

Why is it hard to startup a company outside of Silicon Valley? - ahsonwardak

This may sound like a dumb question to some, but I need to be edified.  I'm in DC, and it seems more and more that you're probably working in something government or defense related.  In other cities, like Dallas, it used to be telecom related (The Telecom Corrdior).  How do these clusters start, thrive, and/or die?  How does it continue to thrive in Silicon Valley after some 20 to 30 years of startup success stories?
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david927
The biggest reason -- the elephant in the room reason -- is the money. Angel
capital won't touch you if you live farther than a two hour drive. VC's are
similar. And so it's just a self-referential loop that spirals upwards.

The only problem is that 90% of Silicon Valley startups are that kind of
meringue and marshmallow that VC love. The record companies love Britney
Spears and VC's love Twitter. It's all a big get-rich-quick scheme and a waste
of time. Sadly, as a native of Silicon Valley, it means that true innovation,
when it is happening, is occurring everywhere.

~~~
corentin
From where I am (Europe), it looks like SV is mostly turning into an
advertising industry. They're just making the web the new TV and it's really
depressing.

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asdflkj
Why is it depressing? It would be nice if SV was a give-guys-millions-to-make-
cool-free-stuff industry, but that's not much of an industry. Revenue has to
come from somewhere. Apparently, people are more willing to see ads than pay
to use the product. If that's what's depressing, then your problem is not with
SV but with what people want.

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thingsilearned
I've been out here (the Valley) for the summer. The crazy thing about the
place is, every time I ride the BART or sit down at a coffee shop there's
someone sitting next to me that's either works at Yahoo/ebay/google/etc or is
also doing a startup.

Its really easy to start conversations with these people upon noticing a
Django error page on their laptop or an ebay employee badge. The conversations
are great.

Also there are lots of meetups, lectures and parties for startups. The place
just breathes technology (can be frustrating as well if you additionally like
other things such as frisbee or women).

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staunch
> The crazy thing about the place is, every time I ride the BART or sit down
> at a coffee shop there's someone sitting next to me that's either works at
> Yahoo/ebay/google/etc or is also doing a startup.

A friend just moved from LA to SF and said the exact same thing. That's one of
the most exciting parts of moving to the area for me (which I will be doing).
The least exciting part is how crappy a lot of the city of SF is.

The Valley is where you go to be a successful technology entrepreneur. It's
that global perception that gives it the hard-to-identify edge over everywhere
else. Hollywood has the same advantage.

As a competitor I'd fear a startup in The Valley a lot more than an otherwise
equal one that's located anywhere else.

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rickcecil
It may very well be easier for startups in Silicon Valley, but so what? Focus
your attention on the specific problems you have, not on comparing your
situation to other people's situations.

Having a hard time finding a co-founder? More difficulty getting funding? Look
at the resources available to you in your community and take advantage of
those. Don't have any resources? Create some yourself. Many times, problems
can be solves with the right network. Read /Never Eat Alone/ and start
building yours.

And ultimately, if you think a move out to SV will solve your problems, move
out to SV. But realize that the grass is never greener--just different shades
of brown that, from a distance, look greener. Out in SV, you're likely to have
a different set of problems: greater competition for talent (both partners and
employees), higher cost of living, greater competition for angel and VCs.

It all comes down to the realization that there are trade-offs to every
situation. Challenges to every startup, no matter where you are. Focus on the
challenges you're facing and find creative ways to solve them. That's when
you'll be successful. Not when you're lamenting about how easy other people
have it compared to you.

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sethg
I work for a small company in Cambridge, Massachusetts (we have about 60
employees and were founded in 1999; I'm not sure if we count as a startup any
more), so it's certainly possible.

My impression is that high-tech startups in the Boston area tend to sell
products or services to larger companies, so that each customer brings in five
or six figures worth of revenue. All the Valley startups I hear about, by
comparison, aim for the mass market.

I know that PG doesn't like the idea of starting a consulting firm and using
the consulting revenues to bootstrap product development, but I worked for one
company and interviewed at two that did exactly that. (The one I worked for,
Kenan Systems, never took a dime of outside investment, until the founder sold
the company to Lucent for $10 billion. Things went downhill from there. But I
digress.) Maybe the knowledge and contacts such entrepreneurs gained from
