Is AI making businesses in Chicago better? Some say yes, and the investment is worth it.

Artificial intelligence has been on Shraysi Tandon’s mind since the day she co-launched Kidsy, an online retailer of discounted baby and kids clothes, toys and products.

The Chicago-based company launched in September 2023, and its prices are set by AI tools that scan the internet to ensure Kidsy’s prices remain competitive.

The technology helps the company source open-box products, i.e. products that have been opened and returned but are often in near-new condition. AI tracks the retailer’s warehouse inventory and flags any transactions that may be fraudulent or high risk, advising warehouse workers to cancel the order.

“As soon as we launched Kidsy, we saw that there were many gaps within the business that could be filled much more efficiently through the use of AI rather than any human labor,” Tandon said.

A year after launch, AI has allowed Kidsy to grow sustainably, reducing labor costs around repetitive tasks and fulfilling its niche of providing parents with open boxes and returning discounted items from big brands and diverting products from landfills.

He said investment in AI — paying software engineers to create custom solutions and develop data and infrastructure — has paid off handsomely.

“AI actually reduced costs for us in the long run because it increased operational efficiency,” Tandon said. “(Increased) the speed at which we can move; our speed of response to customers; “It has increased the speed at which we process transactions and improved our end-to-end customer experience.”

When the popularity of AI exploded in 2022 with the launch of platforms like ChatGPT, businesses and employees predicted that the technology would revolutionize the workplace, even replacing some workers.

Despite the flashy sound, businesses have been slow to adopt the technology due to its high cost and lack of ready-to-use solutions. Companies like Kidsy in Chicago think AI is worth the investment and time, but experts say companies need to tread carefully in a fledgling field that lacks widespread regulation.

A report published in March by the U.S. Census Bureau found that the number of firms using AI across the country is “relatively low but growing.” It surveyed an estimated 1.2 million businesses from September 2023 to February and said AI usage increased from 3.7% to about 5.4% during that time. Most companies used artificial intelligence to use chatbots, automate marketing tasks and analyze data, and it did not impact employment, according to the bureau.

Restaurateur TJ Callahan, co-owner of Farm Bar in Ravenswood and Lake View, deployed an AI phone answering service for his restaurants this summer. He added the tool because he feared the farm-to-table restaurant might lose business.

“I would go to the restaurant and look at the call logs, and there would be several phone calls during the day when the restaurant was normally closed,” Callahan said. “And when you call the guests back, they don’t pick up.”

After about a week of setup and a monthly fee of a few hundred dollars, the AI service was answering phones at the Farm Bar and answering questions about restaurant hours, menus and reservations.

But Callahan said the tool has its limits. For example, it cannot tell the customer whether the roof is open or not based on the weather, a variable it cannot yet account for. But with rising labor costs, artificial intelligence could play a bigger role in the future, he said.

“When a guest comes into the restaurant and sits at the bar, AI has no rules,” Callahan said. “But you wonder if AI will play a bigger role in the future?”

The two customers were at the Farm Bar, 1300 W. Wellington Ave. Chatting outside the Lake View restaurant at. — Customers can visit Farm Bar at 1300 W. Wellington Ave. Chatting outside the Lake View restaurant at.

Balancing risk and reward

Deming Chen, an engineering professor at the University of Illinois Urbana-Champaign, said businesses adopting AI may face several hurdles.

Hiring software engineers to develop AI models can be expensive. And using third-party AI tools can take extra time to connect to the business’ database and software systems. Questions about ethics and a lack of federal regulation can further complicate matters.

“I really advocate for openness,” said Chen, who uses ChatGPT occasionally. For example, businesses must disclose whether any user-generated data will be used to train AI models. “It’s a balance between innovation and risk.”

While the promises of what AI can do are great, Chen said users shouldn’t “blindly trust” that all AI models are accurate. He said businesses should rely on the standards they set to reduce potential conflicts and maintain consumer trust.

“As long as we have a clear policy and standard procedures with strong regulations, I think generative AI, large language models, and machine learning models will help us rather than hurt us.”

Creating a custom fit

Heather Denniston, president and co-founder of Ludex, an app that scans and identifies sports trading cards, faced two obstacles when developing AI for the startup: time and money.

