Myth #1: You can’t scale your startup in the Midwest

Originally published by Chris Olsen on December 19th, 2014

If it were truly impossible to build big companies in the Midwest, none would exist. You wouldn’t find any recently-hatched businesses that have grown from nothing to more than $1 billion in value. This was the very first hypothesis we tested when we started Drive Capital. We were surprised to discover that 52 Midwestern companies either went public or were acquired for more than $1 billion between 2008 and 2013. This includes companies like GrubHub, Groupon and Fieldglass in Chicago; Angie’s List, NextRx and ExactTarget in Indianapolis; Vantiv and Sterling Commerce in Ohio and many others across the region. In aggregate, these companies account for more than $140 billion, which is on par with Silicon Valley if you remove the ten-year windfalls.

With startups I have to admit that I don’t really know what the phrase “scale your startup” means. Clichés can ring equally false and true at the same time. Personally, I prefer numbers, so we use the rule of ones and threes.

The first time you do anything (the one), it is dramatically harder than the second time. In the beginning, you have to invent and create from scratch. You must make something from nothing. No guides, no lines, no road map. Think about how hard it is to build and launch your first product — really hard!

The second time you repeat a task, you benefit from having done it before. The amount of invention is far less. You can follow similar processes you created the first time. In our experience, this goes on until the magic number three with relative ease. Getting from three to the next “one” (aka 10) presents new challenges. To complete a task 10 times, you can no longer simply rely on just you. You often need a team. Closing 10 customers requires a sales team, an engineering team, and a management team, among others. Matters become substantially more complicated when you get to 30, 100, 300 customers and so on. See, ones and threes.

One of the things we frequently hear is that you can’t find the people to scale past each successive milestone. Maybe we’re just lucky, but we regularly meet Midwestern entrepreneurs that prove this misperception completely false. Epic Systems, for example, plans to hire 5,000 engineers over the next few years in Madison, Wisconsin. Teradata plans to hire 1,200 engineers this year in Dayton, Ohio. I don’t know if these qualify as scale hiring examples, but they seem to be doing just fine building large, market-leading businesses.

Over the next 10 years we expect to see more technology companies built in the Midwest than we have seen in the past 50. Many of them will build customer and employee bases that rival the Fortune 500. By definition, they will achieve scale, capturing the markets ahead of their companies.