Why Chicago needs to stop playing by Silicon Valley’s rules

Written by Adrian Holovaty on January 24, 2014

I gave a talk yesterday at the Chicago Startup Forecast. Here's a rough transcript, with slides.

This is Daniel Burnham. He was a famous Chicago architect, responsible for some of our city's most beautiful buildings. He's known for his influential Plan of Chicago, which foresaw modern city planning, and he was a key organizer of the World's Columbian Exposition, also known as the Chicago World's Fair of 1893. Chicago beat out New York, DC and St. Louis for the privilege of hosting that World's Fair.

Back in those days, world's fairs were more common than they are now. In 1889, a few years before Chicago's fair, Paris held an Exposition Universelle. It was a big deal -- 32 million people visited! -- and its main attraction was the brand-new Eiffel Tower, formally introduced at the event. At 984 feet, it was the tallest man-made structure in the world, a position it held for more than 40 years. You might imagine how exciting it was for people to witness something so tall, in an era when the tallest man-made structure in a town was probably a church steeple.

Back in Chicago four years later, Burnham and his team were plotting: how could their World's Fair showcase something more impressive than the Eiffel Tower -- something that would "out-Eiffel Eiffel"?

The obvious answer was to build something taller. If they could build something 1000 feet tall, or 1100 or 1200, surely it would be more impressive than what the French did. But to Burnham's credit, he refused to play by those rules, pushing his engineers to come up with something genuinely new.

One engineer on Burnham's team had an idea: instead of a stationary tower, why not build something that moved? Something that people could ride around in, that was still tall but not tall for the sake of being taller than the Eiffel. The engineer's name was George Ferris; you see where this is going.

So Ferris and team built it: the world's first Ferris wheel. It was a huge hit, providing great views of the city plus a sense of danger ("This thing can't possibly be safe, can it?"). People all over the world immediately copied the idea. Even today, there are parts of the world where Ferris wheels are called "Chicago wheels."

Here's an important detail about the Ferris wheel. Its height was only 264 feet -- just over a quarter of the height of the Eiffel Tower. But it was still a huge success, because of how different it was. Instead of playing by somebody else's rules -- taller equals better -- Burnham, Ferris and team dared to change the rules.

Fast-forward to Chicago today, with our nascent tech startup scene. I argue the biggest problem we have is one of branding. What is the Chicago tech identity? What's our style? Why would somebody move here to start a company, or (if they're already here) stay here as opposed to moving to the Bay Area?

Let's try to understand the perspective of such a person. If a startup founder wants to find out what the Chicago tech scene is about, they'd likely stumble upon Built in Chicago, a site devoted to promoting local startups. Last week, Built in Chicago released its 2013 Chicago Startup Report. It starts with this:

"2013 was a good year for Chicago startups," it says. "The total funding raised in 2013 was 169% higher than 2012 and was distributed across more than 150 different companies. Dollars from exit events were up markedly as well, with an increase of over 300% from 2012."

It goes on to enumerate the amount of funding raised, the number of exits and the amount of money made from exits.

"78 companies raised $1M or more," it boasts. "Last year, 18 companies were acquired and one company went public. These exits totaled over $3B."

This, my friends, is Chicago playing by somebody else's rules. This is us trying to top the Eiffel Tower by building a taller tower.

You can imagine a startup founder's reaction to this Startup Report: "OK, so Chicago clearly values the raising of venture capital money. The goal here is to raise a lot of money, then either go public or sell your public for a lot more money." The Chicago Startup Report says that, loud and clear.

You can imagine the startup founder's follow-up thoughts, too. "How exactly is this different than Silicon Valley?"

The answer is, by those particular measures, it's unequivocally worse. I'm sure many of you saw this (admittedly link-baity) blog post back in June, "Chicago Is Not Going to be the Next Silicon Valley." CB Insights, a company that tracks investment data, ran the numbers and found that Chicago's VC funding levels have been flat.

Of course, if we're going to be the next Silicon Valley, we'll at least have to overtake New York in VC activity before we overtake California, right? Unfortunately, the numbers indicate that's not happening.

Granted, that blog post is now seven months old. But I don't think things have changed dramatically since then. Let's not fool ourselves. We're not a hotbed for VC activity.

Not only is Chicago playing by somebody else's rules, it's failing miserably. We're not only trying to top the Eiffel Tower by building a taller tower -- we're failing to build something even a quarter as high.

So let's think back to that fictional startup founder. "OK, Chicago doesn't have quite as much VC activity as the Bay Area, or even New York. Is there something otherwise unique about Chicago? Perhaps certain types of industries work particularly well there?"

Cities have reputations in the startup world. The Bay Area is great for consumer-facing Internet (among other things, of course). If you're building an entertainment company, you'd do well to move to Los Angeles. New York is a mecca for finance, fashion and media. Boston has carved out a niche in biotech.

