NEW CITY - THE CONVERSATION

The Conversation: Howard Tullman, Chicago’s Entrepreneur-in-Chief

FEBRUARY 1, 2018 AT 9:00 AM BY BRIAN HIEGGELKE

Photo: Monica Kass Rogers

By Brian Hieggelke

Howard Tullman is stepping down as CEO of 1871 in a few months, and even though he’s in his early seventies and has a lifetime of entrepreneurial achievements behind him, our conversation spent no time on the retirement motifs of golf, annuities or recreational travel. Tullman is understandably noncommittal on what comes next, other than continuing with his venture investment funds, advising 1871 and teaching, but you can expect there’s a “next.” He’s not retiring, but instead sticking to his lifelong tendency to move on to the next gig every five years or so. Since he took the helm at 1871, the hub for Chicago’s “technology and entrepreneurial ecosystem,” it’s grown dramatically and he’s ready to pass the baton. “When I got here, it was about one-hundred companies,” he says. “Maybe it started with fifty companies. Now it’s 500 companies, 2,000 people a day, 170,000 square feet of space. It started with 50,000. And it’s a highly profitable business, and it’s sustainable, because it’s not dependent on the city or the state or really anything.”

Tullman’s a classic serial entrepreneur, but he did not start out on that path. The St. Louis native moved to Chicago to attend Northwestern, followed by Northwestern Law School. He practiced law for ten years before he realized that his calling was business. He took his frustration with the state of data-based research offerings, then mostly available in periodically published, weighty and expensive tomes, and started a database business around the idea of real-time information, called CCC Information Services. Forty years, thousands of employees and billions of dollars of economic value later, that company remains in business in the location where Tullman started it, the same Merchandise Mart that also houses 1871.

The sort of interesting anecdote of the CCC story was the first venture fund that invested in CCC was called at the time Golder Thoma,” Tullman says. “The youngest guy on the file was Bruce Rauner. He was the bag boy. He was the guy walking around, and he’s now the governor, right?”

After CCC, Tullman immersed himself in a succession of technology-based businesses, from Imagination Pilots, a CD-ROM company where he made Hollywood connections when he licensed popular movies to become games, to JamTV (which became Tunes.com and later, eMusic), an early entry in the digital music universe. From there, a series of web-based business, including Xceed, where he found himself and his team locked in New York hotel rooms secretly building the web site for the “Survivor” TV show when 9/11 took down the World Trade Center just blocks from his Woolworth Building offices.

Back in Chicago, he took over ailing Kendall College and moved it from Evanston into the city, then launched Experienca, an educational center designed to teach entrepreneurship to kids and, finally, Tribeca Flashpoint.

“It grew out of repeated instances of parents saying, ‘My kid doesn’t want to go to a regular college. He hates everything but digital. He’s in the basement’,” Tullman recalls. “So I said, well, we’ll build a two-year, high-end, vocational school. Just as Kendall was. Kendall was a two-year, high-end vocational school in culinary and hospitality. And these were people getting jobs. And that was the design of Flashpoint.”

He then sold both to Laureate International Universities, getting out of for-profit education just before political pressure knocked the wind out of the business. At that point, the high-profile 1871 was ready for him.

Before 1871, Tullman was as well known for an art collection featuring provocative paintings as he was for his business enterprises. In person, Tullman has a certain aging-rocker presence, soft-spoken with longish hair and a casual wardrobe. But when he speaks, he’s all business. What follows is a transcript of our conversation, edited for length and clarity.

Photo: Monica Kass Rogers

The first thing on your Wikipedia page is “serial entrepreneur.” When did you realize that was what you were? 
When I determined that when you’re a lawyer, a litigator, it’s a no-win proposition. The defendant hates their life from day one, because they’ve been sued by somebody, so they’re just paying bills. And the plaintiff usually has some enthusiasm early on, and then also gets sick of paying the bills. And so if you’re the lawyer on either side, you’re constantly dealing with a client who says, “Why do I have to pay that?” Or, “Why is it costing me?” It got frustrating to feel that nobody wanted to pay you to do the kind of job that you would be proud of. To do the right research, the right preparation.

