From Healthcare to Energy, Chicago a Hub of Innovation

November 3, 2014

This post is the third in a series called “Innovation That Matters,” the result of a unique partnership with 1776, Washington, DC’s startup incubator. Most recently, we examined the environment for startups in Washington, D,C., and also gave an overview of the startup environment in Chicago. This time we look at the state of specific industries in the Windy City. 

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Entrepreneurial ventures are nothing without markets. To get an idea for what they look like in Chicago, 1776 took a close look at sectors with large government roles, including healthcare, energy, education, and smart cities. Over a day of discussions went into finding the parts of the city most amenable to growth.

Just like strip malls need an anchor tenant, industry clusters thrive on the presence of a few large companies. Outside Chicago sits one of the largest healthcare clusters in America. It’s the reason why Illinois claims the second-largest concentration of pharmaceutical headquarters in America. Six of the seven largest healthcare investors are involved locally—word has it that much of the late-stage investment in Chicago is concentrated in health. And with that presence comes a bevy of smaller firms capitalizing on Chicago’s market access and research capacity.

They aren’t just health firms, either. Agribusiness also enjoys the spillover effect from the industry’s ideas and talent. When pressed to clarify Chicago’s advantage, startups acknowledged that there didn’t appear to be a particular market Chicago specialized in or enough incubators specifically working on healthcare. Clearly, there’s more that can be done to cement Chicago’s already impressive lead in the healthcare market.

Energy and healthcare, meanwhile, also have definite ecosystems within the Chicago metro area. Clean energy startups feel they have the wind in their sails, easily trumping the prominence of communities in Boston and Austin (two other energy hubs). There are over 200 such startups in Illinois employing some 300,000 people.

Some were skeptical of the nascent industry, either as lacking the competitive advantage of a play for Chicago’s water resources or avoiding the opportunities in conventional fuels. More to the point, the clean energy startups were concerned that without government support their place in the state market was not competitive. Nevertheless, the clean energy startups were not only among the most hopeful of their prospects but also some of the most coordinated of all the industries present for the day’s discussions.

In education, more Chicago startups have scaled up to several hundred million in valuation than in Boston or New York City combined. Along with Minneapolis, the number of successful Midwestern education startups surpasses that of California. Yet the challenges they face in Chicago are similar to those of other cities. The bureaucracy sits like a maze in fog. Vendors with the best solutions are routinely bested by those with the best relationships. In turn, the educators feel that they see startups posing solutions to problems teachers don’t have. They also have no one on staff that routinely works with startups to find good partners and help merge their cultures after the educators have bought in. Administrators need faces and names and consistency and time—all of which happen to be scarce and hardly scalable resources for startups. And yet, with the scope of Chicago’s education market and the right amount of early adopters, startups have actually flourished there and can now take on other markets.

Chicago is not just a lab for startup-derived technology, but an adopter of it as well. Navigating the procurement process in Chicago as a smart cities startup means working with one decision-maker working out of one office. The office of the city’s CIO enjoys remarkable latitude and authority. Getting the city to adopt a new idea then is not a difficult process to navigate. It just, like in most cities, takes time spent building awareness. Or as simple as jumping onto a larger RFP, since regulations sometime help incumbent firms stay closer to Chicago’s city government.

The simple reality for most smart cities startups is that a metro area with lots of little neighborhoods is the biggest prize around. That happens to be Chicagoland in a nutshell. There are 16 counties within its borders as well as another 27 urban areas and clusters. Within each of those designations sit another set of municipalities (135 of them in Cook County, the heart of Chicago, alone). Reaching these cities will not necessarily be a recipe for encouraging bleeding edge tech adoption, but it earns these startups a market, and fast.

As one startup leader noted, when it comes time to implement an idea, you can hardly do better than Chicago. It has deep community and even deeper markets. But more important is the city’s knack for reinvention.

To say that Chicago would be a hub for healthcare, energy, education, and smart cities tech just ten years ago would have seemed a dubious claim. And yet Mark Twain knew this truth of Chicago long ago: “It is hopeless for the occasional visitor to try to keep up with Chicago–she outgrows her prophecies faster than she can make them. She is always a novelty; for she is never the Chicago you saw when you passed through the last time.”