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Why You Should Start a Company in… Kansas City

It used to be, if you were serious about starting a tech company, you went to Silicon Valley. But emerging entrepreneurial hubs around the country are giving startup aspirants options. In this series, we talk to leading figures in those communities about what makes them tick.

Why You Should Start a Company in… Kansas City

Kansas City is home to
the Kauffman Foundation, a $2 billion organization dedicated entirely to
research and funding of entrepreneurial efforts. And beginning February, entrepreneurs will descend upon the city in KC’s version of a startup incubator:
Kauffman Labs, which is paying entrepreneurs for up to six months while they
build out their startups. But while the city hosts several
of Kauffman’s offspring–and there is an emerging angel investment community that’s being activated to support homegrown talent–it isn’t yet a hotbed of startup activity.

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Bo Fishback, who runs Kauffman Labs, told us about the
Kauffman legacy and why Kansas City’s budding entrepreneurial ecosystem has long-term potential.

What makes Kansas
City a great place for startups?

Kansas City has uniquely embraced the idea that
the entrepreneurs who found companies can build them to multibillion dollar
companies and be truly transformative. And that is something that a lot of
places you hear people kind of really preach the opposite of that, so this idea
of companies that are built to last by the entrepreneurs who found them is just
something that is embraced here, and the way that entrepreneurs are cultivated
and how they engage with the ecosystem, I think you see that here more than
almost any other city that I’ve been to.

The willingness of entrepreneurs who have been successful to
come to the table and help people at the very earliest stages when there is
nothing in it for them is also unique. They embrace the idea that
helping entrepreneurs is good for everyone in the world really, but certainly
in a regional ecosystem, is more pervasive and widely held here than almost any
other city on the planet. Part of that is because so many of those
entrepreneurs were helped along the way.

Who are some of those entrepreneurs?

The Helzberg Entrepreneurial Mentor Program was created by
this guy named Barnett Helzberg who started Helzberg Diamonds whose company was
acquired by Warren Buffett, and his mentor was actually Mr. Kauffman. So it’s
quite of a robust program and it is to help the founders of companies who’ve
gotten to a stage where they’ve got the real potential to scale.

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Another program that happens earlier stage here that is just
such a cool one is called KTech Pipeline. It is a program that is geared at
attracting the most talented early stage founders in the region and basically,
it actually pays them a stipend. It’s like a fellowship program that goes along
with helping them for two years to kind of help take their company to the next
stage, and it’s all about how you help entrepreneurs think about scale and
think about how to grow well outside of the region and to really be a global
company. And Kauffman Labs is something we’re spinning off, and what it is it’s
a laboratory, but it’s a laboratory for starting billion dollar companies with
entrepreneurs.

What is the role of the Kauffman Foundation in the Kansas City startup ecosystem?

The whole reason the Kauffman Foundation exists is because
Mr. Kauffman did not believe that entrepreneurs are this unique breed of person
and after they are successful, that’s because they were this kind of special
human being that was kind of born as an entrepreneur. So one of the amazing
things in Kansas City is that that legacy is palpable here with the other
entrepreneurs who are here, and as you talk to people who want to build the
next great companies, or the people who built multibillion dollar companies in
the last 20 years, you find a very direct lineage between actually many of them
and Mr. Kauffman. So a lot of the programs that are here to help entrepreneurs
and a lot of the investors, actually there’s still a very direct correlation there.
So there’s a few multibillion dollar companies in town that have been built in
some ways on the heels of that ecosystem. There’s a company called Cerner, I
think it’s maybe a $7 billion company today. Another company that I’m sure
you’ve heard of called Garmin the GPS company is based here.

These are multibillion dollar companies and what I want to
say about them is not that they are multibillion dollar companies and they
happen to be in Kansas City, what is amazing is about those two companies, and
there’s a few other examples here, but I think Kansas City has an amazing
legacy of companies that are founded, grown and run even at the multibillion
dollar level by the entrepreneurs who created them. The culture here is not one
of there’s a group of guys with great ideas, who get a company to a certain
state and then you have to bring in professional management to help take it to
the next level.

What types of
startups do better in Kansas City?

I think Kansas City does really well in companies that are
infrastructure plays that require real commitment and longevity and true
infrastructure-like support to be successful. This is not a place that really
heavily embraces the quick flip. Cerner is a company that is revolutionizing
the way that electronic medical records impact healthcare. That is not a
company that you build and sell for $25 million to Google next year. That is a
company that was founded 20 years ago and is just now at the point where people
are really understanding how important that is to do things like erase medical
errors in the hospital system. So it is like this big visionary company, it is
a long play, and it doesn’t mean it needed to raise a billion dollars in
venture capital. It went public, it raised venture capital, but it is a company
that took a long term commitment to build. And that is why I think there are
technology companies like that.

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If you think about ecosystems of talent where there’s unfair
advantages, I would say healthcare, healthcare information technology and
healthcare services are huge here. 
I just had breakfast with a guy a couple of weeks ago who moved here
from another city to found his company because of the unique kind of healthcare
expertise here.

Another area is mobile. Sprint’s world headquarters are in
Kansas City. Sprint’s contraction actually over the last few years has been a
big boom to the entrepreneurial ecosystem because they’ve been laying people
off and a lot of those people are going to found companies. So there’s a huge
talent base for both mobile developers, but more importantly than mobile
developers, there are people who understand the infrastructure it takes to
build a company In that space, and what does it mean to sell to a carrier. If
you want to sell to Sprint, AT&T or Verizon, and I don’t mean sell your
company, I mean sell your product, 
that’s kind of a bit different than a consumer Web play or something
like that. That means your sales cycles take two years and that kind of stuff.
The fact is that there are thousands or maybe even tens of thousands of people
who’ve grown up in that environment are now looking for opportunities to go
build companies, and there’s a huge huge talent base there.

What kind of capital
is available for entrepreneurs in Kansas City?

There’s not a lot of organized venture capital here, but
there’s a huge amount of angel investment here. The great thing about Kansas
City, the wealth here is easily moved to invest. So on the one hand there are
some particular assets here. There’s a thing called the Kansas Bioscience Authority
which is right outside of Kansas City that has a $500 million fund that exists
to help support bioscience entrepreneurs here. So there’s a half a billion dollar fund here just to help bioscience companies to be more
successful. There is scattered venture capital, but this is not a place that
really believes venture capital is the recipe to help fuel that entrepreneurial
ecosystem.

There’s always this underlying conversation about is the money there
to help those companies scale? We know the money is here. All you have to do is
drive down Ward Parkway and look at the kind of houses there and you get to see
in person the entrepreneurial legacy, and angel investors one through 300. There’s just now starting to be a lot more transparency around who those
investors are and how you get them involved.

One of the things we’ve seen is
that the entrepreneurs here as soon as they are successful turn around and
become angels. There’s a company called Proteon that signed about a $700
million deal with Novartis last year and immediately the founder of that
company, Nick Franano, founded a new company that is wholly focused on helping
other biotech entrepreneurs in town be successful. I think we think a lot about
angel investors here who can really help people grow.

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For more from this series:

  • Why you Should Start a Company in…Austin
  • Why you Should Start a Company in…New York
  • Why you Should Start a Company in…Los Angeles
  • Why you Should Start a Company in…Chicago
  • Why you Should Start a Company in…Boston

Laura Rich is a freelance writer and co-founder of Recessionwire.

 

[Photo by Caleb Zahnd]