And what I always say about this is, as a lawyer, I was just dealing with money. What I can’t understand is how any doctor keeps from killing themselves, when some clerk in Omaha says to some doctor, “I’m not paying for these three diagnostic tests. Wing it.” It’s like, “What? Somebody’s life is on the line here, and some asshole clerk in the middle of nowhere is saying, ‘Well, we don’t cover that.'” I just didn’t want to be in a place where I didn’t think that I could do the absolute best job that I could do. If it was time that I was willing to spend, and if it was effort, it was energy, it was lack of sleep, whatever it was—that’s my ethic.

The serial nature of it has been that they’ve all been technology-based, and the technologies have pulled me forward. Look, we’re in the seventh iteration now of this technology thing. The mainframe was one, the PC was two, the web was three, the [mobile] phone was four, social was five, AR [augmented reality] is six, and seven is really going to be blockchain.

That will be the singly most revolutionary thing; that every kind of transaction that we used to understand was paper and pencil will now be digital. And just to give you an idea, JPMorgan Chase just eliminated 350,000 hours of legal review of standard contracts, because now, you don’t need it anymore. It’s a contract that’s locked. There’s no way—nobody is going to fiddle around with it. You don’t have to have some lawyer at 900 bucks an hour poring over it to make sure the typist didn’t screw something up.

That’s just the beginning. These are hundreds if not thousands of jobs, in all kinds of industries. Consider the oil-rig business—the price of oil went way down, 400,000 people lost their jobs. A lot of the rigs were put on mothballs. The rigs have come back now. The jobs haven’t come back. There’s only about 200,000 jobs. Because in the meantime, the technology became so advanced that five guys control a rig now instead of twenty-five guys.

So the serial thing was just that the technologies represented ways that I could envision new kinds of solutions. And each time they came along, and each time I reached a certain point in my career, I’ve been lucky enough to construct or think of or design new kinds of systems. And what’s so funny is, to me it has been entirely consistent. Other people look around and say, “Well, how did you go from being a lawyer to making movies?” And I’m like, “Well, you don’t understand. I was using a database to make these movies.”

Let’s talk about the loss of jobs that comes from the efficiency effect of technology and innovation. What happens to what was once considered the middle class?
My answer is really sort of a dual answer that has to do with both ends of the spectrum. I’m not concerned about the kids. We’re the immigrants. The kids are digital natives. They get this stuff. You see a five-year-old or six-year-old swiping, and you know they’re going to be OK.

What I’m concerned about are, first, people fifty and up—if we don’t upskill them, they’re fucked. And, they’re not going to do us the courtesy of dying when they’re sixty. They’re going to be around a long time.

And to the issue of the middle class, what I’ve done at Kendall, what I did at Flashpoint, what I’m trying to do with the kids at Dyett [Dyett High School for the Arts, where he teaches], is all of a piece, and the piece is we’d better figure out how to remove the stigma from high-end vocational training. Because those are the jobs that aren’t going to be exported. Those are the jobs that are going to be a path to a realistic middle-class income for people that can be trained to do that.

And we can’t look down on them, because frankly, the joke I always tell is my plumber said he was charging me 120 bucks an hour, and I said, “The doctor doesn’t charge me that.” And he said, “When I was a doctor, I didn’t charge that either.”

The truth is that the trades are one path for reasonable employment. The other truth is that—to give you some idea of the statistics, in 1990, the big three automakers employed 1.2 million employees to generate about $250 billion of revenue. Today, the analogue is the top three tech companies. Same number, probably more. Probably $300 billion. 135,000 employees. Ten to one. We have to figure out a solution for those people.

In the hospitality business, if you look at Marriott and Hilton and Airbnb from a market-cap standpoint, Hilton is about $20 billion, Marriott is about $40 billion. Marriott has 220,000 employees. Hilton has 160,000 employees. So 400,000 employees. Airbnb has 3,600 employees, and a $31 billion market cap.

Why? Because they invented something. They invented this economy. They invented this connection. They invented and have relied on “the trust economy.” In what world would we have believed that we were going to let complete strangers live in a bedroom in our house, or get into a car with complete strangers, or send our kids to school in a car that we didn’t have any clue who the person was showing up or driving?

