Incubator CEO: Join Us Or We Will Destroy Your Business
By Jeff McMahon
Established businesses have to either invest in disruptive innovation or be destroyed by it, the CEO of a thriving Chicago tech incubator said Thursday.
The old way of funding tech innovation—by courting donors and venture capitalists at chicken dinners—is being supplemented at by investment from the large, established companies most threatened by innovation, 1871 CEO Howard Tullman told about 50 people at Chicago’s Metropolitan Planning Council Thursday evening.
“We’re saying you need to do this,” said Tullman, a serial entrepreneur who took the helm of 1871 just over a year ago. “You need to engage with the change and the power and the innovation of 1871 because of what we call enlightened self-interest. Because otherwise we’re going to eat your business and destroy you.”
“We say it more politely than that,” he added, “much more politely than that.”
Named for the year of the Chicago fire, which spurred a burst of innovation that remade the city and influenced the world, 1871 is a startup hub that houses 325 fledgling tech businesses in Chicago’s vast and historic Merchandise Mart.
The young businesses share office space, resources, mentors, and opportunities for what Tullman calls “lateral learning”—learning from what the others are doing.
In many cases, what they’re doing is mining data to solve problems, and in doing so, disrupting established businesses.
For example, moderator Michael Krauss asked Tullman if he’d heard that Expedia had just purchased Orbitz, a Chicago startup, for $1.3 billion. Tullman was nonplussed.
“We’re actually in the process of blowing up all those businesses,” Tullman said, describing an 1871 startup called that uses options trading technology to change the way airline tickets are sold and purchased. Instead of having to purchase non-refundable airline tickets at today’s price, or opt for expensive refundable tickets, consumers can use Options Away to lock in today’s price on non-refundable tickets up to 14 days while they decide whether to purchase.
“So that’s just an example,” Tullman said. “Somebody walks into your office and says, ‘By the way I’ve decided to change the airline industry.’”
1871′s businesses have disrupted an array of industries, often by cross pollinating technologies from one industry to another. And according to Tullman, no industry will be spared. On Friday Illinois Gov. Bruce Rauner attended the opening of 1871′s third expansion, housing a health-care tech incubator called
“Disruptive innovation is changing every single industry,” Tullman said. “We now engage on a B2B, on a business basis, with these major organizations not because they’re good sports, but because they’re smart businesspeople. That’s been a huge change.”
“Before 1871 you were a guy in the basement,” Tullman said. “You didn’t know there was one other person going through it. You didn’t know there were people who had similar solutions, people who had better tools, people who could show you how to do it better, people who could help you raise money—all of those things literally didn’t exist until 1871 put them all in one place and made them available to 1,200 to 1,500 people a day.”
“You were downstairs and your parents were like, ‘Are you ever going to get a real job?’ This way you can come to a new environment.”
“Data today is the oil of the digital age,” Tullman said. “It’s ours to capture and take advantage of. That’s where we think we’re headed.”
“Today you don’t build a Chicago business. On day one you have to think about building a global business or somebody will come in and eat your lunch.”
1871 still hosts an annual dinner for donors and venture capitalists, “and the chicken’s really good,” Tullman said, but that model is not sustainable because everyone is appealing to the same sources.
“The line is getting longer in front of the same doors and the same pockets and the same wallets.”
Instead, established businesses need to support the innovations that will otherwise usurp them.
“That’s what’s going on today. It’s where change is happening. It’s where the future is being invented, and it’s not optional—I mean, you know, survival is optional I suppose—but it’s not optional. This is what companies need to do.”