November 27, 2013
Kudos to the Chicagoland Entrepreneurial Center for picking a businessman to run its startup incubator, 1871.
Notice I said “businessman,” not “entrepreneur.” I've come to distrust that highfalutin' term, which too often confers status without accomplishment.
Anybody with a half-baked idea and no full-time job can claim to be an “entrepreneur.” A “businessman” or "businesswoman,” on the other hand, has a business. You know, the kind that sells actual products or services to actual customers. For actual money.
That's what Chicago needs. And that, lucky for the CEC and 1871, is what Howard Tullman is.
As my colleague John Pletz reported, Mr. Tullman has signaled he will bring an “up or out” philosophy to the CEC's 1871 startup incubator in the Merchandise Mart when he becomes its next CEO at the start of 2014. In other words, he'll expect incubatees to prove their ideas have some value in the marketplace. Or, to put it more concretely, he'll expect them to sell something to somebody. And he'll measure success by revenues generated, not by investment capital raised.
Without that kind of discipline an incubator can turn into a cocoon that insulates startups from the market forces that will determine their ultimate success or failure. It can become a magnet for the angel investors and venture capitalists willing to prop up some Mark Zuckerberg wannabe while he figures out how to turn a “vision” into a business.
Mr. Tullman knows what it takes to build a real business from scratch. He's done it many times, dating back to the early 1980s.
BACK IN THE DAY
A lot has changed since people like Mr. Tullman, Mike Birck, Casey Cowell and Joe Mansueto were starting their businesses. In those days, there were no incubators, nor flocks of angels fluttering around fledgling businesses. To make it, startups had to generate enough cash to pay the electric bill.
Without cushions of venture funding, they learned to move fast, read markets, figure out what customers wanted and give it to them before somebody else did. That experience breeds the keenness, flexibility, resourcefulness and tenacity that make a business person.
I'm all for startup incubators, and I'm glad more early-stage funding is available these days. But these supports can foster the wrong kind of thinking as startups focus more on raising the next round of VC money than on landing the next customer.
If you're wondering what can go wrong when a company raises oodles of venture money before figuring out a viable business model, take a look at Groupon Inc. One of the most lavishly funded VC babies of all time, Groupon went public without a profitable strategy. Two years and billions of dollars in lost shareholder value later, Groupon still hasn't solved the riddle.
Let's not incubate any more Groupons.