Big changes. And I don’t really know the answer. I don’t think anybody knows the answer. I think another tsunami that is coming, that we’re not remotely equipped for, is what are we going to do with the general aging population in this country? They’re not going to go—there are not enough senior citizen homes, even if that was the way to do it. So, you’re going to have to have a world of aging-in-place, which means even if mom and dad would like to get out of the house, it’s actually much better living than living in some shithole senior housing thing.

But we have to figure out how to provide care for them, and how to provide support for them, and feed them, and all these kinds of things. But every one of those things represents astonishing opportunities. I’ll just tell you that I’ve been working like the last month or so on—distributed across the City of Chicago there are convents, which are empty. And they’re well-maintained on the outside, because the church is a pretty good maintainer. Inside, they used to be these little nun things.

What I pitched to the archdiocese is, “Let’s turn them into senior living. And we’ll have a common kitchen, and a common education space or something, and we’ll take every two nuns’ little things and turn them into a little apartment.” All they need frankly—they don’t need a kitchen, because they’ll cook centrally—they need a toilet and a place to sleep.

The astonishing thing is that the population to fill those places exists right there in the community. The priest is the best salesman you’ve got. He’s like, “Your husband died? I’ll put you in here. We’ve got a common car. We’ve got a garden. It’s a beautiful thing. It’s right next to the church. You remain part of the community.” And how much better is that than shipping them off to someplace in Barrington and saying, “Go live here with a bunch of strangers”?

And that real estate is sitting there rotting. They store the crèche and the Christmas decorations in there, and that’s about all that’s going on. I honestly think keeping the senior citizens connected to the community is healthier, and it’s more additive.

Tell me about Dyett High School.
I’m teaching a class for ninth-grade entrepreneurs at the Dyett school on 52nd Street. Honestly, if we don’t fix the education and make school exciting or at least interesting again, I don’t know what else we think is going to come out of this, but nothing good is going to come out of it. So I’d like to see those programs expand.

I think half of what kids are learning, if it’s just half, is outside of school now. We have to figure out ways to provide those resources to the whole community, not simply to the kids who are at a magnet school or a place like that.

It was one of the schools that was going to be closed. And the parents had a hunger strike, and the city caved, and re-envisioned it, brought in a new principal, turned it into an arts school, Dyett High School for the Arts. The first year was only 150 students in this facility that used to have 1,000 students. Huge physical plant. They spent about $15 million to refurbish it, some of it, and it’s a beautiful facility.

This year, we have the freshmen who are now sophomores, and then we added 220 new freshmen, so it’s growing, and the interest is substantial, and the parents are engaged. And also we’re developing some community programs as well, to use other parts of the building as a hub for community activities and things.

Is that regular CPS or is that charter?
It’s a regular CPS school, and it’s one of the new community initiatives. We just did a program with Vic Mensa; we’re building a recording studio. But the focus will be less on hip-hop and playing music and more on writing and some of the entrepreneurial aspects of the arts, but with a focus on music for those guys. It’s Vic Mensa and it’s Rhymefest, and a whole bunch of Chicago folks.

Years ago, right after I did Kendall College, I did a project called Experiencia, where we were teaching fourth, fifth and sixth graders to be entrepreneurs and scientists. And we built a city, and they came, and they ran the city. We did about 50,000 kids, and then we sold it to the Girl Scouts. That experience informed both 1871 and also Tribeca Flashpoint, and also frankly what we’re doing at Dyett.

Do you get a pretty broad socioeconomic and racial mix, or…?
No. It’s all free lunch, free breakfast kind of thing.

What has the response been by that student body to what you teach them? 
First of all, it changes their perspective. They lean into things now. They’re not like, “I’m going to be a policeman, a fireman, a drug dealer, or a nurse.” They actually think that they can be an entrepreneur. They understand a little bit more about what that means and that gives them some agency and some understanding of other opportunities. And we bring them down here [to 1871], and they see what’s going on down here.

