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Why Startup Hubs Work (paulgraham.com)
274 points by anateus on Oct 5, 2011 | hide | past | web | favorite | 90 comments



An interesting question is why 'physical' hubs work and why all those elements can't be captured yet online?

One key element to debate is randomness - pg does a good job I think in describing the value of randomness in terms of random meetings, shower thoughts - etc - There are many other examples of this process at work - e.g., in management/strategy: http://www.management.wharton.upenn.edu/siggelkow/pdfs/SOart...

It bears the question - what is this valued randomness in terms of social interactions? And how can we get it in online? Definitely not chatrulette :)

But not "hackernews" type of places either - because in here we are interacting in a very structured manner - on specific topics one chooses, etc - so it's not random - we are directing our thoughts, so we are not randomly exploring things.

How can we find that great balance that physical hubs have? Going to pick up dry cleaning you find a random guy and you say hi - because you have nothing better to do you end up chatting with the guy and discovering he's Sean Parker. But that won't happen online. You just switch to another browser window that is more interesting - no need for randomness.

Is the internet killing randomness? - Or better yet: how can we come up with something that gives that value to people in a way that is not chatrullette?? It should be random but within your comfort zone, in a way that is casual and not sought after (which is uncool and weird).

I wonder what you guys think.


This seems a very important question. It's hard to simulate the randomness of the physical world, but it would be extremely useful to be able to do it.

One of the problems is that computer screens are just so small. If displays (or whatever replaces them) were bigger, what they were displaying could be more ambient. There wouldn't have to be as much purpose.

On the other hand, maybe the difficulty of physically getting to a place is an important filter.


Thanks to your comment, I just had a lightbulb moment.

The missing piece of the puzzle is real-time online location!

The reason we don't have chance meetings online is that we are not aware of who else is using or reading the same site or app as us in real-time. PG suggests that it maybe because of screen size, but I don't think that's the main problem. The real issue is that unless it's explicitly built into an app, like a chat site, we simply don't know who we are sharing that online space with at any specific point of time.

Imagine if you could say, "Oh I was reading this random blog on Tumblr and was surprised to see Fred Wilson reading it too. Didn't know he was into ASCII art, but had a good chat with him."

I can see Facebook doing this at some point. They are already doing it with music on their site. And they already know which of their users are on a particular site at any given time. It's just a matter of letting the users see that too and interact with each other. Turntable.fm is an outstanding example.

It's bound to freak people out, but it should actually make things more open and real-life like.

The problem of course is establishing true identity, and given that we can't literally see people to know it's really them, we will have to rely on a central identity system like Facebook. A decentralized method of identification would be great but is unlikely to happen.


> The missing piece of the puzzle is online location!

This is something that I think has, oddly enough, gone backwards as technology has improved. BBSs had a very strong sense of location, while the internet is much flatter and amorphous, because everyone can connect to everything.


I think you misunderstood me. I mean real-time online location, as in I'm on news.ycombinator.com right now. My friend is on facebook.com right now. I'm not talking about geophysical location.


Oh I agree; I didn't mean that BBSs were tied to geographical location (though there was some of that), but that they provided a strong sense of online location. You were on a particular BBS at a particular time, not on another one; and you couldn't have 30 tabs open to 30 different BBSs. If it was a multi-line board, you could see who was online at the same time as you. That sort of thing made it feel more like a virtual location.


I see. So I misunderstood you because I discovered the internet too late :-)


"... One key element to debate is randomness ..."

I'm not so sure randomness is the key. Randomness can be also be thought of as "absence of pattern". For me the key question to ask is to ask what role chance plays in formation of startups? Is it really chance or something process we can't yet fathom?

The last paper written by Alan Turing, "The Chemical Basis of Morphogenesis," [0] ~ http://www.dna.caltech.edu/courses/cs191/paperscs191/turing.... attempted to answer the theoretical explanation of the biological process that defines the shape of an embryonic organism from creation. This process is called "Morphogenesis" [1] This is an important problem because complex organisms appear to be created by some "random" process that organises what appear to be self similar cells.

A lot of recent work has been done to experiment Turings ideas on "reaction-diffusion" processes describing morphogenesis in biology and other natural systems to see if a) they can be reproduced in the lab and b) mathematically model them. [2] This begs the question, "what is the Morphogenesis of startups?" and can the same maths Turing used to describe the process be applied to startup formation?

There is a pretty good broad outline of Turing and Morphogenesis in a BBC documentary, "The Secret Life of Chaos" [3] by Professor Jim Al-Khalili on Youtube. [4]

[0] Alan Turing, "THE CHEMICAL BASIS OF MORPHOGENESIS", http://www.dna.caltech.edu/courses/cs191/paperscs191

[1] Morphogenesis, "the Greek morphe shape and genesis creation, literally, "beginning of the shape", is the biological process that causes an organism to develop its shape.", http://en.wikipedia.org/wiki/Morphogenesis

[2] Brandon Keim, Wired, "Alan Turing’s Patterns in Nature, and Beyond" http://www.wired.com/wiredscience/2011/02/turing-patterns/?p...

