StyleSeek aims at growing menswear e-commerce niche

Chicago-based StyleSeek is a men’s fashion site that generates clothing recommendations based on users’ tastes. Co-founder and CEO Tyler Spalding is a rocket scientist who worked on space shuttle equipment for NASA and Lockheed Martin Corp., then left for the startup world after deciding his favorite part of the job was tackling big problems as part of a small team.

StyleSeek launched this summer and has about 15,000 users, although visitors to StyleSeek.com are still asked to submit a request for membership. To bypass this process, do a Web search for “StyleSeek DNA” and you can enter the site through a virtual back door; from there, you can create an account.

Mr. Spalding tells Crain’s contributor Steve Hendershot more about the company.

Crain’s: How does a rocket scientist go about developing a menswear site? Explain the process you followed in developing StyleSeek.

Tyler Spalding: Menswear has been relatively untapped for a very long time. There’s extremely low competition, and it’s really, really fragmented. We wanted to understand why this was not the hot space. It was 25 percent of what the women’s (fashion market) was. But it was also harder because there are fewer men who are exploratory and want a product like this.The initial idea was to get male influencers to share what clothing they had, kind of like a digital closet, and say, “Here’s exactly the stuff that he wears.” And then allow people to find more things like that.

We talked to people and heard that menswear e-commerce was going to become a fast-growing segment. That more and more men are really caring about this, and in a year or three years there will be a lot more men making this market a lot more exciting. Thankfully, all that stuff came true. Menswear e-commerce is the No. 1 growing segment in the entire world right now. The growth is just absolutely absurd.

From there, we tried to understand why men buy clothing online and why they don’t. Then we looked at it from the retailing perspective to see if retailers care about this, and if they see menswear as something that’s challenging for them. The result was a resounding yes, that they spend a lot of time and money trying to draw in male customers, and it’s a becoming a greater part of their business, but it’s hard to bring qualified male traffic to their sites. So we knew that there was a need there.

Then it was all about trying to build a product for men that didn’t already exist, and that men would be excited about. We needed to build an experience that they could use, and that was even a little bit fun.

We asked guys, “How do you know that what you’re wearing is actually socially acceptable and that people aren’t laughing at you?” It turns out they look around in social situations; if they’re in business school, they go to class and look around and see the people there and mimic the (prevailing) style. That was huge, that replicative behavior. It was real-world style; guys didn’t watch movies or read magazines to try to figure out aspirational looks; they started at a much lower level, and that was something we didn’t expect. It gave us a starting point featuring real clothing. From there we built a Pandora-like algorithm and did a lot of testing, learning different items that sort of cluster together. That feedback led us to refine it into something that people end up using.

The way it works is that a user will come to the site and go through our style game where they select images of lifestyle choices, things that aren’t necessarily related to fashion, like cars, movies, magazines. Then we then build up a style profile for you similar to (a Pandora music channel) and then you get matched to reviews, blogs, products and brands that are 100 percent personalized for you. We also introduce you to small brands that you wouldn’t typically have exposure to, and if you’re reading about a new jacket, we’ll link to the actual jacket so you can buy it.

We’ll also show alternatives, so if you see Prada shoes and love them but the price is outside your range, we’ll show you why they’re great and why they cost $1,000. But we’ll also show you others that look very similar but maybe use a different material. Or we’ll show you the “Made in the USA” version.How has the tech evolved in the few months since your launch?

We also enable you to view the site as someone else through what we call Style DNA. You have your own Style DNA, but you can import other people’s Style DNA, which allows you to view the site from the perspective of style influencers, icons or stars you might want to emulate. We’ve now taken that technology a step further so you get more personalized results, almost like curated lists, from those people. In Chicago, one of the people we’re featuring is Seth Kravitz, and you’ll be able to view his Style DNA, read articles about him, learn about his hobbies, and you can also see the products he actually owns and recommends: his coffee mug, his golf driver, and also the shirts, pants and shoes he owns. That’s the evolution of the product, that in addition to the curated content, we can put together interesting stories behind people to provide a visual representation of what they’re about.

When you launched last summer you got a lot of attention right away, thanks to a GQ write-up. You also had to deal with a crisis right away — bloggers objecting to your reposting of their content on StyleSeek. How did you handle that?

We had talked to the majority of the bloggers and this was something they were really excited about; we had gotten extremely positive feedback and not heard any negative reaction. That led us, erroneously, not to ask every single (blogger whose content we used for permission) and that was something we absolutely should have done. So we had content that people didn’t know was there, and then we launched and got terribly large right off the bat, and some of these guys said, ‘Why is my content part of this new site? I wasn’t consulted.’

They were absolutely right. We just got blinded trying to build something and get it out the door. But people got upset, and it was sort of obvious — we were using their content and didn’t have permission. We realized it was a huge error we had made. This was all within 24 hours of our launch.

It was a huge problem, and (the bloggers) were totally in the right. So we publicly apologized, and I also emailed them all personally and said I’m really, genuinely sorry, and that we were not trying to take advantage of everyone. Then we also changed our entire content policy. We decided to drive more traffic to the bloggers’ sites, and that’s now No. 1for us. This is a partnership, and we’re trying to promote their content and help them out, too. Also, now every single post on StyleSeek has to be authorized. We even try to preview it so people know exactly what we’re doing. There’s transparency behind it.

We worked 44 hours straight to fix the problem, to fix the problem and then to get the system to support our changes. The entire team was there.

