Experts could debate all day long the ingredients for a killer entrepreneurial climate and the virtues of one city over another. But if I’ve learned one thing over the years, it’s that every region in this country is different. While each might aspire to be the next Austin or Menlo Park, you can’t start with what you don’t have.
Instead, you must start with what you do have: the assets and strengths in your own backyard.
The Backyard Effect yields the secret sauce
It may take some time to uncover, but every region has a secret sauce. I call it the Backyard Effect. It’s when a region embraces and connects its unique assets to foster startup success.
The Midwest is a prime example. It’s not just a nice place to raise a family. Sure, the cost of living rocks and houses with walk-in closets are affordable. But there’s much more than a great quality of life going on here.
Besides all the right ingredients — technology, talent, and early-stage capital — the Midwest has a truly connected community. That’s our secret sauce. Our Backyard Effect.
And these aren’t just connections on paper. They’re the kind of connections that are drawing entrepreneurs and investors to states like Ohio, Pennsylvania, Indiana, Illinois, and others to create and invest in new companies.
The landscape is changing in the Midwest
The share of U.S. cities receiving venture capital rose from 2009 to 2014. As Harvard Business Review reports, venture capital first fundings are spreading throughout the country. The Midwest is certainly beginning to enjoy this increased continuum of capital. Some of the most active seed funds in the U.S. are in the Midwest — Innovation Works, DreamIT Ventures, CincyTech, and Rev1 Ventures. Drive Capital, a fund created to invest in Midwest startups, was the second largest inaugural fund launched anywhere in the country in 2014.
When looking across the Midwest and rising success in the various states, one common denominator is world class research universities and medical institutions as incredible sources of spinout companies.
Cincinnati Children’s and Nationwide Children’s in Columbus are two of the largest pediatric research centers in the United States.The Ohio State University ranks third among all US universities in industry-sponsored research. Carnegie Mellon (CMU) in Pittsburgh is a world leader in robotics and has one of the top ranked computer science departments in the country (according to a Wall Street Journal poll of recruiters).
NoWait is a free mobile app that manages wait lists and seating arrangements for restaurants. The app is offered at thousands of restaurants, is available in all 50 states, seating more than 10 million guests every month and more than 130 million to date.
NoWait’s president, Robb Myer, an MBA from Carnegie Mellon, received funding from CMU’s Open Field Entrepreneurs Fund and early support seed funding from Innovation Work’s AlphaLab accelerator. The company then moved into Pittsburgh’s Startup Town co-working space. Local Pittsburgh restaurants like Hofbrauhaus Biergarten were early supporters. NoWait went on to raise a $10 million Series B round led by Drive Capital.
Cincinnati-based Enable Injections develops and manufactures body-worn injectors that offer patients a self-injection alternative to IV treatments. These injectors would allow patients to comfortably self-administer viscous, high volume treatments that currently must be administered in a clinical setting.
Serial innovator Mike Hooven, while an executive-in-residence at CincyTech, became interested in a technology for a painless vaccination system conceived by researchers at Cincinnati Children’s Hospital. CincyTech and Cincinnati Children’s invested.
Enable Injections recently signed a strategic partnership agreement with CSL Behring, one of the largest pharma companies in the world, for long-term development of an innovative drug system for patients with rare and serious diseases.
The Midwest is loaded with all-important first customers
The most important thing any startup ecosystem can do is create connections with first customers. The Midwest is a startup’s dream with hundreds of Fortune 1000 businesses clustered around mid-sized metropolitan areas. Further, the broader business support community is large enough to offer the experienced legal, marketing and accounting talent needed to launch new ventures.
Having 56 Fortune 1000 companies, Ohio ranks fifth in the nation (behind Texas, California, New York, and Illinois) and at 51 Fortune 1000s, Pennsylvania ranks sixth.
For B2B companies, market development isn’t driven by a cool website. Entrepreneurs have to figure out how to gain entry into big companies, understand the approval cycle, and then prove the value proposition of the solution they are developing. To the hundreds of Midwest-based companies that provide B2B solutions, this landscape is customer-rich.
“In a community where it’s not so dog-eat-dog-competition like in Silicon Valley,” said Terri Glueck, Innovation Works Director of Communications. “Everyone in the community wants to do something to help these companies grow. It’s in the corporate community’s own self interest. Here you could pick up the phone and call the mayor’s office, and they will call back.”
The Columbus region is another highly connected community producing startups at an accelerating rate. Columbus has an active network of corporations that engage directly with new firms.
Executives meet with entrepreneurs to provide early feedback on product concepts and to help the young companies efficiently connect with other corporate decision-makers in businesses that are in the industries that the startups plan to serve.
In 2014, these corporate partners helped startups close a significant number of first customer contracts with corporations headquartered in Ohio.
MentorcliQ, a Columbus-based B2B startup that provides a cloud-based platform that helps corporations get the most out of their investment in mentoring programs, used the region’s corporate network to meet with numerous senior decision-makers to gain product feedback before fully launching their beta.
MentorcliQ connected with Cardinal Health (22 on the 2014 list of Fortune 500 companies), a firm deeply committed to employee development. Cardinal Health was looking for a way to better manage their multiple mentoring programs. A full implementation is underway, with Cardinal Health using the MentorcliQ platform to manage mentoring, leadership, and sponsoring programs.
The Backyard Effect works
Whether the startup is B2B like Enable Injections and MentorcliQ or B2C like NoWait, the benefits of establishing “backyard” customer relationships are many. Obviously, the revenue helps the young companies bootstrap, lessening the pressure for immediate investment capital. Plus, having a paying customer validates the value proposition. And that’s not all.
Working with a customer when the solution is barely out of prototype creates a framework for great market feedback on feature sets and ease-of-use. There’s nothing like first-hand customer experience to make a startup even more attractive to investors. There is tremendous market power in having a large-company reference with a recognizable brand.
When people say that the Midwest is no Austin, Boston or Silicon Valley, they’re right. Our entrepreneurial community has connections, not fences.
The Backyard Effect works. In this region, in its own way, every stakeholder — from state legislatures, to corporations, to research institutions — is finding ways to help entrepreneurs accelerate startups. That’s our secret sauce.