[3] Jim Al-Khalili, BBC, "The Secret Life of Chaos" http://www.bbc.co.uk/programmes/b00pv1c3

[4] Jim Al-Khalili, et,al, Yahoo, http://www.youtube.com/watch?v=uF7gdlTrCQY


I think that the hacker news structure has its own merits in terms of randomness which makes it as close to an online hub that currently does exist. By posting something on HN you open the idea to the community, with no idea where discussion can go. As someone who isn't from a Startup hub (Ohio), this type of directed random interaction and analysis has been crucial for me in helping me to understand the startup mentality, as well as providing me with the opportunity to rapidly immerse myself with information and anlaysis of the startup movement coming directly from the horses mouth (those within the movement). The members of the physical start up hubs of the world, contribute to the online hubs, allowing those outside of these physical hubs to be a part of our first start up hub.


Even physical micro-hubs like coworking spaces where I live in Phoenix do not capture the serendipity of interaction that Silicon Valley provides.

Here you have to consciously decide to go where other startups are at. In Silicon Valley I just get a cup of coffee and there's a conversation at the table next to me about startups.

Although, I have to say Twitter enabled more fluid communication in the startup scene here. Enough to where I have been able to spot a couple people not at the typical hotspots.


It might be that humans naturally possess superstitious minds that react strongly to elements of serendipity. Even the most scientific minds will have a hard time not having an emotional response to randomly getting into a conversation that shows potential of positively affecting their lives.


I don't want to argue too much about this, because I think Graham is probably right, but this footnote struck me:

[4] As I was writing this, I had a demonstration of the density of startup people in the Valley. Jessica and I bicycled to University Ave in Palo Alto to have lunch at the fabulous Oren's Hummus. As we walked in, we met Charlie Cheever sitting near the door. Selina Tobaccowala stopped to say hello on her way out. Then Josh Wilson came in to pick up a take out order. After lunch we went to get frozen yogurt. On the way we met Rajat Suri. When we got to the yogurt place, we found Dave Shen there, and as we walked out we ran into Yuri Sagalov. We walked with him for a block or so and we ran into Muzzammil Zaveri, and then a block later we met Aydin Senkut. This is everyday life in Palo Alto. I wasn't trying to meet people; I was just having lunch. And I'm sure for every startup founder or investor I saw that I knew, there were 5 more I didn't. If Ron Conway had been with us he would have met 30 people he knew.

This sounds a little bit to me about what it must sound like to hear Brad Pitt talk about getting lunch in LA.

I wouldn't make this observation, which I think is superficial, except that I'm surprised to see that Graham didn't mitigate it ("and it's not just because I'm Paul Graham; lots of companies we've funded that haven't even launched have reported the same experience").


He was only illustrating how thick the Valley is with that kind of people, not claiming they'll come up and say "Hi" if they don't know you. I don't see how being Paul Graham makes it any more likely that people associated with startups will be at Oren's Hummus or in front of some random yogurt joint when you arrive (unless we're postulating some PGPS technology that tells entrepreneurs where they can meet Paul at any given time).


You would be surprised. Probably because of the density of University Ave and the consistently great weather (with today as an exception) it's actually just incredibly common to run into people you know. On top of that people in Palo Alto are on average doing really amazing things.


(Curiously enough I ran into thingsilearned as I was bicycling home from lunch today. Or would have if he hadn't scurried across the crosswalk just in time.)


Sure, I don't doubt it, I'm just saying it helps a lot to be among the more powerful people in the valley; the people you know that you run into are apt to be of a higher caliber.

Can I say again that I think Graham is probably right in this post?


He did mention that Ron Conway would have know even more people.


"This sounds a little bit to me about what it must sound like to hear Brad Pitt talk about getting lunch in LA."

But the difference is if I flew out to the Valley and knew who to look for there is no doubt in my mind that I could go right up to anyone of the people that Paul mentioned and say something to them and they would listen certainly for a minute or longer. That wouldn't happen in LA. And I'm not Paul Graham.

Way back in 1998 or 99 I sent an email to Tim Draper and had no problem setting up a meeting. That wouldn't have happened in Hollywood. The valley is different. As Paul mentions, the density is important. If you are in fashion, it's NYC. If you are in entertainment - LA. Jewelry? The diamond district in NY. You go where the most people are doing what you want to do. In the case of tech that's the valley.


pg's experience is clearly out of the ordinary because he is pg.

But I've had a not incomparable experience after having lived in SF for 3 months. Palo Alto is packed full of people doing interesting stuff, and you're bound to bump into them


It actually sounds really close to the reality. It surprised me years ago when I would come to conferences here...but it really is just part of the culture.

I think it has a lot to do with just how down-to-earth most people are in Silicon Valley. You can be in any place full of "celebrities" - say Hollywood - and spot a lot of familiar faces/names. But "running into" so many and interacting with them seems to be a Silicon Valley thing. Certainly the level of help that people are willing to extend, gaining nothing but karma in return, seems rare outside of this area.


Speaking as a nanoengineer now doing a web startup (in SF for 2 weeks now), this is just the way the world works.

Startups and nanoparticles can spontaneously form anywhere under the right environmental conditions, but they can just as easily break up in isolation. But if the local concentration is high enough, something magical happens. Even when a person or a molecule jumps ship, another one fills its place almost instantly. Suddenly, these things are "stable" but not only that, they can grow, sucking up bits from the surrounding environment and merging with others.