“Silicon City” is a weekly report on Chicago tech startup news and newsmakers written by Crain’s contributor Steve Hendershot.

Share your ideas and news tips on the local tech startup scene with Steve via email: stevehendershot@gmail.com. Check out Steve’s blog here. And follow him on Twitter: @stevehendershot.

Join Crain’s LinkedIn group for Chicago entrepreneurs. And stay on top of Chicago business with Crain’s free daily e-newsletters.

Farmist: An online resource for small farmers

Farmist, a Chicago-based startup whose agricultural-information pin board for farmers will launch in January, is one of 93 finalists nationally in VoltCrowd.com’s Job Creation Challenge. It’s a Kickstarter-esque campaign through which Farmist founder Amy Sprague is attempting to raise $10,000 in order to hire marketing staff ahead of the site’s launch.

Contributors receive gifts ranging from T-shirts to the chance to beta test Farmist, and unlike Kickstarter, Farmist doesn’t need to raise the entire $10,000 in order to receive pledged contributions.

Ms. Sprague, who grew up on a cattle ranch in Oklahoma and has graduate degrees in public policy and design, tells Silicon City more about Farmist.

Crain’s: What was the inspiration behind Farmist?Amy Sprague: Farmist grew out of the realization that there’s no well-designed, well-subscribed, nationally focused online platform for small farmers. I had been monitoring the market during my graduate work in the Institute of Design at the Illinois Institute of Technology, because I just kept assuming that someone would step into this role. But no one has, so I decided that I would launch it myself.

We are currently in the internal beta testing phase, and hopefully soon we’ll begin beta testing externally. We’re quite excited because Farmist will be releasing at a time of year when farmers are in front of their laptops and computers as they’re planning to prepare for the spring planting.

Describe how the site will work.

We’re starting as a pin board. Farmers will find things that are useful and pin them to the site, and then their peers will be able to see what’s buzzing in agriculture that day. They’ll have a wider range of information at their fingertips.

There are a lot of resources out there on the Web for farmers, whether it’s research institutions, universities, nonprofits or government sources, but it’s really hard for farmers to find that information. My user research has shown how, if farmers have a specific problem, they will either Google it or go to ask someone locally. But they’re basically just looking for things that they already know they need, so they’re not coming across new things that would be helpful, because they don’t know to look for them. And Farmist will have all of that information.

What’s an example scenario of how you envision Farmist assisting farmers?

My family has a cattle ranch, and for years I’ve been asking my dad if anyone has been doing grass-fed or organic beef in the area, and the answer has always been no. I decided to figure out how we could convert to a grass-fed or organic operation ourselves. The information was very hard to find, and the process was hard to figure out.

I called a sustainability institution in one of the neighboring counties, and I was asked why I would want to do this. And I thought, if the sustainability institute is asking me this, we really have a problem. I got in touch with grass-fed beef ranchers themselves, and they told me that it’s really hard to do. You have to get the mixture of grasses right, you need local processors, and you need to market your beef in local farmers markets. There aren’t a whole lot of ranchers that can do this.

So with Farmist, the thought is that if you see a lot of people pinning on grass-fed beef, for example, then you can eventually identify that maybe it’s something you’d want to look into, too. And as we advance, we can add more of a networking function, where a farmer can say, “Here’s a guy doing this in the next county, and here are a few other guys who I kind of know. Let’s get together and talk about what it would take for us to do this.”

It’s only when you get folks learning about things, talking about issues together that you can have movement in the system. In the case of grass-fed beef, nothing is going to happen until you have a pull-up lane that says “Grass-Fed Beef” for your trailer at the sale barn where you sell your cattle. A lot needs to change in the system, and the idea is that if farmers and ranchers can start sharing information more widely, they can start to move the system a little bit.

“Silicon City” is a weekly report on Chicago tech startup news and newsmakers written by Crain’s contributor Steve Hendershot.

Share your ideas and news tips on the local tech startup scene with Steve via email: stevehendershot@gmail.com. Check out Steve’s blog here. And follow him on Twitter: @stevehendershot.

Join Crain’s LinkedIn group for Chicago entrepreneurs. And stay on top of Chicago business with Crain’s free daily e-newsletters.

Marrying digital design and old-school craftsmanship

By Steve Hendershot

Jim Jacoby runs an Internet marketing agency based in Chicago. J.T. Nesbitt builds motorcycles in New Orleans. It’s an unlikely pairing, yet the two met when Mr. Jacoby traveled to New Orleans in the spring as part of UX for Good, and they are now teaming up as part of Mr. Jacoby’s latest venture, the American Design and Master-Craft Initiative. The idea is to expose digital designers such as those at Mr. Jacoby’s firm, Manifest Digital, to old-school craftsmanship.

ADMCI has commissioned a new motorcycle from Mr. Nesbitt called the Legacy. As part of the process, Manifest Digital has created a voluntary externship program through which its designers travel to New Orleans to work with Mr. Nesbitt, sometimes applying their professional skills such as 3D modeling, and other times working with an arc welder or metal grinder.

In Mr. Nesbitt, Mr. Jacoby says his designers “have access to an analog dude who’s cantankerous, a perfectionist and has lessons to teach us. Then they bring those lessons back here, and in time we’ll reform the elements of digital craft based on analog craft.”There are just a few days left in the Kickstarter campaign Mr. Jacoby launched to support the initiative, and the project is well short of its $500,000 goal. The project will proceed regardless, Mr. Jacoby said. He tells Silicon City more about ADMCI and his drive to infuse digital design with traditional craftsmanship.

