Enterprise: The Chicago Kiss of Life and Death
When I first joined PandoDaily way back in the day, one of the things Sarah mentioned to me was that she wanted to report on the stories that other reporters were ignoring out of lack of pizzazz (my word, not hers), and inability to reach the top of TechMeme. The attitude was a little more inclined to cover companies that are rocking it, and less inclined to cover companies because they are the latest mobile photo sharing app.
This means enterprise.
My saying "enterprise" means that half of you aren't going to finish reading this article. Don't worry, I'll deal.
In Chicago, the impression is that enterprise (or B2B as they insist I call it) is the most exciting, sexy and amazing invention since sliced bread. People in Chicago, as they are starting companies here, all want to have a revenue stream immediately -- rather than take investment and figure out a revenue model down the road -- and the best way to guarantee a revenue stream is to sell directly to businesses. Therefore, startups that don't want to be ostracized go the enterprise route, even though they could be changing the world in a bigger way by taking bigger risks.
Which is exactly what Chicago should be doing, because it fits the city very well. In a city where 1/3 of all Fortune 500 companies either have offices or their base of operations, an enterprise startup has an immediate list of clients that are looking for tools to improve their businesses and cut out waste.
This means that you have companies that launch, and are almost immediately profitable. Not accidental revenue, but real, planned from the beginning revenue streams. This is because pushing an enterprise product is the quickest way to a reliable revenue stream. If you are from the Midwest, that is a must if you want to be respected and welcomed in. Not only does pushing for enterprise provide a solid revenue stream, it also allows the startup to be bootstrapped. Another huge plus in a city that has an irrational fear of investors taking over.
Enterprise companies also tend to be longer lasting that the quick fill-and-pop balloon startups of the coasts. Which is good long term, but in the short term provides a major pain point. It's an investor's dream, an entrepreneur's dream and an ecosystem's worst nightmare.
Don't get me wrong, I do love enterprise companies. I love a good revenue stream. To be honest though, enterprise has its downsides. If you are selling some abstract formula that will boost a Fortune 500 company's marketing ability by x percentage points, you will excite the big customers. You will make money. But you won't get press, and you won't attract the best talent.
Let's look at these two side-effects.
First, you won't get much press if you start an enterprise company. Which isn't a big deal, because if you are selling your product to a limited number of companies, you can just directly reach them. As much as it hurts me to say it, the press doesn't make or break an enterprise-focused startup. PandoDaily may cover the hidden enterprise companies, but not many other places do.
However, the halo effect from a popular company should not be underestimated. Think about a company like Groupon. Groupon, while it isn't exactly an engineering company, has attracted the press to Chicago (at least, more than it was attracted pre-Groupon, which is to say, attracted at all). The press doesn't come to Chicago just to write about Groupon though, although we do do that. Instead, the press comes and sees what else is going on. Otherwise known as a halo effect.
The halo effect may be dismissed, but it shouldn't be. Sure, it doesn't make a startup successful, but it certainly helps. And it definitely helps get coverage for smaller companies that would otherwise be ignored.
The second issue with being so focused on enterprise is that potential talent isn't convinced of the importance of the ecosystem. Ask an engineer to choose between staying in the Valley and working for a hot new, untested, consumer product like Twitter and an enterprise company that already has a steady revenue stream that provides marketing simplification for insurance companies, and they will choose the hot new startup.
Which is a major problem, because Chicago is having major talent problems. The talent crunch that every technology company worldwide is complaining about is hitting Chicago especially hard, as it already has a limited pool to choose from. It has to either train new talent - which Code Academy is attempting to do - or convince people to move to the area. Not exactly an easy thing to do (unless you are able to bring everyone to Chicago this week, because the weather is wonderful this week!)
What would help is a hot new startup that, make it or break it, brings in talent. Once the talent is here, 3/4 of the battle is won, as keeping people here isn't the problem. That first 3/4 is hard and seemingly impossible, but having a company like Facebook or Twitter here would certainly help.
All of that being said, enterprise is largely the only option open to Chicago at this point. However, being the only option currently available doesn't an excuse make. Sure, founders can sit back and say "well there are so many companies here to sell to, it makes sense to do enterprise!" That's not a very good reason though, however pragmatic and however Midwestern. It makes sense from a business standpoint, but from an ecosystem standpoint it doesn't.
Unless Chicago gets some much-needed consumer love, it will stay the same. In the fast paced technology world, staying the same is the same as dying.
There are some startups working on consumer products and services. Gtrot is one, funded by Lightbank, and Trunk Club is another. They aren't exactly Groupons, but at least they aren't defaulting to the path of least resistance that many other startups are doing. There are others, but largely, enterprise is the name of the game here.
To be clear, staying the same is fine. It pays the bills, brings in the revenue, and keeps people employed. That's all well and good, but it doesn't improve upon the city. What improves upon a city is challenging the status quo, pushing the boundaries, and doing what people say is impossible. That's what draws people in, its what draws funding in, and its what takes a mediocre startup ecosystem and turns it into a massively successful startup ecosystem.
Chicago doesn't need to copy Silicon Valley or New York City, and it shouldn't. But that doesn't mean Chicago should rest on its laurels, because that would be even more dangerous.
[Image Credit: Shutterstock]