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How Chicago Is Becoming More Viable for Tech Startups

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How Chicago Is Becoming More Viable for Tech Startups

There has been a lot of chatter lately about Chicago’s nascent startup ecosystem. Class action lawyers are beginning to swarm around Groupon as its share price has plummeted by double digits, causing some to question whether sustainable tech giants can really be born here.

On the other hand, Dag Kittlaus, the cofounder of Siri, decided to leave Silicon Valley in favor of resettling his roots in Chicago. And earlier in March, an editorial was published in the Pando Daily (the heir apparent to TechCrunch) highlighting the strengths and weaknesses of the Chicago startup community.

With so many people pontificating on the viability of Chicago’s startup ecosystem, I decided to throw my opinions into the mix. My family is about as Chicago as you can get. We’ve lived in this city for more than a century, and my grandmother was the founding editor of Chicago Magazine. Yet, when it came time to launch my startup, AttorneyFee, I knew that the resources we needed could only be found out west. We launched at TechCrunch Disrupt in September 2011. Now, seven months later, we’ve returned to Chicago to open a second office in the second city.

What brought us back to Chicago? Talent. That’s right – we had to leave Silicon Valley and come to Chicago to find talent. Popular wisdom says that the talent is all out in the Valley, but my experience suggests otherwise. When it comes to engineering, Silicon Valley definitely has the greatest accumulation of human capital of any city in the world – by orders of magnitude. But engineering isn’t everything. If your startup requires sales talent, as we found ours does, Silicon Valley is actually an awful place to be.

Holding everything else equal, sales resources cost about 60 percent more in Silicon Valley than they do in Chicago. And even if you’re willing to pay that price, sales talent out there is simply hard to come by. According to the Bureau of Labor Statistics, there are about 395k sales professionals in metropolitan Chicago, whereas there are only 97k in Silicon Valley. That’s four times the amount of sales talent available to creative young companies! No wonder LinkedIn, Facebook, Google, and a myriad of other tech giants have chosen to make Chicago the epicenter of their sales operations.
That brings me to the other major insight that I’ve gleaned about the differences between the startup ecosystems in Chicago and Silicon Valley: you can only innovate on what you know. If you don’t have exposure to the frontiers of an industry, you can’t realistically be an innovator in that industry. The largest industries in Chicago are insurance, finance, education, and law. By contrast, the largest industry in Silicon Valley is tech.

Everything you need to understand about startup companies in those two ecosystems flows from this simple observation. When someone in Silicon Valley sees an opportunity to innovate in their industry, they’re creating digital solutions to digital problems. When someone in Chicago sees an opportunity to innovate in their industry, they’re creating digital solutions to real world problems. When both the problem and the solution are digital, the cost of distribution is minimal, the size of the potential market is global, and the speed of growth is exponential (think Instagram). By contrast, when the problem you’re seeking to solve is rooted in real world stuff – stuff with matter, weight, and marginal cost – there is a lot more friction and expense involved in scaling (think Grubhub).

My prediction is that as more and more seasoned entrepreneurs return home to Chicago – or create homegrown successes in Chicago – the tech industry here will blossom, young Chicagoans will develop a stronger understanding of the tech industry, and the innovations that you will see coming out of Chicago will acquire an increasingly digital character.

Richard Komaiko is the co-founder of AttorneyFee.com, an angel funded startup seeking to promote transparency around the cost of legal services. He holds a degree in economics from the University of Illinois, and has studied Chinese language and culture at the University of Chicago. and the Beijing Institute of Education. He is proficient in English, Mandarin, Spanish, and Hebrew.

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