Talent Retention and the Art of the Startup ‘Stick around’

Kalamazoo Persuades Scientists to ‘Stick Around’ After the Pfizer-Pharmacia Merger

In the summer of 2002, when Pharmacia announced its pending merger with Pfizer,
officials in Kalamazoo, Mich., knew what it could mean for the region – an exodus of
brainpower.

(Many thanks to Chris Gibbons for passing along this article he received from Frank Gray – Russ)

Pharmacia employed some 6,500 area residents and was Kalamazoo’s biggest employer.
Some of those employees had lived in the area for decades, dating back through earlier
mergers, to when that same company was known locally as Upjohn Co., which was
founded there in 1853.

Under the merger, Pfizer intended to close the discovery research and development
operation and the chemical development facility its predecessor had run in Kalamazoo
and heavily recruit scientists there for positions at Pfizer facilities elsewhere. But not all
the employees were eager to move. Barry Broome, CEO of the nonprofit economic
development corporation Southwest Michigan First (SMF) didn’t want them to go, either.
So he and his partners took the concept of business retention and tweaked it a bit.

“The goal was to focus on talented people more than on companies,” Broome explained.
Some of those talented people included senior scientists who preferred to stay close to
family and friends they’d made over the years; others were younger employees who’d
come to see a career with “Big Pharma” as far less stable than their older colleagues had.
What Broome and the rest of Kalamazoo’s economic development community especially
hoped was that at least some of those scientists would get bitten by the entrepreneurial
bug.

‘Stick around’

Southwest Michigan First hired Washington, D.C.-based media consultant firm Laguens
Hamburger Stone to help develop a campaign that would motivate Pfizer scientists to
stay in Kalamazoo. Or, as company partner Martin Hamburger put it, “turn lemons into
lemonade.” The result was the “Stick Around” campaign.
The campaign included ads that ran for about a month over local radio airwaves and on
cable television channels such as CNN and ESPN. (One future company founder told
reporters that he eventually decided to start his own company after hearing about the
program on a local rock radio station.). The ads featured researchers and others telling
listeners that Kalamazoo was “mixing up something special” with assets such as lab
space at a new technology incubator, Western Michigan University, access to seed and
venture funding, and so on. “Whether you’re staying with Pfizer or you’ve got an idea of
your own, you’ll like what we’re developing,” one individual says in the ads.

The tagline was “Stick Around,” scrawled on a yellow Post-It note and slapped on a wall
in the last frame of the TV commercials.
Broome said that eventually, inquiries led to about 30 companies being sketched out on
paper. Of those, 15 emerged in bioscience or biotechnology, while another five or six
were information technology-related. So far, 10 have garnered funding.

There was more to the campaign than ads, of course. To help scientists with little
experience in writing a business plan or running a company’s day-to-day operations, they
worked with the local community college to provide training. SMF staff and partners
reviewed and vetted business plans, and coached the clients on making pitches to venture
capitalists – even going as far as to rent a van and drive some of the new business owners
to meetings where they gave trial presentations. And for those who needed it, the
Southwest Michigan Innovation Center offered lab space, shared resources and access to
the kind of advice on accounting and other matters that so many young companies need.

Broome noted that counseling bioscience spin-offs from a major company such as Pfizer
carried some challenges not typical of all business sectors. Intellectual property issues
loomed particularly large, even if there weren’t actual patents involved. When someone
works at a big, knowledge-based firm, “everything you do has the potential to be a trade
secret,” he explained. And Pfizer only allowed a few patents to be used by the new
companies.

A new game for Pfizer
That being said, Pfizer was extremely supportive almost from day one, according to
Broome. And for the company, its efforts with the spin-off firms was unprecedented.
“This was something new to Pfizer, getting involved with startups,” company spokesman
Rick Chambers said. But Pfizer Chairman and CEO Hank McKinnell thought it was a
good idea and said so in a press conference last year. According to Chambers, the
company spent several months creating a process for reviewing startup proposals, and not
just in Kalamazoo. But of the approximately 50 proposals developed, almost half came
from Kalamazoo.

Out of those, Pfizer chose to support three companies directly, with investments totaling
approximately $30 million. The largest amount, $20 million, went to a firm doing phase I
clinical trials in a facility that Pfizer had owned. Pfizer donated the facility to a local
nonprofit organization that in turn leased the property. The parent company is also
negotiating with the startup perform contract work.
In addition, the merger left Pfizer with a significant amount of excess research
equipment, much of which has been sold to startups or donated to universities that have
relationships with those companies.

Seizing an opportunity

Two scientists who decided to venture into the entrepreneurial world were Bob Gadwood
and David Zimmermann. Gadwood is CEO and Zimmermann is president and chief
operating officer of Kalexsyn Inc., which performs medical chemistry work for biotech
and pharmaceutical companies. Both had been in Kalamazoo for more than two decades.
Gadwood admitted that he hadn’t exactly spent his life dreaming of being a business
owner. “It never was one of my goals,” he said. And he harbored no illusions about
having an easy time of it. But his wife was a physician with a well-established practice in
the area.

Zimmermann, meanwhile, had grown fond of Kalamazoo’s close sense of community, its
philanthropic attitude and what he saw as a surprisingly rich cultural life for a city of its
size. For him, Kalamazoo had become home. He turned down a position in St. Louis.
“Certainly, it would have been the easy play,” he said. “I know it would have been the
wrong play for me.” The first real sign of his commitment to stay in Kalamazoo,
Zimmermann added, was his purchase of season tickets for the local symphony.

After the merger was announced, he and Gadwood sat down together and began talking,
and before long, they were ready to go into business together. Gadwood knew it would be
tough, but he also knew that they’d have access to some of Pfizer’s surplus equipment,
and he knew that about a dozen other chemists had decided not to relocate, giving
Kalexsyn a pool of qualified workers to choose from.
One of the most important factors, according to Gadwood, was the availability of
laboratory space in the Innovation Center. Kalexsyn is leasing its space under a stepped
plan in which the company’s rents are very small for the first year, then increase in
successive years. Also important was the way that SMF “worked very hard to make the
scientists feel they could [start a business],” Gadwood added.
Zimmermann echoed the sentiments about support, which he said the community as a
whole offered, “not just in words, but deeds.” A former director of global marketing from
Upjohn offered help. Local accounting and legal firms agreed to provide free assistance
as well. City staff offered to explain what tax abatements were available.

The state stepped up to the plate as well, providing a loan of $192,000 via the Michigan
Life Sciences Corridor Fund, created from tobacco settlement money and set aside to
help start new life science companies like Kalexsyn. The company is expected to match
that amount. (Gadwood noted that most venture capitalists prefer to invest in companies
based on some new technology, and aren’t all that interested in service companies like
Kalexsyn. He and Zimmermann haven’t actually sought venture funds.)

The company has hired two scientists. Both founders say they hope in five years to have
their own building in downtown Kalamazoo. Gadwood said he sees them employing 30
to 50 people; Zimmermann thinks the number could be as high as 100. Zimmermann,
who is getting ready for a business trip to Shanghai, said he also sees himself writing a
thank-you letter to Hank McKinnell in five years for helping spur Kalexsyn’s creation.
Kalexsyn and other firms have benefited in no small part from the efforts of SMF and its
partner organizations to create support infrastructure for small life science companies –
the Innovation Center, venture capital networks, and other services – well before any
merger was announced.

Zimmermann said he told Broome: “When you die, I want your crystal ball.”

Questions? Barry Broome, 269/553-6897; Bob Gadwood, 269/372-3520; David
Zimmerman, 269/372-8705; Martin Hamburger, 202/686-2900.
By Katie Burns