Michigan Avenue hums during rush hour. (Image: Brian Koprowski CC by/nc/sa)

By Paul O’ConnorThe commercial capital city of America periodically reinvents itself in new waves of entrepreneurial innovation. And the surf is up again on the country’s freshwater third coast.

In 1872, the year after the Great Chicago Fire razed the city, Aaron Montgomery Ward offered isolated farm families the full spectrum of industrial production via mail order — inventing the business model that has evolved into the web-based marketplace.

Today the vast riverfront warehouse where the old Montgomery Ward Co. processed orders is filled with the next wave of web-enabled innovative entrepreneurs.

While Chicago was the nation’s “silicon valley” following World War II – designing and manufacturing the hottest new consumer products – its core strength has always been taking technologies invented elsewhere and innovatively applying them to make big money.

The railroad and the airplane are great examples, which the mid-continental city continues to leverage in its ever-expanding market reach, from heavy freight to global business services. Access to global markets and North American operations – as well as a multi-industry, multinational talent pool – drew the Boeing Company’s corporate offices here in 2001.

That year, the “irrational exuberance” of the dot-com bubble burst here as elsewhere, starting a long and steady buildup of local venture capital and diversified technological entrepreneurism, shepherded by Dan Lyne, technology business development director of the nonprofit World Business Chicago. A year later, the annual Chicago Innovation Awards began celebrating breakthroughs from companies, both established and new:

• Abbott Laboratories – the anchor of an international pharmaceuticals cluster in north suburban Lake County – has probably won the most innovation awards, most recently for a self-administered HIV test that could cut the early-stage spread of the deadly disease.
• Another Fortune 500 company, USG, has also won repeatedly, with innovations like plasterboard joint compound that falls (rather than going airborne) when sanded.
• Sara Lee company won an award for creating a whole wheat bread that looks and tastes to kids like white bread.

But it is the high-tech stuff that everybody talks about:

•  Like web-based printing management company InnerWorkings, dramatically lowering the cost of printing through Internet-based competitive bidding – and later giving birth to billion-dollar-IPO Groupon, now valued at $10 billion, with 10,000 employees
• Or Cleversafe, the local start up that revolutionized data storage by breaking it into bits and scattering it to multiple data farms (the CIA’s venture arm In-Q-Tel bought a piece of them)
• Or Navteq, the world’s leading provider of maps and data-enabling navigation
• Or Morningstar, whose research-based investment ratings of a third of a million offerings in 26 countries has done much to democratize investing
• Or Orbitz, the travel planning and booking site, begun in 2001, that terrible year for travel

It’s all on the Chicago Innovation Awards website, and it’s part of the long build to the high-energy, big-money, home-grown tech scene that is Chicago’s new wave of entrepreneurial innovation.

Chicago’s tech startups, incubators and funders get their own story.

Global speedsters

The Internet-enabled companies have a distinct advantage locating in downtown Chicago, which has the fastest digital telecom infrastructure on the planet. It has always been a central switching hub, but when fiber was spooled out nationally, railroad right-of-ways were the easiest play and all those roads led to Chicago (the same factor that enabled Ward’s innovations).

There are global Internet speedsters who regularly set transatlantic records, like Joel Mambretti’s International Center for Advanced Internet Research and Argonne National Laboratory’s Charlie Catlett, who designed the I-wire loop that links all the telecoms, the big research institutions, and the National Centers for Supercomputing.

Railroads provide ideal routes for the Internet backbone, making Chicago once again the transit hub for the US economy. (Image: Chuckumentary CC by/nc/sa)

Nanoseconds matter in big-money matters. So when the CME Group – the world’s leading derivatives exchange and the first American exchange to go public – decided to go head-to-head with European rivals, it created digital telecom footprints to give it a trading-time advantage even across the Atlantic. This exchange actually predates Montgomery Ward, having revolutionized agriculture by innovating commodities trading as a hedge against nature. CME also innovated the Eurodollar market and a host of other markets. They give an annual award for market innovation, the Fred Arditti Innovation Award.The point is that the big boys, like Caterpillar in Peoria and McDonald’s in Oakbrook, know that innovation is always the name of the game. So Caterpillar was an early explorer in nanotechnology’s application to automotive big rigs, and McDonald’s even went after Starbucks with microchip-driven cappuccinos. Boeing went paperless and reinvented the commercial airliner to reduce fuel consumption and carbon emissions. And United Airlines is banking on algae to produce more affordable jet fuel prices.

Emerging technologies

Investors out of Chicago’s legacy corporations are backing a dynamic startup nonprofit, the Clean Energy Trust, that searches out renewable and alternative energy technologies – and parades the best prospects past some of Chicago’s deepest pockets. Other nonprofits like iBIO (Chicago-based Illinois Biotechnology Industry Organization) nurture a profusion of bio-med, bio-fuel and bio-next innovations on America’s central prairie, where agricultural science, industrial chemistry and pharmaceuticals come together.

Tech firms — and talent — cluster in River North, alongside the Magnificent Mile of Michigan Avenue. (Image: CJSmith OutofChicago.com CC by/nc/sa)

Skokie-based Nano Business Alliance and Northwestern University’s extraordinary International Institute for Nanotechnology (and its eminently quotable director, Chad Mirkin) are building the innovation wave in emerging technologies. “Nano” is after all micro-mini manufacturing – another advance building on local legacy. But just as important, it’s a technology of convergence, which is good news for America’s most diversified industries – pharmaceuticals, medical devices, engineering, advanced materials, and the like, all racing to get small together.

But, again, innovation – we really call it reinvention here – is a way of life. The city itself has periodically reinvented itself, most recently moving from manufacturing to global business services.

Attracting young professional talent from across the country and around the world, Chicago in the past two decades has brought together the professional services skill set needed for the market challenges of globalization. Combined with global corporate operations already in place worldwide, a reinvented Chicago economy has been re-energized with young talent.

According to the “Young and Restless” study from CEOs For Cities, Chicago has a higher concentration of young people within three miles of downtown than any other city. So much so that suburban-based Motorola had to locate its Moto City research unit to Michigan Avenue because Gen Y’ers were refusing to reverse-commute — they invented the Razr smart phone downtown. Lake Forest-based Brunswick, the world’s largest maker of recreational boats, also had to move its R&D downtown to snag the bright young talent that is driving Chicago’s next new wave of innovation.

This is a key point: downtown. Only Manhattan and Chicago have the majority of their commercial activity in the heart of the city – every other big American city’s commercial base is suburban. Having maintained its core and its multinational headquarters, Chicago has kept the most fundamental mechanism of innovation in place – informal, serendipitous interactions across diverse sectors. Quality of life and opportunity are the dual magnets that draw the talent that make entrepreneurial innovation go.

So the big news of the past ten years is that corporations are moving back downtown from the suburbs, and our best and brightest are staying put and don’t have to run to the coasts to get their bright ideas built. Big-time innovation is happening again in Chicago.