Critical mass, in SV it's the right kind of people, in nanoengineering it's the right kind of molecule, either way, once it gets going, you just hang on for the ride.

*http://en.wikipedia.org/wiki/Critical_micelle_concentration is one nanoengineering example but there are others.


I'm curious at Hacker News' thoughts on what it takes to start a startup hub.

For instance, here in Blacksburg, VA (Virginia Tech) a few local entrepreneurs and Angels are trying to get the startup community here off the ground. We've gone from little activity, to having a populated co-working space and regular meetups. The community is small and close; which is great for all those involved.

However, most companies that start here still aspire to move out to the Valley. The opportunities there still dwarf the opportunities here, and we're constantly in danger of losing what few founders we have.

Granted, Blacksburg isn't exactly a geographically optimal spot for techies to flock to. But is it possible that the larger hubs such as the Valley have too much pull for smaller communities to really take off?


Looking at the same thing in East Lansing. My personal opinion is that Boulder is a much better model for a second tier city than Silicon Valley. They've come from nowhere in the past fifteen years to become a leading hub.

We've got strong networks of enthusiastic people (http://www.hackersandhustlers.org) started but no clear roadmap how to go to the next level.

Michigan in general imho has two problems to overcome:

1. Lack of angel investors

2. Experienced people willing to take the risk of working for a startup. The economy has been so brutal here for the past eleven years that it can take a long time to land a new position if the startup fails.


I grew up in NC, lived in upstate NY and NYC, then Hawaii, and now the Bay Area. From my initial observations there are two things that set Silicon Valley apart:

1) Huge risk tolerance, and of a different sort than Wall St. The risk model of the startup ecosystem is different than for the banking system., in fact it's the inverse. Wall St. tends to chase returns (especially in trading, which has become a huge part of their revenues), and quarterly performance evaluations are even structured around that. But chasing ever larger returns based on leverage and debt entails ever more risk, exposing you to the possibility of catastrophic, systemic loss. The higher the return, the more exposure to company-ending loss.

In the startup world, many small bets are spread across many companies, 90% fail, 9% succeed somewhat, and perhaps 1% hit it big. But the ROI from that 1% more than makes up for all the small losses of the 90%.

Graphing the startup ecosystem ROI on chart would look like a line with a negative slope, punctuated by positive spikes. Whereas graphing the banking system's revenue would be inverse - a positive slope, punctuated by negative loss spikes.

Silicon Valley seems more comfortable with and tolerant of the periods of negative ROI than any other culture I've observed, supremely confident that the positive spikes do happen, and that you don't even have to guess exactly where they'll come from as long as you play the odds and spread your bets. It's just an article of faith here.

2) Innovation pervades everything, from academia, tech, and business, to social, even spiritual. By way of example, one of the first people I met here was a guy studying to be a Shamman. Anywhere else in the US, especially the east coast, such a thing might raise eyebrows, but here it's just par for the course - unbounded experimentation with anything and everything. For another example, is there anywhere else in the US that something like Burning Man could have become what it has? Doubt it. Innovation is universal here, not applied in some domains (tech) but stymied in others (social, spiritual), it's applied everywhere.

Those two also seem to reinforce each other. Risk tolerance begets innovation begets success begets risk tolerance begets innovation begets ...

Plenty of places have some degree of innovation, but I'm not sure there's anywhere it pervades culture to the extent it does here. That's one more big thing other startup hubs are up against.


Just having a Hacker News meetup has helped London a lot i'd say, it's helped me find like minded people as I found there were a lot of 'old business' and finance folks going to the events that weren't designed for what they wanted to do in business.

London Hacker News is now the biggest (or top few) monthly startup meetup here.


This is a good piece, but, this is well-trodden ground.

This is "economies of agglomeration", and it's basic urban economics. http://en.wikipedia.org/wiki/Economies_of_agglomeration


But it's not just economics, it's psychology.

pg's description of his day in Palo Alto is telling. I don't think he learned anything from these interactions, or if it ever led to any concrete action. But it helps sustain the idea that what you are doing matters, or could matter. That is the single biggest psychological stumbling block for the people I know who are in startups. There's this nagging sense that maybe they are just throwing all this time and effort away for nothing.

It's possible that the reason why other cities are "startup killers" is that this optimism is, to some extent, a shared delusion. If there were a town in the USA where all the lottery winners moved to, the people who also happened to be there would have completely different ideas about risk.

But the Bay Area is that town for internet startups. Although there are real benefits to moving here, I bet there's a strong delusion-enhancing component too. Which is good for VCs, but perhaps actually maladaptive for the individual startup founder or employee.


I didn't mean to suggest that no one realized it was helpful to be surrounded by a lot of people working on the same things. I've written about it a couple times myself. The surprises for me were in the details. E.g. that with startups, people are more willing to help out their peers than in more zero sum fields, and that you need that extra margin of help because startups fail by default.


"that with startups, people are more willing to help out their peers"

I'm going to guess that this happens in the entertainment industry as well. The similarity being that the person you are rooming with or working with who has a bit part on some show with you might be the next big star. So I would imagine people tend to be nice and helpful to people in any field where there is a big prize and it's not easy to tell (like with sports) who the next star or Spielberg might be. Because in addition to skill (which many have, as has been said with acting for example) there is luck and landing that key opportunity that launches your career. And if you happen to have known or have been friends with that successful person it could only help your career.


