Why you shouldn't start a tech company in Silicon Valley(slashstar.com)
slashstar.com
Why you shouldn't start a tech company in Silicon Valley
http://slashstar.com/blogs/tim/archive/2008/07/08/why-you-shouldn-t-start-a-tech-company-in-silicon-valley.aspx
9 comments
While I'm not sure 'not' starting a company in silicon valley is valid (i.e. if I lived there I probably wouldn't move away to start a company), I am all about starting companies in area's with a lower cost of living. "staying alive" is easier in 'southwest airlines' cities.
Take a look at the map of where Southwest Airlines flies to and you get a feel for 'alternative' cities that should have enough infrastructure for a startup.
In my neck of the woods, albany,ny we were the excitement of the entire area. We were on the front pages of the local paper all the time. Recruiting was easier because people knew who we were and understood we paid less, but had the excitement they were seeking.
We got free legal advice because lawyers wanted to be associated with us. We won local business plan competitions ($100k cash). We got investment from local VC's wanting to build up the area.
We paid $1500 a month in rent, including all utilities, for a mansion on the hudson river (and lived in the 5 bedrooms on the second floor). Our internet (cable modem) was $40 a month and screaming fast because our neighbors probably didn't even have it.
That helped us 'stay alive' long enough to figure out how to make money.
Take a look at the map of where Southwest Airlines flies to and you get a feel for 'alternative' cities that should have enough infrastructure for a startup.
In my neck of the woods, albany,ny we were the excitement of the entire area. We were on the front pages of the local paper all the time. Recruiting was easier because people knew who we were and understood we paid less, but had the excitement they were seeking.
We got free legal advice because lawyers wanted to be associated with us. We won local business plan competitions ($100k cash). We got investment from local VC's wanting to build up the area.
We paid $1500 a month in rent, including all utilities, for a mansion on the hudson river (and lived in the 5 bedrooms on the second floor). Our internet (cable modem) was $40 a month and screaming fast because our neighbors probably didn't even have it.
That helped us 'stay alive' long enough to figure out how to make money.
So are you making money now? I think you are missing the point, a lot of startups in SV are not necessary started to "make money" in the traditional sense. There is a huge amount of startups who just try to build something cool (technology wise), and either hope to find out how to monetize, or hope a larger company will buy them, and figure out how to monetize their technology.
SV is the best place to be, if what you are building doesn't have a clear market, or the market requires larger company's muscles.
SV is the best place to be, if what you are building doesn't have a clear market, or the market requires larger company's muscles.
Maybe that's part of the problem... the echo chamber of people building things that don't have a clear market, or it's "just technology" and not a business by itself.
that's right. Youtube is not making any money (so it has no proven businness model), but it's founders are rich. So, I would say it is a huge success for them, but if you look at it in a traditional point of view, it is a failure.
The bottom line, they have millions in the bank, and you don't (ok, maybe you do, I don't know you).
If you plan to build some cool technology, and want to flip it to somebody else, that has the means to monetise it, the SF Bay area is the place to be.
If you want to build something small, and more of a traditional company, then a low cost area might make sense.
But have no boubt about it, some of the best talent is the bay area. It is like the Hollywood for geeks. The place where you can make it big. The place where the gold rush mentality will always prevail, as the people are drawn in here to make it big.
It seems that Web. 2.0 is out, and Green Tech is in. That's the new current bubble.
The bottom line, they have millions in the bank, and you don't (ok, maybe you do, I don't know you).
If you plan to build some cool technology, and want to flip it to somebody else, that has the means to monetise it, the SF Bay area is the place to be.
If you want to build something small, and more of a traditional company, then a low cost area might make sense.
But have no boubt about it, some of the best talent is the bay area. It is like the Hollywood for geeks. The place where you can make it big. The place where the gold rush mentality will always prevail, as the people are drawn in here to make it big.
It seems that Web. 2.0 is out, and Green Tech is in. That's the new current bubble.
We always want to 'make money' in the traditional sense. If we loose sight of that we're gonna party like it's 1999.
(yes, we do make money)
(and yea, I worked in a Prince quote!)
(yes, we do make money)
(and yea, I worked in a Prince quote!)
And I should point out the title was maybe a little over the top... the article doesn't really say you shouldn't start a company in SV, i.e., that you should move away... just that there are compelling reasons to consider not moving to SV to start that company.
The echo chamber effect is overblown. If you spend too much time on Mashable and TechCrunch it will seem like everyone is building the same thing. It will seem even more like an echo chamber if you go to all the "events" because the only people going to those events are involved with desperate me-too startups. However it is the only area in the USA I know of where there are hundreds of thousands of people working successfully on all kinds of interesting tech things, all in one place. Web 1.0, Web 2.0, virtualization, iphones, robots, electric cars, green tech, biotech, animated movies and special effects, microfinance, and so forth. The great thing about it is if you get bored working on Web 2.0 you can go work on something radically different and find a couple dozen people already doing it or willing to help out. Personally, I've been able to work on bioinformatics, tech art installations, robots, desktop software, web software and mobile phones, none of which required a change in address.
I strongly favor avoiding the Bay Area (my startup is in Chicago and New York). I'm ambivalent about this essay. But one specific point:
The author claims VC doesn't limit investments by geography. If you have a track record, that's true: the people who started Postini can found a tech startup in Yellowknife AB and get a round from somebody. But I've successfuly gotten an A round before, and been a part of multiple successful exits, and we did the circuit out west, and they absolutely do want you to be out there with them.
