days? Most of what we’re doing on the retail side is actually aimed at consumers for their homes. We do serve businesses with those same products — hotels and that kind of thing. We serve small businesses, but the retail side of it is really aimed at people for their homes. We think there’s still a need (with) furniture for people to touch it and feel it in the buying process, so our retail stores are really as much studios for a customer to come in and get an experience about what it’s going to be like to build a lifestyle around our products. And then they may order it online, so it’s no longer singular. Our consumer reach is both catalog, digital and physical, and those things mix together as an experience.

You seem generally pretty optimistic heading into 2018. Are there any black swan events that could potentially derail that optimism? I think there’s been a lot of noise and rhetoric around trade, and the truth is, we’re a trading nation and we have to make sure of our ability to trade. While yes, there’s places that we have maybe imbalances in terms of restrictions, on the other hand, the truth is, the globe is pretty darn open today. What I’m more worried about is that we get into more regional (roadblocks). NAFTA, for those in our industry, it’s really important that we don’t mess it up because there’s a lot of free flowing of goods back and forth across the border that I think is good for all three countries, if you will.

You mentioned some U.K. investments earlier. How does Brexit potentially play into this? Certainly, even when you look at what’s going on with Brexit, we have a good-sized business in Europe and particularly in the U.K. Knowing that Brexit is actually done somehow sensibly so the British economy doesn’t collapse is really important.

Any other global issues that could upend your thinking? Those are two that I would point to in particular that we’re really watching. Certainly North Korea is a different kettle of fish. It’s hard to know. … That isn’t about economic drivers as much as it is a much bigger driver.

So you’re saying the proliferation of nuclear weapons doesn’t bode well for the economy? Correct.

Interview conducted and condensed by Nick Manes. Courtesy photo.

JOHN KENNEDY KENTWOOD PRESIDENT, AUTOCAM MEDICAL DEVICES LLC CHAIRMAN, WEST MICHIGAN POLICY FORUM

Federal tax reform could act as a catalyst to fuel corporate growth in 2018 and beyond, according to John Kennedy, the president of Autocam Medical, a global contract manufacturer of orthopedic implants, spinal implants, orthopedic cutting tools and other medical device components. “This tax reform will free cash flow from the lower taxes and unlock capital held outside the U.S.,” said Kennedy, who thinks the domestic economy will grow rapidly next year at a pace it hasn’t seen in a decade.

“Our primary business is medical device and this industry would benefit from less regulation that is slowing the development of new life-improving medical advancements. Our primary impediment to capture this growth in our company is talent. We will continue to invest for the long term in the talent pipeline. Therefore, we are investing in literacy in our (Grand Rapids Public School) children and roughly 20 percent of our workforce is enrolled in the Apprentice/Technician/Engineer Advanced Manufacturing Program (AMP) with our education partners. Although both of these can help build talent for the future, the opportunity is here now. We need to figure out, like all manufacturers, how to meet current customer demand. We are positioned to grow over 10 percent in the next year and could grow faster if we can hire the skilled machinists we need to meet the customers’ delivery needs. … I am very proud of the work our state leadership has done over the last eight years positioning Michigan on a trajectory to be a top 10 state for business attraction. We have one major thing left to do, which is make sure local governments are accountable to meeting the promises made to police, fire and municipal workers for retirement benefits.” Compiled by Joe Boomgaard. MiBiz file photo.

DECEMBER 26, 2017 | Special Year-End Edition: MiBiz Crystal Ball 2018

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Q&A

MANUFACTURING

CHRIS WILLIAMS GRAND RAPIDS PRESIDENT AND CEO, MEDBIO INC.

ontract manufacturer Medbio Inc. in Grand Rapids provides injection molding, assembly and packaging for medical device and biotech customers, and owns Concept Molds, a tool and die shop in Schoolcraft. The company, which employs about 190 people, is bracing for what’s expected to be a big year of growth in 2018.

How is 2018 shaping up for Medbio?

decisions that you’re seeing?

We’ll have record sales next year, absolutely. Knock on wood, every year has been record sales, but I would expect next year to be more along the lines of a breakout year. If not 2018, certainly 2019. We’re getting ready for a big growth spurt and most of that’s actually booked already — established business — so I’m fairly certain we’ll be seeing that increase in revenue on the bottom line.

No. I think it will change how things are done in the industry, but ultimately I don’t think it will really change people having the need to use medical devices. … One of the good parts about our business is that people will always be in need of our services. A lot of the time, it’s just the mechanisms for payment that change versus the real need for our products.

What’s driving this pick up in business?

Have the changing reimbursement models affected the medical device supply chain?

I don’t know quite frankly. … I would say it’s just the economy in general is healthy and when that’s the case, then companies seem more likely to jump off the capital expenditures plank.

How do Medbio’s growth projections affect your investments in the next year? Right now, we’re in a pretty good period to spend as we’re forecasting a pretty good period of growth over the next year to two. As a matter of fact, we’ll add about five machines here in the next two to three months, which is probably the largest single group purchase of machines we’ve had in the history of the company. We’re really bullish on our sales front.

Is that linked to any specific customers or sectors? It’s tied into two or three customers, both in the medical device sector and in the biotech sector. Our biotech sector is growing probably at a much faster rate than even our medical device customers. We’re seeing a big boom here in the diagnostic biotech devices and you’re seeing a pretty big uptick in services in the diagnostic area for biotech companies.

Talent concerns seems to be on everybody’s mind right now. How is Medbio facing that challenge? As best as we can. I don’t know that we’re wading through it that well, quite frankly. … We’re doing the best we can and being as creative as we can with some of our hiring avenues, but we still have a big need in the talent area. … We’re having a little bit of a challenge filling the spots as we grow. We have positions that remain open for quite a while, and in some cases we’re even turning toward doing more and more internal training and promotion and all that kind of stuff.

Are you investing in automation because it is such a difficult environment to find people? I wouldn’t say specifically because of the talent. I would say our automation is typically done more on a return on investment model versus the need for any talent. Certainly, if it would mean … we wouldn’t have to hire an extra person, then we would consider it, but it would still have to follow an (internal rate of return) process as well.

Does the talk of repealing or tinkering with the Affordable Care Act affect any of the customer Visit www.mibiz.com

Maybe ultimately in the long run, it could add little bit more cost pressure to the industry, but we’re seeing cost pressures creep in more and more in the industry than say in the last decade or so. It seems to be moving more toward an automotive model. You see people asking for price downs and cost downs and things like that, which were a little bit unheard of five or 10 years ago.

Does that model of annual price concessions translate into the medical device industry? The business model is significantly different in the med device space. Products can last for 30 years. I’ve made products that have been on the market 30-plus years in some cases. I can’t give you 6 percent year over year, or before long I’m out of business.

Given all that, why are OEMs pressuring suppliers over price? I think a lot of people in the industry might feel that they can have the same kind of leverage that the Big Three had over their suppliers. But it’s more of a symbiotic relationship in the med device industry because it’s so expensive to move a manufacturing process from one place to another. You really need to be more partners. Eventually, most people are going to end up realizing that — or I hope they will.

In the meantime, what can the suppliers do? I believe most people in contract manufacturing positions are pushing back on them — I know I am. I’m hoping that everybody else is. Typically, I get some relief, although I’m probably making some concessions that I probably wouldn’t have ever made 10 years ago — or maybe wouldn’t have ever been asked to make 10 years ago.

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What’s keeping you up at night as you look out to next year? There is a little bit of worry for me still on the talent front. I mean, I don’t know where it ends or if it ever starts to become alleviated. … And I think the increasing number of regulations and government oversight is worrisome a little bit. Common sense is kind of dying in our industry.

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Interview conducted and condensed by Joe Boomgaard. MiBiz file photo.

Special Year-End Edition: MiBiz Crystal Ball 2018 | DECEMBER 26, 2017

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MANUFACTURING Eventually, the economy will go into another cycle and we’ll have a downturn. How well are family-owned businesses prepared for it? I think family-owned businesses have gotten smarter in terms of not getting too far ahead of ourselves. I think there is a conservative nature of a family-owned business compared to another business in terms of being able to hold cash. It is different because family-owned businesses are willing to put their own money back into the business to support it.

As you talk to other family-owned businesses, what are they saying about the current market?

Q&A

When I sit and talk with people and find out what is going on, I think people are optimistic in terms of where it is right now. I still think there is caution from the recession of 10 years ago, but I think people are moving forward and making investments and they are doing the things they can to support their clients.

What legislative issues would you like Gov. Rick Snyder to address next year?

BILL MUIR GRAND RAPIDS PRESIDENT, GRAND RAPIDS LABEL CO. CHAIR, FAMILY BUSINESS ALLIANCE

s president of Grand Rapids Label and chair of the Family Business Alliance, Bill Muir understands what family-owned companies are going through right now. According to Muir, manufacturers remain optimistic heading into the new year, and they’re making more investments to support their customers.

I think from the family-business perspective, there are things that are not necessarily friendly to the family business. I think there are opportunities … through legislation. It’s hard to understand specifically what we need, but the legislators need to understand that a family business is not a bad thing. There are a lot of good things that family businesses do, and I think there has to be an awareness of that.

How will the volatile political environment affect your businesses in 2018? There has to be a spirit of cooperation. The aspect right

up activity on the part of the automakers. Some of that (recent) Mexico plant activity — we’ll see a full year of production out of that. Some of it’s import substitution too, or vehicles produced here rather than being imported.

Given that the market is favoring larger trucks, SUVs and crossovers instead of sedans, are suppliers more protected from fluctuations because those are higher margin vehicles? Yeah, absolutely. That’s been subtle. Not everybody picks up on that. It’s anecdotal. I don’t have a study I can pull out of my pocket here, but in my conversations with suppliers, that’s exactly the vibe I’m getting. … Where we’ve seen strength in the market is crossovers, utility vehicles, trucks, light trucks, pickup trucks. Those tend to be higher margin components and tend to be higher margin business. So it’s higher content, larger parts, more margin.

Q&A

Is there an upside to a plateauing sales environment?

MIKE WALL GRAND RAPIDS DIRECTOR OF AUTOMOTIVE ANALYSIS, IHS MARKIT

orth American light vehicle sales should dip this year to around 17.1 million units, breaking a streak of seven consecutive year-overyear gains, according to Mike Wall of IHS Markit. But while he expects the market to contract further to around 16.9 million units next year, Wall believes the automotive supply chain is positioned to thrive.

What’s your outlook for car sales in 2018? The recovery days of the last several years are largely behind us. Next year, we’re looking at 16.9 million units in terms of light vehicle sales. Now, I say all that and I’ll tell you: Sales of 16-17 million units in production is a good time. That’s good news for the industry. It’s all relative, of course, if you compare it to the last peak and what have you. But it’s still good, still very positive for the industry.

Does the production forecast look any different? Next year we’re looking at 17.5 million units. So growth in production, but yet a little bit of a contraction in sales. That looks a little weird.

What’s driving the disparity between production and sales? We expect to see more exports out of North America next year, so there’s a tailwind there to the tune of about 220,000 units or so. The other (reason) is just contingent investment in plants and ramping Visit www.mibiz.com

(If I’m a supplier), I actually have some opportunity to do some maintenance on equipment now and to draw down some of my overtime. Would they like (more business)? I think all suppliers are looking over their shoulder. They don’t want to be missing out on business, but at the same time there’s something to be said for training and maintenance and all that sort of thing.

If you’re supplying light trucks, SUVs and crossovers, are you generally pretty bullish right now? I say bullish with an asterisk. So, it’s positive in that it’s fitting with customer demands, customer taste and trends right now. We do think there’s still some legs to that. And it’s not that we expect it to collapse or anything like that, but I do think you’re going to start to see some slowing of the growth in this segment, just owing to how far we’ve come and how many offerings are out there. Some of this growth has been predicated on the fact that some of the segments didn’t exist five, six, or seven years ago. We’re now more proliferated in those segments and that’s where the asterisk comes in.

How does that model proliferation and competition affect the product cycle?

now — where everybody is on one side or the other — they are not willing to work with other people. From the family business perspective, businesses do a great job of working with other people. There is a lot of animosity going on. If you look at the legislature, so many votes are down party lines as opposed to people looking out for what’s best. If a Republican says something, then a Democrat is going to disagree just because a Republican said it, not because it’s the wrong thing. And vice versa. The business world does a good job of working through this stuff.

Going forward, what keeps you up at night? What keeps me up at night is talent. I think a lot of family businesses are experiencing that same thing. They are looking for good talent. It’s interesting: People are always talking about how you need to go to college and get a degree, and that they can’t go into manufacturing. From a manufacturer’s perspective, manufacturing can be a good environment. It can provide good wages and can be a good career for people. That’s where we struggle a lot, and where we struggle in the office as well — finding good talent.

Why is that the case? A big part of that is where the marketplace is now with unemployment as low as it is. It’s really hard to find good talent. We’ve been fortunate enough at my company to find great talent this year, but when I talk to family businesses, the biggest thing they worry about is finding good talent. It’s more than manufacturers, too. It goes beyond that.

Interview conducted and condensed by Mitch Galloway. Courtesy photo.

you can pick your battles, you can really drive the needle here and there. You see it on that telematics and infotainment space, the center stack of the vehicle. You also see it on some of the advanced driver-assist systems. You’re seeing more deployment on that and those are happening even kind of mid-cycle, where you’re getting more adoption and also driving it further down in the trim levels, too. You’re deploying more of that technology to more consumers.

How do you see the discussions over NAFTA playing out next year? Our best-case scenario, we’re still expecting NAFTA to be in the mix. We’re not expecting the nuclear option, if you will, where NAFTA goes away. I can definitely see some tinkering. To the extent, say, it does … get ugly, it is tough to predict the overarching impact.

Does that cause any worry about the viability of some automotive suppliers? This is not an optimal scenario at all, and it will add costs in some way, shape or form. But at the same time, on the supply chain side in particular, there does tend to be a bit more resiliency, a bit more flexibility, a bit more ability to navigate that. … So I’m not necessarily in the doom camp even if something were to get really ugly. It wouldn’t be positive at all, but at the same time, it would be one of those things we’d overcome. We’d persevere. And on the supply chain side, they’d find a way.

What other issues are you monitoring for 2018? The Fed: What do they do on the interest rate side? Some of this becomes a conversation around the macroeconomic dynamics because we’re looking for GDP to line up reasonably well next year. This year will be 2.3 or 2.4 percent. We’re looking for a bit higher growth … next year. How does the Fed look? If they continue to tighten, how many interest rate increases are they going to do? To what extent does that potentially impact demand (and) also credit availability?

When we do have another cyclical economic downturn, how well is the supply chain positioned to weather it?

Given the importance of technology, is the auto industry cycle going to start looking more like the life cycle of consumer electronics?

When you have this kind of profitability and really being able to right-size your business, it puts you in a better position to navigate any sort of downturn that may occur. The good suppliers I know of, they’re always looking over their shoulder for that next competitor or that downturn, and trying to protect for that. Ten years ago, we were entering the downturn and they weren’t in that same position. They may not have been optimally positioned … from a profitability standpoint. Frankly, the industry was sort of upsidedown from a cost profile perspective. And then you flash forward, it’s much healthier than it used to be. And that, I think, helps to navigate some of those waters, too.

In the auto industry, it’s not practical necessarily to operate on a single-year consumer electronics timing, but to the extent

Interview conducted and condensed by Joe Boomgaard. Courtesy photo.

It’s going to be a case of the freshest product is going to catch the eye of the consumer in this type of environment. It’s going to be a little more challenging on the part of both automakers and suppliers. It’s opportunity for suppliers, frankly. As those automakers may be looking at more robust redesigns, more intrinsic updates to the vehicle, to the extent that those start changing components, sheet metal and steel, that certainly is another opportunity for suppliers.

Special Year-End Edition: MiBiz Crystal Ball 2018 | DECEMBER 26, 2017

MANUFACTURING

RICK ARNOLD

PRESIDENT, BROADVIEW PRODUCT DEVELOPMENT CORP. | ZEELAND Broadview Product Development Corp. had strong business in 2017 with its automotive industry customers and also grew sales to office furniture manufacturers by 25 percent. That growth has President Rick Arnold facing some key challenges at the prototyping and engineering firm. “We’re busier than we have been, and we are busier than our resources can support,” he said. Like most businesses these days, Broadview constantly wrestles with concerns over talent, which remains a key issue for the company heading into 2018.

“I think the (economy) is going to continue to grow as long as something bad globally doesn’t happen that changes everyone’s feelings. The furniture industry certainly seems to tick up from the development side of things. What we do is work on advanced product development stuff with the furniture companies. As we get busy, it means they are developing more products, which means that they’ve got more investments and that they’re (building). It means they are doing well and are planning on bringing new product to the market. It should cause them to grow in the future. I would think the talent issue might be the biggest for West Michigan. Because we live in engineering, we are doing mechanical engineering and manufacturing engineering, and it’s just tough to find the resources. If we could find three or four good people, we could put them to work very quickly. We are 25 people today, so that’d be pretty significant to add three or four. … (Any downturn) is still three or four years out. We’ve had a period of sustained growth, so you’d think there’d be a downturn soon, but the growth has been so slow that a lot of people don’t count it as solid growth. We just hit 3 percent nationally. It seems like we could support that a few years before the downturn hits. Usually downturns hit for some unforeseen reason. Right now, we hope our economy stays strong and all of our customers call tomorrow.” Compiled by Mitch Galloway. MiBiz file photo.

Where do you see the economy going in 2018 and how will that affect the automotive industry? There are so many uncertainties … so many different things in play right now. We are talking autonomy, mobility, advanced powertrains, new materials, international relations, and you throw on there what I call the ‘Trump Effect,’ which could affect many of the factors — the economy, the talent. I’m afraid we don’t know the answer, and I believe one of the key things that we are dealing with now is the magnitude of uncertainty.

How is technology changing the industry dynamic? It depends on the supplier. In fact, if you look both at the manufacturers and suppliers, one of the issues we are seeing is a divide emerge from what I call the haves and have nots. The haves (are) GM, Ford, Toyota and a few others, and there are some manufacturers that aren’t doing all of the different things that are going on. They are potentially in trouble. With the high-tech companies, one of the things we are seeing is what I call a commoditization of tech, and it’s moving so fast that you could be in great shape one day and out of the businesses the next.

Q&A

From your perspective, what’s the biggest issue for the supply chain?

DAVID COLE DETROIT CHAIRMAN, AUTOHARVEST FOUNDATION

he automotive industry faces many uncertainties heading into 2018. AutoHarvest Foundation Chairman David Cole said the industry is heading toward more unknowns than knowns, especially because Michigan manufacturers struggle to find proper talent as the visibility among consumers wavers. It all adds up to an unpredictable future for automakers, he said.

DECEMBER 26, 2017 | Special Year-End Edition: MiBiz Crystal Ball 2018

One of things we are concerned with is suppliers aren’t a very visible part of the auto industry. Even multi-billion dollar companies, most people don’t know about them, and one of the problems we are faced with is finding appropriately educated talent. If you are not known, it can be tough. With this lack of visibility, particularly of suppliers, it’s harder to recognize them as an appropriate place to work.

How are automotive suppliers addressing those talent concerns? We haven’t seen the worst of it yet because of the boomer retirements that are going on. It’s a huge problem. The number one shortage of talent in Michigan happens to be in skilled trades and technicians, and number two is engineers with electro-mechanical skills. We just don’t have a pipeline,

and part of the problem is most people take manufacturing for granted. People tend to have a dated picture of what manufacturing is, and parents say, ‘I don’t want my kids to work in manufacturing. I don’t want them getting their hands dirty unless he’s punching computer keys.’

When do you anticipate the next downturn in the automotive cycle? What is the industry doing to prepare for it? The general consensus is that we could have a little fall off from sales. In reality, what we are doing is looking at a total restructuring of the industry. If you look at a company like GM, they make and sell cars and trucks. In terms of people who are looking at the big picture, (GM) is the furthest in the lead of redefining their company. It’s an extremely chaotic environment that is emerging. There are so many uncertainties gathered together. What do you do when you are in the middle of chaos? You try to stay alive. For the companies, they are trying to play all of the different games so as the pathway becomes clear, they are already playing it.

How will issues like the ‘Trump Effect’ and NAFTA shape the industry next year? The North American Free Trade Agreement is a policy between the U.S., Canada and Mexico, and they kind of work through that and pretty much optimize the manufacturing footprint. Anything that could change that, you’ve got a problem. One of the interesting aspects Trump’s been pushing is that he wants to bring jobs back, but we don’t have the talent for those jobs. Manufacturing in general — just to give you kind of a number that we’re looking at — has a shortage of over 2 million appropriately educated people.

Looking ahead to 2018, what’s keeping you up at night? It’s the incredible level of uncertainty that we are facing. It’s talent, it’s technology, it’s all of the different policies that float out of Washington. Everybody likes a predictable picture of the future. We don’t have that.

Interview conducted and condensed by Mitch Galloway. Courtesy photo. Visit www.mibiz.com

MANUFACTURING whether it’s facility expansion, capital investment, I.T. systems, ERP systems. There’s been a lot of money and resources in building infrastructure up. Growth has been decent, not spectacular, and maybe the expenses have been a little bit higher because of the investments. But, most of the folks that I see are expecting those investments to start paying off next year from a top-line perspective.

How is this just another evolution of the manufacturing industry?

How prepared are businesses for the next downturn? How are they addressing that issue?

The other disruption in the I.T. front is data analytics. With more and more electronics and systems going online, there’s the capturing of so much data. That’s an area where a bunch of people are making investments, building those tools and developing those methodologies to help manufacturing.

Q&A

It’s got to come at some point, right? Whether you call it the recovery or the expansion, it hasn’t necessarily added the same number of jobs that have been out there. So, the workforce might not be the easiest pickings in terms of having a lot of fat, but I think people managed that relatively well. Like the productivity, in using other tools, they don’t have as much of a cost structure built into those things. Where they are at is maybe more scalable to changes in how things are going.

JOEL MITCHELL GRAND RAPIDS PARTNER, PLANTE MORAN

partner at accounting and consulting firm Plante Moran, Joel Mitchell has a frontline look into how manufacturers are faring. Mitchell, who heads the manufacturing and distribution industry service team in Grand Rapids, said companies are bracing for disruptions and closely watching how passage of the federal tax reform bill could affect their businesses.

How are West Michigan manufacturers performing financially? Most of what I see is they are performing well and are very healthy. The trend I guess I see is that this has been a year of investments,

How are manufacturers bracing for interruptions from technology? It becomes a really broad area. Cybersecurity is an area (of concern) for people. I just had a meeting and we were walking through some of the history of (cybersecurity) issues. There was the Yahoo issue a couple years ago, the Target one, and most recently, Equifax, where hackers were getting consumer information. There are stories everywhere, and companies are dealing with it. At our firm, we do things to help prepare and educate people, and we actually have mock phishing or penetrationtype exercises to teach people how to deal with it and how to identify it.

That’s a scary issue for manufacturers, right? Yeah, it’s one thing to say, ‘Hey, our I.T. people are educated about this and they are the ones (doing it),’ but it could be anybody. A lot of folks have technology they use on their manufacturing floors. You have blue-collar workers dealing with all of these devices and things hooked up to your network, and all offer access points. The same with your office folks — the whole spectrum of the workforce could potentially be in play.

It’s not like 50 years ago when if I wanted to keep my money safe, I put it in a safe and all you worried about is someone physically breaking into your safe. Now, it’s anybody, anywhere in the world, writing this stuff up and trying to gain access remotely through your system.

How else is technology affecting manufacturers?

Are manufacturers spending more on technology? In R&D, for sure. I have a client that has developed an app that goes with their product that measures performance and highlights when services are needed, (when) a replacement is needed. For the customer, all that information is going back to them as well so they can assess their problem, assess how customers use their product.

Looking ahead to 2018, what’s one key issue you’re watching? I am a tax guy — that’s my background. These (federal) tax changes I think are good. I think they have a much greater chance of happening, and they are very friendly from a business perspective.

How so? There’s a significant drop in tax rates. More often than not, it’s going to result in businesses paying less tax. Potentially, there’s going to be more after-tax income sitting there in cash for companies to use and to grow. I think the likelihood of it going through is significantly greater after it getting through the Senate.

How would you sum up your clients’ view of 2018? I think with people there is a feeling they are sitting in a really good spot. Business has been good. We are kind of in a long extended run of growth, but everyone is a realist and understands that at some point there will be a little bump.

Interview conducted and condensed by Mitch Galloway. Courtesy photo

JIM MONTERUSSO PRESIDENT, HME INC. | WYOMING

The news footage in recent weeks about wildfires raging across Southern California showed an unlikely West Michigan connection: Wyoming-based HME Inc. made many of the fire trucks used to fight the blazes. President Jim Monterusso said the company, which recently finished the first of six custom fire trucks for the city of Detroit, has strong demand for its products, although many municipalities struggle to find the funding they need to upgrade their safety equipment.