consulting helped them make their first five-figure sales?...

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cperciva
I think one of the largest reasons why Silicon Valley has so many startups and
other places have so few is Paul Graham's reason #15 for not starting a
startup: "Parents want you to be a doctor".

Not literally, of course; but rather in the general sense of social pressure
against creating a startup. In the Valley, you can say that you're thinking of
creating your own business, and people will tell you that they think that's
cool, will talk about startups they have been involved in, and generally
support the idea. In most of the rest of the world, people will look at you as
if you've announced that you're planning on getting a sex change: A small
amount of admiration for making such a hard decision, mixed with a large
amount of skepticism about your sanity. After all, everybody knows that
50%/80%/90%/99% of small businesses fail within X years, right?

I've been very lucky that, in spite of being surrounded by generally skeptical
people, I've encountered a lot of support; as my girlfriend put it, "most
small businesses fail, but if anyone can succeed, it will be you". If it
weren't for how much my friends apparently believe in me personally, I'm sure
I'd have been convinced to not even attempt this based on those same
statistics about failure rates.

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alex_c
<i>as my girlfriend put it, "most small businesses fail, but if anyone can
succeed, it will be you"</i>

That's funny, that's almost exactly what my girlfriend said too... Must be a
girlfriend thing :)

The reactions I've received have either been support mixed with a bit of
admiration and envy, or "ah yes I've been through that 10 years ago, if you
ever want to do it now's the time" followed by some advice. Only one person
reacted with "why would you ever want to do that".

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jmzachary
My wife says the same thing. It must be a loss aversion response to their
choice of mate.

Reactions I receive (since I'm currently churning through the decision) tend
to be offers for funding support, some of it not insignificant. To me, that is
a much higher confidence indicator, although I have will some skin in the
game, too.

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epi0Bauqu
Like most things in real life, the answer boils down to a set of intertwined
non-linear feedback loops that you can probably identify and analyze (even
quantitatively) using systems analysis
(<http://en.wikipedia.org/wiki/Systems_analysis>) or a similar technique. I
suspect pg in his essay has nailed down some of (and probably the major) loops
involved, i.e. the ones around rich people and nerds.

The basic loops he identifies seem to be nerds attract other nerds, rich
people attract other rich people, and nerds attract rich people as long as
they are starting startups that need investment and get rich people richer
(please correct me if I am wrong). These are all positive feedback loops, so
they keep growing until they hit some negative ones. Some negative ones:
saturation of nerds or rich people (not yet), saturation of space (getting
there), high living costs (definitely close), nerds not starting startups
because they work for Google (hard to tell but I doubt it), nerds not needing
investment (increasingly so for Web apps), and other viable places to move
(true in some areas like Biotech).

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ahsonwardak
This is the kind of tangible analysis that I was looking for. I must giveaway
that I'm my last degree was in systems engineering, so I completely understand
this. Thanks!

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jsjenkins168
Paul Graham has a good essay on this topic if you're interested:
<http://www.paulgraham.com/siliconvalley.html>

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pg
The number one reason is the lack/timidity of angel investors. But there are a
lot of others. In startup hubs like SV (and to a lesser extent Boston),
everyone gets startups. Not just investors, but employees, landlords,
suppliers, girlfriends' parents. In a startup hub you're going with the grain
to start a startup, and elsewhere you're going against it.

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transburgh
The first mistake startups make is they need VC or angel funding to get
moving. The mindset in SV is bad enough, it does not need to bleed to the rest
of the country.

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pg
Name some successful tech startups that have taken zero outside investment.

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electric
Club Penguin. It was a Web 2.0/virtual community play. Acquired by Disney for
$350+ mil. I don't know if Plentyoffish qualifies as a Web 2.0 startup, but it
is making a lot of cash. I could name a few more. Cheers.

PS. I agree with the original poster "The first mistake startups make is they
need VC or angel funding to get moving," if by "get moving" s/he means get
started. You might need it when you want to expand, grow, get serious, etc.
but you don't necessarily need it at the beginning.

~~~
pg
Sure, there are a handful. But the fact that those few are famous on account
of having taken no investment is evidence of just how rare it is.