This isn't a reason to move out west, because you don't want that money anyways, but let's be real.
The author claims VC doesn't limit investments by geography. If you have a track record, that's true: the people who started Postini can found a tech startup in Yellowknife AB and get a round from somebody. But I've successfuly gotten an A round before, and been a part of multiple successful exits, and we did the circuit out west, and they absolutely do want you to be out there with them.
This isn't a reason to move out west, because you don't want that money anyways, but let's be real.
There are plenty of venture-backed companies based in NYC, including many that weren't funded by the many NYC-based VC firms and many by first-time entrepreneurs. E.g., Meetup.com was backed by DFJ in Menlo.
Scott Heiferman founded a successful company prior to Meetup, and took funding after the Dean campaign put Meetup on CNN.
But look, I'm not saying it's impossible. I'm just saying what you probably already know: Bay VC looks at you funny if you're not in the Bay.
But look, I'm not saying it's impossible. I'm just saying what you probably already know: Bay VC looks at you funny if you're not in the Bay.
A strange rant. Most of it is based on why you don't have to start in the Valley and almost nothing on "shouldn't". His core criticism of Valley companies is that it's too easy to caught up with traction instead of figuring out monetization.
Ironically, his About Me description plays the same tune: "We are building a free, open reviews network that anyone can participate in and anyone can build on top of."
Good try. Valley rules y'all. Like, totally.
Ironically, his About Me description plays the same tune: "We are building a free, open reviews network that anyone can participate in and anyone can build on top of."
Good try. Valley rules y'all. Like, totally.
You should start a company in an environment where it is not an echo chamber for you. Start a company where the people in the community bring a different perspective, because this will ultimately help you get a better picture of the world.
This is exactly my hope for starting something that works in the Dallas area.
This is exactly my hope for starting something that works in the Dallas area.
Even though this topic has been pretty much beaten to death here, it's still interesting to hear other people's takes. OP brings up a couple of good points...
We are not second-class citizens
This only makes sense. When all you need is a computer and a hookup, you are already connected to everyone else. Sure, there's no substitute for physical presence, but good people can be anywhere.
Avoiding the Echo Chamber
Like the frog dropped into cool water in the pot, this is an easy trap to fall into. I went to 4 or 5 events in SV and after a while, the conversations starting running into each other. It seemed like everyone was talking about the same thing, so I had trouble remembering who said what.
Maybe I'm a little old fashioned, but I was always partial to being close to my customers, not my competitors. (This is, of course, in those cases where it makes sense.)
I also loved to see the reference to Pittsburgh, my hometown. Nice people, great universities, 2 hours from 50% of the U.S., low cost of living - hope the startup scene does well here.
We are not second-class citizens
This only makes sense. When all you need is a computer and a hookup, you are already connected to everyone else. Sure, there's no substitute for physical presence, but good people can be anywhere.
Avoiding the Echo Chamber
Like the frog dropped into cool water in the pot, this is an easy trap to fall into. I went to 4 or 5 events in SV and after a while, the conversations starting running into each other. It seemed like everyone was talking about the same thing, so I had trouble remembering who said what.
Maybe I'm a little old fashioned, but I was always partial to being close to my customers, not my competitors. (This is, of course, in those cases where it makes sense.)
I also loved to see the reference to Pittsburgh, my hometown. Nice people, great universities, 2 hours from 50% of the U.S., low cost of living - hope the startup scene does well here.
You'd think Pitt+CMU, A2+UMich, Champaign+UIUC, and Atlanta+GATech would be hotter startup centers. Graham wrote a big long essay about what makes Palo Alto perfect for startups, but I think the answer mostly boils down to "network effect".
Envy.
It wouldn't be an internet discussion without at least one ad hominem argument.
And now you've included one. My dismissal of this guy's point as being meaningless and fueled merely by envy is not ad hominem -- it's not the same as saying "that guy's just a jerk".
However, that's pretty much what you've just said about me. Isn't it ironic? Don'tcha think?
However, that's pretty much what you've just said about me. Isn't it ironic? Don'tcha think?
First and foremost, VC's in and around New York are not geared towards technology startups at all. Most do not understand technology on the same level as their Silcon Valley counterparts, and if you're so lucky to get a meeting with them they want to see your current business plan along with your current users, and current revenue, and the projections for each. You're not likely to get any funding until after you really need it.
Second, the developer community is scattered and almost non-existent. Feel free to go to meetup.com and search for php/ajax/python/ruby, or anything for that matter and see what you find. What a surprise, the meetup scene is almost non-existent. While New York does have is a vibrant hipster/artist scene, it’s important to not confuse this with a developer scene.
However, due to the complete lack of developer community and funding in New York, we were forced to actually develop our product to a point that we were able to license it to corporate users such as Random House, CIG, and others. This allowed us to generate revenue that funded the continuing development of NOLOH. This also provided us with real world use, and feedback outside of our company and projects. This also has its downsides, since rather than focusing solely on the product, we had to spend a significant amount of time working with clients.
It’s been over four years now, and we now have a solid client base, and a solid product that we just recently released to the developer community as a beta, had we not been in New York chances are we would’ve been able to release within the first 2 years, rather than after 4, albeit with a less stable and field tested product, but would’ve allowed us to iterate more easily, and surely have a larger developer base by now.
Overall, I feel that Silicon Valley would’ve been the best fit. Access to developers, capital, along with people that actually understand technology is truly something that all technology startups should have the pleasure to experience, I strongly suggest staying away from New York unless you’re a financial software startup.