“Barring an unexpected geopolitical event, we expect to see conditions in our sector of the transportation industry to be generally favorable. As a manufacturer of heavy truck chassis and fire trucks, demand in our industry tends to trail an economic recovery as those dollars become taxes and make their way out to municipalities for infrastructure and public safety investment. The current recovery has been longer and more muted than most, so market demand should continue trending upwards in 2018. The need for our products is clearly there. Actually, overall demand for fire apparatus has still not returned to pre-recession levels. According to industry statistics, roughly one in five fire trucks in the U.S. is now 16 or more years old, and about three out of five are more than 10 years old. Rescue equipment is not like hamburgers or handbags that people can just choose to go without. These products are essential for the safety of our firefighters and fellow citizens. The question is not ‘if’ these needs are manifested in the market, but ‘when’ and ‘how.’ We are actively assessing our product offerings and manufacturing capacity to ensure that we can meet these needs in 2018 and beyond. I expect we will move ahead in 2018 with initiatives in both areas. … The current uncertainty around tax reform and public infrastructure spending makes it difficult to predict short and medium-term timing. The need for our products is undeniable. Figuring out when and how those demands will appear in the market is still very difficult. We would like to make some additional investment in manufacturing capacity. Like with most businesses, though, uncertainty tends to slow or even halt implementation of those plans.” Compiled by Joe Boomgaard. Photo by Katy Batdorff. Visit www.mibiz.com

Special Year-End Edition: MiBiz Crystal Ball 2018 | DECEMBER 26, 2017

SMALL BUSINESS

Joining MiBiz for a minority small business roundtable were (top left to right) Jonathan Jelks of Midwest Tech Project, Jennifer Jurgens of SalesPad LLC and Larry Romanelli of Little River Band of Ottawa Indians; (bottom left to right) Raquel Salas of Avanti Law Group PLLC and Lewis Williams of Forty Acres Soul Kitchen. PHOTOS BY K AT Y BATDORFF

— Minority Small Business Roundtable —

MINORITY, WOMEN ENTREPRENEURS WRESTLE WITH INGRAINED WEST MICHIGAN CULTURE By NICK MANES | MiBiz nmanes@mibiz.com

he growth in West Michigan’s small business and entrepreneurial community needs to be more equitable. That’s according to a group of executives and community leaders who joined MiBiz for a roundtable discussion on the state of entrepreneurship in the region’s minority community. While participants said they’ve seen improvements in recent years, many noted that it will take a full-on culture shift and stepping back from “West Michigan nice” before the region can expect broad, tangible changes. Joining in the discussion were: n Jonathan Jelks, co-founder of Midwest Tech Project, a Grand Rapids-based initiative aimed at bringing more diversity to the technology sector n Jennifer Jurgens, president of SalesPad LLC, a Grand Rapidsbased workplace software development firm n Larry Romanelli, Ogema (tribal leader) of the Little River Band of Ottawa Indians n Raquel Salas, co-founder and managing member, Avanti Law Group PLLC, a Wyoming-based law firm n Lewis Williams, co-owner of Grand Rapids-based Forty Acres Soul Kitchen, a soon-to-open restaurant, and a co-founder of parent company 40 Acres Lifestyles LLC Here are some highlights from the discussion. How would you describe the overall climate for women- and minority-owned small businesses and entrepreneurship inWest Michigan? SALAS: I think that I’m pretty excited, as a business owner

myself, to see this huge investment in all the social media information out there in order to inspire and get new entrepreneurs in the door. ... I don’t know if it’s because of Start Garden or because of … Shark Tank and all of those TV shows going on, but I believe that in the past three years, I’ve seen a huge investment, development of talent in order to get people in the door to start a business and to explore the opportunities that come (with) entrepreneurship. That being said, I’ve noted that there’s a lack of support for businesses that are already established. … There should also be support for those that are in business for a substantial amount of time in order for them to continue growing and continue being successful. JURGENS: I would add to that: There are these things out there and opportunities to help the existing (firms) learn and grow, but there’s so many of them and they’re so spread out. If you don’t know somebody who knows somebody who has it all together, it’s really hard. It just seems like there’s a lot of opportunities, but to figure them out and get engaged has been the trick. SALAS: And I’ve seen a lot of collaborations form in order to put together the resources instead of everybody having their own show happening, which I think is very helpful. JELKS: While I’ve been happy about the recent energy that’s transpiring here in Grand Rapids, a lot of the recent energy wasn’t birthed out of some revelation that fell out the sky. I think it came from immense political pressure. I think it came from the 2015 Forbes article that referenced Grand Rapids being 51 out of 52 worst cities for African Americans, some of the numbers that the Kellogg Foundation put out about there being about a 53 percent unemployment rate in the black community, the poverty rate in the Latino community being exceedingly high. These are things that I don’t think a city that is looking to be respected as a global

DECEMBER 26, 2017 | Special Year-End Edition: MiBiz Crystal Ball 2018

community can afford to continue to suffer in the age of transparency. I think the ecosystem work that Start Garden is doing –– and we’ve been a part of that from the beginning –– (is helping). Grand Rapids Area Black Businesses was their first partnership that kind of got them focused on having a philosophy when it came to how can we incubate businesses at the neighborhood level. It was out of necessity and out of survival. What are you seeing as far as the availability of capital for minority-driven entrepreneurship endeavors? JELKS: What we’re finding is that there’s still significant problems with getting minority entrepreneurs resources. You have all of these different micro-lending organizations and economic service organizations that aren’t getting money out the doors to minority entrepreneurs. Traditional lending entities aren’t getting money out the doors to entrepreneurs. A person of color in the city can get $30,000 to $50,000 for a luxury car. I like luxury cars, but you can’t get $5,000 to $10,000 for your business. So you still have significant challenges here in the city of Grand Rapids when it comes to creating a culture of entrepreneurship that’s effective and works for everybody. WILLIAMS: Being a restaurateur, one of the hardest things is financing. Banks don’t like restaurants anymore, and we just don’t have those avenues through micro-lending or anything like that. So you’ve got to get extremely creative in the investment opportunities and quite frankly, you’ve got to have a lot of experience to know how to navigate through this just to get the doors open. I’ve been in Grand Rapids for about 18 years now and it’s always been extremely difficult to just get something open. It just isn’t there. It’s who you know sometimes and I’ve dealt with things where you just don’t get the opportunities. Visit www.mibiz.com

SMALL BUSINESS How do you think you create those opportunities? WILLIAMS: Luckily, now, I’ve gotten the opportunities based off the climate. There’s an energy out there. It’s better than it ever has (been) before, but I’m always looking over my shoulder to make sure it’s concrete and it’s going to stay the way it has to stay. I don’t like feeling like that, but I have to be honest about that’s what the process is sometimes. We’re trying to create (the Forty Acres Lifestyle) brand that will help others, empower others, as we do this training and just showing them this is the way you can go about opening your business. That’s a huge part of our footprint of what we want to do. But definitely … there’s an energy out there like I’ve never seen before in 18 years. And it’s due to a lot of little things. People are a lot more socially responsible. ROMANELLI: I’m seeing a renewed interest or a larger interest in what the populations are doing. I think I see more investing now. Where I see a problem mostly is in the startup businesses. If the business is up and running, they give more attention to ease your problem. But for Native Americans — primarily, because that’s where my focus is — getting the startup businesses (resources) is the hardest part, getting through that and getting recognition. One major issue that goes on (is that) Native Americans are listed as ‘other’ or not listed in stats on a regular basis and it’s just crazy. I’ve been involved with the minority issues since the 1960s. … I just tried to do a little startup business just to see what the process is because I hope to become a mentor for other minority businesses. What I found was a bunch of roadblocks, and part of that was being listed as other or not even showing up on the radar. That’s really a major issue for me. But other than that, I see a lot of hope coming from minorities in seeing what we can do to increase business. Could state tools be better used to ramp up minority entrepreneurship? ROMANELLI: Yeah, I mean … you have the Start Gardens, which are the better things for me, and then you have the MEDC. You also have the Michigan Minority Supplier (Development Council). It seemed to fall real short for me. As a matter of fact, some of their literature is what I was referring to (that listed) ‘other.’ Do you realize that Michigan Minority Business Suppliers is funded and created out of the Small Business Association and if they themselves are putting it out incorrectly, it’s an issue.

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“I think it’s very important to do mentorship and collaboration. In my office, almost every attorney that I’ve lost, they have opened their own firm. … So the idea of working together with those that are starting out and also helping them … even if they were to become your competitors is very important. At the end of the day, the only way that we can continue empowering others to go into business in addition to leading by example is to help them.” — RAQUEL SALAS, MANAGING PARTNER AT AVANTI LAW GROUP PHOTO: KATY BATDORFF

JURGENS: It also requires such a specific skill set in my experience to do these types of applications if you’re a small business. … We have about 100 employees. But still, trying to find somebody to write for these types of things or discover these types of things or connect these programs like we talked about — we can’t dedicate somebody to going and doing that work and to be, for lack of a better term, a grant writer in some cases. It’s really hard. WILLIAMS: I feel we don’t have a long history culturally of doing these things. Everyone has to get used to even doing this stuff. I moved here 18 years ago from Brooklyn, New York. I come from a place that was used to doing that. That was all in motion. I grew up learning that. I think we’re just living in a time where (African

American businesses are) growing, but it’s still not the norm. I think what we want to get to is normal. At the end of the day, it’s nice to have a restaurant, but sometimes I think … you shouldn’t have to say it’s the first African-American full-service restaurant (with a liquor license in Grand Rapids). That should be the norm now. How else do these built-in cultural norms affect minority communities? JELKS: You look at an area like Wealthy Street and you have a robust business community, all kinds of restaurants, and it’s surrounded still by the African American community. I live right See SMALL BIZ on page 26

Special Year-End Edition: MiBiz Crystal Ball 2018 | DECEMBER 26, 2017

SMALL BUSINESS SMALL BIZ

off of that street in that corridor. You can count the amount of African American servers that you see in those businesses. I just think that’s disgraceful. You have new business owners who I think are open to it, some of them just don’t know how. WILLIAMS: Absolutely. I get calls all the time from people (saying), ‘I’m looking for people, Lewis.’ I say, ‘You’re not looking. They’re out there.’ Because in their mind, they’re looking for a certain thing. I always have to remind them there’s these programs. You have to look at everything. Second Chances, AARP, things like that. They’re there. I’ve used them and it works fine. SALAS: It’s interesting what you said, the part about people not looking. That has been my biggest issue with the legal (community), because there’s all these organizations about diversity and the law and this reporting going on. At the end of the day, if you look at the amount of minority attorneys being hired and retained by the law firms, it’s a joke. And at one point, I had eight attorneys full-time on my payroll and they all were minorities. So how can I find them but you can’t even hire them? Yeah, we see that happening all the time.

kind of lead by example, show them what to do and then invite people in to experience that. To me, the best way to do it was through food. If you can experience and bring people together, food usually does the trick. That’s why this restaurant is going first in our whole plan. SALAS: In addition to lead by example, I think it’s very important to do mentorship and collaboration. In my office, almost every attorney that I’ve lost, they have opened their own firm. Mario Cascante was one of my attorneys. He now owns Luna Restaurant and Tacos El Cunado. So the idea of working together with those that are starting out and also helping them … even if they were to become your competitors is very important. At the end of the day, the only way that we can continue empowering others to go into business in addition to leading by example is to help them. WILLIAMS: Yeah, and even with my purveyors, my vendors, I let them know from day one, this is the mission. You have to be part of that or I will go somewhere else. It’s just that simple to me, if I spend my dollars with you. JURGENS: (It’s) starting a movement. But again, I would love to know how we could be more efficient in that, how we could do that better. (If ) each year we didn’t have to go, ‘OK, where can we reach out to do the best work the fastest and most efficiently?’

Given this need for awareness, how do you harness some of the momentum we’re currently experiencing and then make it so it’s part of the cultural norm? WILLIAMS: I feel like I’ve got to lead by example. I feel like for me, I’ve got to open this place. I’ve got to show people how it’s done, so they have some reference to it. I feel like a lot of people just don’t have a reference to these things and don’t understand how it should go. I’m going to take that responsibility to

Some of the local tribes have been starting up their own investment groups to create opportunities for tribal members. What’s the background on that trend? ROMANELLI: With Native Americans, especially in Michigan, the belief is that all Native Americans have all kinds of money because they have these casinos. It’s not the truth. There are a couple of casinos that do pay out fairly decent, but the other ones do not and

Continued from page 25

PHOTO: KATY BATDORFF

“Where I see a problem mostly is in the startup businesses. If the business is up and running, they give more attention to ease your problem. But for Native Americans — primarily, because that’s where my focus is — getting the startup businesses (resources) is the hardest part, getting through that and getting recognition.” — LARRY ROMANELLI, OGEMA AT LITTLE RIVER BAND OF OTTAWA INDIANS

the Native Americans are just unrecognized. … We’ve tried to take some of that money and start our own businesses. … Now, I try to reinvest because we know casinos aren’t the only business in town and that we have to incorporate in different ways. Lewis, the name of your forthcoming restaurant, Forty Acres, brings out some vivid imagery. (Editor’s note: The name refers to the broken promise that freed slaves would receive 40 acres and a mule once slavery ended.) Is that type of branding important to drive home the point about normalizing minority businesses? WILLIAMS: Yeah, that’s the question I’ve been asked a lot from everyone. It’s about the education and it’s about (having) a conversation. We had to think of a way to have this conversation, let’s have it. We’re going to put in an African American restaurant. We’re going to have soul food there. Some people know what it is, some people don’t know what it is. So we want to have this conversation, not apologetically. We discuss some history, we discuss where the food comes from, how it entered your life and why it did. We wanted to have a conversation. So we said, ‘You know what? You call it Forty Acres, and we’re going to have a conversation.’ JELKS: My thought process is you have to be unapologetic and you have to be unrelenting. I think that’s the only thing that the city of Grand Rapids understands. We’ve been entirely too homogenous in our resources. We’ve been entirely too homogenous in who’s hiring. We talk about why aren’t more dollars and resources getting up to entrepreneurs of color and minority entrepreneurs. It’s because we don’t have enough minorities in the banks and in the lending institutions and so we’re fighting this kind of battle citywide. The city of Grand Rapids, they got called out for some diversity issues and they’re working on recruiting more people from diverse backgrounds. That’s happening across the board here in the city and it’s extremely healthy and it’s long overdue. But I just don’t think that ‘West Michigan nice’ has gotten the job done.

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DECEMBER 26, 2017 | Special Year-End Edition: MiBiz Crystal Ball 2018

How does that ‘West Michigan nice’ dynamic change significantly? JELKS: We think that there’s two ways that we’ll be able to address some of the things

that we’re seeing in the inner city. It’s building a strong business class and it’s getting people connected to be a part of the workforce of the future. Coding is the new blue collar workforce. It is the new manufacturing. … The Steelcases and the Big Three will never be what they once were, and so we’ve got to get people geared up for high-tech, high-growth industries. There’s a huge gap there and we need to get people thinking about that from an entrepreneurial perspective as well. JURGENS: Sometimes I almost feel like the ‘West Michigan nice’ can hinder progress. After working nine years on the East Coast primarily in New York, I have to say to people in my office: ‘Do not expect me to perceive how you really feel about this.’ So in order for me to really know how you’re feeling about this, you have to tell me so I can get to work on overcoming that, because if you just sugarcoat it, it’s going to take three times as long and I’m never going to pick up on it. I’d rather hear it straight all day long. Do you feel as though our educational system is doing a good enough job teaching entrepreneurship to minority students, or even in general? JELKS: I think when you look at (Grand Rapids Public Schools), some of the public-private partnerships that they have there, other cities would die to have. So I think the investment is coming in, but it’s within the last eight years or so that Grand Rapids has begun the hiring system, so we haven’t really seen the harvest yet from these newer programs. But I think GRPS is on the right track as far as bringing in Spectrum Health and I think Open Systems Technologies has a really strong relationship with them, which is exciting. SALAS: I’m very grateful that I work a lot with entrepreneurs and a lot of organizations. I teach a lot of the classes and I’m able to know where the resources are and I’m able to anticipate but I have represented so many businesses that go out of business and I can tell you there’s two things that are key when businesses close. Number one, they take more debt than they can handle and number two, they don’t get the proper mentorship. They’re afraid to look for help all the time. They wait until it’s too late. See SMALL BIZ on page 29 Visit www.mibiz.com

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“We talk about why aren’t more dollars and resources getting up to entrepreneurs of color and minority entrepreneurs. It’s because we don’t have enough minorities in the banks and in the lending institutions and so we’re fighting this kind of battle city-wide. The city of Grand Rapids, they got called out for some diversity issues and they’re working on recruiting more people from diverse backgrounds. That’s happening across the board here in the city and it’s extremely healthy and it’s long overdue. But I just don’t think that ‘West Michigan nice’ has gotten the job done.”

Continued from page 26 When we think about technology firms, how is West Michigan doing in terms of hiring women and minorities compared to some of the large coastal hubs? JURGENS: Well, there’s different stereotypes depending on where you go. In Silicon Valley, you’re looking at a large Indian population, Asian population. Yeah, it’s definitely more guy-skewed, but I do see that changing, especially if you don’t just look at the coders. You look at the entire company, what makes up a technology company: Our top sales person is a woman. Our head of project management, all of our project managers for the most part are women. So, I think that when you look at a technology company, you’ve got to step outside of coding per se to get that full look at it. Could we be even more intentional about it? Absolutely, but there were just different stereotypes depending on the city. JELKS: I think Detroit has done a good job of investing in tech and entrepreneurship across the board. They have a long tradition of political leadership that’s extremely diverse. It’s a city that has numbers. I think across the board getting people of color in tech is a big problem. In Grand Rapids, it looks like everywhere else in terms of that problem — maybe a little bit worse because we’re in Grand Rapids. But it looks really bad across the board. How can your individual organizations make the push for more normalcy around minority entrepreneurship? ROMANELLI: Just with my little tribe, our four attorneys are all female, which is great. I think that every group has their own biases and we’ve had our own within our own (group) where it’s just kind of crazy whether it’s the

— JONATHAN JELKS, CO-FOUNDER OF MIDWEST TECH PROJECT PHOTO: KATY BATDORFF

female focus or not in the Native Americans. We’ve had to deal with that understanding as well and come to a reality so we’re not absent some of those same issues. Even other races within Native Americans because for whatever reason –– and I don’t know if it’s because when you’re within a community and you’re struggling so hard and you have a tendency to lash out at everybody else –– but I think we have to be honest about that as well. JURGENS: I think as we’ve grown, (we’ve) been able to pull in some different types of people into

SalesPad in general. When you’re a small organization, it’s really hard to get any diversity, but as you start to grow, the more people that we’ve pulled in, the more listening we’ve been able to do, the more barriers we’ve been able to then address. But that scale takes time. WILLIAMS: It’s just a different way to run your business now. You just have to put it out there. This is what we’re about. This is what we do. This is how we’re going to do it. You just have to be intentional. The conversation has to be had for everyone to understand. Because some people,

they just don’t understand. If you’ve never dealt with something like that before, how would you know? Ignorance is bliss. ROMANELLI: There’s just a new way of doing business. It’s a new mindset, which is good, and we have to get into that flow and keep it going. Strike while the iron’s hot. I think that everybody understands we’re just more of a focus now. I think next year, hopefully, the focus is that there’s been more collaboration going on not only within the different groups but also within the different businesses. That would be my goal.

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REAL ESTATE & DEVELOPMENT

LARGE-SCALE DEVELOPMENT TO CONTINUE IN 2018 By NICK MANES | MiBiz nmanes@mibiz.com

ower cranes constructing offices, hotels and apartments dot the skyline in and around downtown Grand Rapids. While many of those cranes will remain on their respective sites in the central business district and the North Monroe corridor well into 2018, construction and development sources say more cranes could be on the way, given the right circumstances. “I honestly think (in 2018), it’s going to be a lot of the same,” said Jim Conner, senior vice president at Grand Rapids-based Triangle Associates Inc., a construction management firm. “People are optimistic, but they’re cautious. I’m very curious to see if a couple of these big projects that are supposed to get going, if they do or don’t. “It’s a pretty big pivot point for our area. I think with those big projects, they breed three or four other medium- to small-sized projects.” To Conner’s point, large real estate development projects remain in the pipeline in Grand Rapids’ downtown, into peripheral neighborhoods and around the broader West Michigan region. According to data from Downtown Grand Rapids Inc., the value of completed construction projects, projects under construction and proposed developments totals about $750 million, just in the downtown or adjacent areas. That includes about 1,350 housing units, 794 hotel rooms, 169,130 square feet of commercial space and almost 3,500 parking spaces. Despite considerable optimism, many real estate industry sources cite the unknown impact from the federal tax reform bill as posing more questions than answers. Earl Poleski, executive director of the Michigan State Housing Development Authority (MSHDA), the state organization that administers the federal Low Income Housing Tax Credits (LIHTC), notes

that he expects little tangible change as a result of tax legislation. However, Poleski said it’s unclear what the market will be like for the syndication of tax credits in a time of generally lower taxes. “There are some changes that we’ll have some difficulty in measuring and determining the economic effect of,” Poleski said.

OPPORTUNITIES ABOUND In Grand Rapids, several large-scale projects are expected to break ground next year. That includes the Studio Park mixed-use entertainment district project planned by Jackson Entertainment LLC for two surface parking lots south of Van Andel Arena. Other projects like the the redevelopment of the Fifth Third Bank campus, ongoing work to restore the rapids in the Grand River through downtown and the city’s potential sale of its 201 Market Ave. property could also take shape, sources said. In general, developers expressed the need for continuing development on a large scale, particularly on the west side of the Grand River. “When you look at what’s happening near the river and what’s happening here, there’s great opportunity,” said Mike VanGessel, CEO of Rockford Construction Co. Inc., a Grand Rapidsbased real estate development and construction firm that’s led much of the growth along the burgeoning Bridge Street corridor. “I think there’s great opportunity for density, great opportunity for height,” VanGessel said during a November panel discussion on west side development. “There’s great opportunity to connect with the river in more significant ways than we currently have.” Development opportunities also extend south to the Kalamazoo area, where new retail and residential options continue popping up. Andrew Haan, president of Downtown Kalamazoo Inc., points to the ongoing

construction of The Exchange project, a $52.7 million, 15-story office and residential tower set to open in 2019 along West Michigan Avenue. Overall, Haan said he expects at least 500 new housing units in the downtown Kalamazoo area over the next couple of years. “We’ll have some major changes to the skyline in the next few months, and that will send a message to the market,” Haan said. “It shows there’s investor confidence from some major developers and that our lenders are comfortable with the market. We’re just catching up to a couple other communities (around the state) that have been going full bore for a couple of years.”

OVERBUILT? The expected delivery of thousands of apartment units in 2018 all around the region has brought a mix of sentiments from industry sources. VanGessel said his firm believes that by delivering housing units in a large, dense quantity — such as what Rockford has attempted to do around the city’s west side — it can help alleviate some of the concerns associated with increasing rental rates and gentrification. “You build projects that have scale and density,” VanGessel said. “We believe that has positive impact on the other housing stock and stabilizes the rent. I’m not an affordable housing developer, that’s not our core business. We partner with them because then they have the ability to deal with rental rates.” Given the number of apartments that have already hit the market and the nearly 2,000 units expected to come online at some point in the next year around the region, some sources foresee a softening in the market. “It will be interesting to see how long it takes for the better property to lease up,” said Michael Cagen, a senior associate in the multifamily housing group at Marcus & Millichap Real Estate Investment Services Inc. in Grand Rapids. “What

will need to be done from a concession standpoint to attract new tenants? It may cause a bit of softening at the top end of the market that may translate into a bit of softening in the B product or the C product, ultimately, over time.”

BRINGING BACK TAX CREDITS The federal tax overhaul signed into law as this report went to press contained a number of provisions seen as favorable to the commercial real estate industry. Poleski with MSHDA noted that items such as the Low Income Housing Tax Credit (LIHTC), the most popular tool for the development of affordable housing units, remained in the final legislation. Additionally, the 1031 exchange that allows real estate investors to reinvest proceeds from sales of similar, or “like-kind,” properties while delaying any tax payments, also made it through the conference committee bill, according to reports. On the state level, the potential return of the Michigan Historic Preservation Tax Credit also stands as particularly important for the development community. Gov. Rick Snyder did away with the credit during the state tax overhaul in his first term, despite the tool’s frequent use in the 1990s and 2000s. As this report went to press, legislation to re-establish the credit had passed the state Senate. That’s welcome news to Ted Lott, a principal with Grand Rapids-based architecture firm Lott3Metz Architecture LLC, who called historic preservation credits one of the “best dollar in-dollar out” programs at both the state and federal levels. The reintroduction of the credit at the state level would be a boon not just for his business, but for the broader real estate and construction industries, he said. “Just drive down Division and think about how many of those buildings have been brought back online because of federal and state tax credits for rehabilitation,” Lott said.

RICK DEKAM

PRINCIPAL, MIDWEST REALTY GROUP LLC | PORTAGE The Great Recession might be years in the past, but commercial real estate executives haven’t forgotten the lessons learned from that time. Rick DeKam, principal with Midwest Realty Group, a Portage-based full-service real estate firm, has spent the last several years building up the company’s cash reserves to prepare for an eventual downturn. But beyond external factors such as “national and global issues related to the country’s presidency and the fact that our county continues to become more and more divided,” he believes the overall business climate continues to look positive.

“Contrary to most developers’ current positions, we continue to focus on retiring all short-term company debt and on building our cash reserves. The winners from the last recession were those with cash. If more investors take a similar position, it would have a dramatic stabilizing effect in any future economic declines. … I believe that 2017 surprised most industry professionals as it started strong, but only built momentum from there throughout the entire year. Most industry professionals finished the year with record-breaking volume and a considerable backlog going into 2018, with no slowdown in sight. As such, most of us continue to expect the same to continue throughout 2018. But for most of us (who) successfully weathered the recent Great Recession, (we maintain a healthy) respect to not becoming over-committed or over-leveraged. … We balance all new company growth and prospective new investment/development decisions against a set of new ‘worst case’ financial scenario projections, considering the lessons learned through the last recession. We’ve therefore become more conservative in our financial projections.” Compiled by Nick Manes. Courtesy photo. Visit www.mibiz.com

Special Year-End Edition: MiBiz Crystal Ball 2018 | DECEMBER 26, 2017

REAL ESTATE & DEVELOPMENT

SAM CUMMINGS

MANAGING PARTNER, CWD REAL ESTATE INVESTMENT INC. | GRAND RAPIDS Sam Cummings will be the first to acknowledge that he’s got a lot of office and retail space to fill in downtown Grand Rapids next year, with redevelopment work underway at 50 Monroe Ave. NW and unspecified plans in the coming years for the downtown Fifth Third Bank campus, which has been dubbed Vandenberg Center. Cummings says CWD plans to work diligently over the next year to attract large corporate users, bring more activity to ground-floor spaces and focus on the fundamentals of real estate development.

“We are laser-focused on ground floor activation for all of Vandenberg Center. How do we activate the ground floor, how do we improve pedestrian activity? (Downtown retail spaces) are a challenge. A good retailer recognizes that in a great location, the difference between $10 per square foot and $20 per square foot relative to the percentage rent is of their gross sales is not a lot. … Typically, a sophisticated retailer will have a good idea of what percentage occupancy cost is of their gross sales, and it’s formulaic. It’s Taubman’s ‘Rule of Rooftops.’ You need people, you need volume. And with co-tenancy, critical mass, you get that. … We are extremely deliberate in our underwriting. We focus on fundamentals. We recognize that the economy can change and we’re not in a hurry. This is our home — we’re not merchant developers. We’re focused on the long term. If we have to delay swinging hammers to get the right product, we’ll do that. I’ve been through two recessions already and they don’t frighten me. It’s just different. We’re very strategic. The key to not being afraid is just being prepared. But I’ll say that things don’t always go up and you can’t take growth for granted. … You just have to be very careful about chasing ‘big shinies.’ You have to make sure stuff is sustainable. Sometimes the most shiny objects are not sustainable.” Compiled by Nick Manes. Photo by Katy Batdorff.

What would that be? Most of the population growth, and therefore the construction gains, are likely to be in the Sunbelt moving forward –– south and west –– and I think the northeast and Midwest are likely to revert back to a slower growth mode. But I don’t think anything significant beyond that trend.

What do you think that period of slower growth might look like? The construction sector was really pretty slow in coming out of the last downturn. Because it was a financial collapse principally and construction is so reliant on financing, it just took a long time for that sector to get off the ground (with) housing, commercial as well as institutional (projects). The numbers for the various sectors have kind of pulled up at different points in time, but I think now we’re in a pretty good growth mode for the industry, low to mid single-digit growth.

Q&A

What’s your overall projection for 2018?

KERMIT BAKER WASHINGTON, D.C. CHIEF ECONOMIST, AMERICAN INSTITUTE OF ARCHITECTS (AIA)

he American Institute of Architects (AIA) publishes the quarterly Architectural Billings Index (ABI), which is generally viewed as a leading indicator for the construction industry. While the data fluctuated throughout the year, architects’ billings have been largely positive, according to the Washington, D.C. trade association. Heading into 2018, AIA Chief Economist Kermit Baker generally expects more of the same, albeit with some uncertainty surrounding national policy issues.

It looks to be pretty much more of the same. 2017 was a bit of a disappointment. We were expecting growth in the 5- to 7-percent range. It looks like it’s going to be closer to 2 to 3 percent, but I think the flip side of that is that the growth we expected to see this year is probably going to be pushed into 2018 and 2019. I don’t see any big issues within the industry.

So you’re not forecasting 2018 as the year for a recession? I think what’s going to bring down this construction cycle is … not something in construction but likely something in the broader economy. We’re long overdue for a cyclical correction –– some type of a recession. It’s probably likely to be a pretty mild one. But, I think if the overall economy is slow, and even turns negative a bit, that’s likely to take some of the steam out of construction, likely to take some of the steam out of the investment side of the economy (and) likely give that a little pause.

The last Architectural Billings Index from November showed the Midwest lagging a bit compared to other areas of the country. What do you attribute that to?

With the federal tax bill that’s making its way through Congress, do you buy the claim that a large corporate tax cut will result in greater investment that could lead to more work for architects and contractors?

Some of the original numbers do bounce around a little bit. We had some weakness up in the northeast earlier this year and a good chunk of 2016. The south has been pretty consistently strong. … I think the broad regional trends are that we’re reverting back to trends that we were seeing before the last downturn.

I think that’s basically true. I think the tax bill –– which is really a business-focused tax bill –– is designed to stimulate more investment and I think we will see more investment. We’re at a sort of funny stage in the cycle to kind of expect an awful lot of investment. I think most folks feel we’re kind of at the tail end and not

DECEMBER 26, 2017 | Special Year-End Edition: MiBiz Crystal Ball 2018

likely to see a lot of growth moving forward in the economy. Is that a good time to invest in facilities? So, I’m guessing that a lot of companies will say, ‘Let’s just kind of wait and see if we get demand out of this or not before we just willy-nilly go ahead with an expansion of our physical assets.’

What do you see as potential negatives from the tax bill? Residential (is) a bit of the opposite there. For households, how much additional income are they going to see? That’s going to vary by circumstances. But taking away a few of the incentives for home buying — for example, the limitations to the mortgage interest deduction, the limitations to state and local taxes, however that works out –– is going to slow some of the incentive there. And it’s going to slow in areas that have high property values, high home values. That is mostly the coastal areas, but also areas that have relatively high property taxes and state and local taxes. That’s kind of a broader base, that’s not only the coastal areas. That’ll hit a broader list of areas in the northeast and Midwest.

Much of the current building boom in the apartment sector has come from various tax credits and incentives. Should those be eliminated as part of the bill, what kind of impact do you envision? On the margin, we’re going to see some of these niche markets get hurt because we’re not going to have those preferences or likely not to have them — or not to the extent that we have had historically. I think that’s going to slow down some of those targeted areas in an effort to bring down business taxes and do away with a lot of the other tax preferences that might have helped some of these markets.