What's Chicago's industry? And please don't say "group coupons."

The answer is, there is no single industry. Our mayor even said as much at 1871 recently:

You can't argue with Rahm. (In more ways than one.) We are diverse here, and that's great for our economy -- but not so great for marketing our city. "We're pretty good at a lot of things" makes people's eyes glaze over.

So what can we do to differentiate ourselves? There are many options, but here's one I think is particularly strong.

Chicago is great for bootstrappers. Let's take advantage of that.

"Bootstrapping" has a few different connotations, but what I specifically mean is: small companies with a couple of people, likely developers, who take no outside investment money. They build products because they love the work, the craftsmanship, the pride in building and creating.

They want to make a good living, but, just as important, they want freedom -- financial freedom, of course, but equally importantly freedom from people telling them what to do (bosses, investors, etc.).

They want to build solid, revenue-generating businesses without the need for an exit. It may be a hard concept for Bay Area types to understand, but for these types of people, building things, and serving customers, are themselves the reward. If you love building, why wouldn't you want to do it sustainably, for the long term?

They don't necessarily want to "change the world," as the cliche goes. Let's recognize Silicon Valley ambition for what it is, 95 percent of the time: exaggerated BS. Maybe this BS is designed to persuade investors, maybe it's designed to persuade potential employees, maybe it's for persuading users of your product. Either way, for an Internet startup to say "we're going to change the world" is likely phony. Odds are your company will improve a small number of people's lives. We're Chicago, we're honest people -- why are we falling for this?

Why is Chicago the best place in America for these people? Because the bootstrapper's mentality is precisely aligned with the temperament and style of Chicagoans (and, more generally, Midwesterners). We appreciate the satisfaction of a job well done, we eschew BS, we're realists.

Combine that cultural norm with Chicago's supportive community, its wealth of food/music/theater/comedy/architecture, and its low cost of living compared to SF/NYC/DC/Boston, and you've got a prime environment for bootstrappers.

And the thing is, it's already happening. Chicago is already home to fantastic companies that are doing their own thing, refusing to play by Silicon Valley rules.

The best example is 37signals. Not only is it a successful company, with great products and a team that's devoted to these ideals of craftsmanship -- I'd argue it's the most well-regarded Internet company from Chicago among startup types. And they're unabashed proponents of bootstrapping, even going as far as maintaining a series of interviews called Bootstrapped, Profitable and Proud.

A less conventional example is Cards Against Humanity, a wildly successful card game made by a group of friends who took no outside investment. Their game has consistently hovered at the top of the Amazon best-selling toys and games list, and their freedom from investors and refusal to play the VC "game" has let them do incredible things. I highly recommend Max Temkin's XOXO talk about company values; it fits the Chicago/bootstrapping philosophy perfectly.

Lots of other bootstrapped, one-or-two-person companies are cropping up here, including:

Draft, a web-based tool for writers -- made by one person, Nate Kontny.

StatHat, a great way for companies to track time-series stats such as server performance -- made by one person, Patrick Crosby.

Wizard, a Mac app that makes data analysis super easy -- made by one person, Evan Miller.

Soundslice, a modern approach to guitar tabs and sheet music -- made by me and PJ Macklin.

My friend Evan Miller jokingly made a great slogan for this new Chicago bootstrapper scene: "Chicago: Be your own Boss." (That's a tongue-in-cheek reference to our tradition of political bosses.) Evan also wrote a wonderful essay called Marketing Your Startup Hub that inspired me to write this talk.

I challenge you to consider how we should be defining our city in the Internet startup world. The Eiffel Tower has been built -- it's in Silicon Valley, and it's quite tall. Should we be playing by their rules, or changing the game?

POSTSCRIPT: I've been amazed at the positive reaction to this talk, both in person and after the accompanying Trib article. The main objectors are VCs and people running companies that have raised VC money -- which is not surprising.

It takes courage for a city to rally around one particular theme, and we're bound to alienate people who don't have the same view. Do we have the courage?

Comments

Posted by Alan Warms on January 24, 2014 at 2:41 p.m.:

Adrian - Great post. You could add BuzzTracker to the list - also completely bootstrapped. My larger point would be why do we keep talking about another city in the first place? It's an inferiority complex. Let's focus on what makes Chicago a great place to LIVE and WORK - and why it's a great place to start a business, especially bootstrap it. I love it, and am on board.

Posted by Joe Bryan on January 24, 2014 at 2:48 p.m.:

Your article and comments are brilliant for the honesty and truth. Living here in Charleston, SC we are having similar issues of lemming mindsets and although we're not Chicago either, the lesson is to be yourself, do no harm, and above all build quality that lasts for yourself and others.

Been following you for awhile on Twitter, we're a Django shop and aim to continue because we know and love it and do not intend to fall head over heels for the current or next super-hyped app dev platform/paradigm. We just want to work and build great stuff with the terrific technology stack we already have.

