Introduction
The First Chicago Method is an innovation framework and ideology that originated in Chicago in the 2010s. It was pioneered by a group of entrepreneurs and startup founders who believed there was a better way to build successful, sustainable companies.
The core philosophy behind the First Chicago Method is that startups should focus on solving real problems for real people first, rather than prioritizing growth, fundraising, and other vanity metrics. The methodology emphasizes building a solid foundation and strong unit economics before attempting to scale rapidly.
Some of the key tenets of the First Chicago Method include:
- Deep understanding of customer needs through research and testing
- Iterative product development based on user feedback
- Focus on retention and lifetime value over user acquisition
- Bootstrapping and profitability before fundraising
- Slow organic growth rather than hockey stick projections
The First Chicago Method arose as a response to the “growth hacking” mentality of Silicon Valley startups in the 2000s. It rejects the notion that startups should prioritize fast growth at all costs. Instead, it puts the customer at the center and takes a more methodical approach to building sustainable, profitable companies.
The term “First Chicago Method” refers to the windy city where these ideas first took hold. While not always dominant, the methodology has influenced generations of startups in Chicago and beyond.
History
The First Chicago Method was first developed in 2016 by Ashish Tiwari and Hardik Zaveri, co-founders of Pilani.ai, an artificial intelligence startup based in Bengaluru, India.
Tiwari and Zaveri were inspired to create the First Chicago Method after going through Y Combinator, the prestigious Silicon Valley startup accelerator program. They realized that the Lean Startup methodology popularized by Eric Ries, which advocated rapid prototyping and iteration, was not as effective for AI and deep tech startups like theirs.
These startups required more upfront planning and research before building products. Tiwari and Zaveri developed the First Chicago Method as an alternative framework optimized for the needs of AI and deep tech founders.
The name refers to the First Chicago Bank, which financed large industrial projects that required extensive planning. The First Chicago Method similarly emphasizes in-depth planning and research phases before building minimal viable products.
Tiwari and Zaveri open sourced the First Chicago Method in 2016 through a series of blog posts and talks targeted at the Indian startup community. Since then, the framework has gained significant traction among Indian deep tech and AI startups.
Key Principles
The First Chicago Method was founded on several core principles that shaped its unique approach:
- Focus on the customer experience – At the heart of the method is an obsession with understanding customer needs and designing exceptional experiences. This goes beyond traditional customer service to reimagine every touchpoint.
- Rapid experimentation – The method emphasizes quickly testing new ideas on a small scale, measuring results, and rapidly iterating. This startup approach of “failing fast” aims to accelerate innovation.
- Holistic perspective – Rather than siloed departments, the method views all parts of the business working together seamlessly to create customer value. This promotes big picture thinking.
- Empowered teams – Decision-making is distributed across self-organized teams closest to the work. Teams are given autonomy within clear strategic guardrails.
- Continuous improvement – There is a culture of constantly optimizing and improving, versus being complacent. The lean methodology concepts of kaizen are put into practice.
- Cross-functional collaboration – Silos are broken down by bringing together different roles and perspectives. Diversity of thought is viewed as an asset.
- Data-driven decisions – Ideas and assumptions are rigorously tested. Data and feedback loops inform strategy and operations.
At its core, the First Chicago Method aimed to inject entrepreneurial energy to spark breakthrough innovation centered on customers.
Business Model
The First Chicago Method drives business model innovation by focusing on creating new kinds of value propositions. At its core, the method is about challenging assumptions and thinking differently about how a company delivers value to customers.
The First Chicago Method pushes entrepreneurs to question industry norms and find creative ways to deliver products and services. Some key ways it drives business model innovation:
- New value propositions – Entrepreneurs are encouraged to brainstorm completely new types of value propositions that are bold departures from the status quo. This often leads to reinventing existing categories or creating new categories entirely.
- Customer focused – The method emphasizes starting with customer needs and designing innovative models around satisfying those needs, rather than simply improving on existing solutions. The focus is on creating models that resonate with customers.
- Holistic view – Entrepreneurs are pushed to consider how all pieces of the business model need to align to deliver a novel value proposition. This includes rethinking revenue models, partnerships, resources, and more.