Crain’s: What inspired you to create ADMCI?

Jim Jacoby: We have something profound on our hands here in our digital community and design community. This generation has the opportunity to define the on- and off-ramps and conduits for our social infrastructure going forward. If our parents built the highways and cities, we’re building what’s coming next. It’s a profound thought. But how do you address that? How does a digital agency address that?

Over time it began to occur to me that really it’s the empathy aspect, the humanness of the design: craftsmanship, taking pride in your work, creating something that’s intuitively stunning. The things that come out of Apple are seen as magical inventions, but the truth is they are just incredible, well-crafted digital experiences.

I was kicking that around and realized that, fundamentally, what’s working against us right now is the economic models we have. What’s working against craftsmanship is the speed of the market, mass production, cheapening, lowering the cost. Those traits are all good for consumption but bad for craftsmanship. So how do you create a place where that can resolve in a healthier way?

What is ADMCI, and how does it work?

ADMCI is a for-profit company that commissions works from master craftsmen in order for digital people to learn from that process. It becomes this crossroads, or spice trail — a place where major cultural things shift because you’re mixing different kind of people together. That’s the premise.

The idea strikes a chord with me, and I’ve also gotten lots of great emails and unsolicited phone calls from other people who are sharing that (dedicating themselves to craftsmanship) is what they want to do with their lives. We have to create economic models or business models that will allow this nerve to thrive. We have to create ADMCI or things like it that are safe havens for craftsmanship. And then a byproduct of craftsmanship is innovation.

Manifest, which is a pure digital-design shop, should learn from that because Manifest should aspire to greatness and craftsmanship. But if I came into Manifest tomorrow and said, ‘Stop everything, we’re going to make the best stuff anybody’s ever seen and no one’s going to compromise on that at all,’ I’d be out of business in two weeks. So I have to change the conversation somewhere else, and that’s ADMCI. And then we’ll reap the rewards in Manifest, and we’ll influence the community in general.

Why launch the Kickstarter campaign?

What’s incredibly important about the Kickstarter community is that we get the digital community involved in non-digital stuff. It seems like the perfect crossroads to begin this conversation. For example, we launched some announcements to the (motorcycle trade publications) through a magazine called Hell for Leather, which is kind of the religious magazine of the industry. And they are completely baffled by what’s going on. They are in equal parts repulsed and intrigued by the idea of a master builder playing in this area of digital people. That says that we’re on the edge of something cool, but we’re also causing some confusion or concern in the traditional community.

On the other side of it, the idea in the digital community is so huge. Craftsmanship strikes a chord with all of us. It’s such a gigantic idea.

“Silicon City” is a weekly report on Chicago tech news and newsmakers written by Crain’s contributor Steve Hendershot.

Share your ideas and news tips on the local tech startup scene with Steve via email: stevehendershot@gmail.com. Check out Steve’s blog here. And follow him on Twitter: @stevehendershot.

Join Crain’s LinkedIn group for Chicago entrepreneurs. And stay on top of Chicago business with Crain’s free daily e-newsletters.

Pilsen incubator aims to give minority, women-owned startups a boost

By Steve Hendershot

Emile Cambry Jr., whose 21st Century Youth Project prepares low-income middle- and high-school students for technology careers, is launching a women- and minority-focused business incubator in Chicago’s Pilsen neighborhood in October along with co-founder Mahrinah von Schlegel.The incubator, called Cibola, will offer classes and office space. In addition, the pair is creating a six-month accelerator program, called MPRCL, that will be modeled after programs such as Chicago’s Excelerate Labs.

Mr. Cambry and Ms. von Schlegel plan to open Cibola on Oct. 22 and begin accepting applications to MPRCL before year-end. They describe their new ventures for Silicon City.

Crain’s: What inspired Cibola?Emile Cambry Jr.: Through my work with with the 21st Century Youth Project and an op-ed I wrote for Crain’s, I had made a call to action for minority tech entrepreneurs and to minority entrepreneurs in general, to figure out different ways in which we could expand our reach, work together and collaborate so we could see more minority tech entrepreneurs. And I got a lot of emails and great feedback from that, but after that I didn’t see anything happen. So then I thought, all right, let’s put something together. The initial idea (for Cibola) was that I wanted my 21st Century Youth Project students to have entrepreneurs or different companies that they could intern with so they could build their skill sets and apply all the stuff we teach them in class. My hope was to provide a platform for teaching, educating and being able to develop these different communities.

I had worked with (Ms. von Schlegel) on the Chicago International Social Change Film Festival and knew she was passionate about a lot of the same things I was, and about bringing in a multilingual aspect and international reach, and also reaching women entrepreneurs.Mahrinah von Schlegel: Across the board in the Chicago technology scene, I was seeing a lot of excited, interested women but not enough funded companies with women entrepreneurs. And I was going to events and not seeing enough representation of women and minorities. We want to build a place where people feel more encouraged to start (businesses). And the interest is there; we want to take that interest and help people create companies by providing level of support that may not already exist within their communities.

We are not exclusive — in fact, we want to be completely inclusive, and our doors are open to everyone — but we are specifically targeting underrepresented groups.

What can you tell me about the accelerator, MPRCL?

MvS: I can’t give you many details on that because we want to keep it under wraps under we have it fleshed out a little more, but it will be a very unique model with an international component that will bring more international business in the technological sector to Chicago.

What has the process of recruiting mentors been like? Have you noticed any “mentor fatigue” because people are also involved at, say, Excelerate or 1871?

