A startup hub emerges in Chicago

Wed Oct 31, 2012 2:38pm EDT

Lakeshore Drive in Chicago seen at night, October 30, 2010. REUTERS/Larry Downing

Lakeshore Drive in Chicago seen at night, October 30, 2010.

Credit: Reuters/Larry Downing

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(Reuters) - Bernhard Kappe, the chief executive officer of Chicago's Pathfinder Software, steps up to a dry erase board and draws a crude graph, its slope curves upward. Then he plots a point in the middle to show where the city's web entrepreneurs stand in terms of growth and progress.

"These things take 20 years to get to maturity, and they're not linear," says Kappe, who's also an executive director of the Chicago Lean Startup Circle, a group that fosters local website development. "But we're six to seven years in, and definitely in an acceleration stage."

While Chicago may not compare to Palo Alto in terms of high-tech sexiness, it's experienced enough high-profile success stories in the past few years - from Groupon to 37Signals to Trunk Club, launched by Bonobos founder Brian Spaly. Now local entrepreneurs and members of the startup community are uniting to help continue the momentum.

And that's where the Chicago Lean Startup Circle comes in. The group now claims 2,800-plus members, an 18-fold explosion since Kappe and Todd Wyder, Pathfinder's chief product officer, assumed leadership nearly three years ago.

Aside from solid growth, the group also brandishes some feisty attitude and is not afraid to self-promote, describing itself as "a group of smart and driven high-tech entrepreneurs that have learned how to discover customers and build products they want."

That's no idle boast given the numbers Kappe and Wyder produce to make their case. In a survey of Chicago Lean Startup members last year, the 20 percent who responded (about 500-plus people) reported that their companies had created 7,047 tech-sector jobs.

Of course, Chicago isn't the only city with such a circle; Kappe says about 130 such lean startup groups exist worldwide, with Chicago ranking above Boston, but behind New York in membership.

But Chicago's circle has done better work than other similar organizations in tooting its horn and marshaling creative resources. For starters, it partners with other groups such as Built In Chicago (an online community for local startups) and 1871 (a co-working center for digital startups, taking its moniker from the year of the Great Chicago Fire). Kappe and Wyder have also added incentives, offering prizes of $25,000 on cash and $50,000 in services in their annual "Lean Startup Challenge."

"If you look at the Chicago tech scene, a number of leaders and groups have emerged where we all want the same thing: making Chicago's entrepreneurial community the best in the world," Kappe says.

There's been exciting news this month as well, with the venture capital firm New Enterprise Associates establishing a new Chicago office with its $35 million investment in Braintree, an online and mobile payments company.

But can Chicago become, say, a Midwestern Silicon Valley? Kappe says that's hardly the goal, adding that, "We have a lot of great relationships in the valley." He sees Chicago building a tech scene based on its strengths as a business-to-business hub, a view supported by tech experts and observers.

So while launching another high-profile consumer site a la Groupon would bolster the area's startup scene, there's already plenty of action among portals that provide niche services to the restaurant and health care industries, for example. At Pathfinder, Kappe creates medical software solutions for institutions using lean innovation techniques.

"The sheer scale of Silicon Valley makes it difficult for any city to match," says Fred Diaz, city manager of Fremont, California, a worldwide hub for web startup activity. "But rather that replicate Silicon Valley, Chicago should strive to be the best entrepreneurial Chicago it can be. That's what will drive success."

"Chicago can become a vibrant tech hub, but in a much different way," says Leena Rao, a senior editor at TechCrunch. "We need to remember that Chicago becoming a tech hub is a marathon, not a sprint. But the signs are promising; the area has a good talent base," supplemented by top-tier universities and the support of Mayor Rahm Emanuel, who's made high-tech development a priority of his administration.

"The city is conducive to startups," says Jeffrey Harrington, who launched his restaurant-vendor service website Cardoona with plenty of help from Kappe and Wyder's group. "The culture is very collaborative. It could've taken us three years to figure out our first three business models were wrong. Through, it took us less than 3 months, preventing us from wasting huge amounts of time and money."

Kadesha Thomas attended her first meeting of the Chicago Lean Startup Circle a year ago. The freelance writer had hit on an idea for a website to create custom content for health care clients, but felt sheepish about writing a huge business proposal or hitting up a bank for funds.

"They discourage you from getting any money until you've validated the idea and come up with something solid," Thomas says of the circle members. "That made my barrier to entry a lot lower. All you have to do is talk to your customer and get to know their needs."

Thanks to the guidance of Kappe, Wyder and others, she launched her CareContent.com website on October 22 without borrowing a dime from friends or family. "We have a lot of great leads and a lot of people really interested in being our first customers," she says. "It's very exciting."

(The author is a Reuters contributor)

(Editing by John Peabody and Brian Tracey)

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