Another good article is Porter's "Clusters and the New Economics of Competition":

http://www.google.com/url?sa=t&rct=j&q=%22clusters%2...


I remember writing about this for the BBC (to some British backlash) way back in January 2007, when Harj and I decided to leave London for the Valley.

http://news.bbc.co.uk/2/hi/business/6355289.stm

Funny - I mention a chance encounter helping us a lot (meeting FB's head of data at a party), and then the vibe being optimistic and ambitious (and we were working out of the then Twitter office in South Park). We did also bump into Ron Conway one morning on the way back from kickboxing.


For the last paragraph in that post, the Valley is different (from NYC,Boston etc) in that it is NOT the hub of anything else...other cities are metropolitan areas of various things going in in them...unlike valley, where there is only a very narrow band of activities that thrive...


Yes, that's true.


    For example, you start a site for college students and you decide to move to the Valley for the summer to work on it. And then on a random suburban street in Palo Alto you happen to run into Sean Parker
I thought that was the fake movie story, and in real life Sean Parker went after Facebook, flying to Harvard to meet Zuckerberg and eventually convincing him to come to Silicon Valley.


I think the flying out to meet Zuck part is true, but it's also true that he later bumped into him that summer in Palo Alto (not sure if they'd stayed in touch).


I read something more along those lines in an article about Sean Parker talking about how he was more involved with things than the movie presented. I can't find that article anymore. Here is an article that actually has a quote from Zuckerberg, stating he let Sean Parker crash at his place (although Zuckerberg himself does not say he bumped in to Parker): http://www.fastcompany.com/magazine/115/open_features-hacker...


A question for PG (or anybody willing to answer it):

Is there much difference between living in San Francisco and Palo Alto in terms of how much living/working there helps your startup?

And in these terms, is there any difference between Mountain View and Palo Alto?


SF and the peninsula are roughly equal. SF might be better if you want web designers, and the peninsula if you want database people.

Mountain View is cheaper than Palo Alto. Otherwise they're similar.


Thank you, Paul.


> The second component of the antidote is chance meetings with people who can help you.

This is the key. Stumbling into friendships with just a handful of amazing people will change your life by orders of magnitudes. There's a simple probability explanation:

Let's label the group of individuals who are in the top 10% of driven, creative people "Group X".

If Joe and Bob are both in Group X but never meet, their combined total output is 2.

If Joe and Bob meet and become friends, they multiply their output by 1.1 so their new combined output is 2.2:

Joe&Bob = 1.1(Joe + Bob)

2.2 = 1.1(1 + 1)

And exponentially it grows:

Joe&Bob&Sue = 1.1(1.1(Joe + Bob + Sue))

So you can literally calculate the expected value of Joe's output by simply calculating the probability that he will meet a Bob and a Sue and so on...

Joe's Expected Output = 1(1.1 * Prob(Meets Bob)) * (1.1 * Prob(Meets Sue)) ...

The probability of meeting driven, creative people in the Valley only has to be a tiny bit higher to see drastically different outcomes. It's a lot higher, and so we have orders of magnitude discrepancies.


That's what Taleb explained for his living in NYC: it buys him the option of a Postitive Black Swan to meet great people ("antidotes"?): This makes living in big cities [hubs] invaluable because you increase the odds of serendipitous exposure _ you gain exposure to the envelop of serendipity. p209, The Black Swan, 2007. /Taking maximum exposure to the positive Black Swan p207, Seize any opportunity, or anything that looks like an opportunity. They are rare, or much rarer than you think. Remember that Positive Black Swans have a necessary 1st step: you need to be exposed to them p208


> In most places, if you start a startup, people treat you as if you're unemployed.

This is why I think for places like NYC, London, etc (i.e. any financial capital) it will become increasingly difficult to create a startup culture. Being unemployed in those cities is NOT cool.


Good explanation of benefits of being in a startup hub. However, are there advantages to being OUTSIDE a hub? I can think of at least two:

* Living and working outside a startup hub, you are more likely to encounter a problem nobody else has worked on before. In startup hubs, you have large number of startups working on small number of similar problems, while large chunk of profitable opportunities remain untapped. Why? Typical startup people don't encounter these problems. They are not talked about on startup blogs and you won't encounter that problem walking down University Ave in Palo Alto. In many cases, these opportunities are taken by old school, dinosaurs-like software firms who overcharge customers for their crappy software.

* Living outside a startup hub, you are exposed to users who are a good sample of the general population. This is not true for startup hubs, where users a lot more tech-savvy. While it seems at first that being surrounded by tech-savvy users is a good thing, this in fact may be a problem because building your startup based on feedback from these users may steer you in the wrong direction. You end up with couple of thousand "early adopters" who are enthusiastic about your product, but you are not able to expand further because your product just doesn't resonate with a true average user. On the other hand, if you can get a true average user to be your early adopter, the feedback you get from them will help you make a product which is attractive to a large number of users.

Of course, hubs are way overrepresented in the past success stories. However, more startups are started in the hubs, so it's not clear how actual success rates compare. I would love to see some stats for that.