What other issues are you hearing from architecture and construction firms around the country? There’s just a pretty significant shortage of labor in this industry and it doesn’t seem to be turning around. It’s an industry that’s traditionally very cyclical and traditionally loses a lot of its labor force during downturns, and then they cycle back up when the industry recovers. This time we haven’t seen that, particularly on the basic construction side, and so contractors are just really, really hurting for labor. That doesn’t seem like it’s gotten a lot better, even though the industry’s been recovering for the last four to five years.

Interview conducted and condensed by Nick Manes. Courtesy photo. Visit www.mibiz.com

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Special Year-End Edition: MiBiz Crystal Ball 2018 | DECEMBER 26, 2017

REAL ESTATE & DEVELOPMENT

MIKE CORBY

EXECUTIVE VICE PRESIDENT, INTEGRATED ARCHITECTURE GRAND RAPIDS Executives at Integrated Architecture had thought 2017 would be a year of “stabilization” and maybe even some slowdown for the firm’s commercial architectural projects. But according to Executive Vice President Mike Corby, that’s not been the case. The Grand Rapids-based firm with a strong focus on mixed-use apartment and commercial buildings sees the momentum only continuing to gain steam.

“The fortunate thing for our particular company related to 2018 is that many of our significant projects that were in early stages this year are progressing into more involved stages for the upcoming year. This will help the year start in a strong way. The other encouraging aspect is that there are still quite a few pending or potential opportunities in the works that I would only expect to continue to fuel the backlog of work if they are realized. So, in short, I am actually more optimistic about 2018 than I was about 2017 last year. I never would have predicted this, but I’m glad to see it. Grand Rapids as a place to work and live has been trending enormously well. I can only surmise that this buoyancy has contributed to this continued trajectory of growth. Our firm is relocating to the downtown area this coming year as well, in large measure due to this mojo, and we look forward to what 2018 has in store. … I’ve been practicing for over 35 years and operating our firm for almost 30 years. The cycles have tended to be about seven to 10 years (long). That being said, I would expect a more significant shift surely within the next five years. We continue to stay diversified and not too focused in one particular sector. We’re also moving our offices into a leaner space to minimize our footprint, while (maintaining) our capability.” Compiled by Nick Manes. Courtesy photo.

Given the amount of work your firm has done with various cities and townships around the region, what does that say about municipalities’ ability to invest in large planning projects at the moment? I think it’s a really exciting time for municipal planning. After the economic standstill in 2009 and kind of leading into 2010, there was very little municipal planning happening even though that was the time to plan because we know that everything comes in cycles. But now, with the momentum and the speed of development … I think the municipal leadership are seeing the opportunities that come with development.

Q&A

What do you mean by that?

LYNEE WELLS GRAND RAPIDS PRINCIPAL, URBAN PLANNER, WILLIAMS & WORKS INC.

s a development boom swept through the Grand Rapids area, municipalities have increasingly sought to engage in urban planning initiatives that help guide the investments. That’s translated into steady business for Lynee Wells through 2017 and into the next year. A principal and urban planner with Williams & Works Inc. in Grand Rapids, Wells works closely with municipalities like Caledonia Township and on large-scale redevelopments such as Plaza Roosevelt, a public-private project that will bring a host of new housing and services to the Roosevelt Park neighborhood of Grand Rapids. Wells thinks city and state policies could help fuel more and better development.

DECEMBER 26, 2017 | Special Year-End Edition: MiBiz Crystal Ball 2018

They’re seeing the investments that they have made in improved infrastructure, or transit, or even streetscape enhancements, like through tax increment financing districts. When you do those investments, we had always said, the private (sector) will follow. Well, the private investments have followed. And, they’re seeing that now we need to plan more.

What will next year hold for the Plaza Roosevelt project? Next year, I think we’ll see Dwelling Place apply for Low Income Housing Tax Credit (LIHTC) funding. I think we’ll start to see the architectural plans for the school. We’ll probably have a more finalized vision for the plaza space as well as the addition to

Mercy Health with the drive-through pharmacy. And, now I think we’ll probably start seeing some foundations being poured for the school and probably some of Habitat’s buildings. It’ll be an interesting staging challenge with so much work happening in a confined space.

Will there be some larger infrastructure work as part of that redevelopment project?

interest in having the development community continue working with MSHDA and MEDC on their criteria and kind of modifying, massaging the criteria a little bit. That’s similar to some of the incentives that our city offers. (We’re) wanting to tie those incentives back to the community goals and objectives we have for affordable housing and mobility and green space.

The city is going to be investing in and improving the roadways — Rumsey and Century. And we’ll also see the work happening on Grandville Avenue from Franklin to Grant. They’re going to be reconstructing and also repaving some of that. It will include some infrastructure upgrades as well.

What else are you following?

What are some potential policies you’re watching, whether at the local, state or federal levels?

Because if you’re digging up the road, or if you’re rebuilding the road, then we have an opportunity to really look at, ‘oh, does the bus stop make sense here? Do we have space? Could we add seating? Could we add a shelter? Do we have a connected sidewalk system to access that bus stop?’ Simple things that can really improve efficiency. It can improve passenger experience. We often say that you don’t get a second chance at a lot of this. The opportunities come every generation, and we have to really take advantage of aligning those.

The qualifications that the Michigan Economic Development Corp. uses and the Michigan State Housing Development Authority used for funding projects. I know that there’s heavy emphasis placed on walk score. I think that’s been the challenge for some (potential housing) projects like, say, Eastern Elementary school because it’s not within a quarter-mile of Michigan Street.

What’s the issue there? It doesn’t meet all the (funding) criteria. So, I think that there is some

The idea of having more of a transportation department … where we would have more involvement with The Rapid, with MobileGR, traffic safety, all working together around the table to make some of these decisions about public realm improvements.

Why is that important?

Interview conducted and condensed by Nick Manes. Courtesy photo.

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REAL ESTATE & DEVELOPMENT

JIM CONNER

SENIOR VICE PRESIDENT, TRIANGLE ASSOCIATES INC. | GRAND RAPIDS With a backlog of construction projects extending out two years at Triangle Associates, Jim Conner feels “cautiously optimistic” heading into 2018. Conner says the company’s diversified clients ranging from education to health care to industrial work should keep it busy even in the event of a downturn.

“Our backlog is solid for 2018. We have some capacity to fill in, but in 2019 and 2020, it’s even stronger than 2018, which is wonderful. … A lot of our projects are long-cycle projects, so for instance, Wayland Schools just passed their bond this fall. We won’t turn dirt on that until next summer. Then it will be (going for) two or three cycles. The projects that passed in May and then next November, it levels out the bumps … The industrial market is looking to pick up still, or keep the same. That one has just been a pretty steady flow with the economy. You’re not seeing the big 200,000-square-foot additions or new buildings. People are doing that, but I see a lot of the smaller shops that might have been leasing space that want their own building that are building 15,000-square-foot to 30,000-squarefoot buildings. You’re seeing a lot of that. If you divide it into two groups — the big guys and the small guys — I think the small guys are the most active. … With the shortage in the trades, the costs are up. Our fees and our costs are probably the same, so it’s just been this adjustment. Because there’s a lack of trades, their costs have gone up. In addition, you can’t get the work done as fast. When jobs need to be done quickly, they charge you more. It’s a little bit of a subcontractor’s market still, but even more so, it’s an employee’s market within the subcontractor world.” Compiled by Nick Manes. Courtesy photo.

MATT JONES

FOUNDER AND PRESIDENT, BEACON REALTY GROUP LLC GRAND RAPIDS Matt Jones anticipates another banner year for the buying and selling of apartment properties in Michigan and around the Midwest. Jones, the founder and president of Beacon Realty Group LLC, a boutique commercial real estate brokerage practice focused on the multifamily sector, largely foresees a period of continued slow growth with some potential pressure coming from rising interest rates.

“We don’t foresee any drastic changes in the economy in 2018, more of a straightline progression from 2017. The Fed has committed to raising rates in 2018, which will have some impact on the financing side of our business but should have minimal impact overall. The biggest impact will come from the proposed tax reform and whether it is passed and in what iteration, as it pertains to capital gains and carried interest. There continues to be more capital chasing deals than there are deals, so we expect that values and competition will remain high on assets that hit the market, regardless of tax reform. Investors will continue to chase yield in secondary markets like West Michigan, which will result in more and more capital entering the market from the core markets on the coasts and driving prices up … The fundamentals in the multifamily sector remain strong, with low vacancy and sustained rent growth. As interest rates rise, we may start to see downward pressure on pricing, but I don’t expect velocity will slow as a result. … While technology serves as an amenity in many apartment properties, it will not replace the physical space of ‘home’ or the desire of the general population to have a clean, safe place to live. This makes the multifamily sector a favorite among investors because of its low risk and aversion to outright disruption by technology.” Compiled by Nick Manes. Courtesy photo. Visit www.mibiz.com

Special Year-End Edition: MiBiz Crystal Ball 2018 | DECEMBER 26, 2017

REAL ESTATE & DEVELOPMENT

DAN VOS

PRESIDENT AND CEO, DAN VOS CONSTRUCTION CO. INC. ADA As president and CEO of Ada-based construction management firm Dan Vos Construction Co. Inc., Dan Vos would like to continue to see the pro-business philosophy that’s been on display in Michigan for nearly the last decade. Vos generally thinks 2018 will continue the momentum of the past few years, although he harbors some concern over burnout from the firm’s lengthy pipeline of work.

“I think 2018 will be similar to 2017 with regards to workload opportunities. Architecture and design firms are good indicators of future workload for us, and they all seem to be pretty busy right now. We will also continue to see an overall shortage of skilled trades and labor force. Having the right type of people with the right skills for the future is critical. Introducing young students to construction and skill-related fields early in their education will be key to building up this valuable labor resource … An economic downturn will occur, that is for sure, probably within the next couple of years. But for now, we’re just enjoying our strong backlog, responding to new opportunities and concentrating on the current work ahead of us … Not much keeps me up at night, but if I were to lose sleep over anything it would be worrying about burnout. We’ve been running pretty hard for the last several years, and I’d hate for that to catch up with us in a negative way.” Compiled by Nick Manes. Photo by Katy Batdorff.

DECEMBER 26, 2017 | Special Year-End Edition: MiBiz Crystal Ball 2018

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MIBIZ SPECIAL MARKETING SECTION n DECEMBER 26, 2017 EDITION

Celebrating excellence in manufacturing About the Excellence Awards The MFG Excellence Awards recognize excellence in manufacturing by honoring the companies and individuals who make a positive impact in their communities and in their industries. An anonymous panel of distinguished judges, representing corporations, universities, professional organizations, associations and other groups serving manufacturers selected the recipients. Company Awards MFG Community Impact Recognizes a manufacturing company that has shown exemplary leadership in serving its community or state, and is an example of the involved and giving nature of manufacturers. MFG Innovation Excellence Showcases a company that has developed and maintained a culture focused on engaging the workforce to bring new ideas to life. Sponsored by Worksighted Individual Awards John G. Thodis Michigan Manufacturer of the Year Honors the important, positive and tangible contributions individual manufacturers make to their employees, customers and communities. Sponsored by EDSI Consulting

By Michigan Manufacturers Association

h i s ye a r , M M A ( M i c h i ga n Manufacturers Association) changed the way it recognizes excellence in the manufacturing industry with the inaugural MFG Excellence Awards. “The stories and memories we hear each year when presenting the John G. Thodis Michigan Manufacturer of the Year Award have gotten lost among other events and other critical issues — your stories of excellence should never be a footnote; they deserve to be the main attraction,” said Chuck Hadden, MMA president & CEO as he welcomed attendees to the sold-out event on Nov. 9, 2017 at the Crowne Plaza Lansing West. “We’re here to celebrate the individuals and companies that exemplify excellence in manufacturing,” said Brian Edwards, publisher of MiBiz and the Awards emcee. “These are champions of industry — and because of that they are also champions of the cities, towns and communities where they do business.” Continuing, Edwards said “[manufacturers] are the soul of our state. You make stuff. You innovate. You constantly improve the quality of your products… even when customers are pushing you to cut costs. What you do is remarkable and you do it every single day.” Recognizing MMA’s longest tenured members over the 115-year history of MMA, the organization has represented the needs of thousands of member companies on hundreds of issues. The MFG Excellence Awards provided the ideal venue for them to thank those companies whose commitment to the MMA extends more than 50 years. More than 100 member companies were recognized for 100, 75 and 50 years of dedicated service to the industry and to MMA.

Our Manufacturing Future

Rick Haas, president & CEO of Mahindra Automotive North America, presented the evening’s keynote. With roots in Detroit and 30-plus years of automotive new product experience, Haas

MFG Talent Champion Recognizes an individual who works to bring focus to the critical need of attracting Michigan’s next generation workforce to manufacturing’s variety of career options. Sponsored by Kinexus

has seen where Michigan manufacturing has been and has a vision for where the state could go as a global leader in the industry. He highlighted how Michigan’s manufacturing resurgence caught the attention of Mahindra’s India-based executive team, leading to the development of multiple Michigan-based locations including the company’s North American Technical Center and plans for continued expansion in 2018. For more on Rick Haas and Mahindra’s vision for Michigan’s manufacturing future, check out the Key Conversation in the October issue of MiMfg Magazine, available online at http://mag.mimfg.org.

And the MFG Excellence Awards Go To...

As the high-profile keynote ended, the focus of

Q&A Conducted By Michigan Manufacturers Association Rick Snyder became Michigan’s 48th governor when he was sworn into office on Jan. 1, 2011. In his inaugural address, he described his vision for reinventing Michigan by creating more and better jobs, revitalizing the educational system, and revamping government to focus on providing excellent service to its customers, the state’s 10 million people.

MFG Emerging Leader Awarded for exceptional contributions to the industry and the potential for future accomplishments in Michigan manufacturing. (Less than 10 years in industry) MFG Lifetime Achievement Honors an individual who has excelled in the industry and inspired his or her peers, emerging leaders, lawmakers and educators to strive to make significant contributions to the company, industry and community. Sponsored by Ghafari Associates

2017 MFG Excellence Award winners, from left to right: Rapid-Line’s Rick Van Dis, PVS Chemicals’ James Nicholson, Orbitform’s Phil Sponsler, MMA’s Chuck Hadden, Cascade Engineering’s Fred Keller, Vantage Plastics’ Paul Aultman, Grand Valley State University’s Dr. Paul Plotkowski and Gerdau’s Adam Tabor.

2017 MFG LEADERSHIP AWARD: GOV. RICK SNYDER

Looking back over the last seven years, what have been some of your proudest moments as the Governor of Michigan? Gov. Snyder: I’m very proud of Michigan’s comeback. Our economy has grown, our labor force has expanded, and we’ve made smart, responsible investments in critical areas like education, infrastructure and the professional trades. Since 2010, we’ve created more than half-million private-sector jobs and, at 3.9 percent, our unemployment rate remains below the national average. And it’s now the seventh time in a row that Michigan is starting a fresh new fiscal year without deficit spending or stopgap measures. We should be proud of these

the evening turned to what brought attendees to Lansing in the first place — the chance to recognize some of Michigan’s most influential, passionate and supportive individuals and companies in manufacturing. Manufacturers work incredibly hard, yet they rarely take the time to accept the recognition they deserve. “Tonight, we’ll spotlight the great leaders of today, the emerging leaders of tomorrow, champions of talent and innovation, community leaders and dedicated partners who have helped Michigan manufacturing become a global leader in the 21st century,” said Hadden. “I hope this becomes the first in an annual tradition of industry-wide celebration.” n —Photo by Michigan Creative

achievements, but there’s more work to be done. As we continue on the path toward our future, we must keep our foot on the gas. As you look toward the final year of your term, what challenges still exist and how do you plan to respond to them? Gov. Snyder: In terms of the manufacturing industry, one existing challenge is the talent gap. Cultivating talent is critical for Michigan’s economic success, because that’s a defining factor when companies look to locate or expand. We’ve been working hard to help close this gap by connecting Michiganders with existing jobs and ensuring residents are equipped with the skills needed to succeed in the high-tech careers of the 21st century. And that work will continue through the Michigan Career Pathways Alliance, the state’s Going PRO campaign and employers and educators working together to expose students to STEM and professional trades. Other challenges include acting on the Soo Locks — the number one infrastructure project in the country — and addressing Asian carp. We will continue to Continued on page 41

MIBIZ SPECIAL MARKETING SECTION

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thank you, 2017 sponsors

MMA would like to thank our sponsors once again for their support of Michigan manufacturing and the 2017 MFG Excellence Awards. You made the made our night of celebration and inspiration possible.

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MICHIGAN MANUFACTURERS ASSOCIATION 2017 MFG EXCELLENCE AWARDS

GERDAU’S TABOR EMBODIES THE NEXT GENERATION IN MANUFACTURING

or 32-year-old Adam Tabor, many of today’s companies don’t practice his grandfather’s — or even his father’s — brand of manufacturing. That is a critical change that needs to happen for America to reclaim its former glory as a manufacturing superpower, said Tabor, regional manager for Jackson-based Gerdau Special Steel North America, a producer of special bar quality carbon and alloy hot-rolled and bright cold-finished steel bar products. As the 2017 winner of the Emerging Leader award given by the Michigan Manufacturing Association, Tabor embodies what could be considered the next generation to take the baton for the United States in the worldwide manufacturing relay race.

MFG EMERGING LEADER AWARD: ADAM TABOR Company: Gerdau Special Steel North America Headquarters: Jackson Workforce: Approximately 250 people at Gerdau’s Jackson and Monroe facilities in Michigan, as well as its Huntington, Ind. heat treating facility. Brief business description: Gerdau Special Steel North America produces high-quality engineered carbon and alloy SBQ steel bars for safety-critical applications used by the automotive, commercial vehicle, construction, agricultural, distribution and energy markets. With three special steel producing mills and a heat treating facility strategically located throughout the United States, Gerdau is capable of providing solutions for the most demanding applications. Academic Degrees: B.S. Metallurgical Engineering, Michigan State University; MBA, Walsh College

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“We can keep people enthused about manufacturing by celebrating the wins with the team, recognizing when people are doing very good things, and providing input on opportunities where we can be better,” said Tabor. “Frankly, all of that is what keeps me excited about manufacturing — challenging myself to improve results in safety, quality and efficiency at Gerdau,” he said. With management responsibilities for Gerdau’s Michigan finishing operations in Jackson and Monroe and its Huntington, Ind. heat treating facility, Tabor helps to direct the work of about 250 people. “Adam is very talented at organizing complex problems into simpler forms in order to find achievable solutions,” said Lindsey Erb, communications and public affairs specialist at Gerdau Special Steel North America, which is headquartered in Jackson. “He is also very people centric, which is critical to team building and people development. “During his short time in manufacturing, he has already proven himself to be a dynamic leader at Gerdau who has produced superior results for our organization.” Tabor traces his interest and enthusiasm in manufacturing to visits as a 10-year-old to a metro Detroit metalworking plant where his father worked. “My dad was a maintenance manager at DME, then a part of Cincinnati Milacron for a number of years, and he would bring me in on Saturdays to see how they transformed huge chunks of steel into precision die molds. “I grew up on a farm, so I was used to being around large pieces of equipment — but the machines they had there were really impressive. And there were steel chips everywhere.” Tabor credits Gerdau with practicing the type of modern management and quality philosophies that are reinvigorating manufacturing in America. Some aspects of that enlightened philosophy are an emphasis on training and teamwork and a willingness to look past age when it comes to promotions within the company. “Gerdau encourages people to reach their full potential,” said Tabor, who started with the company after graduating from Michigan State University in 2007 with a degree in metallurgical engineering. “The leadership here gives us opportunities to expand our responsibilities and provides feedback on how we can improve. That’s so different from the old style of management in manufacturing, along the lines of where you were told: You have to wait 30 years until we think you can be a plant manager.’” In his first 18 months at Gerdau, the company encouraged him to take a two-week series of courses that introduced him to practical aspects of lean manufacturing initiatives and continuous improvement. Entry-level engineers now go through a two-year management associate program that covers the concepts of Six Sigma, lean manufacturing and continuous improvement. Tabor is optimistic about manufacturing in America with all the country’s expertise, but he sees a challenge with the perception of high school and college students about the sector. “We need to engage our generation in manufacturing — get younger people to see that there’s nothing wrong with manufacturing,” he said. “It’s fun and challenging to make things with your hands and get dirty. And it needs to be an important part of our future.” n —Photos by Michigan Creative

“It’s fun and challenging to make things with your hands and get dirty. We need to engage our generation in manufacturing — get younger people to see that there’s nothing wrong with manufacturing.”

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VANTAGE PLASTICS LOOKS BEYOND ITS BUSINESS BOUNDARIES IN HELPING BUILD THE ARENAC COUNTY COMMUNITY

aul Aultman thinks that a manufacturer should look well beyond the boundaries of its parking lot and customer base when it comes to developing a meaningful corporate mission statement. “Our mission statement is Forming Solutions, Forming Better Lives, Forming Sustainable Futures,” said Aultman, president of Vantage Plastics Inc. in Standish, the 2017 winner of the Michigan Manufacturers Association’s Community Impact award. “All three of those phrases say — in one way or another — that our company needs to be involved with our community.” Along with corporate sponsorships, Aultman also encourages the about 190 employees of Vantage Plastics and its two sister companies, Airpark Plastics and Edge Material Management, to also play personal roles in building the greater Arenac County community. Aultman and his wife Michelle founded a 501(c)(3) organization called Weaving Effective

Life-skills & Leadership Outreach (The WELL) that aims to build a stronger community by “empowering individuals to take charge of their lives” with activities such as 5-K health runs, weight-loss programs, parenting classes and charity flag football games. Aultman, 59, draws a strong link between the growth of his manufacturing companies and their support of community events. “I just think that if you give back, that’s how you grow,” he said. “We went through some awfully tough times in 2008 when the automakers and the economy tanked, and I really believe that our community support prior to that helped get us through that time. “And we all know how business often gets a bad rap, either in the way it’s portrayed in the movies or how it gets covered by the media when something unfortunate happens. I just think that if you are an integral part of the community, they know the moral fabric of your business and support in the case of an unfortunate circumstance.”

CONGRATULATIONS TO THE MICHIGAN MANUFACTURERS ASSOCIATION’S 2017 MFG EXCELLENCE AWARDS HONOREES

DECEMBER 26, 2017 / MiBiz Crystal Ball 2018: Special Year-End Edition

“We went through some awfully tough times in 2008 when the automakers and the economy tanked, and I really believe that our community support prior to that helped get us through that time.”

Vantage Plastics has prospered in Standish after Aultman started the company in 1996, with six employees and three thermoforming machines in a 45,000-square-foot plant. The manufacturer of thermoformed plastics products such as industrial grade, reusable plastic dunnage for precision machined metal parts now has about 150 employees. The company spawned Airpark Plastics, a manufacturer of custom thermoplastic polyolefin sheet stock, and Edge Material Management, a company that accepts, qualifies and processes durable packaging from manufacturers so that it can be turned into reusable dunnage. All three companies are housed in a total of 200,000 square feet. With his companies in the manufacturing sector, Aultman has been active in exposing youth to careers and opportunities in manufacturing and in supporting the growth of manufacturing in Arenac County and the state of Michigan. He is serving as president of the Great Lakes Bay Manufacturers Association and serves on the board of the Mid-Michigan Community College MTEC — Plastics Grant Initiative. His companies have been recognized by several agencies and organizations for sustainable growth and business practices. But Aultman said that it was the recognition that he and his wife received from his employees during the Christmas season of 2014 that is “one of the most favorite things that has happened to us.” The employees established the Paul and Michelle Aultman Community Scholarship that year with the words “In 1996, you came into the Arenac County community and began a journey that has since touched many lives...Your support to the employees, their families, and the young people of this community has brought much hope for a better future.” “I think of that often,” Aultman said. “That, to me, is meaningful and better than a physical gift.” n —Photos by Michigan Creative

MFG COMMUNITY IMPACT AWARD: VANTAGE PLASTICS INC. Headquarters: Standish, Mich. Workforce:190 employees at Vantage Plastics and its two sister companies, Airpark Plastics and Edge Material Management. Brief business description: Vantage Plastics Inc. specializes in custom thermoformed products, including returnable packaging, pallets, custom consumer goods, recreational products, food processing trays and commercial parts. It provides thermoforming services to an array of industries, such as automotive, food processing/handling, agricultural, recreational, and military/aerospace, among others.

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GVSU’S PLOTKOWSKI DEVELOPS THE NEXT GENERATION OF MANUFACTURING TALENT WITH EXPERIENTIAL LEARNING, REAL-WORLD PROBLEM-SOLVING

“Our students hit the ground running so much more effectively when they graduate with practical experience from their internships and co-ops. So many (students) are hired by their sponsors after they graduate that we like to say it’s often a case of ‘Interview once and hire twice.’’’

Q&A: SNYDER Continued from page 37

work with the federal government to fund the much needed construction of the aging Locks, as well as tap into the creativity and expertise of the entrepreneurial community to find the best ways to protect Michigan’s most prized natural resource from the threat of Asian carp. Manufacturing has been a primary driver of Michigan’s economic resurgence with nearly 130,000 new industry jobs created since you took office. What do you see the role of manufacturing being in Michigan over the next 5-10 years? Gov. Snyder: Michigan’s manufacturers have played a critical role in the state’s comeback. Since 2011, Michigan has led the nation in manufacturing jobs. “Made in Michigan” means something truly special. Our engineers, moldmakers, CNC operators, welders and others make it possible for Michigan to produce some of the best products in the world. And with the largest investment in the nation in skilled trades education and a continued focus on attracting and developing talent, Michigan is primed to remain the national leader for years to come. Today’s manufacturing industry is more dependent on technology than ever before and new jobs requiring new skills are in demand. How can manufacturers and Michigan communities continue to attract job seekers here and in other states to make Michigan their home and manufacturing their career of choice? Gov. Snyder: Together, manufacturers and communities can continue to attract job seekers by bringing business and education together to help match what is being taught with community needs. That means providing students with opportunities to explore multiple career pathways, enhancing career counseling and providing greater career Visit www.mibiz.com

science since the college was founded in 1991, and Plotkowski credits the emphasis on co-ops and internships as a main reason for its success. “Our students hit the ground running so much more effectively when they graduate with practical experience from their internships and co-ops,” said Plotkowski, 59, who holds a doctorate in Systems Engineering from Oakland University. “And it’s always a win-win situation for both student and company sponsor. The students work on real-life problems to come up with industrial-grade working solutions. “So many are hired by their sponsors after they graduate that we like to say it’s often a case of ‘Interview once and hire twice.’’’ Under the direction of Plotkowski, GVSU also has continued to evolve with the advances in manufacturing technology during the past 26 years, particularly in the field of computer-based applications for product design and manufacturing engineering. After a stint as a professor of mechanical engineering and director of manufacturing systems engineering at GMI Institute in Flint (now Kettering University), Plotkowski joined GVSU and introduced a manufacturing engineering program in his role as director of the School of Engineering. He then served as the founding dean of the College of Engineering and Computing when it was formed in 2004. During the past two decades, the college has continued to add studies in product design, biomedical engineering design of components and mechatronics.

Charles Standridge, Ph.D., associate dean of the Padnos College, said Plotkowski has “worked tirelessly to gain financial support for student tuition scholarships from industrial partners.” Standridge, who nominated Plotkowski for the award, said the School of Engineering awards more than $100,000 annually in scholarships due primarily to Plotkowski’s efforts. Under Plotkowski’s leadership, the college also has continued to grow in terms of facilities and endowments. During the past two decades, GVSU has received more than $37 million in contributions from federal and state governments, corporations and private donors to support facilities, scholarships, endowed faculty positions, curriculum development, and research and development. Some examples include the Keller Engineering Lab Building dedicated in 2000, the Kennedy Hall of Engineering dedicated in 2007, and a new Design & Innovation Center in a third building slated to open in 2019. Outside of the classroom, Plotkowski contributes time to educational and professional organizations. “He mentors inner city high school students at Innovation Central in Grand Rapids,” Standridge said. “In service to the greater academic community, Paul donates his time as an ABET Program Evaluator for undergraduate Manufacturing, Mechanical, and Interdisciplinary Engineering programs. He annually dedicates over 150 hours to review and consult with such programs.” n —Photo by Michigan Creative

MFG TALENT CHAMPION AWARD: PAUL PLOTKOWSKI PH.D.

