Omaha: When not being The Valley is exactly the point

If you had told me a week ago that I’d be sitting here writing a piece about Omaha, Nebraska for The Next Web, I’d likely have chuckled. While I’m not quick to write off anything, my thoughts of Omaha consisted of a steak company and some corn fields. However, three days spent with the businesses, people and spirit of the greater Omaha region have proven to me that there’s far more to this city than for what most would give credit.

First off, let’s break down the story. I was contacted via a public relations office out of Lincoln, Nebraska to gauge my interest in spending a few days in Omaha for the Big Omaha conference. The pitch was something along the lines of “come out, see what we’re doing and if you’re interested, write a story about it. If you’re not interested, no hard feelings and no story required.” Simple enough, I thought. I’d give it a go.

My first day was spent meeting some investors and business development people, as well as a couple of startups from the Omaha area. We finished the day with a sit-down session hosted by the Chamber of Commerce to discuss what efforts were being made to help existing businesses, as well as to recruit new ones.

Days two and three were spent at Big Omaha and, if you’ve read my piece about why it’s the most important conference you’ve never attended, you’re likely to be surprised by some of my thoughts about the area in general. But that’s part of the fun, so read on.

At A Glance

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Omaha is a sprawling city in terms of land mass. With a population just shy of half a million in the city proper and again just shy of a million including the suburbs, it’s not the kind of “big city” that most of us might have in mind when we hear the term.

One name you’re probably familiar with is Berkshire Hathaway, with Warren Buffett sitting at its head. Omaha plays home to 20 businesses in total that claim revenues in the billions of dollars each, though there’s a surprisingly small amount of ones that claim revenues in the millions.

With names such as ConAgra Foods, Mutual of Omaha and Union Pacific, Omaha has a firm footing of successful, profitable businesses that have weathered economic downturns and upticks for years. There is a healthy mix of midwestern friendliness with savvy business sense that seems to make Omaha march forward. Median incomes are in line with most cities, averaging around $40k per household and $51k per family.

All of this is to say that there’s a relatively low unemployment rate in Omaha (around 5%, at present) and there are a number of good reasons, including a low cost of living, that bring people to the city.

What’s Going Wrong?

You’d have to ask, then, why a city needs to hire a PR firm. What’s happening in Omaha that it sees the need to reach out and find eyes from around the country? The short answer is that things aren’t necessarily going wrong, but rather it’s a matter of what’s not happening instead of what is.

The Omaha Chamber of Commerce is focused on organic growth via bringing in new businesses to the area. While that’s working quite well for established businesses. there’s a problem that is seen in the creation of startups. Omaha saw its infrastructure boosted in the 19th century by integration of railways and again in the 20th as the US Military saw fit to move its nuclear operations as far away from the coastal areas as possible.

What happened since then is that businesses have grown, but new ones have not necessarily started. According to one startup CEO, Tim Kephart of Graffiti Tracker, there are a few reasons for this.

Kephart says that, first and foremost, there is a lack of VC-level funding in Omaha. While angels abound and there are plenty of incubation options, that Series A and B funding is sorely missing. It’s a catch 22 problem, according to Kephart’s explanation. VC’s don’t have interest in the area because there are not startups that are catching the attention, but startups aren’t happening because there’s a lack of VC attention.

Kephart founded Graffiti Tracker in the Los Angeles area, where it had a firm area to research the work that he was doing. After having attended college in Omaha, Kephart was fond of the cost of living. Seeing that Google and LinkedIn were doing business in Omaha, he thought that there would be sufficient talent in Omaha to do what he was attempting.

After returning to Omaha and setting up shop, he found that the case wasn’t exactly as he had hoped:

“It’s easy to make bad decisions here. I really feel that the talent in Omaha has been overrepresented. It’s the case of a big fish in a small pond. A small amount of talent will shine in an area where the overall amount of talent is low and people are very interested in being nice rather than telling you the truth.”

In Kephart’s assertion, Omaha has money. But it doesn’t have the money that it needs. He states that Omaha has plenty of investors for profitable, growing businesses but not for startups.

