A startup hub emerges in Chicago

(Reuters) - Bernhard Kappe, the chief executive officer of Chicago's Pathfinder Software, steps up to a dry erase board and draws a crude graph, its slope curves upward. Then he plots a point in the middle to show where the city's web entrepreneurs stand in terms of growth and progress.
"These things take 20 years to get to maturity, and they're not linear," says Kappe, who's also an executive director of the Chicago Lean Startup Circle, a group that fosters local website development. "But we're six to seven years in, and definitely in an acceleration stage."
While Chicago may not compare to Palo Alto in terms of high-tech sexiness, it's experienced enough high-profile success stories in the past few years - from Groupon to 37Signals to Trunk Club, launched by Bonobos founder Brian Spaly. Now local entrepreneurs and members of the startup community are uniting to help continue the momentum.
And that's where the Chicago Lean Startup Circle comes in. The group now claims 2,800-plus members, an 18-fold explosion since Kappe and Todd Wyder, Pathfinder's chief product officer, assumed leadership nearly three years ago.
Aside from solid growth, the group also brandishes some feisty attitude and is not afraid to self-promote, describing itself as "a group of smart and driven high-tech entrepreneurs that have learned how to discover customers and build products they want."
That's no idle boast given the numbers Kappe and Wyder produce to make their case. In a survey of Chicago Lean Startup members last year, the 20 percent who responded (about 500-plus people) reported that their companies had created 7,047 tech-sector jobs.
Of course, Chicago isn't the only city with such a circle; Kappe says about 130 such lean startup groups exist worldwide, with Chicago ranking above Boston, but behind New York in membership.
But Chicago's circle has done better work than other similar organizations in tooting its horn and marshaling creative resources. For starters, it partners with other groups such as Built In Chicago (an online community for local startups) and 1871 (a co-working center for digital startups, taking its moniker from the year of the Great Chicago Fire). Kappe and Wyder have also added incentives, offering prizes of $25,000 on cash and $50,000 in services in their annual "Lean Startup Challenge."
"If you look at the Chicago tech scene, a number of leaders and groups have emerged where we all want the same thing: making Chicago's entrepreneurial community the best in the world," Kappe says.
There's been exciting news this month as well, with the venture capital firm New Enterprise Associates establishing a new Chicago office with its $35 million investment in Braintree, an online and mobile payments company.
But can Chicago become, say, a Midwestern Silicon Valley? Kappe says that's hardly the goal, adding that, "We have a lot of great relationships in the valley." He sees Chicago building a tech scene based on its strengths as a business-to-business hub, a view supported by tech experts and observers.
So while launching another high-profile consumer site a la Groupon would bolster the area's startup scene, there's already plenty of action among portals that provide niche services to the restaurant and health care industries, for example. At Pathfinder, Kappe creates medical software solutions for institutions using lean innovation techniques.
"The sheer scale of Silicon Valley makes it difficult for any city to match," says Fred Diaz, city manager of Fremont, California, a worldwide hub for web startup activity. "But rather that replicate Silicon Valley, Chicago should strive to be the best entrepreneurial Chicago it can be. That's what will drive success."
"Chicago can become a vibrant tech hub, but in a much different way," says Leena Rao, a senior editor at TechCrunch. "We need to remember that Chicago becoming a tech hub is a marathon, not a sprint. But the signs are promising; the area has a good talent base," supplemented by top-tier universities and the support of Mayor Rahm Emanuel, who's made high-tech development a priority of his administration.
"The city is conducive to startups," says Jeffrey Harrington, who launched his restaurant-vendor service website Cardoona with plenty of help from Kappe and Wyder's group. "The culture is very collaborative. It could've taken us three years to figure out our first three business models were wrong. Through, it took us less than 3 months, preventing us from wasting huge amounts of time and money."
Kadesha Thomas attended her first meeting of the Chicago Lean Startup Circle a year ago. The freelance writer had hit on an idea for a website to create custom content for health care clients, but felt sheepish about writing a huge business proposal or hitting up a bank for funds.
"They discourage you from getting any money until you've validated the idea and come up with something solid," Thomas says of the circle members. "That made my barrier to entry a lot lower. All you have to do is talk to your customer and get to know their needs."
Thanks to the guidance of Kappe, Wyder and others, she launched her CareContent.com website on October 22 without borrowing a dime from friends or family. "We have a lot of great leads and a lot of people really interested in being our first customers," she says. "It's very exciting."
resource:http://www.reuters.com/article/2012/10/31/us-startup-hub-idUSBRE89U1DL20121031

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China cabinet seeks ambitious economic reform agenda: advisers

China's Premier Wen Jiabao waits for a question at his annual news conference following the closing session of the National People's Congress (NPC), or parliament, at the Great Hall of the People in Beijing March 14, 2011.