Organization: Seymour and Esther Padnos College of Engineering and Computing at Grand Valley State University Headquarters: Grand Rapids Brief business description: The Padnos College, established in 2004, includes the School of Engineering, the School of Computing & Information Systems and Occupational Safety and Health Management. Grand Valley State University named the College in honor of Seymour and Esther Padnos to recognize their commitment to creating an environment where students and faculty can reach their full potential in the fields of engineering and Computing. Academic Degrees: Ph.D. Systems Engineering, Oakland University; M.S. Mechanical Engineering, Oakland University; B.S. Mechanical Engineering, Oakland University

training and apprenticeships. Efforts like Michigan’s Going PRO campaign are working to correct outdated perceptions of career technical education and show that professional trades are a pathway to high quality careers and continued economic strength for Michigan. From assemblers and fabricators, to tool and die makers, to welders, there are plenty of rewarding careers in manufacturing, and employers and communities across Michigan can help by keeping this dialogue going and continuing to showcase manufacturing career opportunities. What is your vision for Michigan’s future? Gov. Snyder: My vision for Michigan’s future is that we will be the home for innovation, career opportunities and economic expansion, and that includes keeping our state a leader in manufacturing. We’ll also provide quality, lifelong education and career training that will help Michigan become a better place to learn and earn. Michigan’s infrastructure will be modern and reliable, our communities, strong and thriving, and our government will be efficient, effective and accountable. n

“Michigan’s manufacturers have played a critical role in the state’s comeback. Since 2011, Michigan has led the nation in manufacturing jobs. ‘Made in Michigan’ means something truly special. Our engineers, moldmakers, CNC operators, welders, and others make it possible for Michigan to produce some of the best products in the world.”

CONGRATULATIONS

2017 MFG EXCELLENCE

to the

ven though Paul Plotkowski was named the MMA’s Talent Champion for 2017, you would think he was accepting the award on behalf of a team of more than 250 manufacturers throughout West Michigan. “I don’t think we could have done it without our partners in industry,” said Plotkowski, founding and present dean of the Seymour and Esther Padnos College of Engineering and Computing at Grand Valley State University in Grand Rapids. “Every undergraduate student in our program participates in a year-long paid co-op or internship, and that wouldn’t be possible without the support of our area companies.” The university has graduated more than 3,000 students in engineering and computer

Michigan Manufacturers Association

AWARD WINNERS www.kinexus.org

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RAPID-LINE’S OWNERSHIP CHANGE SPURS A CULTURE CHANGE — AND INNOVATION

or Rapid-Line Inc. in Grand Rapids, boosting innovation depends on something as simple as a “Thank You” board posted prominently near the employee restrooms and something as complex as a plant-wide system of rewarding attendance. As the 2017 winner for the Innovation Excellence Award from the Michigan Manufacturers Association, Rapid-Line has spent the last year struggling mightily to change its corporate culture of the past 90 years to reflect the new owners — the employees themselves. Rapid-Line President Rick VanDis is the first to concede that “some days are better than others” when it comes to ushering in a new corporate philosophy at the full-service metal fabricator and contract manufacturer, which employs about 115. Innovation is one byproduct of a healthy corporate culture built on respect, he said. VanDis and Chief Financial Officer Mike Helms point with pride to a tangible result of shaking up the status quo: the first Rapid-Line branded product called MyLine, a line of commercial-grade, custom indoor/outdoor aluminum furniture that can be easily customized with made-to-order logos and designs. MyLine debuted in September at the Casual Market Chicago show at the Merchandise Mart. “The MyLine product is actually a culmination of the change to the culture,” Helms said. “If we hadn’t changed the culture, we couldn’t

have produced MyLine. It’s a result of trying to implement ownership mentality here, where employees work not just for a check, but also because the company is theirs.” VanDis said the future well being of the employees is intertwined with the drive to innovate at Rapid-Line. “Our goal is to have people retire from here, well off,” he said. “And the only way we can do that is with everyone’s ideas and input to make Rapid-Line better.” He said the company is also very enthused about a height-adjustable leg invented by a Rapid-Line engineer that is now covered by three patents. Rapid-Line promotes a “hierarchy of employee attributes” that includes collaboration, trust, passion, innovation, and agility, in that order, VanDis said. To encourage recognition of those attributes, the company installed a whiteboard and dry-erase makers at a prominent location near the restrooms with the hope that individuals would write thank you notes to co-workers for jobs well done. The names are recorded and entered into random drawings for lottery tickets. “We started in January, and it’s caught on the point that it’s not management writing the notes, but people on the floor,” VanDis said. “I was really pleased this morning: There were three names on the board last night, and this morning the board was almost full.” The board has had a definite impact on employee morale. In one case, an employee on

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“Our goal is to have people retire from here, well off. And the only way we can do that is with everyone’s ideas and input to make Rapid-Line better.”

-Rapid-Line President Rick VanDis (left)

third shift worked particularly hard to get parts through his station and ready for the 8 a.m. shipment to a customer. “The employee was a little down when I first saw him,” VanDis said. “But he searched the board for his name, and I literally saw his shoulders straighten up and a big smile break out on his face when he saw it. His whole demeanor changed — he looked like he was floating 2 inches above the ground.” Rapid-Line also re-evaluated how to handle problems with attendance. “Attendance is a problem in today’s culture, and in the old days, you only had a punitive system,” VanDis said. “When you racked up too many points for missing work, you were escorted to the parking lot.” But the company implemented a program that also rewards good attendance. Employees get -2 points for every month of perfect attendance, yielding a free day of vacation when the total reaches -15. “That does two things: it rewards your good people and it gives a redemption plan to people

who are still working on bad attendance,” VanDis said. Positive points for attendance also can negatively impact pay raises. With +3 points, an employee’s pay raise is decreased by 30 percent. “If you have more than 7 points you forego your raise — until you make up your time and then you can get the raise back,” he said. The program appears to be working. Approximately 52 percent of the hourly employees had under zero points in the first week in October, compared with 43 percent about three months ago, Van Dis said. One piece of advice that VanDis and Helms shared about changing a corporate culture is to practice patience. “Every day is different,” VanDis said. “I continually tell folks that change is a 3- to 5-year process. Sometimes it’s two steps forward and one step back, sometimes it’s one step forward and two steps back. The trick is to always try to keep moving forward.” n —Photos by Michigan Creative

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MFG INNOVATION EXCELLENCE AWARD: RAPID-LINE INC.

Headquarters: Wyoming Workforce: 115 employees, who also own the company through an ESOP Brief business description: Rapid-Line Inc. is an employee-owned manufacturer of quality metal components. The company engineers, designs, assembles and packages manufactured metal products for a variety of industries and can integrate plastics, wood, fabric, cork and glass into finished products.

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SPONSLER BUILDS ORBITFORM BY FOSTERING CULTURE OF LEARNING, CONTINUOUS IMPROVEMENT

hil Sponsler wonders aloud that if companies are formed to operate in perpetuity, why are so many reluctant to make the effort to retain employees for the long run? “We have very highly skilled employees, and we make a lot of investments in our workforce,” said Sponsler, president of Jackson-based Orbitform LLC, the 2017 winner of the John G. Thodis Michigan Manufacturer of the Year Award -- Small Tier. “The result is we have a culture where the older folks who have worked here a long time pass along our values to newer workers. “In the end, culture trumps strategy all day long. And you can’t buy reputation. We hired about a dozen people this past year, and we asked them what they had heard about our company. They said they heard Orbitform was a great place to work. That’s what we are after.” Building the trust of employees so they stay on for years takes much more than just bringing in a cake for a person’s birthday, he said. It involves every aspect of the business, ranging from how floor space will be utilized to encouraging participation in wellness programs. Sponsler is a strong proponent of continuous improvement and a voracious reader of business theory. “You name a business metric and (Sponsler) has had a Quality Operating Systems team to tackle it,” said M. David Shirkey, the company’s manager of strategic initiatives who submitted Sponsler’s name for the award. “Phil is often challenging the Orbitform leadership team to be sure we are working to help all Orbitform employees ‘Be a Better Business Person,’’’ Shirkey said. At a monthly plant meeting, Sponsler may “ask employees at random what an accounting term means or what a certain business metric represents and why the metric is important.” Aligning all employees with continuous improvement supports long-term employment for everyone, said Sponsler, 59, who holds a bachelor’s degree in mechanical engineering from Michigan State University. Some companies use continuous improvement as a way to reduce headcount when processes are streamlined, but Orbitform takes the opposite approach. “I’ve seen some situations where companies improve and free up capacity, then lay people off,” he said. “If we free up capacity, then we find ways to bring work in-house.” Orbitform freed up capacity when it applied continuous improvement methods to machining components for its equipment, so that now about 95 percent are machined on its footprint. Instead of laying off people, the company redeployed human and machine resources to fabricating weldments and fiberglass pieces that previously were outsourced. “Now, almost all of our fabrication work is in-house, and that had benefits,” Sponsler said. “Fiberglass guards that had taken a couple of hours to install now can be done in 15 minutes.” Concern for making lives better for employees extends beyond the shop floor at Orbitform. The company offers a program called It’s Your Life in conjunction with Henry Ford Allegiance Hospital where every employee is eligible for a baseline checkup and three sessions annually with health coaches to promote good health. Those who participate are given gift cards up to $100, and this year more than half of the employees participated. Visit www.mibiz.com

JOHN G. THODIS MANUFACTURER OF THE YEAR AWARD: PHIL SPONSLER

“Culture trumps strategy all day long. And you can’t buy reputation. We hired about a dozen people this past year, and we asked them what they had heard about our company. They said they heard Orbitform was a great place to work. That’s what we are after.” “It costs us money as a company to do it, but it’s the right thing to do,” Sponsler said. “Each of the last several years, the program identified one person who had a health issue that if gone untreated would have led to big problems. We had one person who literally had to make an appointment with the doctor to be seen within 48 hours, and he had no clue that he had that issue.” The company also has offered financial courses through the Dave Ramsey organization to help employees with personal finances. “We really promoted the classes because some people appeared to be living check-to-check — when they were making really good overtime pay,” he said. “We think that that helped them to make a course correction.” Orbitform has a strong tradition of “bench strengthening,” where it prepares employees to take on new tasks through cross training and succession planning. The company applies that same principle to the community at large by exposing students in grade school through college to manufacturing. The company sponsors and supports the Jackson Area College and Career Connection program, the Shop Rat foundation, the “I Challenge U” team of high school students, several area FIRST Robotics teams, and programs though the Jackson Area Manufacturing Association. Bench strengthening is tremendously important for every manufacturer to practice, Sponsler said. “When we first started to analyze the situation, we observed that we had a lot of very skilled people and there was nobody behind them — we had a lot of exposure to losing skill sets,” he said. Orbitform instituted a plan to correct the situation at added operating expense, but it created opportunities for employees and staved off issues due to losing key personnel. “I hear horror stories all the time where I lost this person or that person and it is affecting our operation,” Sponsler said. “And I think to myself: ‘That’s due to bad decisions made 3 years ago. There’s no magic bullet now other than spending a tremendous amount of money to get back up to speed. On top of it, how about all those people in the plant that would have

liked to have those opportunities that weren’t available?” n —Photos by Michigan Creative

Company: Orbitform LLC Headquarters: Jackson Workforce: Approximately 70 employees at the company’s 120,000-square-foot manufacturing facility in Jackson. Brief business description: Orbitform LLC designs and builds assembly equipment solutions for manufacturing, including riveting, forming, welding, conveyors, and custom-engineered assembly systems. Orbitform also manufactures its own line of standard assembly products, all made in the USA since 1984. Academic Degrees: B.S. Agricultural Engineering, Michigan State University

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NICHOLSON’S DEEP AFFINITY FOR DETROIT DRIVES HIS PHILANTHROPIC PURSUITS

Many of Nicholson’s accomplishments are hen people hear the phrase rooted in his deep affinity for the Detroit area. “public servant,” they first He and his wife, Ann, spearheaded the crethink of an elected official ation of the 33-acre Nicholson Nature Center or government administrain Clinton Township in 2009 at the same site tor. But that term can just as easily be applied to those serving in the corporate where Nicholson swam in the Clinton River as a kid. He joined the YMCA board at the age world, and there’s no better example in Michigan 32 as a young executive at PVS Chemicals and than James B. Nicholson, chairman of the board went on to participate in a host of other philanfor PVS Chemicals Inc. in Detroit. For his decades of personal and financial sup- thropic, artistic, educational and corporate boards port for a massive list of Southeast Michigan insti- throughout his career. Among them are the Detroit Symphony tutions and organizations, Nicholson was awarded the Lifetime Achievement Award by the Michigan Orchestra, McGregor Fund, YMCA of Metropolitan Detroit, Community Foundation Manufacturers Association for 2017. for Southeast Michigan, “Growing your company and Detroit Public Television, growing your community are Business Leaders for Michigan, not mutually exclusive,” said “Growing your Detroit Regional Chamber, Nicholson, 74, who has overseen company and DMC Foundation, Michigan the expansion of PVS Chemicals Colleges Foundation, Booth from a 100-person company servgrowing your School of Business, University ing metro Detroit to a worldwide community are of Chicago and The Futures supplier of industrial chemicals Foundation. that employs about 1,300 peonot mutually Many credit Nicholson ple at locations in 10 states and exclusive.” with providing critical assisCanada, Belgium and Thailand. tance to the Detroit Symphony A good measure of that Orchestra when the organizasuccess can be traced to the Nicholson Nine, a list of guiding principles that tion was experiencing financial difficulties and during the $100 million fundraising effort for the Nicholson formulated after joining the company Max M. Fisher Music Center. in 1972 that starts with “Safety is #1” and ends “All great cities have great symphonies,” said with “We Always Do What is Right.” Nicholson, who shares credit with his wife for “It’s how we think about the world around us,” Nicholson said. “It’s a way for people to under- their community service. “Detroit has one of the top three halls in the world with regard to acousstand where we are coming from. Safety is at the top of the list. Like the airlines, we work in a tic quality, and we were in danger of losing the business where the consequences of doing some- DSO. So I did my best to make sure that it prosthing wrong can be quite terrible. So safety is pered. We’ve gone through some rough times, but it’s doing quite well at the moment.” what we are all about.”

He is particularly proud of preserving a historic piece of Detroit with the purchase and renovation of the former headquarters of the Fruehauf Corp., inventor of the semi-truck trailer and, at one time, the largest truck-trailer manufacturer in North America. Fruehauf filed for bankruptcy in 1997. When he bought the sprawling Fruehauf headquarters on Harper Avenue in 1992, Nicholson said at the time that he “couldn’t let such a beautiful building go to waste.” He went on to convert 350,000 square feet of the building into headquarters for PVS Chemicals. “It would have been stripped very quickly had it gone vacant,” he said. “Empty buildings in Detroit don’t last very long.” As a lifelong participant in industrial and trade organizations such as MMA and the American Chemistry Council, Nicholson said he is proud that his four sons also work at PVS Chemicals and have shown strong interest in manufacturing. His oldest son, Jim, was past chairman of the MMA for several years. Regarding his philanthropic pursuits over the years, Nicholson said “those that can be involved should be involved” to improve their communities and “you can’t ask others to do something until you’ve done it yourself.” For him, Detroit is home. “I like the Midwest, and I like Detroit in particular,” Nicholson said. “The quality of life here is really very high. Our housing prices are reasonable and we have four professional sports teams, an opera, an art institute — all of these amenities readily available to us. “We recruit all over the world, and, once we get people here, they want to stay here.” n —Photo by Michigan Creative

MFG LIFETIME ACHIEVEMENT AWARD: JAMES B. NICHOLSON Company: PVS Chemicals Inc. Headquarters: Detroit Workforce: 1,300 at locations in 10 states and Canada, Belgium and Thailand Brief business description: PVS Chemicals Inc. is a global manufacturer, distributor and marketer of basic chemicals and related environmental and hazardous materials transportation services with a focus on responsible care and safety. Personal Information: His wife, Ann, has been his partner in community service over the years. Nicholson also has four sons — Jim, David, Tim and John — all of whom have worked at PVS Chemicals.

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DECEMBER 26, 2017 / MiBiz Crystal Ball 2018: Special Year-End Edition

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MIBIZ SPECIAL MARKETING SECTION

MICHIGAN MANUFACTURERS ASSOCIATION 2017 MFG EXCELLENCE AWARDS

KELLER’S FOCUS ON PEOPLE, PLANET AND PROFITS TOOK FAITH THAT THE JOURNEY WOULD BE WORTH THE EFFORT

ven though Cascade Engineering has experienced the same economic downdrafts, ruthless Lopezstyle cost cutting, and jarring changes in U.S. policy as other manufacturers, Fred Keller has kept remarkably consistent with his desire to run a profitable company that makes a difference for employees, his community and the world at large. For his work of more than 40 years as the driving force of Cascade Engineering in Grand Rapids, Keller was named a 2017 winner of the Lifetime Achievement award by the Michigan Manufacturers Association. As founder and top executive for much of Cascade Engineering’s history, Keller managed to grow the plastic injection-molding company

MFG LIFETIME ACHIEVEMENT AWARD: FRED KELLER Company: Cascade Engineering, Inc. Headquarters: Grand Rapids Workforce: 1,600 employees at 15 facilities covering 1.3 million square feet. Brief business description: With a core competency in large-scale plastic injection molding, Cascade Engineering, Inc. is a global company comprising nine strategic business units serving a wide variety of markets including automotive, commercial truck and bus, solid waste and recycling, furniture, and material handling. As one of the largest certified B Corps in the world, Cascade Engineering is widely recognized for its business practices, which emphasize how business can build financial, social and environmental capital. Personal Information: Three daughters: Christina, Susan and Lorissa. Christina serves as president of Cascade Business Team, a group of four businesses that includes Cascade Cart Solutions, Innovative Plastics Technologies, Noble Polymers and Automotive Americas. Academic Degrees: B.S. in materials science and engineering, Cornell University; M.S. in business management, Rensselaer Polytechnic Institute.

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from a 6-person shop in 1973 to a far-flung corporation that employs about 1,600 people across 15 facilities at six U.S. locations and operations in Budapest, Hungary. During all that time, Cascade Engineering has taken forays into several areas that other companies consider well beyond the scope of for-profit organizations: a welfare-to-career program with an on-site social worker, a program to introduce former felons to manufacturing as a career, and a strong emphasis on reducing the impact of manufacturing on the environment. “People often think doing the right thing takes away from the profitability of the company,” said Keller, 73, who continues his philanthropic work after having stepped down as CEO of Cascade Engineering in 2014. “My experience is the opposite.” Keller said that the benefits a company receives from devoting resources to improving the social fabric of a community may not be readily apparent before a program is launched. In many ways, a company has to have faith that — between tangible and intangible benefits — the journey will be worth the effort. “When we started on our Welfare to Career journey, we had no idea that it might actually be beneficial to our company,” Keller said. “We learned along the way that in order to retain people from welfare at high rates, we had to be extraordinary in our ability to understand what it means to be in poverty. “The stress of providing for your family when resources are so scarce that one car breakdown, one sick child or one abusive incident can mean the end of your employment, is hard for people of middle and upper classes to understand. By supporting these folks who are transitioning out of poverty, we learned that the entire organization felt more supported. And this has had incredible benefits for us as an organization.” Cascade Engineering estimates that the Welfare to Career program has helped about 800 individuals to leave welfare and engage in careers since its inception in 1999. The company provides training in the operation and processes involved in design and manufacture of large-part plastic injection molded products for heavy truck and automotive, trash collection, office furniture, and reusable pallet and container applications. Having learned valuable lessons through the Welfare to Career program, Keller decided to tackle another social problem: helping convicted felons who were struggling to find decent jobs due to their criminal record. Under the Returning Citizens program, Cascade Engineering removed the section in its employment form that asked about an applicant’s prior convictions and set up a system of support to help former inmates succeed in a work environment that may be new to them. Of the about 690 people who worked at Cascade Engineer’s facilities in metro Grand Rapids last year, more than 75 were formerly incarcerated, the company said. “It has made us a stronger, more resilient and, frankly, a more long-term, steady growth organization,” Keller said. “Large or small, if it is the right thing to do, my advice is to do it! It may seem like it is costly, but in the long run it is a benefit.” Keller also is a long-time proponent of Triple Bottom Line concept that places equal importance on People, Planet and Profit. According to the company’s website, Triple Bottom Line basically means:

“People often think doing the right thing takes away from the profitability of the company. My experience is the opposite.”

People: “Our goals shouldn’t come at the expense of our people, but because of them.” Planet: “There’s only one earth, so we do everything possible to reduce our impact on it.” Profit: “With our model, generating positive returns benefits all stakeholders, not only the shareholders.” Although he has retired as CEO of Cascade Engineering, Keller remains quite active as an educator, speaker and proponent of community causes such as the Kellogg Foundation Board, the KConnect organization, Talent 2025, and the Grand River Restoration Steering Committee. Keller serves as an Executive in Residence at the

Center for Positive Organizations at the Stephen M. Ross School of Business at the University of Michigan, and he is a visiting lecturer at the Samuel Curtis Johnson Graduate School of Management at Cornell University. “I will continue to work on developing new ways for the community to communicate and solve some of its toughest problems,” Keller said. “Grand Rapids and West Michigan is a wonderful part of the world, and I am so honored to be working together with so many wonderful folks to allow it to become even better.” n —Photos by Michigan Creative

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GHAFARI.COM Special Year-End Edition: MiBiz Crystal Ball 2018 / DECEMBER 26, 2017

HEALTH BIZ

ACA likely to remain law, but opponents will continue chipping away By MARK SANCHEZ | MiBiz msanchez@mibiz.com

he Affordable Care Act withstood repeal efforts in Congress in 2017 and remains law, which has industry watchers doubting we’ll see another full-scale push to repeal and replace the Obama-era health care policy. Instead, opponents to the ACA are more likely to continue to “chip away at it” in the year ahead, said Sarah Miller, an assistant professor of business economics and public policy at the University of Michigan Ross School of Business. Certain aspects of the Affordable Care Act have proven popular with the public, which makes it difficult to muster the votes for repeal. They include the issue guarantee for anyone seeking coverage, federal subsidies to help buy coverage, Medicaid expansion, and provisions allowing dependents to stay on their parents’ coverage until they reach age 26. As Congress now focuses on tax reform and in light of House Speaker Paul Ryan’s statement that he wants to move on to entitlement reform in 2018 — a midterm election year for Congress, Miller expects the ACA to remain intact as a law, although it still “will be undermined a little bit.” “I would be surprised if we saw an attempt at another legislative repeal-and-replace effort. I would be surprised to see sort of a big health care bill be pushed next year,” Miller said. “There’s a lot the Trump administration can do to chip away at it without having this big total repeal.” Among the parts of the law that have been “chipped away at” are a move by President Trump to halt cost-sharing payments to health insurers, resulting in large spikes in 2018 premiums for policies bought on a public exchange, and a lack

of enforcement in the individual mandate that requires people to buy coverage or pay a tax penalty. The administration also shortened the openenrollment period for public exchange policies and cut funding for marketing them. Miller “would not be surprised” to see some sort of rollback in the mandate that requires employers with more than 50 full-time equivalent employees to offer health coverage. The tax reform bill also includes a provision to repeal the individual mandate, which worries Laura Appel of the Michigan Health & Hospital Association. Like Miller, Appel also sees opponents to the law in Congress continuing to fail to secure enough votes for an outright repeal but fully expects they will target certain aspects of the ACA. The ACA has led to more people having health coverage, which has cut down on the bad debt that hospitals incur when patients are uninsured and cannot pay their medical bills. Repeal of the individual mandate or a lack of enforcement could lead to younger, healthier people not buying their own coverage, or declining to enroll in employer-sponsored coverage. In turn, that will adversely affect insurance risk pools. “It’s really going to have a significant impact on the individual market, and I also wonder what it will have on the group market,” said Appel, vice president and chief innovation officer at the MHA. “If you are young and feeling invulnerable, knowing that there’s no real penalty anymore, you might say to your employer, ‘Nevermind, I’m not doing this. I don’t want to pay my share of the premium.’ Which means if any sizeable number of young people in that employer group goes away, it will change that component of the employer group as well.” Possible entitlement reform in 2018 also

concerns the MHA. Entitlement reform includes potential reductions in Medicaid funding, reduced matching rates for states, or a toughening of eligibility requirements, Appel said. The tax reform bill, should it balloon the federal deficit, could also affect Medicare if it triggers automatic cuts in federal spending.

TECH RESHAPES HEALTH CARE Beyond what happens to the ACA, a major trend to watch in 2018 is the continued emergence of telehealth. Dallas-based Teledoc Inc., the nation’s largest provider of virtual visits with primary care physicians, recently reported that it now works with 200 hospitals and health systems, a growth rate of more than 100 percent in the last year. In August, results from the National Business Group on Health’s national survey on health care costs indicated that “virtually all” large employers in the U.S. will offer telehealth services as a benefit in their health coverage in 2018 in states where it’s allowed. More than half of large employers surveyed planned to offer telehealth for behavioral health services. In rapidly adopting and rolling out telehealth, health care providers are following other industries into the use of virtual technologies to reach out and improve access and offer convenience that consumers now demand. “Health care doesn’t operate in a bubble. Health care changes the same way society changes, and we’re seeing how technology changes and is adopted,” said Danyale Phillips, a health care attorney at Warner Norcross & Judd LLP in Grand Rapids. “Technology is allowing people to get health care in a very accessible and convenient manner. It

HEALTH PLAN COSTS Here’s a look at average premiums for health plans in West Michigan in 2017, based on the annual employer health care costs survey by The Employers’ Association. Costs are average premiums based on what employers report and are for HMO, PPO and point-of-service plans. PLAN TYPE

ANNUAL PREMIUM

FAMILY PLANS TWO-PERSON PLANS ONE-PERSON PLAN

EMPLOYEE SHARE

$16,248

25%

$12,480

25%

$5,382

22%

Source: The Employers’ Association

addresses the same issues we see in everyday life. We want to be able to do things quicker.” Spectrum Health recently launched a mobile app for its MedNow telemedicine service that has served nearly 20,000 people since 2014 for lowacuity conditions such as an infection, a rash or the flu. Available for use on iPhone or Android devices, the app allows users to schedule and conduct a virtual visit with a doctor via streaming video. “Consumers have been asking for more and better digital engagement. The MedNow app is in response to those demands,” said Tina Freese Decker, executive vice president and chief operating officer at Spectrum Health. “Not only will the MedNow app save patients time, it also makes us more effective in delivering care when and where it is needed most.”

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DECEMBER 26, 2017 | Special Year-End Edition: MiBiz Crystal Ball 2018

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HEALTH BIZ

MINA BREUKER

PRESIDENT AND CEO, HOLLAND HOME | GRAND RAPIDS As baby boomers get older, the demand grows for senior housing and services. In response, Holland Home recently opened a second 15-bed assisted living center at its Breton Woods Campus in Grand Rapids and has plans for an $18 million project at the Raybrook Campus. Holland Home also formed a venture in 2017 with Clark Retirement Community in Grand Rapids and Resthaven in Holland called Atrio Home Care. The Grand Rapids-based organization serves about 4,000 people annually and employs about 1,600 people. Talent is an issue for Holland Home as a good economy tightens the labor market.

“As far as the economy, we hear that things are good and solid and it is going to improve, and that’s good. … It’s interesting that when the economy is good, workforce availability is poor for us. It is opposite when the economy is poor: We have lots of people coming to work. One thing that we will see is as the economy improves, the workforce gets lighter for senior housing. When the economy is poor, more people either have to take on a second job or they’re getting a first job and they’re willing to do things that if the economy was better they (wouldn’t) have to do. … We have a lot of frontline, entry-level jobs in our dietary, in our resident assistants and our housekeeping. Those are the types of jobs that when the economy is down people take on. When the economy is better, people do not. … We keep hearing how people haven’t saved for retirement. We’ve been doing some research on baby boomers and what they look for in the future. The vast majority say, ‘I want to stay home. I want to be in my own home.’ That’s when you talk about, ‘OK, are you ready to pay for that?’ They have no idea on how much that’s going to cost and they’re all positive they’re going to be healthy and not need that. And then this whole tax law. There’s a lot of components in this whole tax law, that if that goes through, will affect not-for-profit, charities and senior living as far as tax-exempt bonds go.” Compiled by Mark Sanchez. Courtesy photo.

NORMAN BEAUCHAMP DEAN, MICHIGAN STATE UNIVERSITY COLLEGE OF HUMAN MEDICINE | GRAND RAPIDS

In late 2017, Michigan State University’s College of Human Medicine opened the $88.1 million Grand Rapids Research Center in the city’s downtown. As the medical school now looks to build a larger research base in Grand Rapids in 2018 and beyond, Dean Norman Beauchamp said the center opens opportunities for further partnerships with local care providers and companies not only in medical research but also with businesses that address the economic issues that affect health care.

