The Dichotomy That Is Chicago Today

Yesterday I spent the day listening to TechStars Chicago Demo Day pitches.  In the morning, the companies pitched to investors.  It was great to spend time and make new acquaintances with investors, and renew relationships with other investors.  The Chicago investment community is growing.  New people are coming into it and that’s awesome.  Each brings a unique perspective.

TechStars Demo Day is always an uplifting event to me.  It gets better and better every year.  So much positivity in the room.  Early stage Chicago investors have done better than most.  When I speak with entrepreneurs they can’t imagine building a company anywhere else.  It’s not because this is home for them-it’s other tangible and intangible reasons.

Chris Gladwin gave the keynote speech this year.  He sold his last company to IBM, and promptly started another one.  Ocient is in it’s early stages.   It was his third successful exit.  I guess that’s why you bet on jockeys.

John Pletz wrote about Chris and I pulled this quote,

“It still hasn’t sunk in. People are thrilled to see all their hard work pay off,” says Andrew Baptist, 39, chief software architect, who joined the company eight years ago. “They think, ‘I can pay off my student loans, buy a house, maybe start my own company some day.’

Chicago is starting to see the ecosystem get deeper with people that were a part of other successful efforts starting new companies.  GrubHub, Braintree, Fieldglass, Cleversafe, Trustwave, Groupon, Trunk Club, and other companies built a base.

Chris spoke about the local community.  In his opinion, what sets apart the Chicago entrepreneur from a Silicon Valley entrepreneur?

It’s toughness and grit. Mental, emotional, and physical toughness. Chris showed this picture to illustrate his point and asked, “Does that cross country skier code?”  If you can survive the lack of venture cash, and the winters, you can survive anything.  By the way, the winters are not that bad.  We have the Blackhawks and Bulls (and this year the Cubs!)

At the same time, there are some bold realities that Chicagoans are seeing right now.  It is mostly due to public worker pensions.  Wirepoints and Illinois Policy have the cold hard facts on the pension crisis.

The city is on the radar of bond vigilantes.  The state, county, and city are broke.  There is no hope of getting close to even.  Bankruptcy is the only option on the table if it wants to start fresh fiscally.  Governor Rauner has tried to bring discipline and sanity to the state, but has run into tremendous opposition.

Chicago Public Schools, never a shining light in our educational system, are in chaos.  Enrollment is down 3.5%, and teachers voted to strike on Oct 11.  Government budgets are in turmoil.  The sad thing about all this is the only solution that the politicians have come up with is raising taxes and fees.

Crappy schools, violence, combined with higher costs of living and crumbling infrastructure are causing people to flee the city and state.  Illinois has lost 1.4M residents over the last 20 years.  It’s not just old people moving to Florida.  More importantly, given a choice of where to go millennials are going other places.

It’s also not restricted to the city.  Property taxes and other fees are out of control in the collar counties.  There are more for sale signs than you can shake a stick at all along the north shore.  Across the lake in Harbor Country, property prices are plummeting.  Harbor Country is heavily dependent on a vital Chicago.  If you aren’t from here, Michiana is Chicago’s answer to the Hamptons.

Shootings are at a record.  Two bit crime is starting to spread across the city and goes under reported.  Yesterday, two shootings at different times happened on the Eisenhower Expressway.  Expressway shooters happened in LA, but it’s a new occurrence here in a city that is just sick of hearing about it.

Yes, Chicagoans are a gritty bunch.  We can shoulder on through a lot of adversity.  The startup community in Chicago has grown despite the civic unrest, and the typical risk averse nature of Midwest investors.  One thing successful startup entrepreneurs do is fail fast.  They aren’t afraid to gore seemingly sacred cows, or dispatch ideas that aren’t working in their businesses.  There are no holy grails in startups.  If it doesn’t work, they pivot.  They have strong opinions loosely held which change by the data they are receiving.

The startups that don’t change, that don’t interpret cues successfully fail.  It’s never fun for the investors of the startup.  But, I have particular empathy for the employees of failed startups.  They fought the good fight and they have to pick up the pieces of their lives.

Soon, Chicago is going to be at a tipping point.  Either the politicians take a cue from the startup community and start goring their sacred cows, or the city will fail.  Sure, declaring bankruptcy will put egg on their face.  Power players will play the blame game and try to destroy people-and get more goodies for themselves.  But, what’s the alternative?  Total failure for a public entity isn’t pretty.  See Detroit.  See Venezuela.  See NYC in the 1970s.


7 thoughts on “The Dichotomy That Is Chicago Today

  1. Reform of pensions to Defined Contribution is a requirement for Sustainability. All the Chicago accounting for pensions, like most cities & states, would be illegal in the private sector.

    Go for bankruptcy sooner rather than later.

  2. Mismanagement and deep debt is painful. Politicians don’t like pain, unless they can shove it onto someone else and reap political gain. Those in IL that create jobs and profit are the minority, therefore it will fall upon their shoulders. In the meantime, politicians are nipping on the edges of a solution by raising incidental taxes and fees, but those are not enough.

  3. Politicians and those close to them and those in government jobs do not accept changes in their way of life. From city to county to state to federal collapse is the only realistic option because of this fundamental nature of the beast. As people flee they will simply raise taxes on those that remain.

    In NE Illinois we are talking about people so focused on their own personal gains they wanted the crony benefits of building another expressway to Indiana. These people see the economic dead zone near the Indiana border as a source of personal power because people look to government for welfare and hope to fix it. The economic dead zone moves further and further west as time goes on. The damage extends further yet and their answer is to make travel to Indiana easier instead of reforming because it benefits them personally. And then there is their cargo-cult airport to bring back the factories and wealth. Fix the real problems? No. They’ll do what benefits them and fixing the problems, the high taxes and other issues doesn’t benefit them.

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