We’ve seen literally the first cohort—we have improved attendance, and we have improved GPA. And if we repeat that this year, that will be proof positive that you can influence these kids in a positive way. We built a special classroom, and it’s got all kinds of special technology and stuff, and the whole rest of the school doesn’t. I had to sort of make my peace with the rest of the teachers. But one of the things I told them was that it was as important—these are life skills, and I really thought the kids would show up better, and they would get a sense that these kids were more on purpose and more focused, coming out of this class, in the rest of the classes. And that has been borne out.

Photo: Monica Kass Rogers

Talking about the South Side and startup culture, it seems like there would be an opportunity for something, but it needs some sort of incubation or spark. What’s your sense about that?
Theaster [Gates] is doing some interesting things. I think that Bronzeville is a real opportunity area. I think that the McCormick Square is a significant commitment of resources. You go down there—I just was at a game—my first DePaul game. Amazing facility, that new stadium. And I think that there’s a chance for that to anchor some new development.

And then I think that one of the things that I like about this thing we’re doing with Rhymefest is that music—his view is all of the people—Kanye and Common and all these people—came from Chicago, and they left. And his thing is, there’s no reason they needed to leave. I mean, Chess Records was here. Chicago has a huge history of music.

I did some stuff with the blues people and with all the different clubs and things over the years, when I was running Tribeca. And so, I think that the feeling is that all of the entrepreneurial culture around the arts and music is one of the ways to re-envision how Bronzeville can be a whole new sort of rebirth.

And when you drive around there, there are some beautiful homes. There are some beautiful properties there. It’s all part of a strategy that is, and it has to be, organic, and it has to be driven by the kids and their parents. It’s not going to be something that the city does. But I think there’s a real possibility.

I also think that the U of C—this just isn’t remotely in their wheelhouse. This is not something that they can get their arms around. And so, I think it’s going to have to be done apart from all of the different sort of structural entities in the city.

Why do you feel that way? They’ve got a business school and the Polsky Center…
They have a business school. But you know, the MBA programs, these venture plans—the last couple of years, in fairness, they’ve started to have a focus on some social good, on making a difference, on some kind of solutions. But fundamentally, they’re business plans, and they’re about building economic businesses in this new world, which is a connected world and a digital world, and a technology-driven world. And we need to start a little lower.

One of the problems with the Whole Foods that’s sitting in Englewood, and some of the stuff, is if you really understand how a dollar works—a dollar spends about seven minutes in the ghetto. In the Englewood area. Seven minutes. Because then it goes to the corporate partner. It goes out.

To build something that is going to really rebuild the economic environment down there, it’s got to be a local business that’s locally owned, that’s providing services to the local population, and that employs local workers.

This is one of the reasons why, for all of the bad things, Uber is really interesting. There are people who are able to go places, people who are employed, people who are making a living, out of nothing. Just out of nothing, because of an enabling technology.

We’ve talked to a number of the churches. The churches could be business incubators. You don’t need bricks and mortars. You need sort of the instruction and the resources. There are big churches, and a lot of the churches are like, “Well, we’re going to build an incubator.” We’re like, “It’s not about the real estate. You’ve got plenty of real estate.” It’s about a strategy that really is going to help people be successful in the community.

We’re working with Bright Star, we’re working with New Life [churches]. We’re working with several of these—Corey Brooks is here regularly and some of these other guys, Chris Harris—who are next-generation pastors. Really next generation. They’re business people. They’re people who understand economic development as much as they understand the religious components of how they connect to their congregations.

We haven’t focused on the violence stuff. We haven’t focused on the crime stuff. We’re trying to just stay within the things where we have some reasonable credibility.

Talk about what 1871 does in a general sense.
We have on our plate twenty different business ideas, and every one of them is astonishing. I’m trying to figure out how do I populate these with teams, because that’s another part of what’s going on. We have ideas where we’re looking for entrepreneurs, and then we have companies coming to us and saying, “Can you help us be innovative?” And truthfully, that’s the real gain here. 1871 was not built necessarily to build startups. It was built to do economic development. And the economic development is changing the way Allstate does business, not the way that Joe Blow and his startup with three people does business.