“I see continued increase in the costs of health care and barriers to access leading our nation to embrace that we can and must do more in health care innovation. We believe in the midst of adversity lies opportunity and we will realize that opportunity. Specifically, we plan to partner with companies seeking to innovate in health care. We will bring companies to Grand Rapids and partner with existing companies. We believe in working more closely with the medical school and our hospital partners. Companies seeking to innovate will lower their costs, increase their product viability and lower product cycle time. … We will establish a bioinformatics core connecting and partnering with our health care partners. In this way, we can identify costs that can be removed, health care access that can be improved, research efforts that are needed, and innovations that are most promising. We believe the challenges that the economy is bringing to education and research will lead to a migration of top talent to communities that are inviting and enabling of excellence. We are going to continue to enhance our environment through partnership, share what is possible with the rest of the nation, and help establish Grand Rapids as the epicenter for the transformation of care. Briefly, we believe that excellence, efficiency, execution, energy, equity and environment make us resilient to whatever challenges await.” Compiled by Mark Sanchez. Courtesy photo. Visit www.mibiz.com

Special Year-End Edition: MiBiz Crystal Ball 2018 | DECEMBER 26, 2017

HEALTH BIZ As you prepare to become CEO, how is Cherry Health positioned for the future?

How has the good economy in the Grand Rapids area affected your organization and operations?

The organization is positioned very well for the future. Under Chris Shea’s leadership, we have provided access to more than 70,000 patients (annually) in this community, we have been innovators in the area of integrated health, we have added services … and in 2011 we merged with ProAction Behavioral Health Alliance as well as Touchstone Innovare. Through that merger, we began to really integrate services for our patients so that they have a seamless experience as they move from one program to the next.

Whenever people have stable employment, they can do better with following through on their health care treatment plan. If individuals don’t have a good job, that means they may not have safe housing, that means that they may not have resources, and that means that they may not have all of those things that we call social determinants of health that present barriers to them achieving optimal health. I believe the fact that we’re doing so well from an economic standpoint in Grand Rapids does positively impact our patients.

What do the next few years look like for your organizations?

Does Cherry Health have the same issues attracting and retaining talent as other health care providers?

In terms of what the future looks like for Cherry Health, our mission is always going to be to serve the underserved, so that will go unchanged. But in terms of how we provide access to the underserved, we’re going to look at new technologies for making access more convenient for our patient population. We’re also going to focus on quality and look at disparities and how certain disease states affect certain populations. We’re going to look at population health and how we make the total population healthier.

Yes. We have a very difficult time attracting medical assistants, as well as psychiatrists. Some of our primary care physician positions have become very difficult to recruit, which is why our relationships with the medical school and others is something that we’re really looking to strengthen so that those individuals become a pool to recruit from in the future.

Q&A

What’s the biggest opportunity for Cherry Health in 2018?

TASHA BLACKMON GRAND RAPIDS CHIEF OF OPERATIONS AND INCOMING CEO, CHERRY HEALTH

asha Blackmon becomes CEO of Cherry Health on April 1, 2018, succeeding long-time chief executive Chris Shea, who retires on March 31. Blackmon will move into the CEO’s position of the largest federally qualified health center in Michigan — with 20 locations in Kent, Barry, Eaton, Montcalm, Muskegon and Wayne counties and some 70,000 patients annually — after serving as chief of operations.

One of our biggest challenges is to share with the community what it is that we do, how it is we serve patients, and really how our clinical outcomes are on par with the other health care organizations in this community. People might be surprised to hear that because I think they might think that health care for the underserved means that the health care is not of the same quality, but we’re really proud of the quality that we provide our patients. That’s an area of focus to continue enhancing into the future.

What would you like to see Cherry Health do that it doesn’t do now? We’ve talked about using virtual platforms differently, allowing individuals to do virtual visits. We haven’t done that at this point. We’ve talked about partnerships, potentially, with schools like Michigan State University’s medical school, since we’re right here in the same community and we currently host some of their medical students. We’re looking at new partnerships in the community. New collaborative partnerships is something that we’re definitely looking into.

What’s something in health benefits that began to emerge in 2017 that you see occurring as well for 2018? What we’re really seeing for most of our clients is increases dropping to the mid-single digits. We’re seeing a lot of 4, 5, 6 (percent increases). We’re seeing very little plus-20, plus30. We’re seeing an absolute moderation. We see continued growth — and maybe because we keep working on it — of employers putting in a second plan, even smaller employers. Any two people will want two different plans.

Q&A

As open renewal comes to a close for Jan. 1, 2018 policy renewals, what’s been the biggest change employers have been making in their health benefits?

SHANNON ENDERS NORTON SHORES MANAGING PARTNER, LAKESHORE EMPLOYEE BENEFITS

nnual increases in premiums for employee health coverage were mostly moderate in 2017. It’s a trend from the last few years that Shannon Enders, managing partner at Lakeshore Employee Benefits in Norton Shores, said largely continued for employers who renewed policies for 2018. Enders is also seeing more employers offering various options for employee health benefits, and some are even wondering whether they have gone too far in shifting the costs for health coverage onto employees.

DECEMBER 26, 2017 | Special Year-End Edition: MiBiz Crystal Ball 2018

What we’re seeing is not a lot different from what we’ve been seeing. They’re shopping the market. They’re willing to jump from (from one plan to another) for 5 percent or more savings. We’re seeing additional plan options and adding more plans, and certainly adding employee-paid benefits — not just the Aflac-type stuff — but even things like dental, vision, disability and additional life insurance. We see employers rounding out those additional options. And there’s more interest in these mini selffunded plans, and we still see some growth in the narrow-network products. All of the carriers have them.

The West Michigan economy’s been in pretty good shape for a while. How has that affected the way employers view their benefit offerings?

How do you compete for talent with the other care providers in town? We may not necessarily pay the same salary as some of those other organizations. One way that we recruit is with the National Health Service Corps scholarship that allows individuals to work in an underserved area and then they receive loan forgiveness for some of their medical school loans. Maybe individuals find that (to be) an attractive benefit. Others just fall in love with the patient population. So our goal is to expose medical students, nursing students to community health early on in their careers so that they develop a love for it. We’ve had many people start out as National Health Service Corps and they love the population they serve so much that they just stay. We offer a unique experience for providers.

What’s one prediction you have for 2018? If the fiscal cliff passes before the end of the year (as in, the federal government is funded), my prediction will be that Cherry Health provides access to care for more patients in 2018 than we ever have in any year during our 30-year history. (Editor’s note: Federal support accounts for a large percentage of Cherry Health’s funding.)

Interview conducted and condensed by Mark Sanchez. Photo by Katy Batdorff.

but I’d say it’s an awareness. The job market is tight and it’s tight on the low end and lower-skilled, entry-level (jobs), and it’s tight right now for doctors and lawyers and bank managers. There’s just a lot of movement right now. For the moment, employees hold the upper hand.

Are employers looking at their health benefits as part of talent recruitment and retention? Yeah, and I think those customers are desiring information from us, saying ‘We’re a manufacturer, we’re a retailer, we’re a law firm. How do we stack up?’ We don’t talk to Company A about what Company B is doing, but we certainly say, ‘Boy, you are really on the generous side’ or ‘Gosh, you’re paying hardly any of the premium, you have a sky-high deductible. I don’t know. Are you having trouble holding onto people?’ This year, the answer’s been, ‘Yes, we are.’ And wages and insurance benefits, that’s still not even the whole piece of the puzzle. Some employers, people love working for them because of flex time, additional vacation time, because they can work at home. It’s the whole package, not just wage or not just benefits.

Any guess on what may happen with the Affordable Care Act in 2018? (Laughter.) I can’t even tell you if Republicans are going to get along. My thought is ‘no.’ (President) Trump will continue to do what he can do by executive fiat.

For the first time in years, we’ve actually had some customers who have said, ‘Maybe I went too far and we’re having trouble keeping people. They’re leaving me for buck, so I probably have to give them an extra buck,’ and go not necessarily from a $5,000 (plan) to a $2,000 (high-deductible health plan) but add the $2,000 (as another plan option).

What do you think is out there that may arise in 2018 that will surprise people?

Are you seeing a major swing there?

Interview conducted and condensed by Mark Sanchez. MiBiz file photo.

I wouldn’t go so far as to say we see them swinging it back,

Any federal change that could come through would be one. A new player in the (insurance) market, and I think that would be a win. I think it would be great to have either fully insured carrier over here.

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Special Year-End Edition: MiBiz Crystal Ball 2018 | DECEMBER 26, 2017

HEALTH BIZ

AMY RITSEMA

CO-OWNER, ONSITE WELLNESS LLC | GRAND RAPIDS A good economy boosts business for Amy Ritsema’s clients, which in turn helps OnSite Wellness LLC. The Grand Rapids provider of workplace wellness services to employers launched a service crafted for small businesses with 100 or fewer employees this year. Co-owner Ritsema bases her optimism for 2018 on what she hears and sees these days from clients. Even if the economy were to slow and dip, Ritsema believes OnSite Wellness will remain on firm ground as employers invest in wellness to contain medical costs.

“We’re optimistic about 2018. We’re actually seeing more inquiries right now in our industry. Being in a service industry that’s tied to benefits, everything is a perk to what employers are offering their employees. We see an uptick in inquiries and people more willing to listen and hear about wellness. That tells me that clients and organizations and people that we would work with may have a little bit more money to play with, so I’m optimistic. I use my clients and my potential clients as a gauge. I think back to the last major downturn, which is when we went into business — back in the ’07, ’08 days. We hung in there because people were still looking to wellness, but they’re looking at it (now) from a different angle. Now they’re looking at it from (the angle of) ‘how can you help me save some money,’ so they’re willing to spend some to help potentially maintain or get ahead. For us, when we see more inquiries, that’s a good thing. With a downturn we may not see as many inquiries, but we don’t necessarily lose our clients, either.” Compiled by Mark Sanchez. Photo by Katy Batdorff.

How is Metro Health different today? The affiliation’s really been a game-changer in West Michigan. This affiliation has allowed Metro to really grow (and) to become what it really can be in terms of its full potential. We’re making significant strides toward that. I don’t think it’s really changed the essential nature of Metro, but has added to it and sort of allowed it to really fulfill its potential. We’ve had a remarkable first year in this affiliation. We have focused on two sides of it. One side is really being a world-class community hospital with comprehensive services for our community, and then the other side of it is really building centers of excellence that are the referral centers for West Michigan.

Q&A

As you look to 2018, do you see the clinical buildout and the pace of change accelerating?

PETER HAHN WYOMING CHIEF MEDICAL OFFICER, METRO HEALTH-UNIVERSITY OF MICHIGAN HEALTH SYSTEM

ince merging into the University of Michigan Health System nearly a year ago, Metro Health has steadily bulked up its clinical services, growing the number of physicians that it employs from 150 to about 270. The opening of a gastroenterology subspecialty clinic that includes five faculty physicians from Michigan Medicine in Ann Arbor who are in Wyoming once a week, the addition of five ICU intensivists, and the formation of a pulmonary division are a few examples of the clinical upgrades Metro Health made in 2017 under the affiliation. Metro Health also launched bariatric surgery at midyear in partnership with physicians at Grand Health Partners in Grand Rapids, and most recently expanded its stroke program with the addition of three specialty physicians. Much more will come in 2018 and in the years ahead, said Dr. Peter Hahn, Metro Health’s chief medical officer.

DECEMBER 26, 2017 | Special Year-End Edition: MiBiz Crystal Ball 2018

We’ll keep on pace. It’s going to be a steady pace, a very planned-out, strategic pace. I don’t see it slowing down, but it will stay on pace. We want to be fiscally responsible, but we want to meet the needs of the community and (provide) choice, so it will continue. The programs that we built are really taking off. We feel we’ve added to the community and expertise in these specialty areas. Primary care is growing and outpacing our goals and our expectations in the number of covered lives and number of providers.

Are you able to retain higher acuity patients now, rather than transfer them elsewhere? Absolutely. We’re seeing our acuity go up, and we really believe the patients need to be treated locally, if possible. So 95 percent of patients can be treated at Metro. The other 5 percent we will send to Ann Arbor for the highly specialized quaternary care, and will continue to build that capability to take care of that 95 percent and offer them the same level of care that they would expect from the University of Michigan.

Michigan. There are a number of new initiatives coming up, and we go by fiscal years, July to June. There are a number of surgical specialty programs that we are planning to build and expand. We’ve always had a strong cardiology program, but there are parts of cardiology where we will increase our footprint to make sure we can have patients receive their care locally as much as possible.

When could Metro Health pursue state approval for an open-heart program? Grand Rapids is the biggest metropolitan area in the country with only one open-heart program. I don’t think it’s any secret that we’re going to pursue open heart. We know that’s the right thing to do. We need to get further down the road on this journey. We have priorities. That’s definitely a priority, but something we have to build toward.

Is Metro looking to add or acquire physician practices? Our preferred model is to work with strong, high-quality, independent groups. In the primary care realm, though, we’re very interested in employing and potentially acquiring practices. On the flip side, we definitely want to work with independent primary care practices that want to work that way and (for whom) that model works best. We want to help them with the I.T. infrastructure. I want to make sure we’re coordinated in terms of care management with them. I think it’s about just what those practices want.

What in the first year of the affiliation surprised you? I’ve really been amazed at just the strength of the block M in terms of a brand, if you will. The number of physicians who have reached out to me, wanting to work with us, potentially wanting to be employed, that’s been really surprising, quite honestly.

Where are you in the clinical buildup after the first year and how far are you into your plan?

Has that made you more selective in choosing potential partners?

We have a very focused and detailed five-year plan. We’re really at the beginning stages in many ways. Each year, we focus on a number of different service lines and specialties. That’s really based on community need and that’s based on really trying to provide choice to patients in West

Post this affiliation, we have been very selective and the affiliation has allowed us to be selective.

Interview conducted and condensed by Mark Sanchez. Photo by Katy Batdorff. Visit www.mibiz.com

FINANCE

2018 BANKING OUTLOOK: Easing regulations, preparing clients for future cycles By MARK SANCHEZ | MiBiz msanchez@mibiz.com

any of the forces that affected banks in 2017 — from rising interest rates and a good economy, to balancing digital technology investments with cybersecurity — remain the top issues bankers must manage in the year ahead. Bankers also may see a further easing of federal regulatory burdens in the coming year. The Trump Administration in its first year has taken a more lenient approach administratively to enforcing federal banking regulations. Attorney Michael Moore, a principal in the banking practice at Miller, Canfield, Paddock and Stone PLC’s Grand Rapids office, expects that administrative approach to continue into the new year. There may be some attempts legislatively, although it will not occur quickly, he added. “I believe there’s going to be some loosening of the financial regulation with this current administration. How much is a question in the future. I don’t think it comes easily. Once you have these regulations, it’s not like you just flip a switch and the regulations are gone. It takes time,” Moore said. Community bankers especially have long advocated for changes to the federal Dodd-Frank Wall Street Reform and Consumer Protection Act that Congress enacted in 2010 following the late2008 financial crisis. They’ve long complained that the law doesn’t differentiate between smaller community banks and large banks. The law and the higher regulatory burdens that came with it have been a key factor in many bank mergers in recent years, as banks aim to better absorb regulatory compliance costs by becoming larger. Since President Trump came into office in January, Brad Kessel, president and CEO of Grand Rapids-based Independent Bank Corp., has noticed a different approach taken by federal regulators, as bills are pending in both the U.S. House and Senate to lighten or improve Dodd-Frank.

“Those people are getting the message that, ‘Hey, we need to lighten up. We need to make it easier. We need to protect the consumer and safeguard the system, but we need to do it intelligently,’” Kessel said. “We think that tone we can see in our regulators (is) just a little bit gentler.” Moore adds that based on conversations with his bank clients, Dodd-Frank “is not being enforced as heavily as it was in the past.” Even so, federal regulatory compliance and enforcement represent a major question mark for banks going into 2018, said Robert Kaminski, president and CEO of Grand Rapids-based Mercantile Bank Corp. “The thing we’re all wondering about is how will the changes in the regulatory environment affect us,” Kaminski said. “We seem to get caught up in the regulation that’s been required by the state and federal government because of some of the things that big banks have done. We get caught in that from time to time. It seems to be more of a burden for us, and we haven’t necessarily been the problem compared to some of the much bigger organizations.” A recent 2018 outlook for the banking industry by Deloitte noted the changing tone in how federal bank regulations are enforced and that “new rulemaking appears to have abated.” However, expectations “of a broad regulatory pullback could be misplaced,” according to the report. Higher capital and liquidity requirements, stress testing, and recovery planning will “likely remain intact,” and expectations for compliance “are expected to stay elevated,” according to Deloitte. The regulatory environment was among the top issues Deloitte identified for banks in 2018, along with managing cyber risks and technology as consumers increasingly move to digital banking. Banks will continue to need to balance digital banking investments with cyber risks that are getting more complex. “With these digital advancements comes risk and how do you deal with that,” Moore said. “More and more people have now moved somewhat from the brick-and-mortar requirement to going to the bank to everything’s being done electronically. There

are more and more advancements that are going to be taking place in 2018 — at least I don’t see a reason why it wouldn’t. That brings challenges to the financial institutions in how to make these changes with the concerns from the external threats that we’re also seeing in the world.” Looking ahead to next year, banks will face a good economy that drove solid loan growth at many institutions in 2017. Yet as Kaminski notes, bankers know it’s only a matter of time before the next economic downturn will occur. While he does not expect a dip to occur in 2018, Kaminski said the bank next year will keep in mind the potential for an eventual soft economy. It operates today “with a little bit of caution just to make sure that we’re in a good position to withstand a downturn when it eventually will come.” “The longer we get in distance from the last recession, it becomes more and more likely that it’s going to rear its head again, but we’re all hoping that’s well in the future. We prepare for it by being prepared and working with our clients in making sure they’re prepared (so) they have the levers to pull to make sure their overhead hasn’t grown too much during the good times,” Kaminski said. “We’re always hopeful that will pay off in the long term and that when there is a downturn, they’ll be positioned well to handle the downturn that may come our way.”

TOM WELCH

REGIONAL PRESIDENT, FIFTH THIRD BANK | GRAND RAPIDS Tom Welch thinks the U.S. economy in 2018 will perform much as it did in 2017 with steady growth and further tightening of the labor market, the latter of which rates as his biggest concern. He said that, mixed with high business confidence and a boost from the expected passage of federal tax reform, the economy should generate plenty of commercial lending opportunity for Cincinnati, Ohio-based Fifth Third, the deposit market leader in West Michigan. Welsh also believes the Federal Reserve will raise interest rates further in 2018, while inflation should remain relatively low.

“We expect to see similar growth to what we’ve seen in 2017, which is high 2-percent to low 3-percent growth. One thing that will be potentially important for our industry will be demand for borrowing to finance capital investment, which is potentially inspired by higher business confidence and a new tax code. As it is being discussed now, that will offer expensing of capital investment and expenditures and a lower marginal tax rate, both of which should drive loan demand. There is a potential loss of interest deductibility — but we believe that will take a back seat. In addition to the tax bill’s positive impact, inflation is still low and while we think it will tick higher in 2018, we don’t see it exploding higher. We will likely hit the Fed’s target of 2 percent by the end of 2018, so we don’t anticipate the Fed will be aggressive with rate hikes in 2018. I would expect good — but not great — growth that doesn’t cause the Fed to panic and raise rates too aggressively. So, if interest rates rise modestly over the year and the job market stays strong, housing should have another good year here in West Michigan and nationally. As for what this means for Fifth Third Bank in West Michigan, we have the products and services to meet the needs of businesses, large and small, as well as our non-business banking customers. I am confident that as financing needs increase, we can service them.” Compiled by Mark Sanchez. Courtesy photo. Visit www.mibiz.com

Special Year-End Edition: MiBiz Crystal Ball 2018 | DECEMBER 26, 2017

FINANCE

MARTIN STEIN

FOUNDER AND MANAGING DIRECTOR,BLACKFORD CAPITAL GRAND RAPIDS Blackford Capital closed on three acquisitions in 2017 through its two private equity finds and sold two companies in what founder and Managing Director Martin Stein said were “phenomenal exits.” Blackford Capital owns 11 companies, nine through the Michigan Prosperity Fund and two through its National Growth Practice. Stein expects the U.S. economy in 2018 to remain in “pretty good” shape, driving growth in Blackford’s portfolio companies. He doesn’t see any downturn ahead for at least another two years.

“I have to say that all indications look like things are going to continue to move upwards. We’re very optimistic and positive. We’re investing in our team and our staff. We have 11 portfolio companies and we have to be adding a few more here in the next two months. Last year (in 2016), we had 13 portfolio companies and seven of them were on the Inc. 5000, so that means they’re (among) the fastest-growing companies in the U.S. We see that continuing. We’re in the heart of the budget season right now, and we’re not projecting any of our companies to be down. In fact, for every one of those 11 companies, we’re expecting the 2018 numbers to be the highest for each of those companies that they have ever been. My thought is that it’s going to be a pretty good year next year. … We’re working to deleverage our companies and make sure that when we buy a new business — and we’re looking at one right now, not in Michigan but one that’s a highly cyclical business — that we create a capital structure that allows us to be flexible. We’re paying down debt, number one. And number two, we’re gaining a capital structure that has quite a bit of flexibility.” Compiled by Mark Sanchez. MiBiz file photo.

What’s the general mood and landscape for investors right now? Frankly, it’s mixed. I get nervous when everyone’s responding to everyone’s over-eagerness to invest, and right now I see both sides. I see some people who are hesitant to put more money in and see some people who are eager to do so. In my experience, that tends to be an anecdotal piece of evidence for kind of stable market conditions.

Q&A

Can the stock market sustain this trajectory into 2018 and throughout the year?

STEVE STARNES GRAND RAPIDS PRINCIPAL, GRAND WEALTH MANAGEMENT LLC

teve Starnes expects the bulls to continue their run on Wall Street in 2018, after a steady increase in 2017 that came with much volatility. The 2018 midterm congressional elections could contribute to generating renewed normal volatility in the stock market after investors enjoyed a “pretty calm market” in 2017, said Starnes, a certified financial planner and principal at Grand Rapids-based Grand Wealth Management.

DECEMBER 26, 2017 | Special Year-End Edition: MiBiz Crystal Ball 2018

Maybe. International and emerging market segments are likely to do better than U.S. companies going forward. The reason for that is they’re less expensive relative to U.S stocks.

What’s the smart bet on where to put your money in 2018? Large growth companies were the best performers and have been so far in 2017, but we know over time that small companies and value companies tend to do better. That would be a good expectation going forward, that small companies and value companies will be better. Tax reform is likely to pass and small companies will benefit from that. I don’t want to oversell the benefit of tax reform on stock market

performance. It will be helpful but not that significant.

also. You have companies that will benefit from that.

Years ago, then-Federal Reserve Chairman Alan Greenspan warned the country against “irrational exuberance.” Given that the market’s had a pretty good run, do we have to remember that going into 2018 as the bull market continues?

What’s lurking over the horizon that concerns you for the next year?

It serves us well to always remember that. I don’t think we have the same conditions Alan Greenspan was describing when he made that comment (in December 1996). U.S. stocks are a little expensive right now, but earnings growth is almost at 10 percent for the year. What that says is we should be somewhat cautious, but we don’t need to be overly cautious.

What factors are favoring the market continuing its good run next year? Earnings growth really has been very good. A significant part of that is the dollar is weakened in 2017, and there’s room for the dollar to weaken further the next few years. When the dollar goes down in value, it means the earnings from around the world that many U.S. companies have are more valuable, and the rest of the world’s economy is doing very well

Perhaps I should be more concerned. Nothing significant jumps to mind. It’s not really a concern but a headwind: Interest rates will continue to go up. The Federal Reserve will probably raise rates two to four times next year. My personal bet is three, and that means interest rates at the end of 2018 will be half a percent to a percent higher. When interest rates go up, bond prices go down. That’s not a reason not to invest in bonds. Bonds are a very important part of a diversified portfolio and managing risk, but my concern is people will avoid bonds because returns are low and not expected to do much better next year.

What’s one prediction for 2018? We have an election coming up at the end of 2018, and I think that is going to feed into bringing back normal levels of volatility. And normal levels of volatility, compared to the calm that we had in 2017, is going to feel uncomfortable to a lot of people.

Interview conducted and condensed by Mark Sanchez. Courtesy photo. Visit www.mibiz.com

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Special Year-End Edition: MiBiz Crystal Ball 2018 | DECEMBER 26, 2017

FINANCE How’s the first year gone for Grand Ventures? It was positive. Like most things in life, it’s taking a little bit more time than maybe we hoped or anticipated, but the support has been tremendous. We have investors all across the state as well as across the country, so the fundraising side of things has gone well. From a deal flow perspective, by the end of this year, we will probably have reviewed a thousand (prospective) deals. The deal flow is very strong across all of our core geographies.

What is the state of the venture capital industry in Michigan heading into 2018?

Q&A

I am very optimistic about 2018 and ’19 for the state of Michigan. We now have second- and third-time entrepreneurs who are going out and starting businesses and who have great track records, and we also have seen all of the efforts that have been undertaken by the universities the last several years to further academic research (and) to boost the entrepreneurship programs. We’re seeing the benefits of that. Michigan is very well positioned because we have a more experienced group of entrepreneurs as well as a greater body of research, and just young and emerging talent and overall interest in entrepreneurship.

What do Michigan VC firms have going for them?

TIM STREIT GRAND RAPIDS CO-FOUNDER AND GENERAL PARTNER, GRAND VENTURES I LP

im Streit and McKeel Hagerty started venture capital fund Grand Ventures I LP in Grand Rapids last March and went on to make three investments during the year in companies in Ohio, Indiana and Michigan. Each of the deals were co-investments for Grand Ventures, which invests early-stage capital in technology startups in agriculture, manufacturing, mobility and transportation, as well as other industries in Michigan and the Midwest. A regulatory filing last spring indicated the venture capital fund planned to raise up to $50 million from investors.

The quality of deal flow is higher than ever. The big question that everybody’s dying to know is when will we start to see some more exits, when will we start to recycle some capital. That’s always a great catalyst to drive another surge in activity. As a community, we’re nearing that point where we’re going to start to see capital distributed, which will be further validation.

What’s an example of that? Duo Security in Ann Arbor just raised a massive round ($70 million, the largest VC round ever in Michigan) and (has) a $1 billion valuation. So we kind of have our first tech unicorn, if you will, growing at that rate and raising at that kind of valuation. It shows the maturity of the overall ecosystem that we’re starting to see more of those companies have success in Michigan, which is going to be a model for younger entrepreneurs to follow and is validation to both local and national investors that that kind of company can be built here in Michigan.

Q&A

MANAGING PARTNER, AUXO INVESTMENT PARTNERS

rand Rapids private equity firm Auxo Investment Partners completed three acquisitions in the latter months of 2017, the most recent of which came in early December in a deal for M/G Transport Services, a New Orleans-based barge company. The firm previously acquired Atlas Die LLC of Elkhart, Ind. and Bernal LLC of Rochester Hills, Mich. in September. Formed in 2016 by partners Jeff Helminski, Fred Tedori and Jack Kolodny, Auxo Investment Partners looks toward 2018 with what Helminski calls “a tremendous amount of momentum.”

DECEMBER 26, 2017 | Special Year-End Edition: MiBiz Crystal Ball 2018

The technology’s changed, the buzzwords change, but this is really a people business. Business is pretty simple. It’s about building great products that satisfy a big customer and market need. The buzzwords change, whether we’re talking about local apps, or big data or artificial intelligence, but at the end of the day, it’s all about people and about understanding your customers.

It sounds like the biggest lesson mostly affirmed your thinking. I think so. The reality is you hear about these new trends and you have to get up to speed. At the end of the day, it typically boils down to the same fundamentals.

What’s the biggest opportunity for VC in Michigan in 2018 and beyond? Steve Case, the founder of AOL, has been traveling all across the country, specifically the Midwest, on his ‘Rise of Rest’ tour, which is part of the name of his most recent book. The whole concept is he believes the next wave of entrepreneurs and innovation is going to come from regions like the Midwest, where you have real people trying to solve real industrial types of problems. The key to success there is it’s a lot more than just building another mobile app. It’s the successful integration and collaboration between software developers and mature industries like we have here in West Michigan. He’s done a great job shining the spotlight on the Midwest and the opportunities here. He just announced a $150 million venture fund to specifically invest in the Midwest. It’s the who’s who of Silicon Valley and the investors are from all over the country and the world that are recognizing the opportunity.