“People don’t want to take that risk. Funding-wise, it’s just not here for what that level is. This town is about slow, meticulous, conservative growth. It’s always on your mind that your entire life could be wiped out by a tornado.”

The other problem according to Kephart is simply a matter of mentality.

“In the valley, 15 people can live in one place and that’s OK. Here, they want to live downtown in a loft for $1,500 per month and maybe have one roommate. So they spend $8-900 per month for a house, $400 for a car and the cost of living ends up being higher [than the lifestyle that happens in Silicon Valley].”

Yet Graffiti Tracker is still in Omaha, and you have to ask why. The answer is that the business model is a good fit for Omaha, even if the area doesn’t provide the necessary ability to research.

Graffiti Tracker is a B2G (business to government) model. Most of its contracts fall into the range of $24-36k per year, for a total of $1.1 million in contract revenue for 2009. With a 20% annual growth, it is outpacing most of Omaha’s business, but it is doing so because of small, educated moves.

“Omaha has a highly educated workforce, but it’s hard to find talent versus education. There are are a lot of people who think that they’re talented, but they’re only talented for where they are.”

Pulling no punches, the boisterous yet friendly Kephart dishes on the fact that Graffiti Tracker is making a profit and doing exceptionally well. He’s also candid about the fact that it needs to set up an LA-based office, but he has been prevented in doing so simply because of the costs involved.

He laughs at those who have said in the past that Omaha can ignore Silicon Valley and NYC. In part, he says, it’s a mentality issue when it comes to how technology businesses are run.

“People here don’t know how to deal with walking into a VC’s office, having them lay $5 million on the table and then telling them that they want 40% of the business. They’re getting small funding here, and only seeing 10 or 12-percent stakes but then they can’t get that next level of money.”

In Kephart’s eyes, Omaha needs to simply understand that it has to have that ongoing relationship with coastal-based VC’s and businesses in order to facilitate the growth of new startups in its walls.

Perhaps that’s exactly the case. I was joined in Omaha by Nathaniel Whittemore, a freelance writer for Inc. Magazine. As an entrepreneur himself, based in the San Francisco Bay area, he brings up a very solid point — No matter where people call home, successful businesses in technology tend to have a presence in Silicon Valley as well. Whether that’s a VC firm in Israel or an emerging business in Dubai, that Valley presence is important in order to see the pulse of what is happening in technology.

Whittemore also brings about a very valid point in that it seems that the Valley is primarily interested in consumer-facing tech. If you’re doing work with point-of-sale systems or financials (as many in Omaha are), you’re not as likely to be seen in the Valley. For the Twitters, Googles and Hipmunks of the world, the Valley is simply the place to be.

Next: What’s Omaha is doing right that others should do too.

What’s Going Right?

This is where things get rather interesting. As I said before, I had the chance to meet with a few people who are doing business in Omaha and are quite successful at doing so. What is setting them apart? Let’s take a look.

William Fisher and Dwight Hanson (among others) make up Treetop Ventures. Given the name, you’d think that Treetop was a venture capital firm, but you’d be mistaken. Rather, what Treetop does is more akin to an incubator. Though the company has raised $120 million in local funding to do angel rounds, Hanson and Fisher are more concerned with helping startups understand how to do business, rather than just shoveling funds into flaming trashcans.

Hanson admits that there are some businesses with which they’ve simply not had experience. At present, Treetop is focusing on payments, but the company is far from afraid to reach into other areas. Fisher states that he simply wants to help people, but he wouldn’t call it philanthropy.

“I don’t think philanthropy fits. I’m 65 years old, I just don’t want to quit working. I just believe that what goes around comes around. I like working with people that I like. I’d really like, 10 years from now, to know that we were part of the technology structure and that we gave people jobs.”

Taking Fisher to task as someone who is part of the solution, I asked him what Omaha really needed:

“What we need is the next stage beyond Angel. Typically that’s VC. We need investment bankers. They don’t loan money, but they’re deal guys. They’ll help you with acquisitions, marketplace, etcetera.”