And we’ve done that. Allstate now uses one of our phone apps to do collision estimating. It’s such a sea change that two years ago when I first showed this to them—because these were all my customers in my CCC days—they laughed. We said, “No, you don’t understand. Six out of ten times, we can do with a phone what you’re sending somebody halfway across the city to do.”

And two years goes by, and they announced two months ago, they’re closing all the drive-ins, firing 500 adjusters. Guess what they’re doing? They’re using the phone. Why? Because when you take pictures—and it’s not the adjuster, it’s you at home—you take ten pictures, we’ll adjust that loss. We’ll do twenty a day instead of two a day. We’ll adjust it in three hours instead of three weeks. And there isn’t an insurance company in the world that isn’t going to do that now. There may be three or four companies providing that technology to them, but we were first.

And I think ultimately there won’t be. It’s a winner-take-all thing, so I think eventually these companies will give up the ghost to try to invent their own. Because what’s interesting about the platform economics is we can invest millions, because we’re doing it for forty insurance companies. And let Allstate try to keep pace with that.

Now when you say “we,” who is “we” in that scenario?
Typically, when I say “we” apart from the royal “we,” it means 1871 companies, where we’ve done something different from simply hosting them and helping them be successful in themselves. And that’s this whole practice around connecting our startups to larger companies, and managing the process, and doing the matchmaking, in order to make them successful. Because it’s really hard.

You’re not taking equity as a company in these things?
We have seven venture funds here. We’re a non-profit. So 1871 does not, but everyone here is free to. And a lot of people do. A lot of our board members are mentors and investors. The venture funds that are upstairs. Our corporate partners invest in these companies.

What we’ll do is build the technology, and then twenty different companies will go use it in whatever it is they’re doing. And it’s an enhancement, and they don’t have to invest in that technology and the time in making it industrial strength.This is something that is so completely unique to this place. And it’s because you have a technologist running the place. It’s because this is what I love doing anyway. We have three or four proprietary technologies that are being used by our businesses all over the world.

You said, “I’ve got twenty ideas here, and we’re looking for entrepreneurs for them.” That does not sound like the classic model of “I have the idea and I bring it to you the investor and sell you on it.”
Here’s what happens that’s different. We take about seven out of ten people into 1871 who come to the front door. And for a few, we say, “No.” We’re a B2B thing, so if you’re building a dating site for pets, we don’t care. You know? If you’re the four-thousandth provider of some kind of ice cream, we don’t care, right? Number one, show me how you’re going to save me time, money, make me more productive, help me make better decisions—those kinds of things. But even when you get in here, a bunch of times, your idea doesn’t get traction. Somebody else has got a better version, whatever.

So we do a lot of moving of this talent around. We have two full-time recruiters. We have schools here where we train these people, and then they go work for our companies as well. I have this huge talent pool that’s fairly mobile, and this is how they want to spend their lives.

It’s a little different, because when the VCs tried to do this, they failed one-hundred percent of the time. The VCs tried to do rollups. You know, let’s go hire the number-three guy at waste management, and do a garbage business. And the number-three guy, he would take it, but he didn’t have the passion. He wasn’t entrepreneurial.

Here, you start with people who are entrepreneurial, but everybody understands that the desire plus the idea still takes a whole lot. And so that’s what I say. And when these big companies come to us, they say five things. They say it so consistently it’s astonishing. “We’re not inventing enough new ideas internally”; “The people who built it won’t break it”; “We can’t hire these young technology people”; “We’re doing things in years that we need to be doing in months.” And, “We’re scared to death that all the domain expertise can’t be transferred to these next generations. We don’t have a strategy for doing that.” So we help them do that.

Here there are four groups of people. Everybody thinks 1871 is all complexion-challenged fifteen-year-old white guys. You know, little entrepreneurs. We have serial entrepreneurs who are really smart, and who are like, “You know what? I’m not going to invest in an office lease until I see that the dog eats the dog food this time around.” You’ve got guys who are forty and fifty years old sitting next to people who are fifteen years old, in essence.

Serial entrepreneurs, young entrepreneurs, career changers. You know, “I spent my twenty years, now I want to go do my passion. I want to go do something I love.” And then the last one is really what you said, and that is people with domain expertise, who are really smart, and know everything about their business, and don’t know the technology at all.

