The Backyard Effect: The Heartland’s Formula For Recession Recovery

First appeared on Forbes.


The lessons of this pandemic have been many. People have been surprised by events that they never imagined. This crisis re-educated them about things they knew but perhaps forgot. Through the lens of the pandemic, they also recognized and recommitted to things that they had been doing “right” all along.

Here in the Midwest, I believe one of those right things is a phenomenon that we call “The Backyard Effect.”

Every region has a unique landscape of assets in its backyard. For example, here in the heartland, we have Fortune 1000 companies, research institutions, business-friendly public policies and affordable quality of life to attract talent. We also have a strong spirit of coordination and collaboration across the ecosystem, and that’s the secret sauce of our Backyard Effect.

Startups And Corporations Connect

The Backyard Effect took hold for us a few years ago when we committed to building a robust and self-sustaining entrepreneurial ecosystem. We found that in our geography, the more we banded together and connected our unique portfolio of assets across the ecosystem, the more proactive and effective we became in supporting the new companies that are our region’s engine of economic growth.

Only about 5% (per NVCA/PitchBook) of all venture capital in the U.S. goes to the Midwest and Great Lakes regions. However, we have a disproportionate share of Fortune 1000 companies. These firms — hundreds of them clustered around our cities and metropolitan areas — form the bedrock of the heartland’s economy, making them ideal partners for startups in many ways. A significant aspect of The Backyard Effect has been the eagerness with which our region’s corporates have connected to the innovation ecosystem.

Think about all the products and services that large corporations buy. There isn’t a company today that isn’t seeking solutions to unsolvable problems or new ways to gain efficiency. Isn’t every company in your backyard determined to expand existing markets or tap into new ones with differentiated products that their competitors don’t have?

Now think about startups with business-to-business (B2B) enterprise solutions that save time or money or deliver an applied technology that fills in a product roadmap gap. Senior decision-makers in the C-suites of large companies are strategically interested. About five years ago, we began a formal program to connect our portfolio with these business leaders. The benefits have been profound.

We’ve seen a new wave of corporate disruption and innovation grow out of proximity. Corporations gain access to the region’s fastest-growing startups and most innovative disruptive technologies. Having corporations as paying beta customers validates (or invalidates) a startup’s business proposition. Gaining early, serious feedback on features and usability allows the startup to refine the product to align more closely with market needs. When a startup is off-track, user feedback provides the impetus to pivot before the startup burns through precious resources and time.

I’ve observed that many corporates welcome the opportunity to influence products ahead of market release. Early relationships with industry leaders can develop national brand references for these new companies and new audiences for corporate brands.

In the Midwest and Great Lakes region, the proximity of large corporations opens a path for the future expansion of venture capital rounds, providing a promising example of how The Backyard Effect can be a uniquely positive factor for starting new companies near concentrations of corporate headquarters.

Corporates Learn To Innovate Like Startups

Entrepreneurship is contagious, yet it can be a struggle for corporations to mobilize their people, processes and resources to execute their innovation vision. According to a 2018 report from CB Insights, about 60% of corporate accelerators fail.

An exciting development of The Backyard Effect is that corporations have adopted a startup studio model to build lasting infrastructure to manage their innovation process — from partnering with startups to making investments in new companies with broader potential for industry-wide disruption.

It’s an industry-agnostic approach with firms in insurtech, agtech, fintech, consumer package goods, foodtech, healthcare, sustainability and mobility. Companies can connect to promising startups and entrepreneurs to change their respective industries. The more revolutionary the startup’s idea, the better.

Every Region Has Its Own Backyard

The Backyard Effect’s beauty is that the model can work anywhere, in good times and when conditions are trying. The Backyard Effect had a potent influence in helping our ecosystem weather the months of the pandemic.

Fortune 1000 businesses can be innovative with new products and services and successfully weather down economies and recessions. Even during this pandemic, they can seek innovation for future growth. The framework and structure of the Backyard Effect will hold to the benefit of startups and corporates.