MvS: No. We’re in a bit of a different sector, and we’ve been having people track us down, call us, even come out to 21st Century Youth Project events to discuss getting involved with Cibola. Because we’re in a neighborhood that’s underserviced for this kind of thing, and because we’re targeting minorities, we’re finding a lot of people who haven’t been mentors (at other programs) because those programs haven’t targeted a demographic they’re passionate about. We’re seeing a lot of women, a lot of Latinos and African-American mentors who are really excited and are trying to get involved every which way. It’s been really overwhelming.

Why is it important or helpful to have a program like this that specifically targets underrepresented entrepreneurs?

EC: Anecdotally, when I’ve spoken to minorities at different incubators, I often hear ‘I don’t feel comfortable’ or ‘I don’t see anyone like me’ or ‘I don’t see anyone working on projects similar to mine.’ It’s that whole networking aspect. We don’t want to be exclusive and say, ‘Hey, let’s get away from everybody else,’ but I think that there’s also an empowering component when you find somebody like you who has a similar interest or similar background. By going to low-income areas and showing people there that there are (other entrepreneurs) kind of like them, it’s an empowering feeling.

“Silicon City” is a weekly report on Chicago tech news and newsmakers written by Crain’s contributor Steve Hendershot.

Share your ideas and news tips on the local tech startup scene with Steve via email: stevehendershot@gmail.com. Check out Steve’s blog here. And follow him on Twitter: @stevehendershot.

Join Crain’s LinkedIn group for Chicago entrepreneurs. And stay on top of Chicago business with Crain’s free daily e-newsletters.

Riding the Windows 8 wave

By Steve Hendershot

Microsoft Inc. announced Monday it will unveil the latest version of its Windows operating system, Windows 8, at an event in New York on Oct. 25. That means the beginning of a busy season for Oak Brook-based SWC Technology Partners, which will oversee deployment of the new operating system for many of its clients. In addition, many of SWC’s customers are considering buying Microsoft’s new iPad rival, the Surface tablet.

SWC President Bob Knott, Vice President Elliott Baretz and solutions practice leader Pete Lee tell Silicon City how they and their customers are approaching the release.

Crain’s: What’s your sense of how many of your customers will make the jump to Windows 8 relatively soon?Elliott Baretz: We’ve learned that the general process in terms of rolling out Windows 8 is to take a hybrid approach. In the past when organizations looked at desktop rollouts, they looked at them in all-sum moves — big, broad swaths. But with Windows 8, there’s an option to deploy that operating system to a certain profile or demographic within your organization while keeping other aspects of the business on Windows 7 or another former version of Windows. That provides a lot of flexibility, and it’s not overwhelming. We surveyed our customers, and more than 50 percent of the respondents said they would be deploying up to 25 percent of their environments with Windows 8 in the next year. That indicates we’ll be pretty busy with Windows 8 deployments.

Crain’s: What’s driving that interest?

EB: It’s this notion of the consumerization effect. In the past few years, inside corporations, you’ve had this dynamic where executives came into the IT world and said, ‘I’m going to get an iPad. I’m doing this.’ And IT had to support that. But there were some compromises along the way in doing that because iPad didn’t have the same security or strength in identity rights management that the Surface or Windows 8 has. But now with Windows 8, IT will be able to give that experience to the executives. People are looking at this interface and thinking, ‘This is pretty cool. This will give us that user experience we think is going to rival that of the iPad.’

Bob Knott: If I’m the CIO, I’m going to find Windows 8 really attractive because my IT department is going to find this a lot easier to maintain than iPad, which is kind of a renegade-type device. For a larger organization, maintenance and management of all the devices you have out there is a big issue. Let alone having to deal with security, updates and patching. That’s where Microsoft has a really strong hand to play. And even though Microsoft is behind in terms of applications and a marketplace, historically, Microsoft has done really well in working with its developer community (to produce applications).

EB: So the approach that organizations seem to be taking is that executives and certain other populations will get Windows 8 devices, and the remaining populations will remain on Windows 7. And there’s no compromise to security or anything else. I think that approach is pretty noteworthy.

Crain’s: Do you think this will generate enough buzz that non-executives will begin clamoring for the new operating system or a Surface tablet?

EB: That’s a crystal ball thing, but I do. The iPad demonstrated that there’s this real viral effect to the consumer interface. If the new Windows 8 interface does what it’s supposed to do, I think it’s going to create that viral effect. I think that’s real. I also think we’re a couple years into people understanding the value of that consumer interface, so it’s not like Microsoft needs to convince people why that’s a good, productive thing.

Crain’s: What aspect of deployment will be most challenging?

Pete Lee: When it comes to deployment, now you’re going to be able to manage your mobile devices and your tablets as well as desktops and laptops. So the main challenge is being able to deploy those mobile devices and tablets similarly to how you deploy your desktops and workstations.

The nice thing is that, compared to when we dealt with the Windows 7 deployment a couple of years ago, back then there had been a buildup (of customers not satisfied with their current operating systems) because Windows XP was older and Windows Vista was not meeting the needs of organizations. So people needed to jump on Windows 7 right away. With Windows 8, we can plan everything out properly and make sure the new operating system meets our customers’ business objectives.

“Silicon City” is a weekly report on Chicago tech news and newsmakers written by Crain’s contributor Steve Hendershot.

Share your ideas and news tips on the local tech startup scene with Steve via email: stevehendershot@gmail.com. Check out Steve’s blog here. And follow him on Twitter: @stevehendershot.