We’ve got an ophthalmologist here. For twenty years, he has dreamed of a practice-management system, and he has been trying to jam his business into Salesforce or Quicken or QuickBooks. Now he’s here with two kids, and it’s hard to tell who’s more excited. And they’re building an app and he knows exactly what it should do. He’s got plenty of money. But the biggest thing he has is, if it works for him, he’s got 399 other members of his ophthalmology association, and they’ll all buy it in two seconds. And then we’ll take that platform, and we’ll go to dermatologists and a zillion other people.

And that’s the model. And that creates a tremendous amount of value to the companies, to the participants. We’ve really grown from simply serving the entrepreneurial community to really trying to figure out what’s a model for building real economic development for the whole city—moving the needle for big companies, helping big companies inject this technology and sort of this methodology. That’s all part of what goes on here.

Photo: Monica Kass Rogers

Talk about the broader kind of culture of startups and technology in Chicago. Back in the late-nineties days of “Internet 1.0,” everybody pretty much failed. What’s different now?
I think there’s a couple of differences. Look, you couldn’t explain to me why the market is performing the way it is. You couldn’t explain to me Bitcoin. I sold mine a while ago. I do think that the big wave was connectivity. Here’s the biggest difference. In the old days, you had two elements. You had scale and you had targeting, and you had to do one or the other. If you wanted scale, you had to have a very broad message. This is why TV is so screwed, because it’s one-size-fits-all. It’s a thirty-second commercial. And with digital I can do fifty slices, and I can target you specifically. That’s the big change.

Mass customization is what I call it. And it’s really customized, individual targeting at a scale that was never possible before, all enabled by the fact that we’re all connected by these devices. Everybody is walking around with a connective device, and we look at it 160 times a day, three-and-a-half hours a day. And it measures everything. It’s not a phone. It’s a digital tracker. And we can see where you are, and what you’re doing.

And the biggest change is that you can be global overnight. You have no distribution costs. And when you take capital out—the mainframe doesn’t cost you anything more, because you rent it by the minute from Amazon, and you take distribution out—and the next thing we’re taking out is transportation. 3D printing—thirty percent of the plastic parts that go into a car dealership every week cost more to ship the part than the part costs. So you can bet we’re going to be pressing a button in the inventory department, and when we need that piece of plastic, we’ll print it right there. We’ll have no transportation costs. Transportation costs today are fifty percent of the delivery cost of most finished goods.

These are sea changes. And by the way, it’s going to make it so hard on the transportation industry, it’s hard to imagine. You know, Amazon has stores with no cashiers. There’s eleven million cashiers in this country. And you know what? We thought the ATM was challenging. Now, who wants to deal with a teller? Who even wants to go to the bank? It’s like scan your check and deposit it, right? That’s just the beginning.

All of these things—everything in our lives is about speed and convenience and access.

Amazon has buttons that you put on your washing machine, and when you’re out of Tide, you press the button, and they ship you another container of Tide. You think you know what you paid for it? You think you care? You think you’re going to wait until Wednesday and maybe there will be a coupon in the newspaper for Downy, and you’ll go Saturday? Fuck that. You know? Replenishment, automated replenishment, satisfying demand in real time, right now—these are changes.

And what is so astonishing is when we experience this hyper speed, we apply it to the whole rest of our life, like overnight. It’s like, wait, I can get a flu shot at Walgreens this afternoon in five minutes? You think I’m going to wait three weeks for my internist? And then I’m going to go and pay ninety bucks and have a nurse do it and I’ll never even see the internist? Are you crazy? I’m going to Walgreens. It’s free! Then we say, “Well, why would I wait for anything?”

We’re ordering a tremendous amount of stuff online. The shocking thing is fifty percent of the time, we go pick it up. Why? You’re supposed to be a couch potato. “No. I want it now. I want to go get it.” You’re going to see kiosks now, in the middle of the parking lots at, like, Northbrook Court, and mom will drive up, because she doesn’t want to take the kids out of the car and the kiosk will have pre-assembled the packaging from three different stores that she shopped at. They’ll tell her it’s available, and she’ll swing by and she’ll never even get out of the car.