Among successful startups, the ratio of those that took outside money to those
that didn't is 100 to 1, maybe 1000 to 1. Where the threshold for success is
going public, it's effectively infinite.

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rrival
Someone at BarCampBlock yesterday suggested that in the past >15 years, vc-
backed startups of all types accounted for 23% of successful exits, while
focusing on tech-specific startups raises that number to 46%. It sounds
possible, but a source wasn't provided - it'd be interesting to determine how
successful these 'successful exits' were, and if the size ($) of the exit is
correlated to the presence of VC. I imagine it would be.

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samb
We're running a startup from Chicago and Birmingham, AL. We're not finding it
particularly difficult. We're not interested in outside money right now, but
if we were it wouldn't be particularly hard to find. We were approached before
we had seriously considered outside funding.

I think the main difference is the types of companies that get funded in The
Valley. Twitter, for example, wouldn't get funding in Chicago and certainly
not Birmingham. Facebook and Google wouldn't have gotten funding either.

But there is money for the right product outside of The Valley.

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chadboyda
I used to live up in the Valley for many years until I moved down to Los
Angeles about 5 years ago. Doing a startup in Los Angeles has been difficult,
mostly in trying to find and network with other like minded individuals but
with a little effort we're finding its not all that hard. We use meetup.com
and upcoming.org a lot to find or setup local tech meet ups.

It seems to be really starting to make a difference though, there's more of a
sense of a growing tech community in LA now (a welcome relief from the
entertainment buzz). Hopefully it'll keep growing.

So while I agree its definately harder than it is in the Silicon Valley, its
not impossible. There are other people out there doing startups, you just have
to proactively try and find them and bring them together if someone else isn't
doing so already in your area.

~~~
zach
Also being in LA, I'd say the major difference is really the access to funding
and to deal-making in general.

I haven't been looking for funding so much, but I've heard frustrated stories
from those who have. There just isn't the kind of widespread network that
includes angels and VCs like there is up north.

It is nice to see more non-entertainment-related tech startups in LA, but
honestly there's a long way to go.

Also, maybe it's just me, but there's still a geographic issue. It seems like
startup activity was split between Santa Monica, Irvine, Pasadena, Encino and
Hollywood for the longest time.

I think we can say the Santa Monica and west-of-WeHo area has won, at least
since Yahoo moved their Overture group to the Santa Monica campus. About time,
but this is just the ground floor. Funding sources are still spread all around
too.

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electric
Good ideas and products are born everywhere in the world. At some point in the
life of a product however you do need money to grow, compete, etc. At this
time if your idea is significant enough you might need investment and Si
Valley is a good place to be. Lately though VCs have been setting up shop in
India and China. So really if there is a critical mass of talent, ideas and a
market to boot, Silicon Valley will come to you.

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Mistone
one of the conveniences of starting up in SV is that the resources are all
close by, which makes going to a lecture, attending a meetup, meeting with
investors etc., etc, less of a big deal. If you travel in for these events on
occasion you have much higher expectations of what you get from them and you
don't get the benefit of at least being that person that saw whom ever you
want to talk with a event x, y, and z.

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epi0Bauqu
In certain startup areas like Web apps it is changing, albeit slowly. A Web
app company can be created by a few people (even one) successfully on very
little (if no significant amount) of money. And it is becoming easier to find
local co-founders because there are so many programmers who know or can learn
the technologies at play and don't want to move to California.

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henning
While we're talking about location, avoid San Diego if you don't want to live
in a sprawling automobile-metropolis where the only decent jobs involve making
toys for the Pentagon. The restaurants, almost all fast food or chain, with
their generic soaked-cardboard food, are copied and pasted around endlessly.
Jesus christ.

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robertgaal
DC? Try doing a startup in Europe. Now there's a challenge...

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yrashk
Try doing a startup in Eastern Europe. That is really painful, believe me :)

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dfranke
I've read that Estonia is quite startup-friendly these days. Is your
experience different?

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comatose_kid
Given that Steve Jurvetson is Estonian, I wouldn't be surprised. There must be
something in the water in that country - it seems 'produce' an inordinately
large number of brilliant people.

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rokhayakebe
Flickr, Zoho, Flirtomatic. It is not hard to start a startup outside the
valley, it is simply "harder". It won't be easy no matter where you are.