Join Crain’s LinkedIn group for Chicago entrepreneurs. And stay on top of Chicago business with Crain’s free daily e-newsletters.

‘I always like to have an underdog on my side’

By Steve Hendershot

The entrepreneurs that hole up in 1871 each summer as participants in the tech accelerator Excelerate Labs tend to be, well, young. You have to be somewhat flexible to drop everything and devote three months to the program.

The elder statesman in this year’s class is Jose Li, 40, founder and CEO of 71 Lbs, which helps companies collect the money-back, on-time guarantees offered by shipping giants such as FedEx and UPS. Mr. Li, a former FedEx executive, knows well that small businesses seldom collect on those guarantees. Mr. Li founded 71 Lbs in 2011 in Fort Lauderdale, Fla. The decision to come to Chicago for the summer represented serious upheaval.

Tomorrow is graduation day, as Excelerate’s 10 startups make their pitches to investors at Demo Day, Excelerate’s capstone event at House of Blues. Mr. Li tells Crain’s about his experience in the program.

Crain’s: It seems like a serious decision to move across the country at 40 and put yourself and your company through this intense three-month program. How did you decide this was worthwhile?Jose Li: You have to do what you have to do. I’ve been working on this company for a year and a half. We’ve gone through some ups and downs, and when I came across Excelerate I thought it was an interesting opportunity for us, especially considering the nature of Chicago versus the West Coast or East Coast. Our business aligns more with the (business-to-business) side and I think Chicago is more aligned toward it as well (compared with business-to-consumer companies), and also a little more on the industrial side.

I like the fact that (Excelerate CEO Troy Henikoff) is an underdog compared to California. I always like to have an underdog on my side. I made those assumptions before joining Excelerate and I can’t complain. It’s overly surpassed my expectations.

The quantity and quality of mentors and entrepreneurs that we’ve been able to meet has been A-plus. In Florida I spent a lot of time knocking on doors, asking, ‘Can you give me five minutes?’ Here, people give me 30. The difference in people’s willingness to help is night and day. People are also offering to introduce us to other people or open up doors.

What’s an example of a beneficial connection you’ve made through Excelerate?

One of our channel partners is the Illinois Technology Association, and (ITA CEO Fred Hoch) is one of the mentors at Excelerate. (Mr. Hoch) was the No. 1 person I wanted to meet through Excelerate. That’s because of what I call the channel approach to building business. Partnering with organizations that have a large member base of small businesses would be an ideal avenue for us. So we proposed to (Mr. Hoch) to help us co-market 71 Lbs to his audience and member base, and in my opinion that is a win-win-win. The ITA members win because they’re not aware of these money-back guarantees, or don’t have the time and resources to collect. If we can provide our service on contingency, they’re going to get weekly refunds. The ITA wins because it adds another service to its portfolio, adding to the overall value proposition they offer members. And 71 Lbs gets access and distribution to a number of small businesses that we might not encounter one-on-one.

Excelerate has a reputation for tweaking companies’ business models. Your company came in more established than most; have there been any fundamental changes?

There are a lot of people here asking why we’re doing this or that. But as an entrepreneur, you have to have a level of stubbornness, and I do. I have a hunch where this could go. I want to start with the (service collecting shipping-related) money-back guarantees because it’s a good way to offer value to our customers, and then over time could add product two, three or four. But that’s a little more down the road.

This is a very lively discussion, especially with (Mr. Henikoff). He has one opinion and I have a little different opinion. But for the most part I’m pretty happy with the direction we’re taking.

Are you going to stay in Chicago after Excelerate is finished?

Good question, and one that my potential investors are also asking. My answer is, I’ll get back to you.

IN OTHER TECH NEWS:

Mobile-development school Mobile Makers Academy launches this fall with a 10-week course focused on iOS development Intensive. Applications are due Sept. 3; classes begin Oct. 1.

“Silicon City” is a weekly report on Chicago tech news and newsmakers written by Crain’s contributor Steve Hendershot.

Share your ideas and news tips on the local tech startup scene with Steve via email: stevehendershot@gmail.com. Check out Steve’s blog here. And follow him on Twitter: @stevehendershot.

Join Crain’s LinkedIn group for Chicago entrepreneurs. And stay on top of Chicago business with Crain’s free daily e-newsletters.

‘I always like to have an underdog on my side’

By Steve Hendershot

The entrepreneurs that hole up in 1871 each summer as participants in the tech accelerator Excelerate Labs tend to be, well, young. You have to be somewhat flexible to drop everything and devote three months to the program.

The elder statesman in this year’s class is Jose Li, 40, founder and CEO of 71 Lbs, which helps companies collect the money-back, on-time guarantees offered by shipping giants such as FedEx and UPS. Mr. Li, a former FedEx executive, knows well that small businesses seldom collect on those guarantees. Mr. Li founded 71 Lbs in 2011 in Fort Lauderdale, Fla. The decision to come to Chicago for the summer represented serious upheaval.

Tomorrow is graduation day, as Excelerate’s 10 startups make their pitches to investors at Demo Day, Excelerate’s capstone event at House of Blues. Mr. Li tells Crain’s about his experience in the program.

Crain’s: It seems like a serious decision to move across the country at 40 and put yourself and your company through this intense three-month program. How did you decide this was worthwhile?Jose Li: You have to do what you have to do. I’ve been working on this company for a year and a half. We’ve gone through some ups and downs, and when I came across Excelerate I thought it was an interesting opportunity for us, especially considering the nature of Chicago versus the West Coast or East Coast. Our business aligns more with the (business-to-business) side and I think Chicago is more aligned toward it as well (compared with business-to-consumer companies), and also a little more on the industrial side.