What does that attention mean for states like Michigan? This is a turning point for us. We’ve spent a lot of time defending the opportunity in Michigan and the Midwest, and we’re seeing others talk about it. The secret’s out. That’s validation for many of us who’ve been working on it or many years now.

Interview conducted and condensed by Mark Sanchez. Courtesy photo.

How’s Auxo doing as you head into 2018?

Does that mean all the good deals are really over at this point?

From our perspective, (it’s been) a busy and productive first year. I feel like we’re positioned very well going into 2018 and if we can continue the momentum that we’ve built in our first year of operation, we’ll be in a great spot at the end of the day. When we look back, we can say that we have three companies under management, we have nearly the entire fund raised, we have the team built and the office set up, and the trajectory that we’re on feels really good.

When you find the right situations and you sort of play your hand right, there are still really good opportunities out there from a value perspective. It’s kind of a bifurcated market. There’s a lot of over pricing, but still a lot of opportunity.

What’s the landscape for private equity investing like right now?

JEFF HELMINSKI GRAND RAPIDS

What have you learned in your first nine months o Grand Ventures?

The market I think is mixed in certain ways. It’s a very, very competitive market right now. Pricing is high. I think it’s pulled back a little bit from where it was, probably. A little bit of exuberance and a little bit of rationality has come in, but I think there are still a lot of deals. We’re looking at one that we think is a very interesting opportunity. It’s local and we have a really interesting sort of team we’ve pulled together on the deal and we can do some pretty unique and really exciting things with the business if we’re ultimately successful at becoming the successor to the current owners. But it’s also a company that’s probably going to get a lot of interest and the price is going to be very, very high. So there are still those deals out there that are getting at the top of market or above-market pricing.

What’s your expectation for the economy next year? Aside from a nervousness that a lot of people feel because of the length of time that we’ve been in a bull market and everyone feels like there should be a pullback, I don’t see any data that suggests that’s actually going to happen. So my crystal ball is a little cloudier than most, but it feels like 2018 is going to continue to be a positive year, other than maybe auto has a little pullback. Broadly in the economy, I think it’s going to continue to grow.

How does that outlook shape what Auxo plans to do in 2018? What that means for us is making sure our companies that we have right now are prepared for that growth. Our first two companies, Bernal in particular, are probably going to have a record 2018 and the conversations we’re having there are how do we make sure that we have enough machine capacity and the people to produce all the work we’ve booked.

What’s your biggest worry in the new year? It’s really a macro-level thing that

would come to mind for me: The Trump administration, and should something come out of their behavior that causes a problem on an international stage or domestically. I don’t see anything particular in the short run. Rates are going to go up, but I don’t think that’s going to happen dramatically. They’re probably going to continue a little faster-paced climb than what we saw this year, but nothing dramatic. I think the thing that makes me nervous is something coming out of the Trump administration that pours some sand in the gears.

How’s the deal pipeline shaping up? We’re still seeing a lot of deals and it’s a good mix for us, things that are represented by investment banks and things that are more proprietary in nature. I haven’t seen any drop off in what’s been a very high volume of deal flow in the last 12 to 18 months. The investment bankers that we talk to seem to have a lot in their pipeline and things that are in process and are coming to market. My cloudy crystal ball would be that deal volume — in terms of opportunities, anyway — stays high in 2018.

What’s a prediction your cloudy crystal ball has for next year? From a financial perspective, we’ll probably see rates up 75 basis points over the course of 2018. Maybe 100 (basis points).

Interview conducted and condensed by Mark Sanchez. Photo by Jeff Hage. Visit www.mibiz.com

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Special Year-End Edition: MiBiz Crystal Ball 2018 | DECEMBER 26, 2017

FINANCE

SANDRA JELINSKI

PRESIDENT AND CEO, LAKE MICHIGAN CREDIT UNION | GRAND RAPIDS 2017 was a busy year for Grand Rapids-based Lake Michigan Credit Union with the opening of new branches and mortgage offices, insurance agency acquisitions, and the pending deal for Encore Bank in Naples, Fla. Michigan’s largest credit union, LMCU has 42 branch locations, three of them in Florida, and total assets of $5.1 billion as of Sept. 30, up more than 9 percent from a year earlier. President and CEO Sandra Jelinski expects more growth in 2018 as the economy remains in good shape.

“We anticipate the continuation of a very strong economy in 2018. We’ve enjoyed a strong period of unprecedented growth and feel the economy is poised for continued growth, especially in the job market. Housing should remain very strong as demand still exceeds supply, so I think we’ll see more home construction. For LMCU, we’ll continue to grow our branch network and mortgage offices. In 2017, we opened a total of 16 new locations (with a) combination of branches, mortgage offices and insurance agencies. The growth we’ve had, with flat interest rates, is very unique. We’ve seen 10 years of steady growth and I don’t see things slowing, only growing. One contributor to that belief is that I feel inflation will stay low. The financial industry is over regulated and I think it’s a very safe and secure field that will continue to provide the capital to fuel economic growth. … My biggest concern is cybersecurity in general. There have been a number of significant security breaches at some well-known companies. Technology has such an important role in all of our lives, and there is an ongoing balance between security and making business easy for customers. We continually spend a significant amount of capital to protect our members. Banking is about trust and honesty, and protecting our members’ interests is a big part of that.” Compiled by Mark Sanchez. MiBiz file photo.

Why make this deal in Traverse City at this point in time? Growth. We are a publicly traded company and you can’t stand still. You either go forward or you go in reverse. We have had a terrific run. We’ve had 14 consecutive quarters of net loan growth, so on an organic basis, we have some really good momentum going. But we regularly share with our investors that we will be open to acquisitions should they make sense. In this case, this makes sense. It’s a well-run bank, and we like the market.

Q&A

Was this an opportunistic deal, or does it signal that Independent Bank has become more interested in pursuing acquisitions?

BRAD KESSEL GRAND RAPIDS PRESIDENT AND CEO, INDEPENDENT BANK CORP.

s the end of 2017 approached, Grand Rapids-based Independent Bank Corp. cut a deal to buy TCSB Bancorp Inc. in Traverse City, the parent company of Traverse City State Bank. The $63.2 million deal, which is expected to close in the first half of 2018 pending approval from regulators and TCSB Bancorp shareholders, would extend Independent Bank’s presence in northwestern Michigan, where Traverse City State Bank has five offices and assets of $346.9 million. Independent Bank, which opened lending offices in Traverse City and other markets this year, has 65 branches across the Lower Peninsula with total assets of $2.75 billion as of Sept. 30.

DECEMBER 26, 2017 | Special Year-End Edition: MiBiz Crystal Ball 2018

There are many banks out there that their primary focus is buying other banks. Our primary focus is to grow organically and then complement the organic growth with an acquisition, if it makes sense. Our main focus is to keep blocking and tackling, and lending and gathering deposits through our existing channels.

As you work to close the TCSB deal, what do you see ahead in Michigan for 2018 in terms of bank consolidation? In the Michigan update published by the FDIC, we had 100 institutions as of Sept 30. I go back to a year ago at this time, it was 107,

and in 2015 it was 110. The question is not are we going to continue to consolidate, but at what pace. I would envision we’ll probably continue at least the same pace that we’ve been on.

What’s continuing to drive that consolidation? When you look at Traverse City State Bank and why its board decided to sell, it’s (that) running a smaller bank is hard. You have high regulatory costs, high costs to cover the risks of the operation and cybersecurity. So for small banks, it’s a challenge. I think we’re going to see more consolidation.

What do you see the economy doing next year and how will that play into what the bank does? The economy is everything for the bank. The bank goes as the economy goes. The economy is pretty solid right now, as anything that we’ve seen in several years. We’re optimistic about 2018 and when we speak to our customers. Small businesses are still a little bit hesitant sometimes to add new workers or build that building expansion or make equipment purchases.

What’s Independent Bank’s biggest opportunity in 2018? Number one, we’ve had some great momentum, so it’s continuing that momentum. We opened

loan production offices (in 2017) in Ann Arbor, Brighton, Dearborn, Grosse Pointe and Traverse City, as well as in Columbus and Akron, Ohio, and those have worked out terrific for us. So it’s continuing with that momentum and then at the same time having a smooth and seamless integration of the Traverse City State Bank customer base and employee base. If we can hit on those two items that would be great.

What concerns you the most as we head into next year? Talent. There’s a talent shortage. In our markets, businesses are having a hard time finding the talent, and talent’s critical to them growing their businesses. In our shop, we have a great team, and I want to do everything we can to retain our employees base. And obviously, (I’m concerned about) a hiccup in the economy. There are just so many uncertainties out there in the global economy and things we can’t control, and we spend a lot of time protecting our customer information, cybersecurity and managing that risk.

What’s one prediction you have for 2018? Michigan will finally win a Big Ten football championship.

Interview conducted and condensed by Mark Sanchez. Photo by Katy Batdorff. Visit www.mibiz.com

FINANCE

ROBERT KAMINSKI

PRESIDENT AND CEO, MERCANTILE BANK CORP. | GRAND RAPIDS The further the U.S. gets from the last downturn, the greater the likelihood that another challenge will eventually “rear its head again,” says Mercantile Bank Corp. President and CEO Robert Kaminski. Yet as 2018 approaches, Kaminski doesn’t see any warnings signs from the Grand Rapids-based bank’s clients that portend a downturn is imminent. Instead, he expects the U.S. economy to stay on track.

“At the start of ’17 … we were thinking, ‘OK, if we saw a downturn in ’18, I don’t think anybody would be surprised.’ Now you look on the horizon, it seems a fair bet that we can make it through 2018 without experiencing that downturn, but we’re always looking for potential warning signs. We’re staying very close — as we always do — with our customers and keeping a grasp of what they’re seeing out there from their activity standpoint, if they’re seeing continued opportunities for growth or expansion or if there’s some pullback, which we haven’t seen to this point. That’s always a foreshadowing of some challenges to come in the economy. … From a GDP standpoint, I think we’re certainly not as robust as many people would like to see, but it is a solid road nonetheless and subject to revision that you see from the numbers from time to time. The numbers are decently solid, that’s for sure. Obviously, the wild card is what happens in the political arena with legislation and tax reform. That will certainly have some effect on the economy, but from an overall standpoint, if we keep going as we’re going, we’ll see another solid year in 2018.” Compiled by Mark Sanchez. Photo by Katy Batdorff.

JASON BYRD

CO-FOUNDER AND MANAGING PARTNER, CONCURRENCE CAPITAL HOLDINGS LLC GRAND RAPIDS Private equity firm Concurrence Capital Holdings LLC made its first investment in September with the acquisition of Mission Design & Automation LLC, a 13-year-old producer of automation systems for the automotive, office furniture, medical and consumer goods industries. Formed earlier in the year by partners Jason Byrd and Michael Brom, Concurrence Capital looks to invest in more companies as the U.S. economy appears poised to remain in good shape throughout 2018.

“Our firm’s contention is that there continues to be many positive indicators, such as easier access to capital, inexpensive energy, corporate tax policy changes and historically low interest rates. Those indicators would suggest we still have some additional innings left in this recovery. However, we believe that continued growth may be at risk given current geopolitical disturbances, but we are hopeful that logical and cooler heads will prevail. The political environment is certainly on our minds. However, we believe that investing in and acquiring businesses requires a consistent effort and it’s difficult to turn that spigot on and off. With that in mind and in an appropriate manner, we are continuing to look for new investments. … We continue to maintain a measured degree of optimism for 2018 and especially so with regard to our region. Business leaders that came before us here in the region invested in the community, which set the foundation for the growth that has been and will be experienced into the region’s future. That prior planning has created an environment that is beneficial for business owners who want to create opportunities for their employees and continue their legacies irrespective of the national economy. With that in mind, we are actively investing in our current businesses as well as looking for new investment opportunities with industrial business owners that have those same shared core values.” Compiled by Mark Sanchez. Photo by Jeff Hage. Visit www.mibiz.com

Special Year-End Edition: MiBiz Crystal Ball 2018 | DECEMBER 26, 2017

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DECEMBER 26, 2017 | Special Year-End Edition: MiBiz Crystal Ball 2018

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ECONOMIC DEVELOPMENT

Economists, economic developers mull over next steps in tight labor market By NICK MANES | MiBiz nmanes@mibiz.com GRAND RAPIDS — Employers continue to struggle to find people to fill open positions and drive growth in their business. That’s a continuing reality borne out in the latest data for the Grand Rapids metropolitan statistical area (MSA), where the unemployment rate is 3.6 percent and only about 21,000 people are actively looking for work. The MSA has one of the tightest labor markets in the country, which poses challenges for economic developers tasked with corporate retention and attraction projects. The labor market in West Michigan is now tighter than comparable “aspirational” metro areas like Knoxville, Tenn., Louisville, Ky., Charlotte, N.C. and Portland, Ore., according to data from the Bureau of Labor Statistics that was presented at the annual economic forecast event hosted by The Right Place Inc. earlier this month. Executives at The Right Place must walk a fine line between seeking to attract new jobs to the area and helping companies fill their open positions. “Your question is a very valid one: When do you stop talking about job creation and start talking about workforce development? It’s not an either/ or proposition,” Birgit Klohs, president and CEO of The Right Place, told MiBiz. “If the labor market loosens up, you’re going to ask me what I’m going to do about it. We need to continue to do our work so that when things (change), we haven’t lost our spot in the lineup. Other communities around the country aren’t stopping either. It’s a real delicate balance right now, to be honest.” Economists quickly point out that reaching “full employment” marks a natural high point of any economic cycle. But in past recoveries, monthly job creation would be in the range of 300,000 to 400,000 new jobs, according to Jim Robey, director

of regional economic planning services at W.E. Upjohn Institute for Employment Research, a Kalamazoo-based think tank. Over the past several years of the current recovery, however, employers typically have added just 150,000 to 170,000 new jobs each month. “While a recovery has been happening, it hasn’t been an incredibly strong job recovery,” Robey said during The Right Place’s economic forecast event.

JOBS KEEP COMING Nonetheless, job growth remains on an upward trajectory in West Michigan. For 2017, The Right Place completed 22 corporate expansion or retention projects, resulting in 1,442 new or retained jobs around the region. By comparison, the organization reported 782 new or retained jobs in 2016 over 22 projects, according to its annual report. Tim Mroz, a vice president at The Right Place, pointed to one major job retention project — Advantage Sales and Marketing’s plans to consolidate its West Michigan employees at one Wyoming office –– as accounting for this year’s spike in job metrics. Despite the increase, sources say finding enough workers locally continues to be challenging. “What people are starting to do, they’re starting to deploy technology that’s labor-saving,” Klohs said. “So some make it work, but I also know some companies could grow faster if they had the skilled labor, underline ‘skilled’ labor.” The notion of deploying technology to help offset labor shortages in manufacturing rings true to Upjohn Institute’s Robey, who noted that 40 percent of jobs in the U.S. are deemed “low skilled” and susceptible to automation and other technologies. “Part of the question is, how are we creating enough jobs that pay well enough for people to live? And my question as a researcher is: Can we

continue to sustain those jobs?” he said. “If Geico can eliminate two thirds of their workforce and those are pretty good paying jobs, what does that mean for the future of not only college-educated people but people between that high school and associate’s degrees and other things. This is one of the things that keeps me up at night.”

TENSION ABOUNDS With hundreds of thousands of Baby Boomers seeking to retire or having already exited the labor force, the attention to jobs locally becomes more important than ever, according to Greg LeRoy. “We need to focus a lot more on the quality of the jobs than we have,” said LeRoy, executive director of Good Jobs First, a Washington, D.C.-based policy organization that tracks economic development deals around the country. “This whole problem of wages not keeping up with productivity gains is a deep chronic problem and a big driver of inequality. “If you look at the occupations … it’s plumbers, bus drivers, counselors, and all kinds of other unglamorous jobs that aren’t Silicon Valley whizz kid job titles that need lots of replacement and can earn good paychecks if people are sufficiently qualified to be productive in them. So I think … a lot more attention to the quality of jobs getting created is where the focus should be shifting.” The labor market also remains more dynamic than the job creation statistics indicate, according to economists. Even in a tight labor market like Grand Rapids, job creation and job cuts occur simultaneously. For example, a November report from the Bureau of Labor Statistics found that from December 2016 to March 2017, the U.S. labor market lost 6.7 million private sector jobs, but that loss was offset by the addition of 7.2 million new jobs. Justin Wolfers, a professor of public policy and economics at the University of Michigan, wrote about this trend in a 2016 New York Times column

is then to figure out who are those companies, and that happens through our retention calls. But we continue to find projects even when times are not so good. We continue our work. Our pipeline looks pretty robust at this point.

Do you see any other industries that could face some issues next year? Yeah. The food industry is always going to be strong here. Obviously, we have a strong agricultural sector. But we’re also having a pinch point in some of our communities with wastewater treatment, and that is an infrastructure issue that the region is going to have to wrestle with, and the state of Michigan actually has to wrestle with. We need to make sure that we have the capacity to treat that waste and help continue to make sure that the food industry can continue to do their work.

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What other issues are you paying attention to?

BIRGIT KLOHS GRAND RAPIDS PRESIDENT AND CEO, THE RIGHT PLACE INC.

ext year, Michigan voters will elect the person who will become the fifth governor that The Right Place CEO Birgit Klohs has worked with in her career in economic development. While her organization is “agnostic” when it comes to who wins the election, Klohs hopes to continue to have a strong working relationship with the new chief executive and that the new governor continues to support the efforts of the Michigan Economic Development Corp.

How is The Right Place’s economic development pipeline shaping up for 2018? When we look at our pipeline of leads, we’re still looking at a really good pipeline. Macro-wise, I do believe, from everything I hear, that the auto industry is going to slow down some. … and, that, of course, will impact some of our auto suppliers. … Part of our job Visit www.mibiz.com

The other challenge is still broadband. I can use this (cellphone) on a train going 320 kilometers an hour through France or Spain and do my emails, and here I lose my signal on Pearl Street or up in Montcalm County.

The other unknown for the auto suppliers is what could happen with NAFTA, given the rhetoric from the Trump administration. What do you see happening? I think NAFTA is flying under too many people’s radar. … Canada is our largest trading partner, both as a country and as a state. NAFTA needs tinkering, it’s been 23 years. It’s like your house is in need of new roof, right? But I don’t have to tear the house down to put a new roof on. So, our biggest concern is: What are we going to do? … The number one state if NAFTA gets totally rewritten, or we walk as a country, is Michigan — because of the auto industry, but also furniture and ag. We export billions from here to there. … But nobody’s sort of understanding the impact it will have on the state after we’ve made all of these strides over the last seven years.

West Michigan executives seem pretty bullish on the tax reform being pushed in Washington. What’s the view from the economic development community? One of the biggest concerns for us as economic developers in this tax bill is municipal and industrial revenue bonds. If you’re a hospital, if you’re a county, if you’re a state, if you’re a community,

shortly after then President-elect Donald Trump boasted about saving 1,000 manufacturing jobs at Carrier Corp. in Indianapolis. Wolfers notes that it’s largely a fruitless effort to attempt to retain a handful of jobs given the millions that are inevitably lost every few months as part of an active labor market. The U-M economist compared the labor market we have presently to an active parking garage wherein some new cars arrive every hour as others exit the structure, creating a healthy amount of churn. Given those market realities, Wolfers says it’s not worth much time or energy at any level to try to stem the flow of jobs. “The deal at Carrier is akin to Mr. Trump’s intercepting a driver on his way to his car, and trying to persuade him to stay parked a little longer — perhaps by pointing to the enticing Christmas specials at the nearby stores,” Wolfers wrote. “It’s an approach that no parking business bothers trying.” In the end, Carrier cut hundreds of jobs at the plant anyway, according to reports.

STRIKING A BALANCE Nonetheless, Klohs with The Right Place sees some hope for employers, given the many state initiatives seeking to get more workers trained for the jobs that need to be filled. She said her nearly four-decade career in economic development has been focused on striking a balance of seeking jobs via corporate attraction projects and finding better ways to train workers for existing openings. “In all the years I’ve done this work, there’s always tension between job creation and the labor force,” Klohs said. “If we were sitting here eight or nine years ago, you’d ask me why unemployment is 9 percent and not 3 percent. I have this conversation with friends literally all over the country in successful regions like Raleigh or Columbus. We’re all having that same issue.”

those bonds are tax-exempt. That’s how many of our communities around the country are funding expansions of a hospital or their own (local) road infrastructure. How do you fund that? If we’re going to talk about wastewater treatment and we need to expand the wastewater treatment system over here, it would be a bond issue, which is tax-exempt. So I’ll buy the municipal bonds as an investment. If they’re no longer tax-exempt, it’ll really, really impact funding of some really serious projects at a time when we need it.

How would you rate Michigan’s ability to weather any upcoming economic downturn? I get very frustrated, to be very honest, when people talk about, ‘Well, we should have diversified out of the auto industry.’ First of all, the state is already much more diversified, and West Michigan is way more diversified. Yes, it’s still a very strong manufacturing center, and we’re proud of it, but we also have health and life sciences, you’ve got a very strong food processing industry, and the I.T. industry is creating a lot of new jobs. We have pretty much created a regional economy. Of course, whatever happens at the state and national level will impact us. … If it isn’t as bad as it was 10 years ago, if we can ride out the cycle again, we’ll be fine.

People forget that the automotive industry was responsible for helping us climb out of the recession, too. There isn’t a country in the world that doesn’t want an automobile industry. I mean, the Chinese are building one, the Indians are building one. Why would we not want to keep ours? ‘Well, we’ve got to get out of the auto industry.’ Really? That will be a million jobs that go away, and what are you thinking?

At a recent MiBiz real estate and construction roundtable, executives mentioned it would be nice if Grand Rapids could bring a large corporate headquarters downtown. Do you think there’s any likelihood of that in the next 12 months? No. From where? To be in the attraction business of a large headquarters is probably a two- to five-year proposition. To dislodge a headquarters from their headquarters is not an easy job. … I know this is everybody’s dream, they’ve all talked to me about it. But you cannot dislodge one of our own headquarters in the region to come downtown. All you do is trade off — it goes from A to B. I mean, it doesn’t make any sense.

Interview conducted and condensed by Joe Boomgaard. Courtesy photo.

Special Year-End Edition: MiBiz Crystal Ball 2018 | DECEMBER 26, 2017

ECONOMIC DEVELOPMENT 2018, they’re going to make some decision, probably in early 2018, in terms of what’s going to happen.

Both Grand Rapids and Detroit submitted proposals to Amazon. If Michigan does not land that project, do both areas still have something to gain out of competing for it?

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Absolutely. I think the positives from that process are a couple of things. One, just the notion and the effort of everybody rallying around and working together. The governor talks about ‘relentless positive action,’ but what the project and what the proposals and the effort show is we really are much more collaborative and cohesive in terms of working together — and not only regionally, but across the state. The other piece is that it really helps to focus attention to the talent challenge and opportunity that we face. The governor’s talked about having a Marshall Plan for talent. This project really helped to focus a spotlight into needing to double down on the issue of the talent pipeline. Obviously we’re still bullish and optimistic that Michigan is going to be the location, but if not, there’s a lot of positives to take away from this effort.

JEFF MASON LANSING CEO, MICHIGAN ECONOMIC DEVELOPMENT CORP.

eff Mason took over in mid July as CEO of the Michigan Economic Development Corp. after eight years of running the University Research Corridor, a coalition of the state’s top three research universities including Michigan State, Wayne State and the University of Michigan. According to Mason, talent remains the top issue for the MEDC, particularly as the state’s economy continues to grow.

As the new year approaches, what’s the biggest economic development opportunity for Michigan in 2018? One of the biggest projects certainly that is out there is the Amazon second headquarters. As you would expect, going into

How do you maintain that spirit of collaboration and cooperation and build on it? Just like with relationships, you have to work at it every day. I talk with our team at the MEDC that economic development is a team sport. We can’t have a top-down mentality here. We really have to be out working in our communities and the region — and across the state — to understand what those challenges are and how to help those communities and regions to grow and to be successful. We have built some strong partnerships around the state and you keep working at it, and you get better and the trust builds up. We have some great partners around the state that are excited when even other regions of the state get projects and succeed. They are excited even for their friends to be successful. The competition isn’t really within our borders. It really is nationally and globally.

What’s the biggest challenge in 2018?

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What’s led you to be critical of large economic development deals such as what we’ve seen in the last year with companies like Amazon and Foxconn? In my opinion, it always made more sense to grow your own, so to speak, and to tune out border wars and tune out buffalo hunting. Now more than ever, that’s extremely true. I think the Amazon HQ2

2018 is an election year in Michigan. How do you navigate the MEDC through the rhetoric once the campaigns kick into high gear? Simply by staying the course. I talk about the fact that economic development should be an apolitical activity. I think everybody would agree that we want the economy to grow, we want vibrant communities where people are excited to live and work. Good jobs and a good economy are something everybody can agree on, no matter if you’re a Democrat or Republican. We just go about doing our business and focus on our goals and our metrics and leave the rest to resolve itself.

What’s a prediction you have for 2018? The Spartans are going to win the national basketball championship. And you’ll see some autonomous vehicles driving in Michigan in 2018.

thing is off the charts exceptional in so many respects. It’s a public auction, which is unusual. It’s unusually large, which is unusual. It’s a corporate headquarters, which is rare. It’s just so untypical of the average deal in America today, but it’s obviously got an enormous amount of press and therefore I think it confused people about the state of affairs of economic development.

Regardless of which municipality gets the Amazon HQ2 project, what would you see as the line between getting a good economic development deal or a bad one?

What would be the impact of focusing more on entrepreneurs and inventors?

ather than focusing on massive corporate attraction projects, local economic developers should instead put their efforts behind homegrown entrepreneurial talent. That’s according to Greg LeRoy, executive director of Good Jobs First, a Washington, D.C. policy organization that tracks economic development deals around the country.

We’re pretty bullish on what the economy looks like in 2018. The U-M report and all of the economists that have started to make projections suggest that it’s going to be a pretty solid year for Michigan. We have a lot of tailwinds right now in terms of the economy in Michigan, and now is the time to strike while the iron’s hot.

Interview conducted and condensed by Mark Sanchez. Courtesy photo.

You should really be focusing much, much more on entrepreneurship, which is to say your mentoring programs, your subordinated debt programs, your innovation programs, your networks of inventors and entrepreneurs working together with each other, and other things to help your existing employer base expand.

EXECUTIVE DIRECTOR, GOOD JOBS FIRST

How do you see Michigan’s economy holding up in 2018?

The talent issue will continue to be a big challenge for us

What should states and municipalities be doing rather than hunting for massive deals?

GREG LEROY WASHINGTON, D.C.

and an opportunity. If we can come up with some solutions for having skilled workers available to help our companies in their growth strategies, we can create a competitive advantage over other states and regions of the country. That’s the biggest challenge for us going into 2018, to help continue to accelerate the growth of that pipeline. Whether it’s career and technical education, certificate programs, associate degrees, bachelor degrees or advanced degrees, we need more skilled workers across the board. To the extent that we can crack the code on how to solve that and start to grow more within the state and attract more into the state, that’s our biggest challenge.

It’s always true — in every year and every state — that the number of jobs created by companies moving into the state is never more than low single digits even in states that enjoy a net inmigration. But most states, they lose some, they gain some. It’s mostly a wash, but even for states where they’re net gainers, (attraction projects are) pocket change compared to 97 percent or whatever of jobs that are created either by startups or by expansions.

What else concerns you about this rise of large economic development deals? The other issue here is that there’s this very interesting data coming out now. It’s been consistent for years now especially since the recession, but it’s remaining true. That is, people are less mobile than ever. There’s competing theories about why it’s true, but it is true.

How does that affect companies trying to attract talented workers? That means that companies have less ability to attract people to new places, and means it’s a smarter business strategy for more companies to try to figure out how to stay put, and improve the skills base of their existing workforce, and make better use of the local labor market, and partner more intentionally with local customized training, or graduate engineering programs, or whatever it is. (They should focus on) whatever kind of talent they need rather than starting over and trying to attract people who might not want to move in the first place.

DECEMBER 26, 2017 | Special Year-End Edition: MiBiz Crystal Ball 2018

Do existing taxpayers in that city break even or not on the deal? That is, does Amazon get such a lucrative incentive package that it bears little or none of the costs of the growth that it induces when it arrives and creates a lot of public sector costs by virtue of its growth? Or does the community get some taxes from Amazon to help break even on the deal in terms of a fiscal cost benefit point of view? To us, that’s central.

