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Talent Retention and the Art of the Startup 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. 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 itself 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. Barry Broome 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 scientist 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, ESPN and Lifetime. (One future company founder told reporters that he eventually decided to start his own company after hearing about the program on a local rock 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 as bioscience or biotechnology, while another five or six were information technology-related. So far, 10 have garnered funding. The Southwest Michigan Innovation Center. (www.kazoosmic.com) There was more to the campaign that ads, of course. To help scientists with little experience in writing a business plan or running a company's day-to-day operation, 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 worth a total of 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 to have contract work done. 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 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. Zimmemann, 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.”