Business

Why the Midwest is better for startups than saturated Silicon Valley

Above: Kansas City, Missouri

Matt Lautz is the president of the cloud-based contact center company CorvisaCloud.

Traditionally, top talent flocks to the coasts for the in-demand and most coveted technology jobs. The Midwest is rarely seen as a technology hub, if at all. In recent years that has been attributed to the “brain drain” phenomenon — the idea that talent created and nurtured in Midwest cities leaves for larger cities that are more well-known for their business and tech culture.

However, new research is beginning to paint a different story of rising job growth and business prosperity in the Midwest.

A quarterly report published this June by global human resources consulting firm Manpower ranked the top 10 cities hiring in the third fiscal quarter of 2013 and surprisingly Silicon Valley and New York weren’t listed. Coming in at number one on the list was a sleeper — Des Moines, Iowa, with a projected 26 percent net employment outlook. Grand Rapids, Mich., and Columbus, Ohio, also made the list.

Contrary to the brain drain phenomenon, we are actually seeing that investors are looking to invest outside of the coasts and are exploring companies in more rural areas. Actor and Iowa native Ashton Kutcher recently announced his support and investment in Des Moines-based Dwolla, a platform that lets users transfer money or pay for things through their smartphone or online with a flat fee of 25 cents per transaction. Companies like Dwolla are driving innovation in the Midwest, and also creating new jobs.

Other cities like Milwaukee and Madison, Wis., have begun to transform from manufacturing meccas to growing pockets of tech innovation and are supporting a new wave of entrepreneurship in the process. In fact, Wisconsin Governor Scott Walker recently passed a budget that will fund several initiatives aimed at encouraging entrepreneurship and innovation. This includes $6 million for seed accelerator and capital catalyst programs through Wisconsin Economic Development Corp. Local groups like Innovation in Milwaukee, MiKE, Startup Milwaukee, Gener8tor, and University of Wisconsin-Milwaukee are also playing an integral role in helping Milwaukee tech companies establish their footprint.

Milwaukee’s neighbor, Chicago, is also seeing a surge in tech businesses, thanks to giants like Groupon and GrubHub, both of which are headquartered there. Companies such as Google, Facebook, and Salesforce have also expanded to the Windy City. And Chicago is hoping to inspire young entrepreneurs as well — the city recently launched 1871, a coworking space that is now home to over 225 startups that have received $30 million in capital and added $13 million to the economy in just one year.

Also on the list of hidden tech-fueled gems in the Midwest is good ol’ Kansas City. Google’s new broadband service, Google Fiber, recently committed to spending $84 million building out Kansas City’s fiber network, which has only escalated the number of companies who have followed.

Midwest cities are also getting the attention of venture capital firms. One VC firm, Hyde Park VC, just announced that it is looking to pour $25 million in funding into Midwest-specific startups. And a report from venture fund Venture51 shows VC growth in the Midwest increased by 103 percent, compared to Silicon Valley’s 12.6 percent and NYC’s growth of one percent between 2005 and 2010.

While there is growing investment interest, seed funding is still far more common than first, second, or third rounds of funding. However, the Midwest is moving along in the startup lifecycle, and with other resources being placed into the startup scene, it is only a matter of time before the Midwest’s entrepreneurial market reaches maturity.

With this evidence of a blossoming Midwestern tech culture, the “brain drain” buzzword is fading, but there is still work to be done for recruiters who need to combat the limelight of Silicon Valley. For many Midwest startups that means turning to resources closer to home such as the numerous Midwest universities whose fresh talent is just waiting to be tapped by local companies. Savvy recruiters are also seeing success luring in talent by playing up the family-friendly nature of many Midwest cities and the comparative financial benefits of being away from the coasts. The cost of living, including rental prices, is at least 30 percent lower in the Midwest relative to the Valley.

Focusing on “lifestyle” benefits and a Silicon Valley-type atmosphere is how many of the most successful Midwest companies are able to recruit and keep talent.

While the Midwest has some catching up to do before it can be truly considered a competitor to Silicon Valley, our cities are a force to be reckoned with and the respective companies and culture carry their own unique appeal. Before long, we’ll be asking, “What brain drain?”

Matt Lautz is the president of the cloud-based contact center company CorvisaCloud, another thriving technology company proudly headquartered in Milwaukee, WI with offices in Chicago, IL. With a 10-year career in building and managing software companies, Matt started his first software development company at the age of 16 which grew into a software development and VoIP company where he served as CEO for over eight years. During his time as CEO, Matt led a team that managed customers in over 15 countries and processed over four million VoIP transactions per day. He also successfully led investment capital raises for more than 4.5 million dollars and orchestrated the acquisitions of two product lines.


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