Which is tough. Which means the malls are under tremendous pressure. There’s about 1,000 malls in this country. A hundred of the malls represent fifty percent of the value. A hundred of them. Nine hundred of them are screwed, and they don’t know what to do. They’re trying to re-envision themselves, in every respect. They’re desperate to establish identities. And one of the reasons they’re so desperate is that the big chains that supported the malls for so many years are over-stored.

To cover the United States, you need about 800 stores. Most of the big chains—TJ Maxx, whoever they are—900 to 1,200 stores. They’re just ripping these stores out. And when they decide who to rip out, it’s based on how they regard the personality, the demographics, the affluence of a given mall. If it’s a crappy mall, they’re gone.

These malls are trying to figure out, how do they tell a story. We have GGP, we have all the mall guys—Bucksbaum—trying to have us help them figure out what does the future of the mall look like? What other uses can it be? What do you do with it? And because so much of what we used to buy every week—seventy percent of what you buy every week at the grocery store is the same stuff—that’s going to be automatically fulfilled. Now, you’re not going to be schlepping all of these commodities. You’re going to go there for an experience, and the footprint is going to be a fraction of the size.

This is why Amazon bought Whole Foods. Whole Foods and Costco turned shopping into entertainment again, not a chore. And Amazon knows that, and Amazon also knows a lot of other things. That transaction was staggeringly smart. All of these behaviors are changing. They’re changing in ways that are really materially different, and they enable small companies to be successful on a scale that also was never possible before. You know, we have companies here doing a million dollars, two million dollars of revenue. Three or four people.

What is the startup environment in Chicago right now?
I think that it’s pretty good. I think the three things that I would tell you that are encouraging me is, first of all, from a sheer volume standpoint, number of employees, number of businesses, it continues to grow. Everybody wants to be an entrepreneur, which is good news. And hopefully it will be good news in terms of incenting the kids to stay in school and learn a different set of skills. Number one is that there’s sheer growth.

Number two is the focus is B2B. It seems more serious. It seems that these are being operated by better teams, including serial entrepreneurs. And they’re taking on more serious programs and problems. They’re not like dealing with cats and dogs.

And lastly, I think as much as we complain about it, I think there’s plenty of capital—both startup capital, and growth capital. Maybe nobody’s writing fifty-million-dollar checks. Big deal. The truth is the model here that will be successful for the next ten or twenty years is, you get a company to ten or twenty million bucks, somebody buys it for fifty million bucks, and they fold it into Kraft, or Mondelēz or whatever, and you go to do your next thing. We don’t bet $300 million on something that, if it doesn’t hit, loses $300 million. That’s still not the culture.

That’s not our model. We’re not building once-in-a-lifetime moonshots. I’m trying to build a sustainable thing where five out of ten companies, as opposed to two out of ten, which is the best venture record in the world. It’s like baseball. I’m trying to build something where four or five of these companies become economically viable enough that they can be folded in or combined with other existing businesses, in an economy, by the way which is pretty diverse.

One of the things that Rahm says that is exactly right is, we have no single sector of this economy that’s more than twelve or thirteen percent. You go to Boston, and if you’re not in healthcare, forget it. You go to L.A.—if you’re not in media, forget it. Or New York—fashion, maybe finance. But here we have CPG [consumer packaged goods]. We have logistics. We have a lot of different opportunities. You can build a lot of different companies and a lot of different areas.

I think that we [1871] haven’t lost the crazy discipline around it. We’re tough to get into. We’re tough to do. These incubators are proliferating, these coworking spaces. Frankly, I think a lot of them will fail. They’ll fail because it’s not about the real estate. It’s about everything else that we add. And so you’re starting to already see some contraction. You’re also starting to see a proliferation of highly verticalized things, like food and fashion and music. Very tough. Very tough to make a living in a vertical—there’s just not enough business. There’s not enough businesses. There aren’t one-hundred businesses showing up every month saying, “I want to be in the music business.”

