Precursors and Opportunities: Chicago as a National Tech Center of Gravity?
August 5, 2011
It’s an interesting time in the technology industry in Chicago. There is a ton of activity. Events, showcases, mentorship, startups galore abound today more than they ever did before. I am thrilled to see the excitement and activity. However, what’s also beginning to happen are possibilities for the community that goes beyond just startups as we start to begin making Chicago a national tech center of gravity. (We aren’t there yet.) There were two items last week caught my attention in this regard, one a precursor, the other an opportunity.
First, the precursor…
We are seeing companies that have been here a while starting to evolve themselves in ways that are atypical of Chicago-based technology companies. Take GrubHub for example. While it’s certainly interesting that they got $50 million in additional capital last week, what is more interesting is that they used the capital to purchase a competitor - Dotmenu.
The history and cycle of the national technology industry for the past 30 years is one in which point solutions are created to solve a specific problem, then over time competitors or companies with complementary products come together to form a more robust offering and a few market leaders prevail. With the change, people are displaced who go on to start the cycle over again….lather, rinse, and repeat. In this cycle Chicago companies has traditionally for the most part been acquired (Think Platinum, SSA, NAVTEQ, Feedburner), they have not been the “acquirees.” (Note: GroupOn is an outlier here as is it everywhere else.)
While being acquired is great, it’s not always the best for the community as the center of gravity of the company moves outside the community. What I saw last week by GrubHub was one of the first times in recent memory that a Chicago company was a significant acquirer. If Chicago is to become a true tech center, we need much more of this. The center of the amalgamation will remain in Chicago and breed a cycle that will feed on itself. Think of a dozen companies that slowly build themselves as the market leader through acquisition. What would it mean for Chicago and its place in the national technology industry? Kudos to GrubHub for leading the charge.
And the opportunity…
On our more traditional side of activity in Chicago, we witnessed two separate M&A deals of Chicago companies - MediaBank (Donovan Data Systems) and Accuity Holdings (Reed Elsevier). It made last Monday at $2B day. Both these transactions continue the historical trend of Chicago companies being acquired/merged with outside and older industry leaders (DDS is 44 yrs old, Reed is 117) who have a strong audience of users are changing their businesses with truly innovative technology. We have normally been a feeder for national players.
There is a lesson here for Chicago. These types of acquisitions are showing that the next century of business in traditional industries will be driven by technical innovation (internal and external). In aggregate, the majority of companies that will succeed are not those that are not purposely consumer applications (Facebook is a one in a billion shot) but those companies that provide innovation across traditional businesses be it in general business (e.g. SAVO), healthcare (e.g. Allscripts), parking industry (e.g. SpotHero), small business marketing (e.g. GroupOn) or take your pick.
There is no city in the world that a more diverse and set of traditional companies across 12+ industries than Chicago. It is what makes us somewhat resilient to economic downturn. It’s also our sweet spot given our domain expertise and we need to build on it. What if all the local corporate leaders locally begin to look more diligently for innovative technology to acquire in their own backyard in order to evolve?
If we can drive corporate innovation through partnership between technical talent and local traditional industry leaders we will be unbeatable as a tech center for the next 25 years. Companies aren’t going to just look to Chicago for innovation – that would be bad business – but we can increase their knowledge and there by the opportunities. (We should also be helping them find companies to buy and bring to Chicago.) A series of singles, doubles or triples melded with our historical industries could be transformative for us. I am finding that the most promising executives locally realize this and are putting their talents to work here where it makes revenue. We are already starting to see the companies of the past few years pivot to address these realities. The more of this we see, the more it will drive the tech community and our entire economy in new ways. It will also help to make us a top center of the national technology industry.
What else are you seeing out there that portends our future?