Building Moats, or Bridges?
- Posted by Jeff Carter
- on August 29th, 2013
There are some themes and patterns that come up in front of me continuously. I thought I might start writing about them to see if it can begin to change them.
Yesterday I was at TechStars Chicago’s DemoDay. I introduced the company TradingView. They are not a company that is indigenous to Chicago. They came from Russia. I joked that the Russian Bears became Chicago Bears because I took them to a football game. But, the team is embracing what Chicago has to offer, even deep dish pizza.
They certainly fit into the business DNA of Chicago.
It’s awesome a company like TradingView wants to come here. Debateable, but I bet a few years ago they wouldn’t have considered it.
Chicago can be a funny place. In order to really understand the city, I think it’s important to read a book by my friend, esteemed historian Professor Don Miller. City of the Century chronicles in great detail the history of the city from 1830-1900.
What can be gleaned about studying history?
Chicago wasn’t anything but a grease stamp on the way west until the powers of the city got a canal built that connected Lake Michigan to the mighty Mississippi. Once that happened, the city began to become a place of commerce.
However, the first mayor of Chicago, William Ogden, was also one of the city’s top businessmen. “Chicago’s first mayor, William B. Ogden (1837–1838), was a founding father not only of the city (because he wrote its first charter) but of the Chicago & North Western Railway, and was a principal in the nation’s first transcontinental railroad. He built the city’s credit reputation as well as his own by keeping the city solvent during the depression of 1837.”
You might say crony capitalism was perfected here.
Of course, all that money and the intermingling of commerce and politics allowed people to set up toll booths to try and profit off the growth. Toll booths exist to this day.
Contrary to the usual practices of the City Council, another alderman held up the project. Daniel Solis of the Southwest Side’s 25th Ward says he wanted to send a message that Ford Motor Co. needs to do more to recruit car dealers of Hispanic heritage. Solis was using his power as chair of the council’s Zoning Committee to block the 32nd Ward project.
Turns out that Solis’ political organization had received at least $6,800 in contributions from a Chicago-area Hispanic businessman who, Solis knew, wanted to get into the car business. The donor, Jose Diaz, also had contributed smaller amounts to other members of the council’s Hispanic Caucus.
That’s why knowing history is important.
Chicago currently is having an impressive entrepreneurial renaissance. There are some really great companies being formed here every day. But those entrepreneurs face tough choices many times. Because the traditional climate of Chicago is to charge a toll for service, they run into road blocks. Our interstate highways don’t contain the only toll booths in town.
If the city is going to see a massive entrepreneurial ecosystem grow, Chicagoans need to uncross their arms and open them-especially politico/bureaucratic/connected types. People from other parts of the world might come here, but there are some Chicagoans that want to be gatekeepers instead of facilitators. Some are controllers; controlling outcomes and allocation, not connectors.
Chicago can be a clicky, tribal city. Legendary alderman Paddy Bauler once said, “We don’t want nobody that nobody sent.”. He also said, “Them guys in the black suits and narrow ties, them Ivy-League types, them goo-goos – they think the whole thing is on the square” and “Harry (his son), if anything happens to me, I don’t want you to call the priest or the undertaker. Just get your ass down to the bank and get them deposit boxes.”. There are people that think that way today. New York and San Francisco are not like that. They each have very different histories that impact each city differently today.
It’s funny to laugh at characters like Bauler. But, their past shenanigans have an impact on the city’s culture today.
New York and SF easily assimilate new people from points beyond. Chicago needs to do a better job of integrating people and businesses into the ecosystem without forcing them to pay tolls.
A lot of what outsiders see as “clickyness” is historically rooted in politicians protecting political turf and the money that went with it.
Chicagoans need to make navigating the roadblocks in the ecosystem easier. Once bypasses are built, then the roadblocks become meaningless and the power behind them goes away. Co-working spaces, 1871, angel groups, TechStars, and university entrepreneurial programs can all be ways to bypass the tolls if we use them correctly.
Busting barriers will take a lot of courage from political leaders, and a lot of time. Many of the roadblocks are rooted in rules, regulations, and historical customs. Many of their constituents don’t want the old rules to go away since they earn a nice buck from having them in place. I see some initial signs of that courage. The ones holding onto the old ways see no economic benefit in changing.
Once the onion that is Chicago is peeled back, it is a tremendous place to start a company. Entrepreneurs can really have an impact here, and can leverage lots of different resources to grow awesome companies.
The historical isolation of Chicago can be advantageous to startups. Quietly building a company is sometimes better than getting Silicon Valley sizzle. Groupon ($GRPN) took advantage of that. By the time other companies tried to compete, they had cash flow and mass that couldn’t be overcome. Starting in fly over country has competitive advantages.
Want to test your offering on a specific international group? Much easier to target that group in Chicago than anywhere else in the world-and we have more of them than any other city.
Want to try your financial services company out? Chicago has one of the deepest and multidimensional financial services ecosystems in the world. Banking, payments, wealth management, trading, accounting, tax, you name it we have it.
How about logistics? Chicago is the logistics capital of the world. Trucking, rail, shipping, air, warehousing. If you are working on a business that gets things from here to there, this is the place to drop anchor.
Agriculture, medical, education, construction, food, consumer goods, law, design, architecture, conventions/meetings, real estate, all have large bases here. Along with the base comes the essential expertise of individuals that can add a lot of oomph to your company. 9.5 million people reside here.
Those people also have the potential to be your initial customers.
Ancient Chicagoans built a canal that they turned into a moat to line their own pockets. Today, as a city we have to fill in the moats, and build bridges to the outside world.
There is something exciting, awesome and potentially really huge growing here right now. So big, a small startup from Russia traveled across the world to be a part of it.
The city has many gems inside the moat that startups would love to have a piece of. But, if the artificial roadblocks that cronies like to set up remain or aren’t paved around, the gems that exist here will be avoided. Then those gems become lumps of coal.
The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.
Jeffrey Carter is an angel investor and independent trader. He specializes in turning concepts into profits. He co-founded Hyde Park Angels one of the most active angel groups in the United States in April of 2007. He previously served on the Chicago Mercantile Exchange Board of Directors. He has done market commentary for (More...)
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