A third issue here is that talent is cheaper in (say) MSP than in SJC/SFO. Like, a lot. It's easier to hire and easier to retain. Because locales are sticky, the level of talent available to you is likely to be comparable or better than you'll get in the valley.

Your point about the "general population" is well taken too, especially if you're a company selling to other businesses. Most of the big companies in SFBA, and most of the companies you'll talk to period if you HQ out there, are software companies. Selling software to software companies is hard. Whereas if you HQ in Atlanta, you've Home Depot, UPS, Coca Cola, big banks, and so on.

There is clearly a kind of startup that benefits from being in SFBA so I don't want to sound like I'm saying there's nothing to this "startup hub" thing.


Actually I disagree about your "cheap talent" remark. When you are building a scalable startup, looking for cheap labor is not a good idea since it's a part of "fixed cost" you have. Moreover, you don't need that many developers nowadays to build a startup. You only need a couple really good developers, and you want to either pay them really well or have them as your co-founders. (disclaimer: I'm a programmer myself).


You're not following. Broadly speaking, better talent costs more money. The more money you have to spend on talent, the better the talent you retain will be. It's not about looking for "cheap labor"; it's about being able to find, recruit, and retain better people.

Think of it as a market inefficiency (albeit one that is difficult to "fix"): the stickiness of people's locales prevents them from maximizing their opportunities and decreases demand for their services in SFBA and increases their supply in (say) MSP.


In other words, you want to hire in places where there's a large pool of good developers, but few employers competing for them. Am I following you now?:)


Correct.


The Internet is the biggest startup hub of them all. IRC, topic specific mailing lists, places like HN, etc.

99% of all good ideas in computer security were discussed on the cypherpunks list in the 1990s. I'm sure there are or were other subculture groups online equally useful.


As the low hanging fruit disappear, the type of veteran knowledge each entrepreneur requires will change.

Right now issues like effective user interface are being solved and are general enough across disciplines/markets that the results can be shared by everyone for everyone. But as internet startups specialize in finer and finer ways, focusing their products and services on smaller and smaller niches, the struggling entrepreneur will require an equally specialized knowledge. Startup towns have been ideal for sharing the knowledge of how to run an internet startup, but when that knowledge becomes more common and less geographically constrained, I'd wager we'll see Sector Specific regions ascending.


Tiny typo: "from being the business" should probably be "from being in the business".


Thanks; Freudian slip...


When I meet people from the Valley they tend to talk how my startup might succeed and the interesting directions we could take. Conversely when I meet startup people from London (where I'm based) who haven't been to the Valley they tend to talk about why my startup might fail, usually focusing on competitors. Both are useful to talk about, but I think this reflects the optimism/cynicism divide between the Valley and everywhere else.

We said we'd move to the Valley if we were accepted to YC this winter, but I think the culture over there might be reason enough to do it regardless.


Even though this essay has tried to capture how technology startup hubs work and SF in specifc , but this is how every every other hub works . Let it be finance(Wall street),cinema(Hollywood),art(Florence).All these have similar couterparts accross the world. My thesis is, it has more to do with the people who first come and establish a successful enterprise and develop a culture that attract more people .Something like how people were attracted to the gold rush(this had more to do with luck than talent) And also the presence of supporting infrastructures.Presence of Stanford, Berkeley,etc. Stanford almost has a symbiotic relationship with the valley.

And it should not be of any surprise in any kind of hub ,that even if collaboration does not happen abetment will happen. Purely because of the large presence of like minded people.

One good thought experiment would be to think of former hubs that have lost their culture. Thinking of that,I realize only hubs formed around matter (cities that sprang up around mines and oil wells) have been lost while those that rose on ideas will stay for a long time thriving with life,hope and innovation.

PS: I am a little surprised that PG notes that he meets so many techie people in his day to day life.


Another reason and a big reason seems to be past success, you need people with capital to invest. Once an area gets a couple large companies to cash out not only do those people tend to invest or start companies in similar industries but people around them see their success and want in on the action. If Groupon has a successful IPO and enough employees cash out Chicago could very well become the next large hub. This is the reason why you need a physical hub, but I think AngelList might be removing that hurdle.

On the same note, the investors, lawyers, and employees in startup hubs have 'standard terms' where as in other parts of the country the terms get extremely complicated with things such as tranches. They understand what it takes to succeed since they've usually done it before and are there to guide the company.


I'm a grad student in City and Regional Planning, and taking a Geographic Information Systems class. I need to submit a proposal for a final project, and was thinking of doing some kind of analysis relating to startup hubs. I'd probably borrow some ideas from this essay -- looking at population and demographic metrics (numbers/density), the historical presence of startups and higher ed in an area (environment), walkability and the presence of something like "cafe culture" (chance). I'd hope that the analysis partly aligns with existing hubs, and perhaps suggest some

If anyone has any ideas for a data source to look at besides census data, Crunchbase, and maybe national chain cafe store locators, give a shout. pg??? I'd obviously share the report...


I see two reasons why you should be in the Valley:

1. You sell to startups 2. Your business model is cash flow negative, or you don't have a business model at all

If neither is the case, a "second tier" hub like Austin or Santiago (Startup Chile) will do fine with lower salary costs.


