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The Advantage Chicago Has Over Silicon Valley

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A look at why Silicon Valley is losing its mojo and how Chicago might take over as the center for innovation.

The entrepreneurial spirit in Chicago has never been more alive. Over the last 3 to 5 years, there’s been a growing buzz in Chicago’s technology community. As a Chicago native and tech entrepreneur, I’ve had a strong sense that something has been brewing in the city–a visceral feeling without much tangible explanation; a feeling of excitement, optimism, intensity. The contagious energy has been an element and driving force behind a renewed creative culture, generating activity in Chicago’s tech startup scene.

Now, the thriving spirit in the tech community is manifesting into global recognition. Among other up and coming cities, a new KPMG report lists Chicago as a contender to be an international hub for innovation because of its talent and infrastructure.

A developing startup ecosystem has helped foster more than $1.7 billion in funding in 2016 and has given rise to a raft of promising new companies. Uptake, the latest Chicago-based startup to reach a billion dollar valuation, even beat out Slack and Uber to be named the hottest startup of 2015.

In addition, Chicago also ranks among the best in the country when it comes to growth of tech jobs. This is not surprising considering the number of high-profile tech companies in and around Chicago: Salesforce, Google, CareerBuilder, Orbitz, Groupon, Redbox, Motorola, and many more.

But if you take a closer look, you’ll see that Chicago’s potential for innovation lies deeper than growth in the tech sector. While growth in venture capital, tech talent, and new blockbuster startups can certainly help, Chicago’s greatest and most unique asset ultimately boils down to one thing: culture.

Whereas Silicon Valley attracts the most brilliant technologists, and New York City attracts those who value big living and opulence, Chicago attracts the get-shit-done, no-nonsense leaders. It’s a big city with a small town feel, and its culture is based in values of hard work, discipline, and dedication. Chicagoans are pragmatic and have a sensible idea of what can be achieved. But most importantly, they are grounded in their motivations for disruption. And that’s exactly what positions Chicago to be the next global hub for innovation.

Look, I know you think I’m crazy; it’s true that pragmatism can limit creativity and big, out-of-the-box thinking. But bear with me for a second and I’ll explain.

Silicon Valley’s shift from innovation to lifestyle

In today’s broader tech ecosystem, venture capital is more accessible than ever before. While initially this may seem like a boon for innovation, in many ways it has been the complete opposite, creating a culture that has steered priorities away from true innovation.

These days, tech leaders are more like celebrities than innovators, especially after being knighted by king-making venture capitalists. For example, Evan Spiegel, CEO of Snapchat, appeared on the cover of a fashion magazine right before his company was about to take a huge fall. We’ve seen similar behavior from Marissa Mayer, David Karp, and Dennis Crowley, an indication that today’s tech leaders are more focused on the attention than innovation.

Silicon Valley startups are attracting the best talent from all over the world and raising millions of dollars to create new swipes and taps. The digital revolution is making more millionaires than ever, and it has led us into a downward spiral of making things because we can, and not because we should. Since the invention of the internet, we’ve pooled together the most brilliant minds on the planet to solve problems in dating, shopping, and photo sharing. To put things in perspective, remember the greatest innovations of human history, like electricity, plumbing, human flight, the theory of relativity–inventions and discoveries that have shaped the evolution of our species.

The point is, there are strong indications that the Valley has lost what once made it an innovation dynasty: a progressive culture of vision, passion, and collaboration. As a result, it has created an opportunity for a new hero to fill that gap.

Chicago’s pragmatic culture, which once stifled innovation, is now its greatest asset

Chicago is known to dismiss startups that aren’t quickly profitable because it’s, well…not pragmatic. Unfortunately, that culture may have hindered innovation over the last few decades, during a period in which the most disruptive companies focused on customer acquisition for the first few years. For instance, companies like Google, Uber, and Facebook needed years before making a profit, and may not have succeeded in Chicago’s profit-driven startup community.

Entrepreneurs in Chicago aren’t just looking to grow users, with monetization being an afterthought. Most companies in Chicago are cash-flow focused, which, despite resulting in much fewer deals, is a big reason why they have the highest VC returns in the country.

To a certain extent, Chicagoans reject the premise of “fail fast, fail often,” the attitude so deeply ingrained in the Valley’s culture, because that mentality is tailored for undefined problems and customers. In other words, you’re not sure what you’re making is the right thing. While the entrepreneurs in the Valley enjoy VC capital to mitigate that risk, sensible Chicago entrepreneurs hunt for paying customers to validate business ideas.

That said, sometimes I wonder if Chicago has lacked access to venture capital because it’s not available, or if venture capitalists can’t survive here because the city’s entrepreneurs don’t want it. The challenge for Chicago entrepreneurs is that, either way, there has been a lack of VC interest compared to the coasts, which creates a higher barrier to entry for many new companies.

However, the lack of funding can arguably serve as a helpful constraint that can guide disruptive innovators and cut through the noise. Take the Wright brothers, the inventors of the airplane, as an example of how you can bootstrap your way to one of the greatest inventions in human history.

Born in the Midwest, their bicycle company, Wright Cycle Company, made and sold two bicycles, namely the “Dan Cleve” and the “St. Clair,” which funded 100 percent of their aviation experiments. They kept their costs low by tapping into the mechanical resources of the bicycle business to ultimately develop the first aircraft. This pragmatic approach to value creation enabled the revolutionaries to be resourceful and shape their vision based on demand, not investors.

That same mentality is what drove Jason Fried to grow Basecamp, a Chicago-based software company, to 15,000,000 users while remaining completely bootstrapped. Funded by consulting revenue, Basecamp spawned out of 37 Signals, a Web development agency, and was used as the company’s internal project management tool. The product grew organically after clients began asking to use the tool, and eventually the company had no choice but to release Basecamp to the market due to the growing demand. Today, it’s one of the most popular project management tools available.

Now that Silicon Valley is starting to lose its mojo, the tech industry is calling for a culture of substance, and the timing might be right for Chicago’s value-driven culture to step up to the plate.

Final thoughts

Here’s the problem with the Silicon Valley mindset that Chicago avoids: If you live and die by venture capital, you’re almost always racing your financial runway instead of focusing on creating value. Until you’re profitable, how can you truly be innovative, when you’re constantly worrying about how you’re going to make payroll or cover overhead? The Valley rewards this stress as a badge of honor, but Chicago ultimately views that pressure as a distraction.

Profit is a guide. In a time where there’s more noise than innovation, that guidance is what distinguishes substance from flash; that guidance is what will make the Second City first in innovation.

 

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