Ludex first developed basic AI for image and text recognition, which compares a scanned card to a database of collector’s items and provides details. But Denniston said he is easily surprised by small changes in card designs or reflective coatings and requires more work.

“The technology is frankly incredibly expensive to create,” he said. “The cost becomes less and less as we maintain it, but we are still in creation mode. We’ll soon be at a nice break-even point and can start enjoying the fruits of our labor. “But financially, that was our first hurdle.”

Heather Denniston, Ludex's chief operating officer, president and co-founder, said the company is located at 223 W. Erie St. He smiles at the camera with his arms crossed in front of him at his River North headquarters at . — Heather Denniston, Ludex’s chief operating officer, president and co-founder, said the company is located at 223 W. Erie St. at River North headquarters at.

The second hurdle is designing artificial intelligence programs that can identify modern cards, Denniston said. Before Denniston and his team could start building identification algorithms, they had to find huge amounts of data to feed them, and that took time.

“It took us about a year and about a million dollars to figure out the basic cards, which were just basic cards, legacy cards,” Denniston said. “These were pretty easy. “This is today’s cards that took us a year and $8 million to figure out.”

Ludex has had more than 1.5 million app downloads since its launch in November 2022.

The company plans to create its own custom AI that can identify a trading card and estimate the card’s value using sales data.

The investment in AI paid off, but it wasn’t cheap. Denniston and co-founder Brian Ludden raised about $14 million to cover startup costs and a team of software engineers.

“Chicago is a great place to develop technology and be an entrepreneur,” Denniston said. “I would like to see more support from entrepreneurs in the city, especially female founders and minority founders. “I wish a little more attention was paid to what is being built in the city.”

Inside Ludex's River North office. To the right is the reception area and behind it is a seating area with tables and chairs. — Inside Ludex’s River North office.

Karen Plesh, CEO of property management firm 29th Street, said potential tenants can chat or text an AI-powered phone service to get information about available units, apartment amenities and how to arrange a tour. Similar technology guides potential residents through self-guided building tours.

“Our team members really feel like they are more focused on providing the best customer service and making sure the property is well taken care of,” he said. “They have time to talk to their contractors, tour the property, work with the maintenance crew to make sure everything is in top shape.”

Plesh hopes to eventually gain more predictive insights from artificial intelligence. For example, receiving notification about a building with persistent air conditioning problems and recommending revisions.

Ethical concerns

A 2023 report from the Small Business and Entrepreneurship Council found that the average annual investment by small businesses in AI-powered tools was $1,800; Nearly half of business owners surveyed said they plan to increase their investment in AI in the coming year.

Steve Banke, vice president of transformation at IT consulting firm Ntiva, said the firm has not been widely adopted because it is “just getting started.” He expects this to change but cautioned that the technology is not yet reliable.

“AI can certainly be wrong,” Banke said. “The removal of the human element in understanding the quality and validity of data is a serious concern. “Business owners should ensure their organization has a written policy that AI content is not simply created and distributed or relied upon in any way.”

Rita Garry, an artificial intelligence and data privacy attorney at Howard & Howard, said data privacy should also be a top concern.

“Companies need to know the regulatory landscape… and how to document and prove they are in compliance with these permit requirements,” Garry said.

At least 25 states, Puerto Rico and the District of Columbia introduced AI bills last year, according to the National Conference of State Legislatures.

“One of the main concerns of AI is that it is a machine learning model based on the data fed into it. And if the data is not clean and the learning process of the model is not supervised, it can have discriminatory consequences in decision making,” Garry said.

For example, using AI software to scan job applicants’ resumes could leave a business open to employment discrimination charges if the AI is trained on biased information, Garry said.

In 2019, Illinois was one of the first states to impose restrictions on the use of AI in hiring by passing the Artificial Intelligence Video Interviewing Act. And HB3773 Starting in 2026, it will restrict employers from using AI to inform decisions about hiring, promotions and other job-related functions.

Garry advises businesses to think critically about how AI will fit into their operations, carefully evaluate third-party AI tools, and continually test and improve the model.

Ntvia’s Banke said businesses should learn to examine technology before investing.

“I think people need to have the most basic understanding of AI before diving into AI for their own business,” Banke said. “Artificial intelligence is just a software program. This is everything. He will do what you tell him to do. And understanding how to tell him what to do is the real key to success in any field.”

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