I like the fact that (Excelerate CEO Troy Henikoff) is an underdog compared to California. I always like to have an underdog on my side. I made those assumptions before joining Excelerate and I can’t complain. It’s overly surpassed my expectations.

The quantity and quality of mentors and entrepreneurs that we’ve been able to meet has been A-plus. In Florida I spent a lot of time knocking on doors, asking, ‘Can you give me five minutes?’ Here, people give me 30. The difference in people’s willingness to help is night and day. People are also offering to introduce us to other people or open up doors.

What’s an example of a beneficial connection you’ve made through Excelerate?

One of our channel partners is the Illinois Technology Association, and (ITA CEO Fred Hoch) is one of the mentors at Excelerate. (Mr. Hoch) was the No. 1 person I wanted to meet through Excelerate. That’s because of what I call the channel approach to building business. Partnering with organizations that have a large member base of small businesses would be an ideal avenue for us. So we proposed to (Mr. Hoch) to help us co-market 71 Lbs to his audience and member base, and in my opinion that is a win-win-win. The ITA members win because they’re not aware of these money-back guarantees, or don’t have the time and resources to collect. If we can provide our service on contingency, they’re going to get weekly refunds. The ITA wins because it adds another service to its portfolio, adding to the overall value proposition they offer members. And 71 Lbs gets access and distribution to a number of small businesses that we might not encounter one-on-one.

Excelerate has a reputation for tweaking companies’ business models. Your company came in more established than most; have there been any fundamental changes?

There are a lot of people here asking why we’re doing this or that. But as an entrepreneur, you have to have a level of stubbornness, and I do. I have a hunch where this could go. I want to start with the (service collecting shipping-related) money-back guarantees because it’s a good way to offer value to our customers, and then over time could add product two, three or four. But that’s a little more down the road.

This is a very lively discussion, especially with (Mr. Henikoff). He has one opinion and I have a little different opinion. But for the most part I’m pretty happy with the direction we’re taking.

Are you going to stay in Chicago after Excelerate is finished?

Good question, and one that my potential investors are also asking. My answer is, I’ll get back to you.

IN OTHER TECH NEWS:

Mobile-development school Mobile Makers Academy launches this fall with a 10-week course focused on iOS development Intensive. Applications are due Sept. 3; classes begin Oct. 1.

“Silicon City” is a weekly report on Chicago tech news and newsmakers written by Crain’s contributor Steve Hendershot.

Share your ideas and news tips on the local tech startup scene with Steve via email: stevehendershot@gmail.com. Check out Steve’s blog here. And follow him on Twitter: @stevehendershot.

Join Crain’s LinkedIn group for Chicago entrepreneurs. And stay on top of Chicago business with Crain’s free daily e-newsletters.

SpotHero, already parked at Excelerate, snares 500 Startups investment

By Steve Hendershot

The ten companies participating in Chicago-based tech accelerator Excelerate Labs get to make their formal pitches to investors next Wednesday. That hasn’t stopped one of the participating companies, parking-reservations startup SpotHero, from securing an initial round of funding beforehand from Silicon Valley venture-capital firm 500 Startups.SpotHero met with 500 Startups founder Dave McClure when Mr. McClure visited Excelerate last month, and finalized the deal shortly thereafter. SpotHero will receive an undisclosed sum between $50,000 and $100,000 and become a 500 Startups portfolio company — and not a participant in the 500 Startups accelerator, which would force SpotHero to relocate to California. SpotHero will remain based in Chicago.

Mr. McClure met with each Excelerate company, but SpotHero’s introduction was made easier because of some additional connections. SpotHero cofounder Mark Lawrence worked out of 500 Startups’ Bay Area offices while visiting an entrepreneur friend earlier this year, SafeShepherd’s Robert Leshner. Mr. Leshner, who moved his company (formerly called MelonCard) to California from Chicago in 2011 to participate in the 500 Startups accelerator, had also told Mr. McClure about SpotHero. “There was already kind of this warm feeling,” Mr. Lawrence says of his first meeting with Mr. McClure.

SpotHero is still figuring out how much money it will seek at Excelerate’s investor presentation “Demo Day” next week. But Mr. Lawrence figures the pitch will go down easier now that SpotHero carries a 500 Startups endorsement.

“Having their name on something is a pretty good mark,” Mr. Lawrence says. “That’s In addition to Excelerate. Together, I think it will definitely make it easier” (to raise money).

That’s in addition to the connections that come from befriending Mr. McClure and the entrepreneurs from, well, 500 startups. “We can bounce off both the (500 Startups and Excelerate Labs) networks for introductions, so it’s nice to have backing from both,” Mr. Lawrence says.

Steve Hendershot writes “Silicon City,” Crain’s weekly post on Chicago tech news and newsmakers. Check it out every Tuesday on Crain’s blog for Chicago entrepreneurs.

Follow Steve on Twitter: @stevehendershot.

How the Venmo deal helps Braintree unlock the ‘digital wallet’

By Steve Hendershot

Braintree, a Chicago-based company that processes online payments for merchants including Uber and LivingSocial, acquired New York City-based social-payments startup Venmo for $26.2 million last week. Venmo’s product is geared toward consumers; it enables friends to make payments to one another. Braintree’s business, in contrast, has focused on enabling merchants to handle payments from consumers, and Braintree’s brand is mostly invisible to the consumers whose transactions it handles.

