Читать книгу Screw the Valley - Timothy Sprinkle - Страница 8
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“Silicon Valley is not a place, but a state of mind.”
—John Doerr, venture capitalist,Kleiner Perkins Caulfield & Byers
BLAME THE $4 TOAST.
And the corporate shuttle buses.
And the sky-high office rents.
And the borderline-insane local housing market.
Most importantly, blame the seemingly never-ending hustle to find, train, and retain top development talent, which forces technology company founders to go so far as to take out ads on the sides of city buses and all but throw money at Stanford’s engineering department in hopes of landing the top candidates they need. All in a kill-or-be-killed competitive environment that, for many small-time tech startups, can make it nearly impossible to get noticed, let alone funded.
For some tech entrepreneurs, it has all gotten to be a little too much.
This is life in California’s Silicon Valley, situated at the south end of the San Francisco Bay. It has long been the center of America’s innovation culture, considered the ideal breeding ground for tech startups. And for good reason. The area is overflowing with engineering and software development talent, thanks to nearby Stanford University and the University of California, in Berkeley; it is home to pretty much every major venture capital firm in the country, thanks to the long-established culture of tech funding and investing in the area; and it is an idea-rich environment that brings like-minded people together, creating more opportunities for outside-the-box thinking. In short, it’s where smart people go to do big things.
But the Bay Area is not perfect. And locating a new business in Silicon Valley is not always the answer for every tech entrepreneur. It’s crowded, it’s hypercompetitive, and it’s becoming staggeringly expensive. The city’s consumer price index—which measures how much everyday purchases cost—is now rising at a rate of 2.5 percent per year on average, and the rent for a one-bedroom apartment in San Francisco was up to an astonishing $2,800 a month as of 2013, according to Priceonomics. The city’s median rent, $3,250 per month, and median home price, $900,000, are both the highest in the country, and only 14 percent of homes in the city are considered affordable to the middle class.
“Every day in every way, from rising rents to rising prices at restaurants to its private buses, the tech world is becoming an object of scorn,” wrote former mayor Willie Brown in a November 2013 op-ed in the San Francisco Chronicle. “It’s only a matter of time before the techies’ youthful luster fades, and they’re seen as just another extension of Wall Street.”
This growing scorn is not entirely without cause, since the area has also lately developed something of a reputation for arrogance. “As the tech industry has shaken off the memories of the last dot-com bust, its luminaries have become increasingly confident about their capacity to shape the future. And now they seem to have lost all humility about their place in the world,” wrote former Wall Street Journal reporter Farhad Manjoo in a November 2013 story about the Bay Area tech scene’s growing superiority complex.
The examples are numerous. Stanford professor Balaji Srinivasan, the cofounder of genetic-testing company Counsyl, has suggested that Silicon Valley secede from the United States. PayPal cofounder Peter Thiel has floated plans to build a Waterworld-style artificial island off the coast of California where tech-minded residents can live outside the jurisdiction of US laws. And then, of course, there is former AngelHack CEO Greg Gopman, who created a controversy in late 2013 when he posted on Facebook that San Francisco’s homeless residents were “trash” who have no place in the nicer parts of town.
“It is becoming excruciatingly, obviously clear to everyone else that where value is created is no longer in New York. It’s no longer in Washington; it’s no longer in LA. It’s in San Francisco and the Bay Area,” venture capitalist Chamath Palihapitiya said on the tech industry podcast This Week In Startups in October 2013. “We [the tech industry] are becoming the eminent [vehicle] for change and influence, and capital structures that matter. If companies shut down, the stock market would collapse. If the government shuts down, nothing happens and we all move on, because it just doesn’t matter. Stasis in the government is actually good for all of us.”
Attitudes like these notwithstanding, the real issue for entrepreneurs these days is that Silicon Valley is simply getting very crowded. There are so many startups at work in the Bay Area that it can be hard for a small team to get attention and, by extension, get funded. Even if they do manage to get funding, it’s equally challenging to find technical talent to help get that product off the ground. It’s a big pond, and it is overflowing with both big and small fish. The odds are stacked against many of the new smalltime founders trying to break into business in the Bay Area.
But the fact is, the tech landscape isn’t just about California anymore. Entrepreneurs have plenty of other options these days, such as Austin, Texas; Raleigh-Durham; Las Vegas; Kansas City; and even New York. All of these cities, and more, have emerged as tech startup hubs in recent years, offering founders access to tight-knit entrepreneurial communities, solid engineering talent, and even some investment capital to get their ventures off the ground, all without the high pressure and added challenges that can come with a Silicon Valley address.
“There certainly are several jurisdictions that have been working hard to develop venture capital environments lately,” Mark Heesen, president of the National Venture Capital Association (NVCA), told me in late 2012. “It’s very long-term play, but it has been effective in certain areas.”
It’s true. In New York City, former mayor Michael Bloomberg put a new focus on entrepreneurship in the city during his term in office (his namesake company even created its own $75 million early-stage venture fund, Bloomberg Beta, in 2013) by rallying investors and supporting local entrepreneurs via a range of city-backed initiatives. Austin has been a destination for tech startups since the early days of Dell, bolstered by the nearby University of Texas. Chicago has shown that one company, in its case Groupon, can have a major impact on shaping the startup ecosystem in an entire metropolitan area.