What does 1871 look like in ten years?
I don’t know that there will be an 1871 in ten years. I think that companies, in order to survive in the global economy, companies are going to have to get over this reluctance that they have to internalize true innovation and to really do this stuff. What happened in the last fifteen years is that they went to sleep on R&D. They didn’t spend a dime on R&D, because that hit the P&L. They’re trying to make it up now, through M&A—they’re desperate—but they don’t know how to do it.

Right now, we’re the enabler. We bring the startups to these big companies. But over a period of time, they have to take this expertise inside. And then 1871 will be a different entity or whatever it is. I think if 1871 lasts a decade, a decade and a half, that would be extraordinary.

And we have to keep going. We have to provide resources around blockchain, around AR, VR. Around these new technologies. Because standing still is not sufficient. When we started, we were about mobile apps. And we were also about mobile apps in a vertical, where if somebody came in and said, “I want to do a food startup,” we’d say, “You’re in the wrong place.” They were really snobby the first year.

And now, what industry and what business isn’t technology-enabled? There’s nothing. Now it’s just a question of focusing in on the things that we can really bring value to, ignoring the things that I don’t think are going to be viable and big, and then hiving off things like medicine, which we do down the hall at Matter [a dedicated healthcare incubator], and hiving off a few of these other things. That’s the story.

Talk about your personal experiences with failure. 
Haircuts. Haircuts have been the largest set of failures that I’ve had. Whenever I get my hair cut, I regret it almost instantly.

First of all, entrepreneurs are always looking forward. They learn from their prior experiences but they don’t dwell on them. It has been ridiculous. I’ve had twelve or thirteen successful businesses over fifty years. For better or for worse—when people ask me this all the time, I say that I regard even the things that didn’t grow to the level that I expected or hoped—I’ve been really smart about it. I didn’t raise $100 million and piss off like half the city of Chicago. Or we found a reason or we pivoted or we morphed. I’m very astute at the way these things operate.

When I sold the schools, it was two years before the entire for-profit industry blew up. Before Dick Durbin was like, “You guys are all scumbags.” We’re like, “Dick, these are the biggest corporations in Illinois. Do you really want to be driving them crazy?” I sold into Laureate at the right time. I’ve been fortunate.

CCC is thirty-five years old. Cobalt, which is my company in Seattle—twenty-five years old. To build sustainable businesses over these periods of time, you’ve got to be really lucky. You have to have great management teams. One of the things I’ve done is, in every single business, I take some of the people from the prior business into the next business. Give them a chance to step up one level. You have to do that, if you’re selling an existing business. You can’t really strip everybody out.

But you know, failure has not been the lesson for me. What has been the lesson for me is how hard you have to work, how persistent you have to be, how you have to understand that you can’t build a company in your own image. You have to have people who just want a job. As long as they do their job, that’s OK. They don’t have to be zealots. They don’t have to be insane, neurotic entrepreneurs.

My lessons have been about teams and about success, perseverance, and also about a deal that I made a long time ago. And every time Tom Alexander or the people here talk about work-life balance—I don’t have work-life balance. But two years before I joined my law firm, I met with the senior partner of Cravath, Swaine & Moore, the fanciest law firm in New York, and this guy told me something that has stayed with me for literally every day of my life since then.

He said, “There are three buckets. There’s your work, there’s your family, and there’s your recreation.” And he said, “I love my work so much that it is my recreation. And I understand that I have to spend time with my family, or I won’t have a family. But I don’t go to the golf course all day Saturday and Sunday and pretend that I’m with my family because my kids are at the pool. I actually devote time to my family.”

And that’s a deal I made, and I wouldn’t change it. I exercise, for sure. I exercise seven days a week and I read an astonishing amount of stuff. But the idea that I would go bowling with the guys or have a golf weekend—that just has never been a part of my life. And that was as important a lesson to my success as anything, because I work one-hundred hours a week. And you can’t do that. You can’t even do the math to understand what that means, because there’s no time to go to the bathroom if you work one-hundred hours.

But I do, because it’s my pleasure, and it’s my joy. And when I get home and it’s 11:00 at night and I’m writing my Inc. column, this is sort of my recreation. And I also feel like it’s really important. When you write—and you know this—you want to put something out there that you can believe in, and that you actually think is going to create value and it’s worth doing it. This is hard. This is hard work.