The Venmo acquisition signals a shift in that strategy: Braintree is aiming to build a more comprehensive mobile-payments infrastructure, including a digital wallet — a concept that has thus far failed to take root with consumers despite efforts from Google Inc. and others.

Bryan Johnson, Braintree’s founder and chairman, outlines the Venmo deal for Silicon City and describes Braintree’s vision for the future of mobile commerce.

Crain’s: What was the motivation for the purchase?Bryan Johnson: We bought them because 20 percent of commerce is happening on a mobile device now, but the conversion rates are awful — it’s something like 75 percent worse than on a desktop. Yet, a year from now, 50 percent of commerce will originate on a mobile device. So there’s a tremendous need to fix mobile commerce, to eliminate the friction, and that need will increase as the usage of mobile devices for commerce increases. So that’s the first problem, to minimize friction in mobile commerce so that (mobile commerce) becomes viable.

The holy grail of payments really falls into four categories. The first category is on the merchant acquiring side. A business (like Braintree) needs to have connections to merchants that they provide with credit-card processing services. The second piece is a digital wallet which allows consumers to store payment information, that makes transactions simple, and that opens up the opportunity down the road for things like rewards and offers. The third category is a payment method that exists outside of the (credit-card) networks. For example, merchants can accept PayPal as a form of payment and it operates on the (Automated Clearinghouse Network), so you don’t pay the interchange fees to (credit-card companies), and merchants get 2 percent of their costs eliminated compared to (credit-card transactions). The fourth category is peer-to-peer money transfer to allow the ecosystem to build.

Well, with the acquisition of Venmo, we now have a digital wallet, we have the ability to solve digital commerce, we have a payment method and we have peer-to-peer payments. We have everything we need to become the PayPal of next decade.

Venmo is geared toward consumers, while Braintree has thus far focused on merchant services. How will everything fit together?

We have focused on the merchant-acquiring portion. Our customers consist of many of the fastest-growing and most reputable merchants in the world: Angry Birds, LivingSocial, Fab.com, Uber. All these guys want to increase mobile commerce and reduce the friction involved with mobile commerce. Venmo gives us the ability to do that. Venmo also gives us the ability to offer merchatns an alternative payment method. We could go to Uber and say, ‘You could accept Venmo as a form of payment instead of a Visa card.’ It gives us another arrow in the quiver to offer value to them.

Then with the peer-to-peer payments, that fuels the ecosystem and drives usage among people. The key is to build both sides of that market, both the merchants who accept the digital wallet and payment method, and then consumers who use them. Peer-to-peer payments enable that adoption to happen faster because it increases the utility for people to use it.

Is Square a competitor?

We’re not trying to make Venmo a Square-like competitor. Square lives in a ‘credit card is present’ world. We live in “card not present.” Venmo has a digital wallet that could contain credit cards, but it also gives us the option to fund transactions with bank accounts and ACH transfers. So it would be an alternative to credit cards.

Is the digital wallet ready? How will you drive adoption of the digital wallet?

The wallet is done today. With Venmo, you can transfer money between friends, but you can also load up all your payment info, your credit-card and bank account info, and all that is already done.

We’ll be working on (driving wallet adoption), trying to combine all the different value propositions. There’a a value proposition for the merchant in that there’s a reduction of friction in mobile commerce with digital-wallet transactions. An easy-to-use digital wallet reduces friction on mobile commerce for consumers, too. Then there’s the alternative payment method. So there’s all kinds of incentives on both sides.

So many companies have tried and failed in pursuing this path because they have to build out the two-sided network (of merchants and consumers) and that’s really hard to do. But we already have the merchant network built out. We process 10 percent of all mobile commerce volume in the U.S. today, and our customers skew very heavily toward innovators and early adopters because of our merchants. We have 30 million credit cards on file. We have those early adopters in mobile commerce, and if we can solve the problem for them and for merchants, we start creating this virtuous ecosystem. From there, we’ll have a fantastic platform to move forward and expand out to others.

What about rollout? What will you do to Venmo’s product, and when?

The core will stay intact. The name will stay intact and the core product will stay intact. We’ll just add more things. One of the first things we’ll do is allow our merchants to accept Venmo as a form of payment. We’ll also march out a couple of product enhancements in the next three months.

Does that mean Venmo will be your brand on the consumer side?

Yes. This is our entrance into the consumer side of payments.

You’re planning to keep the Venmo team in New York. Are you concerned about that from a management perspective?

Any adjustment in the way teams work and get stuff done will require some recalibration, but we think this will actually be better for us because we’ll have a broader presence to recruit talented developers, and New York is a great [market for hiring software engineers]. So we think this will help us out more than we’ll be [negatively affected] by the adjustments necessary as we reconfigure the teams.

“Silicon City” is a weekly report on Chicago tech news and newsmakers written by Crain’s contributor Steve Hendershot.

Share your ideas and news tips on the local tech startup scene with Steve via email: stevehendershot@gmail.com. Check out Steve’s blog here. And follow him on Twitter: @stevehendershot.

Join Crain’s LinkedIn group for Chicago entrepreneurs. And stay on top of Chicago business with Crain’s free daily e-newsletters.