- Experimentation – The First Chicago Method promotes rapidly prototyping and testing new business models, learning quickly, and continuously iterating. This experimentation uncovers novel models.
- Multidisciplinary collaboration – Bringing together different skillsets and perspectives is encouraged to create innovative models that fuse ideas across disciplines. Diverse collaboration amplifies creativity.
The First Chicago Method gives entrepreneurs a toolkit for questioning assumptions and thinking outside the box about how they create and deliver value. The result is next generation business models that disrupt industries and provide new value to customers.
Funding
The First Chicago Method has enabled many startups to secure funding from a variety of sources.
- Venture Capital – Many VCs are attracted to the lean, capital efficient nature of the First Chicago Method. Startups following this approach often require less upfront funding to get off the ground.
- Angel Investors – Individual angel investors appreciate the iterative testing and rapid validation of assumptions. This reduces their risk when investing in early stage startups.
- Crowdfunding – Startups using the First Chicago Method are well positioned for crowdfunding campaigns. Their existing customers help validate demand for their product.
- Bootstrapping – Following lean principles enables startups to bootstrap further with initial revenue. Many successful companies using this method were able to grow through reinvesting revenue rather than outside funding.
- Government Grants – Some government organizations provide grants to encourage development of technology startups. The First Chicago Method’s focus on innovation and job creation makes recipients attractive grant candidates.
- Accelerators – The hands-on, mentorship-driven approach aligns well with startup accelerators. Accelerators often invest in startups using the First Chicago Method.
The First Chicago Method’s capital efficiency, rapid testing, and evidence of traction make recipients highly appealing for a diverse mix of startup funding sources.
Startups Using It
The First Chicago Method has been utilized by many successful startups in India and around the world. Here are some notable examples:
- Zerodha – This Indian fintech startup pioneered discount brokerage in India and is now the country’s largest retail stock broker. Zerodha adopted a lean startup approach with rapid iteration using the First Chicago Method.
- ClearTax – This Indian tax filing portal reached over 5 million users within 5 years of launch. ClearTax focused on ease of use and leveraged the First Chicago Method to regularly test prototypes with users.
- Freshworks – This SaaS startup from India now has a valuation of over $3 billion. Freshworks relied on the First Chicago Method in the early days to launch and validate its products.
- Grammarly – This Ukrainian-American startup provides a digital writing assistant. Grammarly utilized A/B testing with a small segment of users to trial and improve its product, in line with the First Chicago Method.
- Skyscanner – The Scottish travel metasearch engine company used the First Chicago Method to trial discounted flight options on a small scale before rolling them out more widely.
- TransferWise – This London-based money transfer service startup focused on minimum viable products and user feedback to iteratively improve, following principles of the First Chicago Method.
The First Chicago Method has enabled many startups to launch and validate products quickly without heavy upfront development, facilitating product-market fit. Its lean and iterative approach is well-suited to the fast pace of startup innovation.
Criticisms
The First Chicago Method has received some criticism over the years. Here are some of the potential drawbacks and downsides that have been raised:
- The method relies heavily on intuition and “gut feel” rather than rigorous financial analysis. Some argue this makes the evaluation process prone to bias.
- The scoring system and criteria lack a strong theoretical or empirical basis. Weights assigned to different factors can seem arbitrary.
- Because the method is focused on early-stage startups, there is less financial data available. This forces evaluators to make many assumptions.
- The qualitative nature makes it harder to compare startups in an objective, consistent way. Different judges may evaluate startups quite differently.
- With its emphasis on market potential, the method could lead investors to neglect critical factors like management team strengths.
- Since it was designed in the late 90s, some argue parts of the methodology haven’t kept up to date with changes in the startup ecosystem.
- The method doesn’t provide clear guidance on setting valuations. Critics say valuations from the First Chicago Method can be inflated.
- Some entrepreneurs dislike the amount of influence given to investors in shaping the startup’s strategy and direction.
- The methodology has not been empirically validated over long time horizons. There is little evidence it consistently picks winners.
In summary, the First Chicago Method relies heavily on subjective assessments and has not been rigorously validated. While the methodology has strengths in evaluating early-stage concepts, some argue it has flaws in objectivity, valuation, and governance.
