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?
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.
What's interesting to look at is the distribution of where open source software is produced. That, IMO, is a reasonable proxy for where hackers are doing interesting things, and it is very definitely not SV centric. Perhaps they would be founding companies if they were in SV, but maybe not. I'm glad that people like Linus and Guido van Rossum stuck to doing what the really know best, which is pure tech. There are definitely some opportunity costs for a hacker who chooses to go into business over sticking to pure tech.
I like open source as much as the next guy, but I don't know that I agree - is open source the cause of concentrations of 'interesting' things, or is it the other way around? Silicon valley wasn't built on open source....
Besides, plenty of hackers do interesting stuff outside outside the open source world (and that's not even considering hardware...).
I think open source has very little to do with being a 'cause' for concentration. What's interesting about it is it shows, to some degree, the natural distribution of high quality hackers throughout the world. And yes, of course people do interesting things outside of OS, I was just suggesting that it's a good proxy to see some areas where innovation is happening that don't have some of the other ingredients of SV.
If SV investors habitually invested in crap companies, they'd have run out of money by now. Instead they are richer than ever.
Nor are their investment choices what you think they are. For every frothy social app SV investors fund, they fund two boring b2b companies that you don't hear about because you are not the target market.
I lived there for 15 years and didn't see all that many. But I lived in Parkland, which is a bit north of the drug dealers and a bit south of the retired businessmen.
Parkland is at the southern edge of the first Bentley Belt, which extends from West Palm Beach to Boca. I've seen at least six Bentleys in Boca. The only other place I've ever seen one was curbside at LAX. I've never seen a Bentley anywhere in the Bay Area.
Fareed's comment is weird. Where is there a parking garage on Sand Hill Road?
I work on Sand Hill and there's very very few garages around here. Just lots of open parking lots all over the place.
Also the culture here is to leave the fancy cars at home and drive a high-end (but not exotic) german car to work. In fact, tons of guys drive Priuses. Not too many bentleys - it'd be considered too crass.
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.
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.
Agreed. That's actually the best analysis. Instead of Television taking up 4 hours a day of family time, you have the same amount of computer time (though not always video, it's the same exact principle.)
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).
> 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.
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.
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?...
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.
<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".
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.
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).
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!
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.
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.
Club Penguin. It was a Web 2.0/virtual community play. Acquired by Disney for $350+ mil. I don't know if Plentyoffish qualifies as a Web 2.0 startup, but it is making a lot of cash. I could name a few more.
Cheers.
PS. I agree with the original poster "The first mistake startups make is they need VC or angel funding to get moving," if by "get moving" s/he means get started. You might need it when you want to expand, grow, get serious, etc. but you don't necessarily need it at the beginning.
Sure, there are a handful. But the fact that those few are famous on account of having taken no investment is evidence of just how rare it is.
Among successful startups, the ratio of those that took outside money to those that didn't is 100 to 1, maybe 1000 to 1. Where the threshold for success is going public, it's effectively infinite.
Someone at BarCampBlock yesterday suggested that in the past >15 years, vc-backed startups of all types accounted for 23% of successful exits, while focusing on tech-specific startups raises that number to 46%. It sounds possible, but a source wasn't provided - it'd be interesting to determine how successful these 'successful exits' were, and if the size ($) of the exit is correlated to the presence of VC. I imagine it would be.
I started 9 companies with no outside cash. The first one i started I sold and then joined the parent company which had not taken in any outside cash. We grew that to $600m in revenues within 5 years.
All that said, I would still say that if you were a BETTING man, your bets would likely go on funded companies.
Money tends to find success. Not the other way around. Money is put into companies that are already on there way to be "successful" (assuming they are not already). The money just expedites the growth.
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.
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.
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.
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.
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.
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.
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.
There aren't a lot of consumer-facing web/software startups like in the Valley but there are startups working on pure technology problems in fields such as microelectronics, transportation, aeronautics, etc.
I rarely experience long internet connection unavailability here in Ukraine (mostly due to thunderstorms or isp's hw problems), and even if I have such a problem, I always could use quite cheap CDMA 3G internet connection.
So Internet connection isn't a real problem here for doing startup. We have other problems over here :)
Funny you say that, because my comment was actually in reference to a guy from Ukraine that the US company I work for has employed several times. He would just suddenly disappear for a week or more, and then when he finally came back, on one occasion, he hadn't been able to connect to the company because of the circumstances I mentioned above.
Sounds like falsehood. If he really wanted to go online, lots of ways were available: CDMA 3G [cheap, though requires approx. $200 hw expenses], GSM GPRS/EDGE [usually expensive], dialup (relatively cheap), internet cafes (quite cheap), TV cable company, other ISPs.. so...
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.
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.