How the Venmo deal helps Braintree unlock the ‘digital wallet’

By Steve Hendershot

Braintree, a Chicago-based company that processes online payments for merchants including Uber and LivingSocial, acquired New York City-based social-payments startup Venmo for $26.2 million last week. Venmo’s product is geared toward consumers; it enables friends to make payments to one another. Braintree’s business, in contrast, has focused on enabling merchants to handle payments from consumers, and Braintree’s brand is mostly invisible to the consumers whose transactions it handles.

The Venmo acquisition signals a shift in that strategy: Braintree is aiming to build a more comprehensive mobile-payments infrastructure, including a digital wallet — a concept that has thus far failed to take root with consumers despite efforts from Google Inc. and others.

Bryan Johnson, Braintree’s founder and chairman, outlines the Venmo deal for Silicon City and describes Braintree’s vision for the future of mobile commerce.

Crain’s: What was the motivation for the purchase?Bryan Johnson: We bought them because 20 percent of commerce is happening on a mobile device now, but the conversion rates are awful — it’s something like 75 percent worse than on a desktop. Yet, a year from now, 50 percent of commerce will originate on a mobile device. So there’s a tremendous need to fix mobile commerce, to eliminate the friction, and that need will increase as the usage of mobile devices for commerce increases. So that’s the first problem, to minimize friction in mobile commerce so that (mobile commerce) becomes viable.

The holy grail of payments really falls into four categories. The first category is on the merchant acquiring side. A business (like Braintree) needs to have connections to merchants that they provide with credit-card processing services. The second piece is a digital wallet which allows consumers to store payment information, that makes transactions simple, and that opens up the opportunity down the road for things like rewards and offers. The third category is a payment method that exists outside of the (credit-card) networks. For example, merchants can accept PayPal as a form of payment and it operates on the (Automated Clearinghouse Network), so you don’t pay the interchange fees to (credit-card companies), and merchants get 2 percent of their costs eliminated compared to (credit-card transactions). The fourth category is peer-to-peer money transfer to allow the ecosystem to build.

Well, with the acquisition of Venmo, we now have a digital wallet, we have the ability to solve digital commerce, we have a payment method and we have peer-to-peer payments. We have everything we need to become the PayPal of next decade.

Venmo is geared toward consumers, while Braintree has thus far focused on merchant services. How will everything fit together?

We have focused on the merchant-acquiring portion. Our customers consist of many of the fastest-growing and most reputable merchants in the world: Angry Birds, LivingSocial, Fab.com, Uber. All these guys want to increase mobile commerce and reduce the friction involved with mobile commerce. Venmo gives us the ability to do that. Venmo also gives us the ability to offer merchatns an alternative payment method. We could go to Uber and say, ‘You could accept Venmo as a form of payment instead of a Visa card.’ It gives us another arrow in the quiver to offer value to them.

Then with the peer-to-peer payments, that fuels the ecosystem and drives usage among people. The key is to build both sides of that market, both the merchants who accept the digital wallet and payment method, and then consumers who use them. Peer-to-peer payments enable that adoption to happen faster because it increases the utility for people to use it.

Is Square a competitor?

We’re not trying to make Venmo a Square-like competitor. Square lives in a ‘credit card is present’ world. We live in “card not present.” Venmo has a digital wallet that could contain credit cards, but it also gives us the option to fund transactions with bank accounts and ACH transfers. So it would be an alternative to credit cards.

Is the digital wallet ready? How will you drive adoption of the digital wallet?

The wallet is done today. With Venmo, you can transfer money between friends, but you can also load up all your payment info, your credit-card and bank account info, and all that is already done.

We’ll be working on (driving wallet adoption), trying to combine all the different value propositions. There’a a value proposition for the merchant in that there’s a reduction of friction in mobile commerce with digital-wallet transactions. An easy-to-use digital wallet reduces friction on mobile commerce for consumers, too. Then there’s the alternative payment method. So there’s all kinds of incentives on both sides.

So many companies have tried and failed in pursuing this path because they have to build out the two-sided network (of merchants and consumers) and that’s really hard to do. But we already have the merchant network built out. We process 10 percent of all mobile commerce volume in the U.S. today, and our customers skew very heavily toward innovators and early adopters because of our merchants. We have 30 million credit cards on file. We have those early adopters in mobile commerce, and if we can solve the problem for them and for merchants, we start creating this virtuous ecosystem. From there, we’ll have a fantastic platform to move forward and expand out to others.

What about rollout? What will you do to Venmo’s product, and when?

The core will stay intact. The name will stay intact and the core product will stay intact. We’ll just add more things. One of the first things we’ll do is allow our merchants to accept Venmo as a form of payment. We’ll also march out a couple of product enhancements in the next three months.

Does that mean Venmo will be your brand on the consumer side?

Yes. This is our entrance into the consumer side of payments.

You’re planning to keep the Venmo team in New York. Are you concerned about that from a management perspective?

Any adjustment in the way teams work and get stuff done will require some recalibration, but we think this will actually be better for us because we’ll have a broader presence to recruit talented developers, and New York is a great [market for hiring software engineers]. So we think this will help us out more than we’ll be [negatively affected] by the adjustments necessary as we reconfigure the teams.

“Silicon City” is a weekly report on Chicago tech news and newsmakers written by Crain’s contributor Steve Hendershot.

Share your ideas and news tips on the local tech startup scene with Steve via email: stevehendershot@gmail.com. Check out Steve’s blog here. And follow him on Twitter: @stevehendershot.

Join Crain’s LinkedIn group for Chicago entrepreneurs. And stay on top of Chicago business with Crain’s free daily e-newsletters.