What else concerns you about the Amazon HQ2 proposals? A very predictable issue — which many people from many different places have raised now, looking at the company’s history in Seattle — is gentrification. That is if … your city is already having a housing affordability problem, and then you pop tens of thousands of highly paid people into that housing market without some very intentional bumpers to help absorb the effect of that, you’re going to make your housing affordability problem much more acute.

In West Michigan, a variety of public and private partners came together to get the Amazon bid in place. Can that element of regionalism change the equation in your mind? To their credit, Amazon said, ‘We prefer a metro area bid.’ I always emphasize … that’s exactly right. That’s the one honest thing about this auction is that Amazon’s reminding us all that the meaningful unit of competition in economic development is not a city or a suburb or a state. It’s a metro area. It’s a labor market and Amazon is recognizing that because they’re going to hire people from every place in whatever labor market they choose.

What do you see as the key takeaways for people in the economic development community? I think the two new normals are stay put, grow your own, focus on startups and expansions, and on improving the skills base of your incumbent (companies), either your existing workforce that you employ now or work more intentionally with institutions that are going to generate graduates you might want to hire.

Interview conducted and condensed by Nick Manes. Courtesy photo. Visit www.mibiz.com

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ECONOMIC DEVELOPMENT

CRAIG LUBBEN KALAMAZOO ROBERT WOLFORD GRAND RAPIDS

CO-MANAGING MEMBERS, MILLER, JOHNSON, SNELL & CUMMISKEY PLC

Lubben

Wolford

raig Lubben and Robert Wolford become co-managing members on Jan. 1 at the Grand Rapids-based law firm Miller, Johnson, Snell & Cummiskey PLC, succeeding retiring managing member Craig Mutch. Wolford and Lubben will oversee management and strategy at the firm, serve on the five-member management committee and continue with their respective law practices. Wolford, based out of the firm’s Grand Rapids office, will lead client service strategies and marketplace development. From the Kalamazoo office, Lubben manages business functions that include chairing the management committee and overseeing long-term professional and operational interests.

Why share management duties? Lubben: As we anticipated Craig Mutch’s retirement, we appointed a succession committee toward the beginning of this year comprised of members at various stages of their career, and the goal of the group was really to look at how we are structured. That group concluded a couple of things. One is that it is helpful for the managing member to be a practicing lawyer because it helps to give insights into what the lawyers need to be successful in providing services to the client and, hopefully, will help us be more effective in ensuring they have those resources. Second, it became apparent that the managing member job was full time-plus. The conclusion of the group is that it would be helpful to divide the position and have one person focused on the external marketplace — the needs of the clients and trying to make projections to where the market is going and what we need to anticipate — and them to have somebody else working internally to make sure we structure ourselves to help

meet those needs. Dividing it up would allow us to get the benefits of continuing to practice law while serving in this role, but also making sure we’re keeping a good perspective on the needs of clients.

When you talk to business clients, what are their top concerns going into 2018? Lubben: A lot of that depends on sectors. You talk to our manufacturing clients, NAFTA and how international trade will play out over the next 12 months is something that they’re very concerned about. Health care is something that’s on every company’s mind. Certainly right now for our business-owner clients, tax reform and how that will impact and, more importantly, when it will start to have an impact — whether that will be in 2018 or 2019 — are all factors they’re concerned about or very focused on.

How has West Michigan’s economy worked for the firm in recruiting new legal talent? Wolford: It’s worked to our extreme benefit. Our

business section has seen a significant amount of growth over the past five years and much of that has been due to the fact the Miller Johnson has become a destination law firm for both transactional talent within the region, as well as some of the most active private equity and family office groups in West Michigan and in the Midwest. As we developed that type of momentum, the level of talent that wants to come here has really been impressive. Lubben: West Michigan’s economy has been doing well, so this is an attractive area to be and, frankly, as a firm we’ve been doing well. The move to the new building (Arena Place on Ottawa Avenue in downtown Grand Rapids in 2016) also created some energy. A lot of things came together that made attracting and retaining talent really a positive for us.

How do you view the added competition with new players that entered the market in 2017? Wolford: We’ve always had transplant law firms from Detroit or other regional firms want to establish a physical footprint in West Michigan, so that’s not surprising to us. From our perspective, we are very comfortable with our physical footprint and our West Michigan roots and the West Michigan focus has served us well. As our client focus has spread to Chicago, New York and other areas, they appreciate the Midwest value perspective. Firms from other areas that are coming into this region kind of face some headwinds in that regard that we feel are strengths for us.

What’s your firm’s biggest opportunity in 2018? Wolford: We may not know what it is yet in the sense with what happens with tax reform. I think there are a number of significant opportunities that could come from that. Having said that, in terms of continued growth areas, the cybersecurity area is something that we’re going to continue to see be at the forefront

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n 2018, Michigan voters will elect a new governor to succeed Rick Snyder — who’s term-limited and cannot run again — as well as a new Legislature. John Truscott, president of the public relations firm Truscott Rossman Group LLC and a veteran of the Lansing political scene, says Republicans who have been in charge for years in Lansing need to guard against complacency if they want to maintain control.

What are the top issues in the 2018 campaign that businesses need to pay attention to? I’m really seeing a lot, and we’re working a little bit, in the education space. When you look at where Michigan students now rank, it’s pretty much across the board we’re at the bottom of the pack because other states have improved and we haven’t. So I really see that as being a key issue for the future of the state and I do think Visit www.mibiz.com

Wolford: There are a handful of things that are potential concerns and I think a lot of them are manageable. The political environment is certainly a concern from a stability perspective. The economy has performed fantastic here in the last year and a half and ensuring that our elected officials remain focused on that and encouraging businesses (is important), and not just nationally. At the state level, we’ll have a governor’s race next year and we have roads that need to be funded, and we have an educational system that needs to be depoliticized and properly funded so we have workers to fill the jobs that we’re going to create. From a manufacturing perspective, we’re at the eighth year of a five-year automotive cycle. Are people going to continue to buy cars? While the West Michigan economy has diversified certainly, its core still is manufacturing, in automotive and furniture manufacturing. If there’s any sort of significant correction or dip in that industry, that would be something that would be a challenge for the region.

Interview conducted and condensed by Mark Sanchez. Courtesy photos.

Beyond that, the budget is always an issue. We’re looking at the next couple years of some pretty tight times in the state budget. You have local government not being funded at the level they need to be to provide their services. You have overwhelming retirement obligations that the Legislature just tried to deal with. So a lot of those issues will probably come to a head next year.

What do your clients tell you is on their minds that Lansing needs to address?

The Republicans have been in charge in Lansing for the last few cycles now. Do they have to guard against party fatigue?

Just stay out of the way. I have some friends in manufacturing that this year are having the best year that they’ve had in decades, and two years ago, they didn’t know if they could hang on. Part of it is the national recovery that’s going on. But those that were able to squeak through seven or eight years ago and are still around, and then went through still a number of lean years, they’re finally back and feeling really good about the future. So it really comes down to the message for the state is: ‘Don’t mess it up.’

I have said for a long time that it’s real easy to get fat and happy when you’ve been in power for a long time and you’re dealing with staff and people that have never served in the minority. There’s nothing that will make you hungrier than serving in the minority where you can’t really get anything done. Republicans definitely have to guard against complacency and that feeling that you’re always going to be in power and people owe it to you. The voters don’t owe you anything. You have to earn it every single day, and that’s a lesson that’s really hard to learn for people who have never been on the minority side of things.

What else besides education?

JOHN TRUSCOTT LANSING

What concerns you for 2018?

for the family, and maybe have a little more left over at the end. So I think candidates that talk to making lives a little bit better, not increasing burdens on people, and to an extent just letting them do their thing will still resonate. It mixes some of the Trump aspect of why people voted for him, but then taking it a little more positive with looking to the future in terms of what we can do as a state. The auto industry’s back, but yet there’s more competition in that space than ever before and (with) the whole autonomous vehicle sector. … How do we hang on to that and grow it and make sure we have those jobs in the future? I think that’s what people are looking for.

next year will be a big year for addressing the issue. K-12 education and education quality is going to be a big part of the discussion.

PRESIDENT, TRUSCOTT ROSSMAN GROUP LLC

of companies’ minds, investors’ minds and our clients’ minds. We’re going to continue to face new challenges there and we have a cybersecurity practice group that has been extremely active in 2017, and we expect that will continue into the new year. Lubben: Cybersecurity cuts across such a broad range of clients. We have a lot of health care clients and obviously they’re affected with securing information with patients. We represent some higher education institutions. They’re concerned about the security of the information of their students, as well as they have campus stores and want to keep that information secure. It’s an area that’s been hot, and it’s going to continue to be hot.

What’s the mood among voters these days? Who knows where it will be on election day, but right now I think overall optimism and things are moving in the right direction, but at the same time people probably have never been more frustrated with their elected leadership. You look at the controversy and all the sexual harassment and everything — things that five years ago nobody would have paid attention to. Now it’s a cascading effect of people leaving. I think people have reached a point where — and probably rightfully so — they’re expecting a lot more.

How do you think that could play into the race for governor and the legislature? The conventional wisdom would be that this would be a Democratic year because it typically has advantaged the party out of the White House. But politics has changed so much with this last cycle that we don’t know if conventional wisdom will hold true. Any pundit that thinks they have it nailed, they’re the ones that are going to miss it by the widest margin.

What would surprise you in Lansing in 2018? If another candidate got in on either side for the gubernatorial race. There’s nobody out there that’s expected to get in and shake up the race. There are people on both sides of the aisle asking for it, but there’s nobody actually waiting in the wings. I also think the Legislature will be somewhat cautious and do what it has to do to keep things moving along, but as you head into lame-duck status, it’s really difficult to launch a lot of new ideas. So I wouldn’t expect anything earth-shattering to come out of the next year.

What’s one prediction you have for 2018?

What are voters looking for in the 2018 races?

My Spartans win the national championship in basketball. In political terms, I don’t see any way Democrats pick up the Senate. At worst we have a split Legislature. We may get into a situation that we haven’t had in a while where it’s difficult for Republicans to hang on to the House. That would be one that could be likely. But again, what is the Trump effect going to be? I don’t think anybody can predict that at this point, and I think that will drive some of the sentiment at the ballot box.

We’re a Midwestern state. We are not like the coasts. We have a lot of common sense here. People just want to do their job, provide

Interview conducted and condensed by Mark Sanchez. Courtesy photo.

Special Year-End Edition: MiBiz Crystal Ball 2018 | DECEMBER 26, 2017

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GROUNDED IN COMMUNITY

F i s h b e ck , T h o m p s o n , C a r r & H u b e r e n g i n e e r s | s c i e n t i s t s | a r ch i t e c t s | c o n s t r u c t o r s

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DECEMBER 26, 2017 | Special Year-End Edition: MiBiz Crystal Ball 2018

Visit www.mibiz.com

ECONOMIC DEVELOPMENT What are the big statewide issues for small businesses in 2018? Right now, one of the biggest challenges that we’re looking at are these ballot proposals dealing with minimum wage and paid leave. The advocates of these proposals, based on the campaign filings, have money and have enough to get paid signatures. Whether they’ll get them in time remains to be seen. We have another ballot proposal that we actually are favoring and that’s to repeal Michigan’s prevailing wage, and that’s going to be one of the first early fights in 2018.

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Why is that issue setting up to be a battle?

CHARLES OWENS LANSING STATE DIRECTOR, NATIONAL FEDERATION OF INDEPENDENT BUSINESSES

harles Owens’ nearly 25 years as director of the Michigan office for the National Federation of Independent Businesses has coincided with four governors in Lansing: Jim Blanchard, John Engler, Jennifer Granholm and Rick Snyder. Since Gov. Snyder is term-limited, Michigan voters will elect a new governor in 2018, a year in which the NFIB will get involved to oppose two possible ballot proposals: One to require employers to provide paid sick leave to employees, and the other to raise the state’s minimum wage to $12 an hour by 2022. That’s on top of a minimum wage increase of 35 cents to $9.25 per hour on Jan. 1. The NFIB also plans to back a proposal to repeal Michigan’s prevailing wage law.

It’s a citizen-initiated law and they’ve already turned in more than the required number of signatures and it’s going through all of the processes with the Board of Canvassers and the Bureau of Elections. Assuming it gets through all that and all of the legal challenges, it will show up in the Senate and the House either at the very end of this year or early next year, and they have 40 days to act on it, either pass it or it fails. Or do nothing … and it goes on the ballot. It’s the same thing with the minimum wage and the paid leave (initiatives).

How do you see the business climate these days for small businesses? Very optimistic, and I say this for a couple reasons. First of all, Michigan, beginning with Gov. Snyder and the change in legislative power, has made huge changes in our business climate, starting with getting rid of the Michigan Business Tax (and) the change in the personal property taxes. These are great things. What was always holding us back, though, is we don’t operate just within the borders of Michigan, and there was just a lot of negative business climate energy coming out of the White House with our federal government, and for the first time we’re aligned. We’re seeing a lot of things happening at the

federal level (in regulatory and tax reform) that frankly are reminiscent of what we did here when Gov. Snyder took office.

How do you think the state’s economy will do in 2018? I think the state economy is going to do great in 2018 for a couple reasons. These changes (years ago in the state’s tax code) have taken a while to percolate through and translate into jobs and into economic activity. We’re there now. Going forward with the changes at the federal level, we’re going to have a great business climate. I think 2018’s going to be a great year.

What’s your biggest concern? (I’m concerned) the further you get away from the reason that you made all of these changes. In other words, the way that we were at the end of the prior (governor’s) administration, we led the nation in just about every bad index that we could find. It was in that environment that we made some pretty significant changes to turn that around. As time goes by and with term limits, you have lawmakers (who) don’t remember how bad it was and the reasons why we did what we did, and so we start to get a little bit of drift and ideas that we should know better. We forget and people start to make the same mistakes.

Give me an example of that. We’re back into this corporate welfare mentality, targeting economic development to specific industries or specific sizes of industries. Basically we’re already starting to mortgage our tax revenue stream going forward. In all fairness, it’s not as bad as the Granholm administration and they never kept track of it, and we’re still paying for that. We have $9 billion of unclaimed MEGA credits that were given away with very little accountability. So you would

to understand that the relationships with students at the undergraduate and graduate levels is critically important. But in order to enable that to be even more effective, we have to have the high-tech (tools) to assist in that enterprise of higher education. I’m really excited about the next year and years ahead as we seek those ways to augment the learning experiences, so that at the end of the day, the talent is going to be even more poised for success in this ever-changing world.

Q&A

How would you describe the ‘high-tech, high-touch’ dynamic playing out in practice at GVSU?

TOM HAAS ALLENDALE PRESIDENT, GRAND VALLEY STATE UNIVERSITY

rand Valley State University will continue to grow its presence in and around downtown Grand Rapids in 2018. As well, the university also hopes to tap into the ever-changing world of technology and data as a means of improving the learning experience for students. President Tom Haas discussed these topics and more at the recent Business Leaders For Michigan CEO Summit in Detroit.

What’s happening in the economy right now that’s driving change at GVSU? I think there’s a couple areas that I’m very interested in. First off is the whole area of technology and how that impacts the social fabric and also what we’re seeing in the (learning) environment. So … (it’s) what I would call high-tech, high-touch.

What does that mean? We need our professors and our instructors and our staff and faculty Visit www.mibiz.com

think we would learn from that.

How do you see that playing out now? (We have) the ‘Goods Jobs’ bill and these kinds of things that the Legislature has passed, and I will give them credit that it’s a little easier to keep track of them and most of them have a cap. So they have learned some things, but what they haven’t learned is that they don’t really work on a macro basis. Certainly, it works for that firm that receives a significant credit or a significant tax incentive or whatever it is that they give out. For that specific business, for a specific locality at a specific time, there may be a measurable increase in jobs and economic activity. But on a macro basis, it never really pays off.

What should the state do instead of targeting economic development? It’s better to take that kind of money and put it back in the pockets of taxpayers and businesses, or keep it in the revenue stream so that you don’t have uncertainty when you have economic downturns.

What would surprise you in 2018? If the voters decided to go back to the failed policies of the past by electing folks that have that kind of a mindset so that the control of the Legislature would change or the governor’s office. It would disappoint me. Maybe not surprise, but disappoint me.

What’s one prediction for 2018? I think you’re going to see prevailing wage repealed. That’s something that folks have been trying to accomplish since it passed (decades ago), at least since the Republicans controlled the Legislature and the Governor’s office. I think it’s going to happen next year.

Interview conducted and condensed by Mark Sanchez. Courtesy photo.

tackling large-scale urban development? We couldn’t take a model of a traditional campus in Allendale and thrust it downtown. Downtown, there’s so many stakeholders. The neighbors, we have to ensure that we’re in full partnership, agreement and mutual conversation. It may take a little more time, but at the end of the day, what we’ve learned in working with neighbors in Belknap, their voices are important in the design and the final evolution of what we’re going to do there.

What other stakeholders do you have to work with?

We’re looking at hybrid courses, ensuring the technology is there. For instance, in the health professions, we have robotics, we have simulations that are going into our new facilities. That helps augment the learning experiences. We’re seeing that in engineering and technology.

We have to work with our city planners and our commissioners and our mayor. So all these different players are there at the table — they must be at the table. We, as an institution, need them to listen and state our case for achieving the mission with their assistance.

If you’re a student going for a business degree, how will that play into your studies?

It’s not out there publicly yet, but Moody’s affirmed their rating for us as A1 and Standard & Poor’s is giving us an A+ rating. Now instead of being stable, we’re positive. Those are good indications of our financial stability and strength.

What we’re really going to be focusing on next year and the years ahead is competencies that are necessary … for post-baccalaureate training and education and going into careers. Those competencies need to also employ technology as well — critical thinking, understanding the nature of inclusion, global thinking. All those are very important as we build our curriculum, internships and co-op programs and other experiential learning. (It) all has to be integrated.

What do you see happening in the next year in terms of investment in facilities at GVSU? We’ve already started down that pathway. We’ll finish up the Raleigh J. Finkelstein Hall (in Grand Rapids’ Belknap Lookout neighborhood). We’re planning on a new building next to the Cook-DeVos Center (on Michigan Street in Grand Rapids). That’s coming along. We finished off the new biological sciences building on Allendale’s campus. One of the exciting projects is as we create the (former) Ferris Coffee and Nut facility into Grand Valley’s Innovation and Design Center. That’s 64,000 square feet and now we’ll be able to enable and engage computer information systems and technology right there.

As GVSU has expanded into some of the neighborhoods around downtown Grand Rapids — albeit not without some controversy — what has the university learned about

How would you describe GVSU’s overall financial situation?

Are there looming issues that could derail some of GVSU’s future growth plans? Yeah, I think so. A couple things come to mind: the demographics. I don’t think it’s going to derail Grand Valley State University. Be that as it may, we’re holding our own in the marketplace for the the 18-year-old cohort, which has been going down since 2009 and 2010. So we are holding our own there, but the demographic shifts are changing, so we have to pay attention to that.

What about state funding? There continues to be an erosion of state support. We’re seeing a little bit of (an increase) because of performance metrics. But nonetheless, the state really hasn’t embraced the whole notion that higher education is a public good, so we’re seeing that as well. And looking ahead, I think some of the financials out there, whether it be unfunded liabilities and other issues (like) roads, are going to be coming up again because it was kicked down the road a little bit. I think all those are going to impact Grand Valley and our planning.

Interview conducted and condensed by Nick Manes. Courtesy photo.

Special Year-End Edition: MiBiz Crystal Ball 2018 | DECEMBER 26, 2017

ECONOMIC DEVELOPMENT

DOUG ROTHWELL

PRESIDENT AND CEO, BUSINESS LEADERS FOR MICHIGAN | DETROIT Michigan’s business climate has made great strides in recent years, but there’s still lots of work to do. That was the message delivered in late November by Doug Rothwell, the president and CEO of Detroit-based Business Leaders for Michigan, the state’s business roundtable. Released at the organization’s annual CEO Summit, the latest Economic Competitiveness Benchmarking Report shows the state continues to make improvements in terms of jobs, income and productivity, but it still lacks in college and career readiness and educational attainment, for example. And while incomes have improved, Michigan continues to lag other peer states, according to the data.

“The good news is Michigan is a contender again. We’re back in the game, we’ve gotten our unemployment down to about the national average, we’ve been raising incomes and productivity at a rate faster than other states. The challenge we have is that we still have this income gap. We’re still about $10,000 per person lower than the top 10 states. A lot of the metrics, we’re really good on taxes, (but) we’re not as good on things like education, training and infrastructure. … It’s all about talent and more specifically about making sure the K-12 system is producing people that are able to advance their careers or their ability to go into college after they leave high school. We also need to make sure we have a higher education system that is doing a better job of getting people ready for careers … and is affordable for kids to be able to get to. Infrastructure remains an issue and it’s an issue in two respects. One is we need it for connectivity, but we also need to change the way we pay for it. Right now, we rely too much on general fund dollars, which takes money away from what (we) need: education and training. So we need to raise taxes for infrastructure and that will solve two problems.” Compiled by Nick Manes. Courtesy photo.

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DECEMBER 26, 2017 | Special Year-End Edition: MiBiz Crystal Ball 2018

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NONPROFIT

NONPROFITS BRACE FOR SWEEPING CHANGES FROM FEDERAL TAX REFORM T By JANE SIMONS | MiBiz jsimons@mibiz.com

he potential effects of recently-passed federal tax reforms loom large on the minds of Michigan’s philanthropic leaders for 2018. While the tax reform bill ultimately did not include a repeal of the Johnson Amendment that prevents churches from endorsing political candidates, the nonprofit and philanthropic community must now wrestle with the broad effects of the new law. “There are quite a few factors that are still unknown that will impact the funding outlook for the nonprofit sector in Michigan,” said Donna Murray-Brown, president and CEO of the Michigan Nonprofit Association. “Much of it has to do with the outcome of the proposed federal tax reform. For instance, over 40 percent of the state budget for Michigan comes from the Murray-Brown federal government. Funding for programs that are either supported by or administered through the nonprofit sector are supported by federal funding that flows through the state.” The anticipated outcome is that federal funding cuts to entitlement programs will Caldwell adversely impact funding for programs administered via nonprofits, according to Murray-Brown. “Federal funding supports a range of things from food and nutrition programs to senior services and everything in between,” she said. “It is my estimation that the Collier need of the communities has not decreased, yet funding is anticipated to decrease. Human service nonprofit agencies may see an uptick in the need for their services.” This is a pattern that has continued to gain momentum with a continual decrease in funding for programming that used to be covered by the federal government, said Kyle Caldwell, executive

“We recognize that early education and developmental support are the foundations of our community’s future.” George and Jill Bosnjak New Philanthropists

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director of the Dorothy A. Johnson Center for Philanthropy at Grand Valley State University. Caldwell said the state of Michigan is becoming ground zero for what some refer to as municipal failures. He said government can’t do what it used to do and the nonprofit community has increasingly been called upon to fill the role of “first responders.” He cites the bankruptcy of the city of Detroit and the funders who stepped up from the philanthropic sector to save iconic symbols of the city such as the Detroit Institute of Art. “That is a critical role that philanthropy steps into without having a game plan for what comes next,” Caldwell said. “With the Flint water crisis, it wasn’t the state or city that had the capacity to respond to the leaching of lead into the water system. It was really up to the nonprofits and the private funders coming together to deliver bottled water to vulnerable communities.” The willingness of nonprofits to fill that role begs the question of what this means for charitable organizations in the long term. “What does it mean to ask nonprofits to play leadership roles without the necessary tools,” Caldwell said. “The tax reforms radically change the way people think about donations to nonprofits. “It’s not a matter of ‘can we.’ The expectation is there will be nonprofits to stand in that role whether they can afford to or not. The question is: Will they get tools to be effective?” Caldwell said the bigger step is going to be entitlement reform with the federal budget shifts. “When we look at Medicare, Medicaid and WIC and (Supplemental Security Income) to pay for this shift, (that’s) going to be where our nonprofits are going to be looked to fill in,” he said.

2017, it is expected to be static in 2018 while givers and their advisers figure out the ramifications of the new tax package,” Collier said. “There will be an uptick in funding related to the elections and ballot issues. Education will continue to receive the bulk of grant dollars from foundations. “As we look at the data, education for the philanthropic community is a huge priority. When we look at what’s going on and the need for talent in our state, donors are saying, ‘Are we doing this the right way?’”

QUESTION OF INCENTIVES But philanthropic leaders are bracing for a lessening of the federal tax incentive to give to charities. An analysis by the Joint Committee on Taxation found that a reduction in the number of people who can itemize from the present 30 percent to the anticipated 5 percent will also reduce charitable giving to nonprofits. A study conducted by Indiana State University estimates that about $13 billion will be lost in charitable giving. “Here in Michigan, that would be double insult. We lost the (state) charitable incentives for Michigan donors in 2011,” Murray-Brown said. “That coupled with an anticipated loss in charitable giving at the federal level will be hard for nonprofits in Michigan. A study by the Johnson Center for Philanthropy at GVSU found that people still gave to nonprofits, just at lower amounts than they did with the incentive, according to Murray-Brown. “This will be something to watch,” she said.

FOCUS ON THE FUTURE

DISCUSSION ABOUNDS Questions surrounding the role of government are affecting philanthropy and charitable sectors in a major way, said Rob Collier, president and CEO of the Council of Michigan Foundations. He said when the discussion about this started several years ago, the thought was that it would go away. However, this has not been the case and community and family foundations continue to look at ways to leverage philanthropic capital to help their communities address critical needs, including homelessness and food insecurity. Collier said the topic of impact investing is “here to stay.” “While we are expecting funding to be up for

Appealing to the next generation of donors and new organizational strategies to capture donor dollars also fall on the radar of philanthropic leaders. “In our field of philanthropy, the role that Millennials are playing is definitely a big issue,” Collier said. “One of them said to me very candidly that they don’t have any use for government or how it works, ‘just tell me how to get stuff done.’” Although nonprofits have been moving toward providing more fact-based data to support their work and demonstrating measurable outcomes to donors, Caldwell said this will become increasingly important as they tell their story. A shift in the way donors think about nonprofits means that a lot of the work being done

“There are quite a few factors that are still unknown that will impact the funding outlook for the nonprofit sector in Michigan. Much of it has to do with the outcome of the proposed federal tax reform. For instance, over 40 percent of the state budget for Michigan comes from the federal government. Funding for programs that are either supported by or administered through the nonprofit sector are supported by federal funding that flows through the state.” — DONNA MURRAY-BROWN President and CEO, Michigan Nonprofit Association

is going to have to be clear and evidence-based, Caldwell said. “With the radical shift that we’re seeing among people who are donors and volunteers and their expectations, it’s very clear that while we’re still looking at that $50 trillion wealth transfer, it will happen in very different way,” he said. “People don’t want to give blindly. They want to be handson and involved.” Murray-Brown said volunteering continues to be a great tool to bring that next generation into the nonprofit world. “Typically, volunteer opportunities can be very transactional with a project or activity occurring and the results of the project or activity (can be) understood almost immediately,” she said. “Nonprofits will have to continue to hone in on their social media skills in getting the attention of the next generation. It is still the communication of choice and is an exceptional tool for a call to action.”

Teaching children to learn opens their eyes to understanding. You don’t need a million dollars to be a philanthropist; you just need heart and an organization to help you move forward. Learn more by contacting Shaun Shira at 616.454.1751 or sshira@grfoundation.org.

Special Year-End Edition: MiBiz Crystal Ball 2018 | DECEMBER 26, 2017

NONPROFIT

JAY MADDOCK

EXECUTIVE DIRECTOR, OUTFRONT KALAMAZOO | KALAMAZOO Decreases in funding from both governmental agencies and other funders who support the needs of the LGBTQ community are cause for concern as Outfront Kalamazoo goes into 2018. Executive Director Jay Maddock said his social justice organization relies on grant funding, individual giving and successful fundraising events, meaning that any hit to the economy will affect all areas of the group’s funding.

“We know that when an administration doesn’t include LGBTQ community needs into their consideration for budgets, there are significantly less funds available to community centers like ours. Furthermore, economic dips impact not only the marginalized communities, meaning the demands of our agency increases while the funds supporting our work decrease. Our work is focused on advocating for LGBTQ rights, supporting individuals and families, and building inclusive and safe community for LGBTQ folks. The current administration has shown time and time again that they are no friend to the LGBTQ community. We’ve seen an increase in harassment and discrimination against LGBTQ families and individuals, and an increase in fear of the future since so much is unknown. … More trans people have been murdered in 2017 than in 2016, with trans women of color being disproportionately targeted. I am kept awake thinking how we can protect trans people and LGBTQ people of color from racism, transphobia, misogyny and homophobia. Our organization remains committed to our mission and vision and we are prepared to continuing fighting for equality for LGBTQ people in any political environment we find ourselves in.” Compiled by Jane Simons. Courtesy photo.