Fisher also states that Omaha needs a crop of people who are willing to spend their own money. Relating a story about seeing a startup founder pull up in a BMW, then asked Fisher for money, he states it simply:

“You have to want your money, not my money.”

But it’s a bigger picture than just getting the right people into play. According to Fisher, you have to change education. You need to get support for the emerging businesses as well. You need tax breaks and you have to get the right set of people. Every time that these things start to come together in Omaha, it “becomes political” and deals have had a difficult time coming together.

This is where Tom Chapman comes into the picture. Chapman is the Director of the Greater Omaha Chamber of Commerce. More than that, though, he’s a fan of Omaha and father of 6 who wants to create a place where his kids can choose to live and be happy.

When Chapman was tasked to work on bringing new business deals to Omaha, he told his boss that he wanted to see 50 deals in the million plus dollar range over three years. In 2007, there were zero dollars (from VC’s or Angels) spent in Omaha. In 2010 there was $33 million over 18 deals. But Chapman’s work is far from over.

The first questions that had to be asked were difficult to answer. Who and where are your entrepreneurs? In 2007, Chapman admits that Omaha didn’t know. Who are your Angels? Again, it was a question that was left with no good answer.

What Chapman did know was that figure about having 20 enterprises with over $1 billion in annual revenue. He also knew that human capital was far more important than pipes and sites infrastructure. With that in mind, Chapman and his team went to work developing a network of entrepreneurs.

“Omaha found that innovation actually happened in garages, warehouses and the “uncool” spaces.”

Taking that information, the city put a focus onto connecting these entrepreneurs, getting them in touch with people like Treetop Ventures and then retaining them once the connections were made. The first entrepreneur’s meeting had 3 attendees. Chapman states that now it’s regular occasion to have a sizable attendance and the efforts continue.

“We’re not doing anything that Silicon Valley thinks is very hot. We don’t do consumer-facing stuff very often. We do unsexy stuff and grow billion dollar companies out of it.”

What’s most interesting to me is that Omaha is putting a dedicated force into making sure that positive change can happen in the areas in which it is needed. Rather than just having slogans and t-shirts, that Midwestern work ethic is coming into play and Omaha is facing problems with action. Even Chapman’s role in the development of startups is evidence of this and it’s something to which more cities should pay attention.

What’s Next?

After meeting with Treetop Ventures, we were heading across town to sit with a startup called Bloom (we’ll be reviewing Bloom soon here on TNW). During the ride, Chapman asked what I thought about Omaha so far. While I wasn’t fully prepared to answer, I did have some initial thoughts and they hold true even now.

There is an apologist attitude that happens many times when people are successful. It’s something that I saw in Omaha that I’d love to see disappear. There is positively no shame to be had in capitalizing on the areas in which you excel.

The other pressing thought is one that didn’t leave me the entire time that I was there — Omaha is a lot like my home city of Nashville. It’s strong, independent and stubborn in these factors. Yet both Omaha and Nashville need to understand that relationships are necessary, and more so than just relationships within the confines of city limits.

I have no doubt that Omaha will continue to grow and be a home to more successful business. If it is to reach that next level with entrepreneurs, though, it does need some attention from the left and right (Silicon Valley and NYC). Again, there is no shame in capitalizing on the areas in which you excel, but there’s likely no shame in admitting that you could use some help with the areas in which you don’t.

I think that Fisher from Treetop Ventures makes an excellent point – “No matter where you went to school, we read the same book.” While that’s exceptionally true, the experiences that you gather will vary greatly depending on where you’ve chosen to do business. Reaching out, forming relationships and growing from those relationships is simply a matter of good business sense, pride be damned.

I’ll be going back to Omaha next year, around this same time. First and foremost, I’m going for the Big Omaha conference. In the mean time, I’ll be reading Silicon Prairie News to keep up with what’s happening there because my secondary goal is likely more important than my primary — I want to see where Omaha is in 2012.

Omaha isn’t going to be the next Silicon Valley. Though maybe, just maybe, that’s exactly the point.