  "Having people around you care about what you're doing is an extraordinarily
   powerful force. Even the most willful people are susceptible to it."
Stupid idea, but may be, AA style support groups are needed. "Anonymous Entrepreneurs?"


That's what the Hackers & Founders meetups are for.


Paul's written before on the uniqueness of the valley.

A key that America has is her ability to allow for iterative steps ( which often pose as failure ) before a great idea can execute commercially. Other countries seemingly have deeper social stigma associated with failing and philistine impatience. This could be changing though at rates faster than perceived within the valley.

http://en.wikipedia.org/wiki/Renaissance is a great study. In particular, characteristics asymptotic re innovation.

" They say that coming events cast their shadows before " - Ada, countess of Lovelace


I was actually having a conversation about this recently. A few of us were talking about how startups are almost "normal" here (Waterloo), so it doesn't seem odd to work 9am-10pm. But when you go home, people think you're crazy.

It's that subconscious influence that makes it so hard elsewhere. If enough people tell you that you're crazy, it takes a really special person to be able to shrug it off. I think the interesting thing here is that having a great co-founder has a very similar effect. I would even go as far as to say startup hubs and co-founders play a very similar role in keeping you going.


Paul (or anyone else), in note 3 you say "Starting a company is common, but starting a startup is rare. I've talked about the distinction between the two elsewhere..."

I'd appreciate any links to the places you've mentioned this.


He discusses his definition of the difference in this essay: http://www.paulgraham.com/startupfunding.html

In particular,

There are millions of small businesses in America, but only a few thousand are startups. To be a startup, a company has to be a product business, not a service business. By which I mean not that it has to make something physical, but that it has to have one thing it sells to many people, rather than doing custom work for individual clients. Custom work doesn't scale. To be a startup you need to be the band that sells a million copies of a song, not the band that makes money by playing at individual weddings and bar mitzvahs.

I'm not sure it's the best way to distinguish, but it is how the term is often used, especially in the context of startup funding, where "startup" is used as a synonym for basically "the kind of thing a VC would want to fund".


One of the best descriptions: http://steveblank.com/2010/01/25/whats-a-startup-first-princ...

"...a startup is an organization formed to search for a repeatable and scalable business model."


So was the first McDonald's a startup?


It was when Ray Kroc took it over and wanted to build a nationwide chain, instead of run a single restaurant.


"Having people around you care about what you're doing is an extraordinarily powerful force."

Hit the nail on the head, explains exactly why I'm hungry for a mentor, even more so than an investor, enough though my savings is running out.

One thing I've realized why pg is so insightful is because he thinks really hard by digging in deep, about questions that most people don't spend more than a few minutes thinking about after saying, "hmm. that's interesting." Most people don't spend more brain-cycles after that obsessing over it.

Lesson learned: really really obsess over your area of interest, your craft :)


One could jump start one's thinking on this subject by reading Edward Glaeser's "Triumph of the City: How Our Greatest Invention Makes Us Richer, Smarter, Greener, Healthier and Happier" (Reading Jane Jacobs seminal works can only help, too.)

"Cities, the dense agglomerations that dot the globe, have been the engines of innovation since Plato and Socrates bickered in an Athenian marketplace."

He also has section in the book assessing the "Rise of Silicon Valley", and makes the point the "innovation clusters in places like Silicon Valley because ideas cross corridors and streets more easily than continent and seas." And he points out an amazing correlation of the geographic proximity of patent citations. "...even in our information age, ideas are often geographically localized."

As the NYT book reviewer of Glaeser's work put it... "Greater density is the goal: more people means more possibility."

Ergo, a greater density of people working in similar modalities means a greater possibility of achieving within those modalities. It also means that those working in other modalities can encounter difficulty getting support, especially when directly competing for resources with the dominant modality. (I.e., startups v financial services industry for programmers.)

What's different about NYC is that there are so many people in great density, that it's still possible to have vibrant secondary modalities that may never supplant the (multiple) dominant ones. It also means that there may be cross fertilization between modalities not possible in other innovation clusters.

What's different about Silicon Valley is that it's a "city" with a single dominant modality - tech (currently Internet) innovation & startups. You can walk entire blocks in NYC without running into someone involved in a tech startup, or go days without talking tech at a social engagement. That is almost unpossible in SV. So SV's advantage over NYC's shear density of people is a density of people operating in the same modality.

Lastly, there are many geographically distributed innovation clusters/startup hubs that each operate in a different modalities. PG is understandably writing about the types that occur in Silicon Valley, because that's what he's most familiar with. And, they produce undeniable, and very public, results!


chance meetings with people who can help you

That's why I so much wanted to come to startup school... I was denied, and apparently there isn't a waiting list..? (or, I was also denied the waiting list).

But why not organize another sort of event: a "chance meeting machine" where you would come to some place during a weekend and have many opportunities to meet interesting people. Many different events, maybe all around town.

A Startup school without the "class" part, and therefore with a much less strict numerus clausus.


To me, hacker news is my startup hub.

I have chance encounters all the time with people who have interesting knowledge about startups and startup tools that could help me.

There is a huge social group who don't think starting a startup means being unemployed. The numbers are certainly on my side at hacker news.

At hacker news, starting a startup is both fashionable and reasonable.

I'm just a lurker, but already I get huge benefit. My guess is that people who interact a lot get even more benefit.

