Milwaukee Has Startup Ecosystem Elements, Awaits Chain Reaction

4/29/14

Obviously the startup communities on the coasts are different than those in “flyover country” (as it is often referred to). I’d like to comment on some of the differences between two startup communities I am familiar with: Boston and Milwaukee.

While I grew up in Milwaukee, I left after high school to go to MIT in Boston. I moved to San Diego after graduation, where I launched my first startup (a small PC consulting company), but moved back to Boston after two years. I remained there for the next three decades.

In Boston, I started three companies and worked at three other startups. I participated in the Internet Boom and suffered with the Dot-com Bubble (and crash). I co-founded one of the first entrepreneur gatherings in the area and interacted primarily with people in the entrepreneurial community. I spent the bulk of my “on the road” time in the Bay Area selling to other startups (like Cisco in the early days).

Two years ago I returned to Milwaukee and started a software company doing predictive analytics. I have become familiar with the startup scene here on the “Middle Coast” (Lake Michigan is a pretty big lake), and I want to share what I think makes a self-sustaining startup community, in light of what is blossoming in Milwaukee.

Startup community elements

Here are the elements I believe are necessary to have a self-sustaining startup community that will grow and be successful:

—Entrepreneurs: Most people think of entrepreneurs as people who enjoy (or are willing to) take risks. The word “entrepreneur” derives from the French word meaning “to undertake.” I have found that most entrepreneurs are people who are willing to “undertake” building a company because they see doing something they control themselves as less risky than just doing it for someone else.

Entrepreneurs are obviously the core fuel cell for a startup community. Taking a class does not make an entrepreneur. Funding a person with an idea does not make an entrepreneur. Being an entrepreneur is something that is built in.

—Startup companies: Taking that leap, quitting the full-time job, dipping into your savings, and finally launching the entity that is the startup company is the wrapper around the entrepreneur that will facilitate everything else. It is fine to dabble in your basement on your off hours when not at your day job, but it isn’t a real venture until you leap out of the plane with a bed sheet instead of a parachute.

—Customers: Without customers, a startup is just an idea that is fun to play with. For startup companies to survive, they must be able to solve a problem that people and/or companies have—and are willing to pay money to have fixed.

—Investors: Investors are not necessary for every startup, but they are necessary for a larger startup community to survive. Investors take financial risk in the hopes that the success of the company will provide benefits with a value in excess of the investment (financial value for most, but sometimes strategic value in the case of an investing customer).

—Talent: A startup can’t grow without a talent pool to draw employees from. Few startups can scale revenues without scaling people. The new employees need to be able to solve the customer problems and be willing to join a company that is not as stable as an established firm.

—Schools: Schools (primarily colleges and universities, but also high schools) are the factories that produce many of the ideas and much of the talent needed by the startup communities. They are necessary for developing the skills needed to perform the work the startups and customers will do.

—Environment: All of the startup activity needs a fertile environment to operate in. Locally, this means being a place people want to live in, having the ability to commute easily, having access to vendors like lawyers, accountants, and bankers, having office space available at “startup prices,” having access to an airport, and more.

It is not enough to just have these individual elements. They need to interact in a series of feedback loops that produce a sort of chain reaction that keeps the community thriving and growing.

Like the proverbial “chicken and egg” problem, having the elements doesn’t cause the chain reaction to start. It requires work and support to kick it off. Many of these elements must be started individually, and often with great expense and effort.

Milwaukee vs. Boston

Obviously Boston (and the Bay Area) have all these elements in abundance, and the critical mass and chain reaction are in full swing. It didn’t happen overnight, but over decades. And now it can actually be overwhelming to get a handle on all the elements in play and almost impossible for startups to get noticed in the fray.

But the East and West Coasts are exceptional and may not be the best examples for a young startup community to compare itself to. It would be like trying to become a good basketball player by only comparing yourself to NBA stars. It’s nice to know what is possible, but it can be misleading and demoralizing to think that’s what you have to be to be successful.

My experience in Milwaukee is far more limited than my experience with Boston, but I feel I have a good handle on what is happening in the area. And I like what I see.

The startup community in Milwaukee has really blossomed in the two years I have been back. Startup support groups and accelerators have been growing; more people interested in startups are coming to meet-ups; more investors are getting involved in younger companies; government is taking an interest; big companies are willing to consider becoming customers of startups; and startups are actually getting some traction and generating revenue.

Something big and exciting is under way, and we need to keep it going. Initial successes will take awhile, and the community as a whole needs to understand this and not expect to get “the next Facebook” overnight.

Milwaukee hasn’t hit the critical mass to trigger the chain reaction yet. It’s moving in that direction, but a sustained effort is needed. I see no reason why it can’t be done if people are willing to stick with it, be encouraged by incremental progress, and realize it won’t happen quickly.

Below are a few changes in the local collective attitude that I’d like to see more of:

—There are a lot of people coming straight out of school wanting to start companies. While this is not necessarily a bad thing, Milwaukee needs to have more experienced people launching companies. It is not enough to have a cool idea. A company needs to be founded on solving a problem a customer will pay you for.

Veteran workers know which issues exist in the industry in which they have experience—and what it takes to fix them. They have management experience and have broader networks to tap. The “start a company in a weekend” and “become an entrepreneur in a few months” programs might be fun experiences, but I think they can set some harmful expectations about how quickly success in a startup can happen.

Just as useful is getting experience working in other startups. If you are interested in launching your own company, I highly recommend working for a while in the “real world” or at another startup.

—The large companies in Milwaukee need to relax their “not invented here” attitudes and consider that working with a startup might be a very cost-effective way to solve strategic problems.

Often a startup can provide access to a team of talented individuals that would not consider working at a large organization. They will often work harder because it is for them as much as for the customer.

Large companies need to understand how to work with a startup doing custom development as opposed to contract work. View the partnership as helping them develop a product you need, not paying them to complete a project you fund and own. It works, and everyone benefits.

—Investors in the Milwaukee area need to relax their risk preferences a little. There is a pretty strong tendency to only want to invest in companies that are already generating revenue from existing products with a solid business model. While this is a safe strategy, it will almost never result in the big win. And it won’t get many big-growth tech companies off the ground.

Knowing how to take more risk in a principled way requires knowing more about the markets. Attending pitch meetings and hoping some fully formed company with little risk comes in is too passive. Active interaction with, coaching of, and learning from the community will allow investors to get in on deals earlier and more safely—and get bigger returns.

These are just a few of my thoughts around the startup community in the Milwaukee area. I’m very excited by what is happening, and I am working to do my part to keep it going.

Art Mellor is CEO of Zero Locus, a Milwaukee startup creating predictive analytics software for large data sets using probabilistic graphical models. Follow @

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