5 Reasons Why Midwest Startups Fail
The Midwest: the Heartland, the Bible Belt, Flyover Country etc. Known by many names and synonymous with many things, the Midwest is a region of unique geographic features and cultural differences. With that uniqueness comes many challenges when it comes to economic development.
Over the past few years, cities in the Midwest have been pushing many initiatives in a bid to improve economic development. And one of these initiative is a strong push for entrepreneurial activities; would-be entrepreneurs are encouraged to start new and sustainable businesses, all in the hope of generating more employment and attracting outside investors and foreign capitals.
And yet, despite the recent promising trends and the grassroots movement in the private sector and the local government, the Midwest still have a lot of growing pains until it could reach the same level of entrepreneurial success and economic activities as its coastal counterparts.
Historically, startups founded in the Midwest were often faced with an important decision: either stay in the Midwest and hamper its potential to scale or move its operations to the ocean scene in a bid to be next unicorn success. Even for an economic and cultural icon like Chicago, raising capital and scaling a startup can be a daunting task, on top of the difficulty of finding talented people and building a reliable core team.
To understand the reason behind the level of success, I have conducted personal research within my local community of Kansas City as well as drawing from secondary research and my personal experience engaging in entrepreneurship to answer this question.
According to my findings, here are the 5 main reasons why Midwest startups fail:
1) “Midwest Nice”
“How could being nice be a problem?”, you might ask. Surely, nice and friendly people would make it easier to create new connections and do business, right?
While that is true, the real problem with this “niceness” stems from the fact that people are “too nice.” Meaning that they would rather not give you their unfiltered opinions about you and your venture in order to not offend you.
As highlighted by Adam Arredondo, the Executive Director of the KC Startup foundation, “there is one big thing holding us back, and it’s actually one of the very things that makes us great … It’s ‘Kansas City nice.’… It’s our endless desire to make everyone feel wanted, welcomed and comfortable.”
A great strength and, simultaneously, a great weakness; the regional attitude of “politeness” and, inadvertently, dishonesty.
2) Risk adverse
As a result of this unique characteristic, people in the Midwest are often risk adverse. Not only do people fear confronting and criticizing others, but they, themselves, fear the rejection and the inherent failure that is associated with entrepreneurship.
Everyone from the entrepreneurs to the investors and the customers are extremely sensitive to risk. They are less likely to be open-minded and try out new things. From an evolutionary standpoint, this type of behavior is completely understandable. Uncertainty is uncomfortable for us as human beings because our survival very much depended upon knowing exactly what can and will cause harm to us. We find comfort in things that we already had experience with, regardless of whether or not those things are the best options. And sometimes, even small things like switching cost, the inconvenience of having to change, can cement the our resistance towards the unknown.
However, this is problematic for many Midwest cities out there that are trying to be innovative and entrepreneurial. Not only are people much less likely to start new startups in the Midwest, but even in the rare cases that do, their growth suffer greatly as a result of their timid surrounding.
According the Kauffman Foundation, Kansas City, where Ewing Kauffman was from and founded his company, is only ranked 28th in Growth Entrepreneurship (how suited the city is for entrepreneurial growth) and 15th in Startup Activity (how many new startups are being found). And even a big and well-known Midwest city like Chicago only ranked 27th in Growth Entrepreneurship, one rank higher than Kansas City, and 31st in Startup Activity, which is significantly lower than Kansas City. Compare these rankings to that of coastal cities like San Diego and New York and it is not hard to see the huge difference between the Midwest’s and the coastal regions’ startup ecosystem.
3) Lack of real-world experience
A common complaint made by KC entrepreneurs, as well as entrepreneurs throughout the Midwest is the lack of “real-world experience” within the community. While there are many Midwestern entrepreneurs who have founded and grew their companies, stories of entrepreneurs who have — as Eric Dorsey, a local entrepreneur, puts it — “done it all” are far and few between. Midwestern entrepreneurs are, more often than not, people with very little to no actual experience outside of the growth stage.
Often, entrepreneurial mentors in the Midwest are either professors or retired corporate executives, people who may have very little startup experience. Even though these mentors are a great source of business knowledge, the theories and principles that are taught in school or in a corporate environment often do not completely reflect the current reality of starting and running a new business. This disconnection from reality gives would-be entrepreneurs false expectations of what it takes to be a successful entrepreneur.
4) Lack of talents
Or rather, there is significant talents drain in the Midwest. As previously touched upon in my introduction, talents in the Midwest are being drawn away by more promising opportunities in bigger cities across the United States, especially in cities along the coasts.
Part of the reason why this happens is because the Midwest — outside of big cities like Chicago and St. Louis — has an enduring reputation of being boring and being where “nothing” really happens, especially when it comes to entrepreneurial activities. Historically, the regional focus is in less “exciting” fields like health and agriculture, and Midwest typically isn’t the first place that comes to mind when people talk about technology and software development.
However, even this long-standing idea has recently been challenged. Due to recent trends, it has become increasingly harder to create disruption through startup activities in established environments like Silicon Valley. Investors and entrepreneurs are now looking for their next “blue ocean” and their answer might lies in the “Silicon Prairies.” Despite the shift from Silicon Valley to Silicon Prairies, the Midwest’s reputation and the common misconceptions about the coasts still remain; thus they become the main causes behind the talent drain that the Midwest has been experiencing.
5) Density
Unlike most cities in other regions of the United States, Midwestern cities are often spread-out, both in population distribution and population density. Typically, cities in the Midwest have populations of less than a million people and are distributed across a wider area than other cities. And while sparsely-populated cities are great for people who are looking to live in peace and quiet, the adverse affect is that they also make it much more difficult to nurture and grow new businesses.
The smaller population makes it harder for new businesses to create a sustainable market for their business, while also making it less likely for a competitive market to form. Companies operating in a small market runs the risk of limiting their customer acquisition and running out of new and viable customers. All of this is especially true for niche markets with an already small customer base.
Despite the rising economic and entrepreneurial trends, the Midwest still remains a unique challenge that requires thorough research and a deep understanding of its environment. If this growth continues, the Midwest has the potentials to become the next entrepreneurial hotspot of the United States. Armed with the necessary knowledge provided in this article, you are on your way to become the next “Pirate of the Silicon Prairies.”