What does San Francisco have that hacker news doesn't?


If you look at a list of US cities sorted by population, the number of successful startups per capita varies by orders of magnitude.

Silicon Valley has a larger concentration of startups per capita, as people from around the country go there to try a startup. As such, I'm sure it also has a higher number of failed startups per capita. Instead of looking at absolute numbers, the chance that a given startup will succeed is the key metric.


"willingness to help people out" would seem to suggest NYC, LA, and DC will be forever handicapped. NYC seems to be overcoming this through bei great in other ways, but LA/entertainment culture seems the antithesis of startup culture, although both constantly create new things from ideas.

This all makes thhe demise of Boston even more stark and sad. It had every advantage except weather!


I'm curious why you think there has been a "demise of Boston". Is it really no longer a first-class "startup hub"? NYC gets more hype these days but it seems like both are great places to do a startup.


Outside biotech, it has gone from number 1 to a solid number 2 to mid-list. Seattle, Austin, Portland, NYC, and Boulder are all above it for many types of startups -- Boston has some legacy VCs, great but declining universities, and big city air travel and other infrastructure, but it is getting weaker by the day as a place to base a startup.

I don't really have time to put together statistical backing for my argument, but based on talking to a bunch of new startups in security tech, it is definitely an anti Boston trend.


but LA/entertainment culture seems the antithesis of startup culture

That's an interesting comment. I'm curious as to what you mean. In my limited experience, LA/entertainment culture seems to be the closest thing to startup culture.


I'm curious why you think startup culture in NYC necessarily reflects broader stereotypes of NYC as a whole.

Everyone here is very helpful.


> Everyone here is very helpful.

Which is also a stereotype. While I believe there are very many nice and helpful people in NYC, there is a still very much a "me-first" attitude. At the end of the day humans ultimately strive only to better themselves. Take that statement with a grain of salt, because enabling oneself can be manifested through social means. Hence why over time humans have evolved to understand that they can better themselves by social means. Either method is still a medium to which we can attain personal fulfillment.[1]

I think what pg is getting at is that the culture in SV leans much more towards this - that we can better ourselves by the help of others. Financial industries work better when individuals strive independently. I'm not narrowed minded enough to think that these are absolutes but more of leaning towards one medium over another.

[1] - paraphrased from Driven - http://www.amazon.com/Driven-Nature-Shapes-Choices-Warren/dp...


That is a good point. My only experience with NYC is with VCs there, and non startup companies there. The moved from NYC startups I have talked to were all very helpful on e they were in sf, so maybe that happened there, vs. here.


What I'd like to explore, is if you can help catalyze the effect PG is talking about by concentrating whatever startup activity exists in a city to one central location. In other words can you fake a hub, and thereby encourage its growth, by 'artificially' concentrating this critical mass of people?


I wonder if an app that would let you list the one thing you need right now to move your project along would help... it would make the chance meeting phenomenon an internet occurrence, which seems like it would greatly facilitate finding that one person.


I hazard that one of the reasons founders are so helpful to each other is simple karma. Just like contributors to open source and developers who blog to share what they've learned.


Does anyone have any statistics on the success rate of startups in Silicon Valley versus elsewhere? It would be interesting to see some data that supports pg's claim.


I think the world has changed drastically in the past few years...

I can provide perspective from working for a startup in SF in 06-07 and a startup in Chicago now... In Chicago noone thinks you're unemployed if you say you work for a startup. That was the case a couple of years ago, but with Groupon and a TON of other companies that just isn't the case. The difference is just that more people are doing startups in SF vs. consultants/bankers/fortune 500 workers... Go to a bar here and girls think it's so damn cool that you are running a startup (apparently girls are obsessed with all things geek - http://www.chicagobusiness.com/article/20110924/ISSUE03/3092...).

Re: the coffeshop thing- just by chance (ie we didn't know this going in and it is NOT the startup hub area within Chicago), within 3 blocks of FeeFighters office are: 37signals, SproutSocial, Threadless, Crowdspring, and several other startups. I don't see how it helps us significantly to bump into them (though we have helped our neighbors when they've had merchant account issues). Many people think it is a wasteland anywhere not the valley but I have seen that not to be the case here, in New York, and even in Pittsburgh.

So what is the difference between here and there? The largest differentiator I've noticed between the valley and elsewhere is funding. We raised most of our money in Chicago from VC's we really like, but could have raised easier on the west coast. A lot of top VC's prefer to have you close and told us flat out they would fund us if we moved there. We had term sheets dependent on us being in Austin, SF, and LA. I don't think it has had an effect one way or another on our business thus far.

Startups need money, and often flock to where it is. Things are changing all over the place though (Rich people in Chicago all of a sudden want to fund startups, will be interesting to see if that continues post-Groupon IPO)

It also depends on your type of business. If you sell mainly to startups, you should probably be in the valley.


West coast VCs are aggressively investing three thousand miles away from the valley in NYC. I'm sure being geographically closer to VCs makes it easier to raise money, but I really hope startups don't pick their location based on where VCs are. There are better parameters to optimize for.