Credit: Reuters/Jason Lee/Files

By Kevin Yao

BEIJING | Sun Oct 21, 2012 5:34pm EDT

(Reuters) - China's top leaders have asked policy think-tanks to draw up their most ambitious economic reform proposals in decades that could curb the power of state firms and give more freedom to the setting of interest rates and the yuan currency.
But after almost 10 years of delay to painful structural reforms by the outgoing leadership, some of the authors of the proposals told Reuters they fear a nascent rebound in economic growth could derail the recommended agenda.
"China is approaching a stage when the government must embrace more fundamental reforms," said Shi Xiaomin, vice president of the China Society of Economic Reform, a think-tank under the National Development and Reform Commission, the top economic planning body.
China's once-in-a-decade leadership change will be finalized next month at the ruling Communist Party's 18th congress. Vice President Xi Jinping is set to take over from Hu Jintao as president and Li Keqiang will replace Wen Jiabao as premier at the meeting, which opens on November 8.
The congress convenes as the economy heads for its weakest annual growth rate in at least 13 years after three decades of near 10 percent annual expansion in the wake of sweeping reforms launched by former leader Deng Xiaoping.
Reuters interviewed five policy advisers involved in drawing up the reform proposals. They said the order for the agenda came from members of the State Council, or cabinet, although they declined to give specifics for fear of repercussions.
Significantly, planning sources said cabinet members had signaled an interest in seeing proposals from policy advisers outside Beijing, in the provincial hinterland, implying that a nationwide consensus is being sought on the content and timetable for painful structural reform.
High on the list drawn up by the advisers is how to contain the government's meddling in the economy and clip the wings of more than 100,000 state-owned enterprises (SOEs) which enjoy enormous privileges, including preferential access to bank lending and government contracts.
Other reforms include allowing the market to set the cost of bank credit, land and various natural resources.
Credit is currently basically allocated by the central government. It tells state-backed banks how much to lend and when - mainly to other big state-controlled businesses and projects. Meanwhile all land and basic resources are owned by the state, with private ownership limited to temporary leased rights to usage.
Analysts say reform of these two areas would bring fundamental change to China's economic structure, even more so than making the yuan currency more convertible - also on the table as part of a package of proposals to liberalize capital markets and boost the yuan's use in global trade settlement.
Reform to China's complex tax structures, under which the central government commands the lion's share of receipts while local governments do most of the spending, is needed if serious progress is to be made cleaning up local government debt that stood at 10.7 trillion yuan ($1.7 trillion) at the end of 2010.
"I think a consensus on reforms has been formed at the central level, even though people may have different considerations on when and how to implement reforms," said Wang Jun, senior economist at the China Centre for International Economic Exchanges, a top government think-tank in Beijing.
UNFINISHED BUSINESS
Experts say Chinese leaders must unlock fresh growth potential and put the economy on a more sustainable path to avoid the "middle-income trap", where wealth creation stagnates as market share is lost to lower cost competitors and the attainment of high-income country status stays out of reach.
The World Bank says China's GDP per capita was $5,500 last year, versus $22,400 in South Korea, $34,500 in Hong Kong and $46,200 in Singapore, which all avoided the middle-income trap.
There has been soul searching among Chinese academics about the 4 trillion yuan ($640 billion) stimulus package unveiled in late 2008, which led to excessive investment in white elephant projects, created mountains of local government debt and sent house prices rocketing in big cities.
The stimulus helped state-owned firms stage a comeback at the cost of private businesses.
SOEs have repeatedly fought off Beijing's plans to get them to pay higher dividends to state coffers and have sought to delay reforms on income distribution systems, which could imply capping hefty wages in monopoly sectors, government sources say.
The reforms aim to require SOEs to pay more dividends to the government to meet a funding shortfall in social welfare.
"We could see serious problems if we don't reform," said Zuo Xuejin, head of the Institute of Economics at the Shanghai Academy of Social Sciences, which advises the local government in China's financial hub.
Still, some government advisers fear signs of a recovery in the economy could ease the pressure to act.
China's annual economic growth slowed to 7.4 percent in the third quarter from 7.6 percent in the second - the seventh consecutive quarter of slower expansion, but government officials have flagged signs of a modest rebound in September.
Industrial production, retail sales and investment data were all slightly ahead of forecasts in September and quarter-on-quarter GDP growth was strong, suggesting the worst may be over and the world's No.2 economy will pick up in the final quarter.
"They may have to change if there is an economic crisis, but they may choose to muddle through if the economy recovers," said an economist with a top government think-tank in Beijing, who requested anonymity due to the sensitivity of the issue.
TRAJECTORY OF CHANGE
Past changes tend to support the anonymous economist's view.
Deng Xiaoping launched economic reforms in the late 1970s to rescue an economy on the verge of collapse after Mao Zedong's disastrous Cultural Revolution.
He made his famous tour of southern China in 1992 to jumpstart the second stage of reforms when the economy nosedived in the aftermath of the 1989 Tiananmen Square crackdown. And sweeping market measures spearheaded by former Premier Zhu Rongji were introduced after the Asian financial crisis in the late 1990s.
Chinese leaders have acknowledged that three decades of 10 percent average annual GDP expansion are over and that the economy needs fresh drivers, analysts say.
In February, the World Bank said in a report with the cabinet think-tank, endorsed by presumptive-premier Li, that Beijing must implement deep reforms to avert a crisis.
The World Bank said China's annual economic growth may slow to 5 percent a year by 2026-2030, from 8.5 percent in 2011-2015.
The mainstream view in Beijing is to blame the global financial crisis for China's slowdown, which also reflects diminishing gains from past reforms and market opening spurred by China's entry into the World Trade Organisation a decade ago.
resource:http://www.reuters.com/article/2012/10/21/us-china-economy-reforms-idUSBRE89K0GS20121021

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