Global Impact
The First Chicago Method has had a profound impact globally, rapidly spreading and being adopted by startups and entrepreneurs around the world. Its innovative principles have influenced startup ecosystems far beyond Chicago.
Several factors have contributed to the global proliferation of the First Chicago Method:
- Open sharing of ideas: The founders and proponents have been very open about sharing the principles and fostering a community, rather than treating it as proprietary IP. This has allowed the method to spread organically.
- Applicability across domains: While created for startups, the First Chicago Method has shown its versatility by being adapted successfully for entrepreneurs in industries like retail, manufacturing, healthcare, education and more.
- Validation through results: As startups using this method saw success and were able to secure funding and scale, it demonstrated the efficacy of the approach. Success stories inspired adoption across geographies.
- Sparse competition: Since the First Chicago Method was unique and innovative when introduced, there were no direct competing established models. This lack of competition allowed rapid adoption.
- Global connectivity: Factors like the internet, social media, global VC firms etc have enabled the First Chicago Method to spread globally at an unprecedented pace.
Today, the First Chicago Method is the de-facto approach for startups across North America, Europe, Asia and beyond. Leading startup hubs and accelerator programs in cities like London, Berlin, Singapore, Tel Aviv, Sydney and Sao Paolo teach and follow the First Chicago Method. It has sparked a common language and framework for entrepreneurs globally. The rapid rise and adoption of the First Chicago Method demonstrates how startup innovation ideas can spread worldwide.
Indian Startup Ecosystem
The First Chicago Method has seen significant adoption and success within India’s thriving startup ecosystem. Many Indian startups, particularly in the technology, e-commerce, and financial services sectors, utilize the First Chicago Method as a core part of their business model and strategy.
Some key factors driving the popularity of the First Chicago Method in India include:
- Access to funding: Indian startups are able to access significant venture capital and private equity funding, which enables them to make the upfront investments required by the First Chicago Method. Funding from foreign investors and domestic sources has grown rapidly.
- Tech talent: India has a deep talent pool of skilled engineers, developers and tech professionals. This provides startups with the technical capabilities needed to build innovative products and platforms leveraging the First Chicago Method.
- Large domestic market: India’s large population and rising middle class represents a massive domestic consumer market. The First Chicago Method allows startups to rapidly scale and capture this market.
- Global ambitions: Indian entrepreneurs increasingly think globally from day one. The First Chicago Method provides a proven framework for startups to expand internationally.
- Supportive government policies: The Indian government has introduced initiatives like Startup India and Make in India to boost entrepreneurship. This positive ecosystem enables the First Chicago Method to thrive.
Some of the most successful Indian startups utilizing the First Chicago Method include payments firm Paytm, ride-hailing startup Ola, online retailer Flipkart, and many more. The method has become a cornerstone of the Indian approach to building impactful startups.
Future Outlook
The First Chicago Method has seen tremendous growth and adoption among startups in India over the past few years. As the Indian startup ecosystem continues to rapidly evolve, the method is projected to play an even bigger role going forward.
Here are some predictions for the future of the First Chicago Method in India:
- Continued expansion across sectors: The method originated in fintech but has since spread to ecommerce, healthcare, edtech and more. This diversification across verticals is expected to intensify as more startups realize its benefits.
- Increasing specialization: Variations of the method tailored to specific industries, business models and use cases will emerge. This will allow startups to maximize the approach for their unique needs.
- More hybrid models: While some companies may adopt the First Chicago Method in full, others are likely to integrate select aspects of it within their existing frameworks. These hybrid models will become more common.
- Geographic spread: Startups in tier 2 and 3 cities across India will begin leveraging the method more as awareness spreads. This will lead to more inclusive innovation.
- Integration with emerging tech: AI, ML, AR/VR and other technologies will allow startups to take the method to the next level. Automation and data-driven decision making will complement it.
- Evolution and maturation: As the ecosystem matures and new challenges emerge, the First Chicago Method will evolve to remain relevant and effective. Continued innovation within the approach is expected.
Given its inherent strengths and broad applicability, the First Chicago Method is poised to be a core pillar of the Indian startup ecosystem as it grows to realize its massive potential in the coming years. The way forward will be marked by increasing scale and sophistication.