I encourage startups to base their businesses where they'll have the best chance at recruiting the best talent. The next search engine would be well-served starting in the valley, especially if it's an ex-Google team. Similarly, storage companies continue to thrive in and around Boston, as they can draw talent from EMC. New media startups with a heavy emphasis on design-as-differentiator do really well recruiting in NYC.

By this reasoning, it might even make sense to base your web startup in Florida, if your network high-quality development talent is in Florida. I've seen this approach work well in unusual startup geographies, especially when it's a leader of an ex-team that is getting his or her band back together for second (or third) time.

Pick a geography that will play to your recruiting strengths.


Aggressively investing? That wording suggests to me that VCs are actively cold-calling or spamming companies with indications of interest. I assume you don't actually mean this.


[W]ithin 3 blocks of FeeFighters office are: 37signals, SproutSocial, Threadless, Crowdspring, and several other startups. I don't see how it helps us significantly to bump into them ...

That's because the marginal utility FeeFighters will get on average out of any given serendipitous moment is a lot less than, say, an unfunded startup no one's ever heard of.

If you graphed that marginal utility over time, you'd probably find that it's multi-region: linear in some parts, exponential in others.


Next to drugs, the strongest predictor of imminent mental illness in a healthy person is a move caused by adverse economic circumstances (such as having to sell one's house, or move to a new city because there are no jobs). Moving scares people, especially after 25.

What the Bay Area and New York have in technology is an environment where (at least for now) people can bounce back from job loss (a likely eventual outcome of a startup) quickly and without having to move halfway across the country. I think this is a big motivator. Startups can thrive in the Bay Area because a person whose startup fails can find a good job shortly afterward, without having to move to another city.

Also, startup generation is a nonlinear function of the desire to launch them, because of the need to find co-founders and investors.


It's like that now, but when my SF startup failed in 2001 and I had to look for a job at the end of the bubble, it was extremely stressful --- and I'm guessing I had an easier time looking for jobs than most of my last-bubble cohort.

Continuing the same point: it is in fact not all that stressful finding tech jobs in any major metro area now. I'm in Chicago, we have offices in NYC (our HQ) and Mountain View, and it's hard to hire in all three places.

I'm sure there's a grain of truth in what you're saying, that SF can accumulate talent because talent moves there expecting the red-hot market in the area to mitigate risks. But things can turn quickly.


Interesting, this reads like an anecdotal description of the New Trade Theory.

http://en.wikipedia.org/wiki/Paul_Krugman#New_trade_theory http://en.wikipedia.org/wiki/New_Trade_Theory


Is Silicon Valley really a hot bed of startups? Let's see:

People do 'startups' border to border in the US, in communities tiny to huge. Those startups might be a pizza carryout, electrical engineering company, franchised fast food restaurant, white tablecloth restaurant, law firm, CPA tax firm, auto body shop, photo studio, boutique dress shop, Web site design and programming firm, big truck/little truck product supplier, etc. Yes, Silicon Valley has a high concentration per capita of venture funded information technology startups, but there are startups all over the US.

Do the venture funded information technology startups really need a very special environment to keep going?

Let's see: An auto body shop, white table cloth restaurant, or even a lawn mowing service need more expensive capital equipment than an information technology startup. E.g., just a lawn mower can cost $13,000, enough to buy parts enough to plug together 10 good servers. A Web design firm anywhere in the US, or the world, has nearly all the same software challenges as a venture funded social Web site in Silicon Valley.

Does Silicon Valley really have a big advantage on the best creative work?

Let's see: Let's look at some of the best creative work in, say, music: How did Stradivari and Guarnieri build their violins, Vivaldi, Bach, Mozart, Beethoven, Mendelssohn, and Paganini write for violin, Heifetz get started in violin all in really small communities where what they were doing was astoundingly rare and world class on an historic level? I mean, who the heck was Mozart going to go to for help on how to write interesting, novel harmony? Where was Bach going to learn about key modulations? Who gave Mozart the crucial help he needed to write his operas or Bach to write his organ pieces or his violin 'Chaconne'? No one.

Who helped Newton with optics, calculus, the law of gravity, and the second law of motion?

Who helped Watt with the steam engine?

The history of the best works in art, science, engineering, and technology is awash in people doing historic world class work in what in Silicon Valley would look like near total isolation.

So, (1) startups happen all over the US and (2) much of the best work in all of history happened in near isolation. So, Silicon Valley is not needed for either startups or good work.

There's another candidate reason for the high per capita concentration of venture funded information technology startups in Silicon Valley: On average and in nearly all cases, the venture partners have at best meager qualifications in anything technical yet have to justify their risky investments to their general partners and limited partners.

Their best justification is, may I have the envelope please? Thank you. Here is it: "Join the herd!" So, get a place on Sand Hill Road or nearby and do much like everyone else does. So, 'fit in'. Talk to each other a lot like gossip among middle school girls.

So, net, what Silicon Valley has a high concentration of is not really startups but just venture funded information technology startups, and the reason is not that Silicon Valley is an especially good place for the entrepreneurs to get the work done but just that the venture funding is concentrated there because the venture partners do not have the qualifications to evaluate projects on their own and, instead, get along by fitting in and joining the herd. Net, the concentration is due to the propensity of venture partners to form herds.

Once again I'm glad for US national security that the Silicon Valley venture partners are not DARPA, NSF, or NIH problem sponsors.




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