Silicon Prairie Redux: Will Chicago’s Tech Boom Last?

After years of hype and hope, is the city finally building a tech sector to be reckoned with?

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PHOTOS: The startups at 1871 »

A sampling of entrepreneurs at the tech hub

But Chicago still has challenges to overcome before its tech sector can truly take off. The greatest, according to Dag Kittlaus, a Chicagoan who worked in Silicon Valley helping to develop Siri, the voice recognition technology used in Apple’s iPhones, is its lack of a reliable pipeline of engineers. “If Chicago doesn’t figure out how to plug in the engineering talent from the region,” Kittlaus said at a Technori event in March, “they’re going to get left behind.”

We’ve seen it a thousand times: A small Chicago tech firm decamps to one of the coasts for more access to programming talent. It happened with Bump Technologies (founded by a Booth School grad) in 2009, Adaptly (founded by a Northwestern grad) in 2010, and AllTuition (founded by a Booth student and Excelerate grad) last year. Even Groupon put a 300-engineer development facility in Palo Alto, California. “If we had to choose only among the people within Chicago,” says David Hansson, a partner in 37 Signals, a web-based business tools firm, “[we] would undeniably be a worse company with worse products.” (His answer: hire developers to work remotely from other parts of the world.)

It’s not that the region lacks the means to educate techies. For example, the University of Illinois has top-notch engineering and computer science programs (alumni have been prime movers behind YouTube, Netscape, PayPal, and Firefox). And new tech vocational schools, including Code Academy, which teaches programming to adults at 1871, and Tribeca Flashpoint Academy, are pumping out several hundred qualified developers and high-tech designers each year.

The problem is keeping them here. “If you go down to Champaign and ask computer science graduates, ‘Where are you going to go?’ ” notes Yagan, “most will say New York or San Francisco.” One lure is greater pay. The average tech job pays nearly $105,000 in Silicon Valley versus roughly $84,000 in the Chicago area, according to a 2012 survey by the career site Dice.

Lefkofsky sees greater funding and other support for promising startups as the solution to the talent retention problem. “You have to have companies that are pulling these people in, bringing in these engineers, giving people a reason to stay,” Lefkofsky says. “Then it starts to feed off itself.”

Educational institutions can play a key role too—for example, by following Stanford’s 60-year lead in establishing and supporting research institutes and technology parks. Over the years, Chicago-area schools haven’t made that enough of a priority. One result: According to the Association of University Technology Managers, 461 patents were issued to researchers at California universities in 2010 (the most recent year for which data is available); only 142 were issued to those at Illinois universities.

The schools seem to be getting it. The Illinois Institute of Technology plans to break ground on a $30 million innovation center on the South Side next year. Northwestern has recently strengthened its entrepreneurial training for engineering students, helping them launch companies like the mobile music app maker Groovebug. DePaul University has in recent years built one of the country’s best video game developer programs. The University of Chicago’s Booth School of Business, once known mostly for its finance and accounting programs, has been gradually gaining a strong reputation for entrepreneurship, particularly in the digital realm. It is now the second most popular concentration behind finance, says Steve Kaplan, a professor of entrepreneurship there. And the school’s annual New Venture Challenge competition has helped launch several local successes, including GrubHub and Braintree.

Mayor Emanuel also feels the urgency. “I am 100 percent focused on building an environment in Chicago that attracts young talent and offers them the ability to find high-paying, exciting work,” he said in August.

One of the ways Emanuel plans to make the city more appealing to such people is by adding new bike lanes in the Loop. That may sound laughably small-bore, but don’t knock it, says Richard Florida, head of the Martin Prosperity Institute at the Rotman School of Management at the University of Toronto and author of The Rise of the Creative Class. “Focusing on quality of place, quality of life, especially when it doesn’t cost too much, is a good idea,” he says. He adds that there’s a trend among digital startups to move away from suburbs like Palo Alto and toward the dynamic living in cities—which stands to benefit Chicago.

More vexing than the talent shortage may be what critics call the Midwest mentality: an alleged predilection among local tech entrepreneurs and investors to play it safe. Even Chicago veterans concede there’s some truth to it. “There are, in general, less risks taken on speculation about mass-market consumer products here,” admits Yagan, who has worked in New York, Boston, and Palo Alto. “What is our Google or Facebook or Twitter? I can’t think of any.”

Those three companies were revolutionary; the typical Chicago tech startup isn’t. Instead, it uses technology to enable more practical nuts-and-bolts services, like delivering food (GrubHub), finding jobs (CareerBuilder), or booking travel (Orbitz). The growth potential is inherently limited. That’s part of Groupon’s problem. After all, who among us is not feeling a bit of daily-deal fatigue?

While there is no easy answer, Florida suggests that we can take hope from the past. “Chicago has had a phenomenal history of innovation,” he says. “I think that inventive DNA got squelched in the era when companies got too big. But now we’re seeing around the country a return to this entrepreneurial mindset, and I think Chicago is well placed. It’ll take a little while, maybe the better part of a generation, but it’s happening.”

Back at 1871, a polo-shirted young man sits in the main shared space by a translucent glass wall filled with unfamiliar business names—Kaboom, RentStuff, Toodalu—in bubble letters. He scratches his head and stares wide-eyed at his laptop screen. Behind him, a broad white pillar looms. “We are a city of builders, makers, and doers,” it reads in large black letters near the top. “We are here,” the message concludes, “for the promise of what can be.”

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Three Startups to Watch

Justin Massa
THE PROMISING UP-AND-COMER: Food Genius
FOUNDER: Justin Massa, 33
WHAT IT DOES: Delivers trenddata to food industry customers
FOUNDED: 2010
FUNDING SO FAR: $1.2 million

 

Logan LaHive
THE BREAKOUT STAR: Belly
FOUNDER: Logan LaHive, 30
WHAT IT DOES: Runs customer loyalty programs for retailers
FOUNDED: 2011
FUNDING SO FAR: $11.4 million

 

Bryan Johnson
THE RELATIVE VETERAN: Braintree
FOUNDER: Bryan Johnson, 35
WHAT IT DOES:  Helps businesses accept online payments
FOUNDED: 2007
FUNDING SO FAR: $34 million

ALSO SEE: A sampling of startups at 1871 »

 

Photography: Anna Knott

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