It's a little depressing at this late date to find that I still have to sit through too many strategy sessions and lengthy lectures with various academics and other "experts" -- all of whom sit safely on the sidelines with no skin in the game -- being told what tentative investors we Midwesterners are.
They insist on lecturing us about the definitive difference between East and West Coast investors and us: that we're way too conservative in our investments and too hesitant in our risk-taking. We try to be polite -- that's another Midwestern fault, I guess -- while they conveniently ignore recent reports that almost half the venture investments in Chicago have yielded 10x returns.
Apparently, we still haven't learned the wisdom of failure and we're just way too afraid to fail. Better to play it safe than to be embarrassed by a bad outcome. Never mind that we had $8.2 billion of successful exits in 2015 in Chicago alone. I guess we didn't figure out that it takes a few falls, some badly skinned knees, and a lot of other disappointments before you get to grab the brass ring. We've failed failure.
The fact is, there's nothing all that difficult to figure out about failure; we get it. It's an easy knock on the world outside the Valley, but it's no longer one that relates to the new realities and the Rise of the Rest. Dealing constructively with different kinds of failure is a topic I've covered before. (See Who Said Failure Was Fashionable.) Failing, and learning from it, are essential parts of the startup world and of every decent entrepreneur's life (See Failure Happens. Four Ways to Do It Well.) About a million other people have also covered the subject, so it's not exactly a mystery waiting for old Sherlock to come along and set us straight.
But the traditional assumptions about the Midwest and the tried-and-true, very tired stories die slowly, especially if you're a writer who's too lazy to look around and see what's actually happening. Apparently, these people don't believe that we can read or that we've actually observed anything in terms of what it takes to build a successful business, or what approaches have really worked over the last decade or two. Honestly, the way that some Unicorns of yesterday are quickly becoming Unicorpses might even suggest that revenue-first investing, and a wee drop of caution and due diligence, might not be such a bad bet.
We farm boys (and girls) know a lot more about failure and its attendant emotions and painful responsibilities than the feckless frat boys (and girls) on the coasts who fail happily on a regular basis, as long as they're burning through Other Peoples' Money. The list of coastal unicorpses (Quirky or Kitchit anyone?) continues to grow as their VC backers casually write off hundreds of millions of dollars from grossly overfunded deals powered by OPM. To make things even worse, these deals look increasingly like desperate copycat bets that would never get done elsewhere.
These "go-go-gone" deals wouldn't get a second look in Chicago-; not due to some abject fear of failure, but because even the most amateur analysis would tell you that being the 4th or 5th player in a space that was a marginal business to begin with is simply a stupid idea. But, as Gene Kleiner used to say, venture capitalists will go to any lengths to try to copy someone else's success.
Granted, the Left coast in particular does indeed still have a very clear and specific edge in the "go big or go home" sweepstakes. That's all about the appetite (and, in fairness, actual skill) for rapid-fire scaling and the willingness to make big and some would say crazy bets. Reid Hoffman wrote about this distinction a long time ago, but his observation that, in tech-enabled businesses, "first-scaler" advantage consistently beats "first-mover" advantage still rings true. It's not about failing, it's about scaling.
And it's not simply a one-dimensional equation. The momentum and excitement generated by the player who gets big quick has a clear flywheel effect. (See The Future of Content Marketing) It pulls talent, funding and other critical resources to the venture and, even more importantly, takes a great deal of the oxygen (and cash) out of the marketplace that would otherwise be available to copycats and other potential competitors.
There's no other place in the world where a kid who's still wet behind the ears, bankrolled by some of the bluest-chip bankers out there, can with a straight face order 2,000 servers for immediate delivery, and actually be taken seriously. Until a lot more investors elsewhere in the country develop a willingness to commit resources at a level which is a full quantum more substantial than anything they've done to date -- not millions, but hundreds of millions -- it's entirely likely that the fabulous moonshots and the monstrous flameouts will remain a phenomena peculiar to the Valley. Inexplicable, even irrational, excess will -- albeit rarely -- produce previously unimaginable levels of growth and success.
But here in the heartland, we're OK with that. Here, money doesn't lead, it follows and the true capital in new businesses isn't money, it's ideas. If refusing to run through someone else's money like it's water while you figure out whether you're building a real business or backing a bozo makes us conservative or too wary, we're proud of the label and don't mind a bit being painted with that brush. In the end, it's never really about the money anyway. Money is just what people without talent or passion use to keep score. In Chicago, we prefer revenues and results.