In 2004 the founder of a Web design firm called 37 Signals, Jason Fried, launched Basecamp, a Web-based project management tool.  Uncertain whether his first software product would be viable, Fried told himself that if Basecamp could not generate $5,000 in revenues per month throughout the first year, he would cancel it.

“It turned out that Basecamp did that in six weeks,” said Fried, who had started Chicago-based 37 Signals in 1999. “We really thought, ‘Wow, there’s something going on here.’”

That “something,” Fried said, was more than his venture: a combination of a growing number of small businesses in Chicago and the need by companies worldwide for easy-to-use, Web-based software.

Chicago, despite being known for transportation technology and architecture, is not often recognized for its IT and Web-based innovations. Lately, however, nationally acclaimed IT solutions, such as 37 Signals’ Basecamp, have come from the City of Big Shoulders, backed by its cohesive community of tech entrepreneurs and small businesses.

“Chicago traditionally has not been as collaborative as it needs to be,” said Fred Hoch, president of the Illinois Information Technology Association (ITA), a Chicago-based trade organization that aims to help grow tech businesses in the area. “There have always been people here who could be collaborative; there just wasn’t the mentality. Now, a lot of our members are focusing on that.”  

One such member, Fastroot International LLC, a full service provider of IT solutions based in downtown Chicago, works closely with other tech companies to help improve their software. Fastroot also showcases its own technologies at local tech events and encourages other Chicago businesses to do the same.

In a report compiled by ITA, 112 Illinois companies surveyed generated more than $5 billion in revenues in 2007, and they expect to expand revenues to $5.6 billion this year. Of those companies, mostly small, tech businesses, 45 percent experienced revenue growth greater than 20 percent in 2007 compared with the previous year.

Those businesses also affirmed that they plan to increase staff by an average of 17 percent in 2008. In total, they intend to open up 3,750 jobs this year, compared with the 1,300 jobs they expected to create in 2007.

“The results of this year’s survey speak volumes about the growth of Illinois’s fast-growing technology industry,” Bob Blee, a member of ITA’s Strategic Intelligence Committee, stated in a press release.

“There’s always been this sense on the east and west coasts that Chicago is not a major player in the IT and tech worlds,” asserted Dan Ratner, co-founder of the Chicago-operated SitterCity.com. “But in the last couple of years, a couple of companies have emerged in this area that really are gaining national prominence and are really making people rethink that assumption.”

In fact, in 2007 Google Inc. acquired Chicago-born FeedBurner, which provides tools for managing online news feeds. Local tech experts predict that the acquisition will bring Silicon Valley entrepreneurs, and thus new technologies, to Chicago.

“It’s seriously causing people from the coasts to seriously consider whether Chicago needs a second look,” Ratner declared. 

Chicago’s transformation into a hotspot for Web innovation was further driven by the advent of tech mixers in 2006, according to Eric Olson, co-founder of a mixer called Tech Cocktail. These social events bring together Chicago techies, people starting new businesses and executives of bigger companies to socialize and brainstorm in a stress-free setting.

“We wanted Tech Cocktail to be a cocktail of people,” Olson said. “Our goal was to get everybody in the tech community together, whether you’re in business or marketing or coding, or you’re an entrepreneur. All the different functions that have to play together to make a tech company work could all meet each other and start learning each other’s perspectives.”

Since Tech Cocktail burst on the scene in 2005, Olson has organized six more in Chicago at bars and restaurants, and he also expanded the event to other cities. Several more social tech gatherings, such as BarCamp and Chicago Beta, have followed suit, hosting events several times each year.

Not only has the event enabled companies to demo their current and future products, but it has linked them to potential employees. For example, Sittercity.com, a site that helps parents find babysitters in Chicago, was introduced to its current chief technology officer at Tech Cocktail’s last event, Olson said.

“The tech community is a new phenomenon,” said Mari Hoashi Franklin, principal of Lumatila LLC, an IT consultancy founded in Barrington last year. “It’s a forum to help mature the industry, to help the management side understand the tech side or vice versa. It’s also an important forum for our community to establish its own identity.”

According to Franklin, another factor that has fueled Chicago’s IT industry in recent years is a statewide focus on building strong businesses and finding applications for technology.

Firm58 Inc., which develops Internet software for post-trade management, formed around the emergence of capital markets organizations in Chicago. The company recently reported that it tripled profits in 2007 thanks to increased competition among Chicago’s financial institutions.

“The technology startups in Chicago are focused on solving current business problems that deliver value when you have completed the project,” Franklin said. “That’s a really different environment from a place that does speculative technology development that may or may not find a market,” she added. 

 “It’s a very Midwest mentality,” said Fred Hoch of ITA. “In Illinois, it's about embracing technology as it relates to a problem of a specific business sector. Chicago is in a unique position because we have the customers here.”

Those customers include the Chicago Mercantile Exchange and the former Chicago Board of Trade, which are two of Firm58’s biggest clients, according to Firm58 CEO Curt Witte.

Added Hoch: “The question is: can Chicago react faster than other places and be more meaningful that way?”