What’s the overall picture for your organization right now? The last couple of years we had growth that was not in the best interest and direction for the Haven. We expanded the administrative staff and really got ourselves over-extended. We were doing too many things in too many areas in too many ministries.

What major challenges does the Haven face in 2018? Going beyond the day-to-day in making ends meet. We need to pay employees enough to keep them and have them prosper as well. The cost of health insurance for my employees has already gone beyond the amount I budgeted in June by 50 percent. I’m paying a portion of my own health insurance, too. You can’t get around it.

Q&A

Given the current political climate, what are your biggest concerns going into 2018 in terms of government funding?

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DANIEL JONES BATTLE CREEK EXECUTIVE DIRECTOR, HAVEN OF REST MINISTRIES aniel Jones is entering into his sixth month at the helm of Haven of Rest Ministries in Battle Creek. His tenure followed a restructuring, the closure of one ministry, and staff reductions that decreased employment costs by 20 percent. Jones said these changes resulted in greater efficiencies and service delivery at a lower overall cost to the orgranization.

DECEMBER 26, 2017 | Special Year-End Edition: MiBiz Crystal Ball 2018

We’re required to have services available no matter what climate exists. I’m concerned about a reduction in funding for long-term substance abuse and drug abuse treatment programs. We recently lost 50 percent, or $100,000, of a large grant that was supporting our Men’s Recovery program, which is a longterm recovery program. Legislators are looking for shorter-term treatment programs and a more efficient use of money and that’s a climate driven by the need for efficiency for the use of dollars. I’m worried about losing even more funding. The effectiveness of this program is pretty drastic. I don’t want to see treatment programs becoming a political football. This cuts across party lines.

We have real problems to address with the heroin and opioid epidemic. Our community is very, very generous and supporting the homeless is not a partisan issue.

How have your services changed over the years? We are very individualized and patientcentric in terms of recovery. Recovery is a process, rather than an end state. As we go into 2018, we’re looking to offer even more in terms of recovery support.

How sustainable is your current funding model? About one-third comes from individuals in the community who donate. We also get one-third from various grants and foundations sending us money and organizations like the Salvation Army. The last one-third comes from government contracts we have, including the Veterans Administration because we serve veterans. It’s a nice three-legged stool.

What keeps you up at night in terms of issues at the Haven? Being able to pay the people who work here a wage that will keep them out of poverty. We’ve got almost 50 employees, and I need to be able to pay them between $11 and $15 per hour. We get good people, they get experience and move on to someplace where they can make that kind of money. We have a high rate of turnover, and I’m trying to raise up wages for a very low paid staff. That’s my pressure, to make sure we get good people and keep them.

Interview conducted and condensed by Jane Simons. Photo by Jane Simons. Visit www.mibiz.com

NONPROFIT What will be the biggest challenges for Goodwill in 2018? The economy is scary good and it’s planning for the scenario that whatever goes up always comes down, at least a little bit. I’m not sure how all that’s going to work. We are trying to be aware of what might happen in our environment and we’re trying to adapt. We’ve placed (fewer) people this past year than ever before, but that’s because everyone who wants a job can find a job. If you breathe and you show up, you’ve got a job. But, if the economy changes we want to be prepared.

Q&A

Given the volatile political climate, what are your biggest concerns going into 2018?

JOHN DILLWORTH KALAMAZOO PRESIDENT AND CEO, GOODWILL INDUSTRIES OF SOUTHWEST MICHIGAN

ohn Dillworth spent much of his career at Kellogg Co. in various positions, including sales, strategic planning, I.T., budget management, customer service, and others. Since 2000, he’s served as president and CEO of Goodwill Industries of Southwest Michigan. He talked about the state of the nonprofit sector looking ahead to 2018.

Pending changes to taxes are going to impact all nonprofits. … We have heard that this bill … could just wipe out all the help given to people with disabilities. We contract with other agencies to figure out careers for people. If you take away all of the federal money for that, it will impact us. When you look at a $1.5 trillion scenario, if they don’t get the revenue forecasted, then they start cutting. It could be a very scary 2018 or it could not be.

What trends are you seeing in demands for your services at Goodwill? Over 3,500 folks are served annually in Southwestern Michigan by us. They come from referrals from other agencies. People come to us for simple things like gas cards and clothing and about 2,500 are folks getting that one-off (service). We have seen an increase in in-depth users, which includes

families in our Life Guides program that we started five years ago to get people out of poverty and become self-sufficient. One-third of the families who started in the program no longer need it. There’s a lot of talk about poverty reduction and this program seems to be working.

the next 10 years, we expect to see an increase in donations because baby boomers have a lot of stuff and millennials don’t want it.

What brings people in need of your services to Goodwill?

What we do now that we didn’t do six years ago because we’re not in a federal or state system is we can adapt to the needs of each person. That makes us different from just about anyone else out there. In a perfect world, all nonprofits would want to do that. One size doesn’t fit all and we can’t afford to leave anyone behind anymore. Today, everyone needs a strong, solid education to succeed. If things aren’t working, you need to look at what you’re doing. We’re set up functionally to do that.

Agencies will tell individuals that Goodwill can help them. We get referrals from organizations including Michigan Rehabilitation Services and the Michigan Commission for Blind. Our Life Guides program gets referrals from the Kalamazoo Public Schools. If you’re coming here, there’s some selfmotivation to do that. They’re looking to make a change and do things differently.

Given the challenges at the retail level, how sustainable is your revenue stream? The stores are about 83 percent of our revenue base, contract manufacturing is 9 percent, and our mission is 8 percent. We get very little in monetary contributions. We get funding from foundations to run about 8 percent of our mission programs. … Our rural stores did well, but our city stores in general had a tough time. It was an adjustment. We doubled down on customer service and had a great rest of the year. From a sustainability point of view, the ISO certification and some of the processes we put in place for contract manufacturing helps us be more competitive for folks who have things that are troublesome for them to do. Within

What support services do you offer to your clients and how have they changed over the years?

What keeps you awake at night in terms of issues at Goodwill? A minimum wage increase and changes to the tax laws, which is a great big wild card. We continue to grow and with growth can come bureaucracy. We don’t know if we’ll get hurt with donations. Everyone itemizes and we anticipate a lot of donations between Christmas and New Year’s with everyone wanting to get a tax deduction one last time. We will be buried in donations and then it’s going to be ‘who turned out the lights.’ We also are trying to find people who are self-starters. There’s more of a demand for them than there is supply right now.

Interview conducted and condensed by Jane Simons. Photo by Jane Simons.

MARTHA THAWNGHMUNG EXECUTIVE DIRECTOR, BURMA CENTER | BATTLE CREEK

The Burma Center is in the business of empowering people through advocacy, community engagement and education. One of its lines of service is Burmese-English language interpretation to serve the 2,500 Burmese residents who have immigrated to the area over the past 15 years. Burma Center advocates for equitable access to resources and services, but Executive Director Martha Thawnghmung says she thinks the pervasiveness of institutional racism and how immigrant groups are often pitted against one another are complicating efforts to unite various groups.

“In our area, the most significant economic shift over the past three decades has been moving from cereal production to auto parts production. We see bursts of innovation here and there but the mentality of the people in the area largely has not shifted. Yet, an undeniable, albeit reluctant, movement towards acknowledging the value of its diverse resident population is emerging. … We advocate for equitable access to resources and services. The propensity of businesses and agencies to utilize interpretative services correlates with the health of the economy. The more robust the economy, the more likely that businesses and agencies are to use our language services. … Being an immigrant advocacy organization, we are most concerned about the immigration issues, especially those affecting the Asian American population, and the unchecked power Immigration and Customs Enforcement is currently carelessly wielding. Although the volatile political environment has damaged the optimism of the collective immigrant community in our area, it has also reinvigorated our sense of social justice and has made us bolder in seeking allies, seeking equity for all, and has united us in many ways.” Compiled by Jane Simons. Courtesy photo. Visit www.mibiz.com

Special Year-End Edition: MiBiz Crystal Ball 2018 | DECEMBER 26, 2017

FOOD BIZ Where do you see the economy going in 2018? How will this affect farmers? The economy right now seems to be on a strong course in manufacturing — and a lot of other businesses. But in agriculture, the farmgate is struggling a little bit. Where we see an opportunity in moving forward is food processing. We recently had a new food pork processing facility come online in Coldwater, Mich., with Clemens Food Group. It should be a huge asset moving forward. Also, blueberries: I think you are going to see more happening in that market. Gov. Rick Snyder mentioned he’s working on more (exports) of blueberries into China. It’s a great opportunity for those specialty commodities.

Speaking of Gov. Snyder, what issues would you like him to champion next year?

Q&A

For one, we need to look at Department of Environmental Quality (DEQ) oversight. There are still some issues we are having throughout agriculture with the DEQ. It would help out the whole process if we could have some technical ability to address issues in that world. Also, food processing: We have been talking about food processing for a number of years with the governor. It has not gone away. We still see opportunities to bring more food processors in and to expand some of the opportunities that we currently have in the state. The infrastructure still sticks out there, too. Agriculture relies a lot on its infrastructure.

What’s the state of the industry right now?

CARL BEDNARSKI LANSING PRESIDENT, MICHIGAN FARM BUREAU

ne of the biggest issues Carl Bednarski expects to deal with in 2018 is the national Farm Bill, which will address agricultural concerns in infrastructure, crop insurance and exports. The president of the Michigan Farm Bureau discussed what legislation will affect the agricultural community the most.

Actually, we are in a downturn. Our dairy is struggling, and we are very conscientious of the trade agreements — NAFTA and the Farm Bill. We are concerned where that could be going. Agriculture is cyclical. We understand that we need to tighten our belt, but we understand we can’t have our hands tied and must bring value-added (offerings) to our commodities.

What’s the state of the agribusiness sector heading into the new year? I think farmers and agricultural (businesses) are adjusting to what I call a new reality. Commodity prices are not terrific, but … what’s surprising a lot of people are land values are not coming down as rapidly as some had (predicted) they might. That means for land owners that the land rents are not coming down as rapidly as projected. Land, in most cases for farmers, is their most important assets. I think that’s good news. What we are seeing now is not what happened in 1986. … We are not seeing huge numbers of farmers in strong financial disarray.

Q&A

Have you seen any other surprises?

JIM BYRUM EAST LANSING PRESIDENT, MICHIGAN AGRI-BUSINESS ASSOCIATION

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s president of the Michigan Agri-Business Association, Jim Byrum worries about trade, weather and talent — concerns shared by the farmers and food processors he talks to on a daily basis. Still, he remains optimistic for the sector’s growth next year.

DECEMBER 26, 2017 | Special Year-End Edition: MiBiz Crystal Ball 2018

The growth of the livestock sector is pretty profound, certainly pork, with the new Clemens (Food Group) plant in Coldwater. We are seeing some more interests in turkeys (and) the large dairy operations are still strong and aggressive.

Is that surprising given the challenges in the state’s dairy industry? The dairy industry is a fascinating sector. I think it’s important to realize that dairy is one of those sectors in production agriculture

What else must the industry address in this downturn? We look at how we got there. Was it trade agreements, was it marketing plans that never developed, was it issues within our own state? I think right now, it’s a number of those. If you look at our tart cherry industry, we are having some issues. A lot of it has to do with the flood of cherries that have been imported in this country from overseas. That has affected our market here. Trade is huge to Michigan. When we see these trade agreements being talked about, we are very conscious of where agriculture is going to be in those trade agreements. Farmers are looking at different commodities. They are capable of identifying new markets, and with the economy and other (sectors) taking off, we hope some of that bleeds over into agriculture.

How has the volatile political environment affected farmers’ plans for 2018? With the election process, we take a look at the Farm Bill, which kind of sets the direction for agricultural production. It’ll play a key role into how those legislators vote, how they support the Farm Bill. So much of it is going to other things than agriculture.

Looking ahead to 2018, what is keeping you up at night? What is keeping me up right now is how agricultural practices are being perceived by the public, by the consumer. Labels, for instance: More and more companies are differentiating their product by a label that agriculture has to defend. … When you take a look at putting a gluten-free label on water, (it’s already glutenfree). That’s what keeps me up at night. Those products never had that to start with. … You can differentiate your product through labels, and there isn’t a difference. We are trying to educate the consumer on those things, that food is safe.

Interview conducted and condensed by Mitch Galloway. Courtesy photo.

where there are efficiencies in size. Bigger operations will have a lowercost approach to production than some smaller operations. One of the practices employed by some for resiliency is actually growing their (operation’s) size. I think we’ve seen a lot of that. Those who aren’t growing are looking at niche opportunities, but they are few and far between.

How will the dairy industry address the glut of milk on the market? We have, of course, seen a processing deficit in Michigan for milk and for dairy products, but (Foremost Farms) recently announced a new plant in Greenville. I anticipate we’ll see another announcement in the next four to five weeks … of another dairy processing plant in Michigan. Even as we are announcing processing facilities, there is a two-year lag (to build the plant and get it operational). It’s not going to solve the problem short term.

With the talk of throwing out NAFTA, how do you see trade issues playing out next year? Who knows what trade is going to look like. It’s interesting. In all of the ag media I am reading, everybody’s excited because President Trump told Senate Ag Committee Chair

Pat Roberts (R-Kansas) that we were going to be OK on NAFTA. Well, one positive statement, as opposed to dozens and dozens, if not hundreds, of negative tweets and comments and statements … points to agriculture glomming on to anything that is positive about trade. That statement to Senator Roberts is about the first (positive) one we’ve seen.

Does that signal some stability might be ahead for trade? Even if they do keep NAFTA in place, we have already seen the impact of the rhetoric and the conversations and the tweets. The value of the peso is lower, which causes their purchasing power to be less. If you’re in Mexico and you’re constantly barraged by these tweets and other comments, you are worried about your supply overall. … They don’t want to be held hostage.

Looking ahead to 2018, what’s keeping you up at night? What’s keeping me up at night are three things: Trade, weather and the third issue is labor. If we don’t have an adequate supply of labor, a lot of those specialty crops, especially fruit crops that we really value in West Michigan, will go away.

Interview conducted and condensed by Mitch Galloway. Courtesy photo. Visit www.mibiz.com

FOOD BIZ

JASON LUMMEN

OWNER, THE PEOPLES CIDER CO. LLC | GRAND RAPIDS While 480 square feet of space may not seem huge for a taproom, it offers The Peoples Cider Co. needed visibility along the burgeoning West Leonard Street corridor in Grand Rapids. Owner Jason Lummen opened his new taproom in late October on a strip with a distillery and a brewery, which he hopes will create new synergies. The proximity to the other producers has increased the company’s exposure, as well as freed space at his production facility on Maryland Avenue in the Oak Industrial Park. Lummen’s operation currently produces about 200 barrels per year and he hopes that separating his taproom from his production operation offers room for growth. He describes business at the new facility in one word:

“Steady. Slow and steady wins the race, so I think that’s the best thing. It’s meeting its marks that it needs to make. We’re not in a position where we can lose money for a period of time. Every week, it makes what it needs to make to keep the lights on and keep everyone paid. For a skin-of-the-teeth operation, I’m pretty lucky and I feel like there’s good room to grow. … There’s still a lot of people that have been walking in the door that have never heard of us, and I’ve been plugging away at this for five years now. That visibility, that location, becomes so important. … It’s what we needed. I’ve been saying to people: ‘This bar is everything I needed and nothing I don’t.’ It gets me that visibility and gets me in with great neighbors at Mitten Brewing and Long Road Distillers. I’m excited to be here and want to be here long term. There’s a lot of people doing booze in town. I can’t think of a better place in town for me.” Compiled by Nick Manes. Photo by Katy Batdorff. ADVERTISEMENT

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Special Year-End Edition: MiBiz Crystal Ball 2018 | DECEMBER 26, 2017

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FOOD BIZ

JEFF LOBDELL

PRESIDENT, RESTAURANT PARTNERS INC. | GRAND RAPIDS Restaurateur Jeff Lobdell’s expanding enterprise includes Bagel Beanery, Beltline Bar, Sundance Grill, Grand Coney, The Omelette Shoppe, Rockwell Republic and more across West Michigan and the Traverse City area. While Lobdell remains optimistic for the future of his growing company, which this year acquired Pete’s Grill & Tavern and the 84th Street Market in Byron Center, he said the restaurant industry needs to adapt to new challenges from technology and a shortage of service workers.

“I see the economy continuing to grow in 2018, especially here in West Michigan. Through the efforts of our great cities and the entire state of Michigan promoting the restaurants and hospitality industry in general through campaigns like Beer City USA, Pure Michigan, etc. — as well as through word of mouth and social media about all we have to offer — the demand has never been greater. Challenges do, however, exist. There is a shortage of hospitality and service-related industry workers, which puts pressure on businesses to deliver the experiences consumers have come to expect. There is a deterrent on opening new locations if you fear you will struggle to assemble the human resources needed to execute the level of production and service required to satisfy your guests. Another big factor that is influencing the industry is technology. Many industries and companies have felt the strain of competitive forces with the advances in technology despite the robust economy. Retail giants are closing their doors due to more and more consumers shopping online. Transportation mainstays like taxi cabs have been clobbered with the use of Uber, Lyft and Steadyfare. The hospitality industry is also starting to feel some of these effects. Although I’m certain people will always need to eat and want to dine out, more and more are using take out/delivery and doing so via the internet. Restaurant owners and operators like myself will need to continue to explore ways to use technology to stay relevant and meet the needs of our guests in this ever-changing environment.” Compiled by Joe Boomgaard. Courtesy photo.

Where do you see the economy going in 2018 and how will that influence food processors?

Q&A

I think we are going to low farm prices because, as far as nonfat milk or milk powder, there is a lot of powder on the world market right now. There is quite a bit of it in the E.U. now, and Canada has ramped up their exports quite a bit. Our farm prices, as far as milk, are basically driven by commodity prices, by cheese, butter and powder. We’ve had a good butter market for the last couple of years. I think we are still going to have a decent butter market. So, when you look at the skim milk market being at one of the lowest points it’s ever been at, along with a decent butter market, a so-so cheese market, I think we are going to see low milk prices.

STEVE COOPER COOPERSVILLE GENERAL MANAGER/COO, CONTINENTAL DAIRY

ontinental Dairy, a dairy processor in Coopersville, Mich., processes more than 300,000 pounds of nonfat dry milk per day and exports product to roughly 17 countries around the world. COO Steve Cooper reflects on why his sector of the agribusiness industry is facing some challenges currently.

Visit www.mibiz.com

Given the dairy sector is facing some challenges right now, how is your company positioned to weather any downturns?

What can the producers do? Within reason, they can change some of their feed rations. It kind of depends on the overall feed prices, if feed prices stay relatively low, which it has been. We are all going to have to tighten our belts. It is what it is. … We’ve suffered a downturn in the dairy markets, and we are continuing to sell. There is so much product out there in the world market that until we see some attrition of that product or some of these things work out with our exports, I think we are just going to be in this cycle of cinching up our belts and doing what we can do.

How do you see the discussions over NAFTA playing out next year?

The milk prices are heavily regulated by the federal government. On the plant side, if we got low commodity prices, we’ve got low milk prices coming in, so our margins are fairly OK, not great. If you are looking at this from the farm side, obviously the dairymen are going

to be in a position where they are going to have to look at their costs of production and look at what they can do to ration things.

I sit on the U.S. Dairy Export Council board, and, yes, we have talked about (NAFTA) ad nauseam, but we have to get something settled. If you look at it, Mexico is too big a trading partner for us and too important of a trading partner for us that we just can’t push that (issue) aside. On the other hand, we have

to get that Canadian situation under control, and clearly Canada is doing some things that are in violation of NAFTA and a violation of a lot of the tariffs — with what they are doing with their new (pricing deal) and obstructing some of our product going in there as well. It’s paramount that we get this under control with the Canadian situation. I think it’s doable, but the dairy lobby in Canada is very strong.

Looking ahead to 2018, what’s keeping you up at night? There are a lot of things that keep me up at night. I think we have some challenges ahead of us as an industry with the Food Safety Modernization Act. A lot of those regulations are getting clearer definitions, and we have compliance dates that we have to achieve. I think we are prepared for it. I think the biggest thing keeping me up are these poor markets, thinking about when we will rebound. Seeing that rebound of these markets and getting some of the production under control, we can start seeing better prices with our commodities.

Interview conducted and condensed by Mitch Galloway. Courtesy photo

Special Year-End Edition: MiBiz Crystal Ball 2018 | DECEMBER 26, 2017

GOVERNMENT At this time next year, the state will have a new governor-elect. What do you hope to accomplish in your last year? Michigan’s economy is doing very well. We’re the comeback state in the nation, but we can continue to build on that. We still have a lot of opportunities where we have well paying, open careers waiting for people to fill them, particularly in the professional trades — welder, plumber, electrician, industrial automation, robotics. So one of the key priorities I’ve had over the last several years is to encourage more people to go into these trades. And I think we can really do more of that next year and build a long-term path to success. Literally there are a hundred thousand openings out there.

Q&A

Where can the state make a tangible impact on filling jobs?

GOV. RICK SNYDER

s Gov. Rick Snyder enters his final year in office, he remains optimistic about the state’s overall economic trajectory. The champion of “relentless positive action” continues to place heavy emphasis on better connecting the state’s resources for workforce development with employers in need of skilled talent. He’s also focusing on efforts needed to support the burgeoning autonomous vehicle sector. In a year-end interview with MiBiz, Snyder spoke about what he hopes to see in the state’s next governor.

I think we’re going to continue to see how we can do more communication and marketing about where these opportunities are, more training, more connection with institutions and young people and parents and people looking for that next career. The whole field of mobility is a big one that we’re continuing to emphasize internationally. We’re the world’s leader in autonomous and connected vehicles and that’s another job creator that we have out there that we’re going to be emphasizing.

On the other side of that, many analysts project that the automotive industry will plateau in the coming years. How will the state be positioned if its main industry goes into decline? I think if you look at the economic forecast both for the auto industry and for the state, they look pretty solid over the next few years. Again, the rate of growth may slow down some, but with respect

to auto sales, they look fairly stable. The mix has actually been good for the auto industry. SUVs continue to be more and more popular (as well as) trucks, which is providing good profitability for the auto industry and they’re making big investments in this whole area of mobility for these autonomous and connected vehicles. Hopefully, they’ll be opening up new opportunities to see growth happen.

term limits been a detriment to the state’s business and political health?

On a different note, what traits does Michigan need in its next governor?

Early on in your time as Governor, you focused on overhauling the state’s tax policy and getting rid of a lot of targeted tax credits. In some ways, it seems like the pendulum is swinging back. Do you think that’s a step in the wrong direction?

One of the big things is how to continue the success we’ve had. We’re a great role model for good government, if you look at it in terms of job creation. I think jobs is still the number one issue in terms of helping people get connected to these well-paying careers. (It’s) understanding that is a key requirement. How we need to do more on infrastructure is another issue. How we need to continue to be fiscally responsible. It’s not just about cutting taxes or spending money, it’s about doing it in a responsible long-term way, and that’s what we’ve shown.

What else? You know, doing all these balanced budgets year after year, doing them early, paying off our long-term debt are important things. And then the last thing I would hope is civility. We don’t need fighters, we need people that show how people can work together. We have too much devisiveness in our nation today, and we need people who are coming to the table to say, how do you solve problems, not how do you get in fights.

The issue of term limits for state government has percolated a few times during your tenure as Governor. Have

and is committed to it and sees that we’re stronger when we’re able to work together, especially around common community goals. So you’re absolutely right: We’re going to be looking for someone who can work well and in partnership with our business community.

What will that look like? I think we definitely will be looking for certain qualities around expertise and running a large organization. But beyond that, it needs to be someone who really understands the value of the business community, and that great cities are places where businesses can thrive.

Q&A

How should the new city manager approach economic development?

ROSALYNN BLISS GRAND RAPIDS MAYOR

s Mayor Rosalynn Bliss looks ahead to her third year in office, she’s tasked with leading a maturing city and grappling with the associated growing pains. The city also faces issues ranging from a constrained housing market to external factors such as potential changes to the federal tax code, which could have consequences for municipalities. Moreover, City Hall just started the process of searching for a new city manager with the hope of having a candidate selected in the first quarter of 2018.

The search for a new city manager has come up in recent conversations with the businesses executives in Grand Rapids. Would you consider someone with private-sector experience for the job? Our city has a long history and legacy of public and private collaboration, and we need a city manager who genuinely values that

We want to support the businesses that are here to stay, but also to expand, and we want to attract new businesses. We want to support startups and entrepreneurs, but we also need to support the local economy. That requires really understanding and having a good sense of how do you do that. How do you support both small businesses all the way up to the large businesses, and recognizing that there’s different needs. But the city can play a role in being supportive of those.

Is it a priority to seek a candidate from outside the region? I don’t necessarily think so. My hope is that we get a really incredible pool of candidates, and there very well may be a number of people right here from Grand Rapids who choose to apply. Or individuals from Grand Rapids who maybe moved away, and they want to come back. I anticipate we’ll have some internal candidates. I’m not sure. But my ultimate hope is that we have really strong candidates that we can choose from, and that we have a handful of final candidates and would be happy with any one of them, right? That’s always the goal, that you have three great people to choose from, and that you’d be happy even if your number one didn’t get selected.

Affordable housing has been a major issue for you since becoming mayor. What do you think you’ve accomplished on that front in the last year? I think we still have work to do. We’ve seen a lot of continued growth in the city. We’ve seen incredible development. With that, we’ve seen struggles within the housing market, and people having the

DECEMBER 26, 2017 | Special Year-End Edition: MiBiz Crystal Ball 2018

Going forward, I think there could be improvements made to term limits. I think six years in the House is too short. I think term limits would be better if it was 12 or 14 years combined between the two chambers, so you could stay in one chamber or the other and not feel you have to move from one place to the other.

I would argue, if you talk to most people, they want simple, fair and efficient as their tax system — in a fiscally responsible way. That’s the standard I use. The best thing most people would like to see, I believe, is they want to hopefully make a good income where they could take their income, apply a tax rate, write a check and be done with the tax system. I prefer to keep it as simple and as clean as possible. When you start picking winners and losers, you’re going to have people keep on bringing up how they want to win. That’s how you end up with a very complex system.

How does the federal tax overhaul fare against that standard? To put it in context, the tax reform proposal the federal government’s putting forward would not meet my standard of simple, fair and efficient in a fiscally responsible way.

Interview conducted and condensed by Nick Manes. MiBiz file photo.

ability to find affordable housing in the city. We’ve spent a lot of time here at City Hall figuring out next steps, and what we want do. We’ve had work sessions. I had the housing advisory committee that was pulled together, and they met for six months. We had recommendations that came from that.

What recommendations does the city plan to take up? We just recently looked at moving forward some of those recommendations. We are in the process of setting up the housing (trust) fund, very likely, under the Grand Rapids Housing Commission, but we’re still finalizing that through the attorney’s office. So I think we’ve made progress, but … like I said, it’s very early on, and we really haven’t seen the fruit of those changes just yet.

What role can the private sector play with regards to increasing the stock of affordable housing in the city? The private sector is actually a significant part of the solution. I mean, I’ve consistently said there’s only so much the public sector can do, and we’ve been actively doing that. I would say, this past year I have been much more vocal at the state level and advocating for Low Income Housing Tax Credits (LIHTC). But when it comes to that affordable housing, I do think that it’s going to take developers who continue to try to find creative solutions. I recognize that it’s really expensive to build right now, so we have to come up with some creative solutions. There have been some developers who are taking that on.

How could federal tax reform affect projects using LIHTC in Grand Rapids? When it comes to this issue, they’re talking about making changes to the New Market tax credit, and also the historic tax credits. We know, especially when it comes to redevelopment of historic buildings, it’s very costly, and those tax credits are critical to helping some projects actually come to fruition. So I’m really concerned about that. I’ve already voiced that concern to our senators and our congressmen. Then at the state level, though, there’s some progress in looking at state historic tax credits. So there’s some movement looking at that, here at the state. Of course, we want to be right there and aligned with the developers who are also advocating for those incentives.

Interview conducted and condensed by Nick Manes. Courtesy photo. Visit www.mibiz.com

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Special Year-End Edition: MiBiz Crystal Ball 2018 | DECEMBER 26, 2017

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DECEMBER 26, 2017 | Special Year-End Edition: MiBiz Crystal Ball 2018

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