Keep up the great work and advocacy.

Cheers/Joe

Posted by Erin on January 24, 2014 at 2:50 p.m.:

You forgot Matasano ;-)

Posted by John Locke on January 24, 2014 at 4:06 p.m.:

Brilliant analysis. America's Second City should not aim to beat Silicon Valley or New York at what they are already known for. I think the startup culture in general places too much emphasis on exits and acquisitions and not enough on bootstrapped businesses. If an idea is good, why not run with it?

Looking to cash out early does two things: It says that the goal is to trick someone into buying the startup before the value decreases, and it keeps all the power in the hands of the mega-wealthy corporations and VCs. Why not build something, and grow it to where you have power and wealth of your own?

Posted by Chris Monaghan on January 24, 2014 at 4:47 p.m.:

Time59 / www.time59.com

Bootstrapped in Chicago.

Posted by Robert Tegel on January 24, 2014 at 5:01 p.m.:

Great talk yesterday Adrian. I appreciated and understand the intro of think big-disrupt the rules approach. Our business is based in Huntley, Il and it was worth the trip just to hear you portray our situation and describe the climate for outliers. As a prolific and diverse inventor of machinery ones mindset and passion for what we contribute should be appreciated by those outside our domain. To grow what we have started we need to culture the learn-earn environments. My team assignment for our high schoolers work today was to describe being boot strapped and provide a solid value proposition.

You are an inspiring advocate for us!

Posted by Logan LaHive on January 24, 2014 at 8:46 p.m.:

Excellently written and thoughtful post. It's a good conversation to have, and you referenced many fantastic companies. I wholeheartedly agree that Chicago can/should focus on craft, building great products, and "real" businesses... Where I disagree is the correlation between craft and size/funding/aspiration. Branding a city around size or funding rather than craftsmanship means that for those that start small, and decide to grow, feel alienated here? If raising vc money, should they pick up and move? Would we all abandon CAH if they took outside capital? Even if we still love the product, and they maintain their values and culture?

Craft need not be correlated to size or how a founder manages finances. And Chicago need not dictate to dreamers that they aren't welcome here. Community can have a brand and identity that is welcoming to those that don't squarely fit. For those that do it different.

And if bootstrapping is the new mantra, will vc's even bother looking here any more? Should we set a path for future class of Chicago entrepreneurs to have less options available to them? Or should we tell them that Chicago prides itself on craftsmanship, a Midwest work ethic, and a community of people genuinely passionate about supporting on another.

So just maybe, the dreamers from here do decide that it's ok for them to stay.

Overall, very good post, Adrian. Thanks for writing it.

Posted by James Bellefeuille on January 24, 2014 at 9:39 p.m.:

As an entrepreneur. I would want nothing else than to build my company in Chicago and make It known for building solid profitable companies. I will stress that you should do what's right for your business first, secondly Chicago has a lot of great things going for it. As a transplant from Minneapolis, (or Michigan, Ohio, Wisconsin, for that matter) I know that after experiencing Chicago's friendly people, the lake, the FOOD! I am likely not going back home. However, the temptation from the coastal cities is strong. For me my industry is facing changes, the changes are likely to happen in NYC or Cali first. That will be the only thing that motivates me to move, and the weather of course.

Let's make Chicago known for profitable start ups.

Posted by Amy Hoy on January 25, 2014 at 9 a.m.:

The closer you look at the venture capital model, the worse it looks. At its very best it's equivalent to a growth loan… but unlike a bank loan, its vanishingly rare to get a VC investment that gives you the option of simply paying it back. (Even with huge interest.) VCs don't get their payday except by selling the company or going public. So as soon as you take that money you're on an unstoppable train, whether you like it or not. And that's in the best case scenario. I've seen a million horror stories where VCs have corrupted the company's goals, exploited users, fired key people the founder wanted (including the founder) or hired ones s/he didn't, took over, forced sale… ugh.

Why build your own thing, start a new company, if not for control over your own destiny? Otherwise you're a glorified employee, with far more risk exposure (and very little chance of a big payday).

Bootstrapping means you can choose how to grow, when to grow, IF to grow!; whom to work with, whom to serve, what features to add / how to promote, all in ways that serve you & your customers best. Bootstrapping means control over your own destiny.

I write about bootstrapping here: http://unicornfree.com

Posted by Mike Evans on January 26, 2014 at 11:17 p.m.:

Yes. Absolutely. Completely agree.

Well said, Adrian.

