Chicago is not merely synonymous with jazz; it also boasts a thriving startup ecosystem. According to KPMG, Chicago has the potential to be an international innovation hub. In 2016 alone, Chicago startups secured $1.7 billion in funding, with Uptake surpassing Slack and Uber as one of the most attractive companies in 2015.
The allure of Silicon Valley is diminishing, and the practicality of Chicago may prove advantageous.
Silicon Valley’s startup culture has become overly reliant on venture capital, prioritizing impressing investors over creating genuinely valuable products. Conversely, Chicagoans believe that unprofitable businesses with no funds for salaries and expenses cannot lead a technological revolution.
What makes Chicago tech scene unique
Chicago is among the first to increase the number of jobs in the US tech sector: many IT and tech companies have offices in and around Chicago (Salesforce, Google, CareerBuilder, Orbitz, Groupon, Redbox, Motorola).
Chicago’s tech scene emerges as a formidable competitor to Silicon Valley, benefiting from its independence from “other people’s money”.
However, what truly sets apart Chicago’s tech scene is its distinctive culture.
While Silicon Valley attracts tech enthusiasts and New York allures with its financial prowess, Chicago entices business leaders. The metropolis values hard work, discipline, dedication, and, contrary to expectations, pragmatism does not stifle creativity and innovation but thrives in Chicago.
Advantages Over Silicon Valley
Today, venture capital is more available to the tech industry than ever before. After gaining the attention of venture capitalists, technology leaders are becoming more like celebrities than inventors.
When Snapchat was close to an inglorious fall, its CEO Evan Spiegel appeared on a fashion magazine cover. The behavior of Marissa Mayer and David Karp, and Dennis Crowley shows that today’s technology leaders are more concerned with public attention than innovation.
US startups, particularly those in Silicon Valley, are luring top talent from around the globe and receiving millions of dollars to explore novel uses for smartphone swiping and tapping—not because of demand but simply because they can. Contrastingly, history reveals that groundbreaking inventions and discoveries such as electricity, plumbing, aeronautics, and the theory of relativity were often accidental, born out of necessity rather than extensive funding.
Profitability as the Ultimate Measure of Success
Chicago does not like startups that cannot quickly make a profit: this is not pragmatic. It took Google, Uber, and Facebook years to become profitable. In Chicago, where profit is the yardstick, they would hardly be doing well.
Chicago entrepreneurs won’t chase user growth by postponing monetization until later. Here, most companies are cash-driven and therefore have fewer deals, but the return on venture capital in Chicago is the highest in the country.
While Silicon Valley promotes a culture of embracing mistakes “quickly and often” with investors’ money mitigating risks, pragmatic Chicago businessmen seek clients’ funds as the ultimate validation of their business ideas.
The reason behind the Chicago tech scene’s historical lack of venture capital remains a mystery. However, this circumstance raises the entry barrier for new companies. Paradoxically, the scarcity of funding can even be advantageous, fostering an environment where only the most significant innovations flourish.
How to do without external funding?
The birth of one of the greatest innovations in human history is a good example. The Wright Brothers’ company, the Wright Cycle Company, manufactured and sold two models of bicycles – Dan Cleve and St. Clair. With the money raised, the brothers carried out aviation experiments and, with little expense, successfully developed their first aircraft. This pragmatic approach allows innovators to manage resources properly and form a strategy based on demand rather than on the wishes of investors.
Jason Freed followed the same approach when he brought his Basecamp user base to 15 million without outside funding. Basecamp emerged as an internal project management tool for web studio 37 Signals. The studio’s clients asked permission to use it in their own projects. The audience grew – and as a result, Basecamp was brought to the market. It is one of the most popular project management tools today.