Posted by Edward Domain on January 27, 2014 at 9:50 a.m.:

This is a great article, well said. As someone who raised a small amount of seed money and now has solid revenue, I can say that I spent a good portion of the seed money chasing more investment money instead of actually doing what I loved (which is why I started the company to begin with) I was following the wrong playbook.

in 2012, I won a grant for my business, left Chicago and focused on building the company the way I wanted to and stopped chasing investment dollars. The result? Six figures of revenue in the last 3 months, I'm having fun again and investors have started approaching ME (instead of the other way around) and im comfortable saying,"we aren't ready for funding yet, but lets stay in touch"

Your argument speaks heaps of truth to my experience, and its a conversation I've had with many startup friends. The problem is, as you said, media always wants dollar signs and exits. Keep up the great work, stay happy and stay hungry!!

thanks for writing this!

Posted by Pallavi Anderson on January 27, 2014 at 12:27 p.m.:

100% behind bootstrapping as a theme for Chicago. The low cost of living, diverse industries, urban density and confluence of culture all add up. But where you start to lose me is with group superiority claims about subjective traits ("we're honest people, we eschew BS, we're realists...") which are dangerous and have historically been at the root of BAD things.

Posted by Bolaji on January 27, 2014 at 1:51 p.m.:

Agree, very thought provoking piece and let's hope the identity crisis is established soon.

Posted by Patrick Cavins on January 27, 2014 at 5:32 p.m.:

I love this article!

I am not from Chicago, but instead I grew up around the St. Louis area. The line about appreciating a job well done rings so true. I think we actually talk around this idea in my research meetings, but have never been able to say it so succinctly.

I think for St. Louis is that is has done a lot of things well in the past, but it has become a question of where do we want to succeed in the future.

-Patrick

Posted by Steve Holden on January 27, 2014 at 5:58 p.m.:

Great piece, Adrian. There are many things in modern society that an Englishman would call "arse about face" (the wrong way around). One of them my friends are used to me ranting about is income inequality, another is focus on the acquisition of money. This latter is really just The American Dream repackaged, but the statistics for small business failure are fairly gloomy and IMHO The Dream is just an unrealistic as it always was barring a couple of decades immediately after the second world war.

This shouldn't depress us, though, and certainly isn't an argument against your hypothesis. The open source world is usually prepared to "fail fast" by trying an idea out and abandoning it if it goes nowhere. We have to acknowledge there are costs involved, but most people with that level of skill could earn enough in one year to take a year off. So it's a very practical proposition, and in city terms unthinkably small amounts of money could do huge amounts of good. That will, however. mean engaging with the political process: you may want to consult Eric Sterling about that :-)

You are talking about building sustainable lives around satisfying, community-based work, an ethos I have tried from the beginning of my involvement with them to inculcate in the Python communities I have worked with. Good luck, and please contact me personally if there is anything I can do to help.

Posted by Mike S. on January 27, 2014 at 7:13 p.m.:


This is a great, great article. I especially like the "Chicago: Be your own Boss" idea ... all that is missing is a mockup of the honorable Richard J. Daley.

I think one of the other strengths that Chicago's startup community needs to emphasize is the number of excellent universities in and around the area. Having one or more of those school develop "bootstrap camps" would be a great idea.

Finally, although Wall Street is obviously based in New York, Chicago has been a pioneer in the the development of automated trading. Irrespective of what you think of high frequency trading, the amount of technology that underlies those efforts is absolutely jaw-dropping.

Anyway, a great article. Thanks for sharing it.

Posted by Eric Olson on January 27, 2014 at 10:20 p.m.:

Adrian - Great talk/post. I agree that Chicago is a place where no-nonsense businesses are built and that people work for the satisfaction of a job well done and for the love of the craft. I also agree that we shouldn't try to re-create Silicon Valley here if for no other reason than we have our own unique strengths to leverage and build upon. However, I don't think that raising VC money/building a big business and bootstrapping/focusing on craftsmanship are mutually exclusive.

I believe we can continue to build businesses of all sizes here in Chicago that leverage our unique strengths (diversified economy, Midwest work ethic, focus on craftsmanship, etc.). We should encourage all dreamers that share our values as a city, whether they want to build a big venture-backed business or a wildly successful bootstrapped company with only a handful of employees.

Thanks for getting the discussion going on this topic with a well researched and thoughtful piece. I am excited to keep the dialog going.

Posted by John Poole on January 29, 2014 at 12:41 p.m.:

Wonderful post and yes, the right perspective. Don't play by Silicon Valley's (or anyone else's) rules -- that is the way to #FAIL. Silicon Valley is full of "dumb money" like no other place in the world--that has its helpful and unhelpful aspects. I have heard many entrepreneurs attribute their start-up failure, in part, to the fact they had too much money, too early. Also, neither Chicago, nor any other place, should waste time trying to "educate" Silicon Valley (or New York, etc.) how good their own "hometown" is for start-ups. For some, Silicon Valley is best, for others, Chicago or elsewhere is better. Actions and results will always speak louder than "spin."

Comments have been turned off for this entry.