“Cities are starting to realize that the real engine of job growth is entrepreneurial companies, not big, established companies,” Heesen said.
With this trend in mind, AOL founder and Startup America Partnership chairman Steve Case started a $200-million fund dedicated almost exclusively to investing in companies outside of the Bay Area in 2013. The fund, called Revolution Ventures, complements Case’s more traditional venture fund, the $450 million Revolution Growth that he started in 2011, by casting a wider net in hopes of snagging promising companies that other venture capitalists aren’t seeing.
“This isn’t negative on Silicon Valley. We think Silicon Valley is awesome,” Case said at the launch. “But there are also a lot of great entrepreneurs in other parts of the country, and there is not as much capital focused on them. Not all great companies are in Silicon Valley, so we’d like to shine a spotlight on some people and ideas and companies in some off-the-beaten-path places.”
Of course, there are limitations to this approach. These emerging startup ecosystems are often much smaller than what exists in Silicon Valley, limiting the number of opportunities that they can offer, and can be difficult places to find significant local funding. And that’s not to mention the challenges of finding talent outside of the Bay Area or generating publicity for your new app when you don’t have a large core of nearby users to test-market your product. The challenges are different, but they’re challenges nonetheless.
This is all to say that, in terms of new tech companies, the Bay Area is far from fading away. In fact, it’s still growing. According to the MoneyTree™ Report, produced quarterly by PricewaterhouseCoopers and the National Venture Capital Association (NVCA), Silicon Valley accounted for nearly 46 percent of all venture capital deals in the third quarter of 2013, with 305 deals accounting for more than $2.6 billion in funding, which is on pace for a five-year annual high. Since 2012, the region has accounted for 52 percent of all the largest startup exits via initial public offering (IPO) or acquisition, while New York, Massachusetts, Southern California, and Illinois combined accounted for just 28 percent of such exits in the same time period. The region has seen some $31.5 billion in venture capital investments across more than 3,000 deals since 2009.
And that’s not all. The city of San Francisco is now growing at a faster rate than New York, up 1.5 percent from 2011–2012, while Gotham’s population remained roughly flat during that time. Technology companies, both in San Francisco and in the Valley, are clearly driving this growth. According to the 2013 Silicon Valley Index report, about 46 percent of the 92,000 new jobs added in the Bay Area in 2012 were in Silicon Valley, where “innovation and specialized services” was the fastest-growing segment with 8.7 percent job growth for the year. Software employment in the area increased by 9.8 percent in that time.
“It’s pretty actively moving, I would say,” explains San Francisco– based entrepreneur and startup mentor Tristan Kromer, of the Bay Area startup scene since 2013. “There are a lot of early-stage startups and there’s a tremendous amount of incubators. And, as you can imagine, pretty much everybody from every other ecosystem kind of tries to migrate here to get their Series A. So yeah, even if there wasn’t anything happening locally there would still be everybody else from the rest of the world—Estonian, Ukrainian, Mexican startups are coming over. It’s pretty crazy right now.”
It’s active, he explains, but the day-to-day of startup life in the Bay Area is still roughly the same as it was before the dot-com bust. There are still plenty of dreamers. There are still those people wandering between meetups, trying to get a developer to build their product for them. There is still a shortage of technical cofounders. There are still plenty of hackathons, people exchanging ideas, and talented employees jumping from one startup to another in hopes of landing on their golden ticket. But, according to Kromer, it’s getting more realistic than it was in the nineties.
“There is a lot less focus on promoting the big dream on a piece of paper and getting $20 million for it. It’s so saturated with startups now that people sort of expect results from their $50,000 investment, so if you can’t show something for that, you don’t get much further.”
It’s a numbers game now, Kromer says. Sure, you’ll still find apps that can tell you which pair of jeans make your butt look best or if a couch will fit up the stairs to your apartment, but the fact that there is so much happening in the local startup space these days simply means that there is a little of everything.
“I don’t think it’s fundamentally different than what I’ve seen in other cities,” Kromer says. “In many ways it seems to be more amplified. I’ve gone to accelerators in the Ukraine; Helsinki, Finland; Lincoln, Nebraska; New York; Boston; and all of those places are really very, very similar. You have people who are, you know, saying ‘maybe in a few years we’ll go to Hollywood.’ That’s very much what Silicon Valley represents for a lot of people. Their long-term goal is to move to Silicon Valley from wherever they are now. And there are very valid reasons to do that, but there are also very valid reasons to stay where they are.”
The truth is, there’s an ecosystem in place in Silicon Valley that’s all but impossible to replicate anywhere else. Stanford University, one of the best engineering schools in the world, provides the local ecosystem with a steady stream of young development talent. The local venture capital community, founded when the primary products coming out of Silicon Valley were actual silicon-based processing chips, is well versed in the technology space and has the deep pockets needed to backstop and nurture high-risk, high-reward Web 2.0 startups like Twitter, Dropbox, and Facebook. And with more than fifty years of exits in its win column to date, the region is also home to many of the tech world’s most successful entrepreneurs—founders who have made fortunes in software and services and are available to help the next generation of CEOs find their way in the industry. It’s a like-minded community with a nonstop stream of technical events—including meetups focused on everything from Python programming, to data trend analysis, to Android app development, and to literally dozens of other topics, every night of the week—and a culture of innovation that supports and rewards risk-taking. For technology, it is still the center of it all.
“You know, I’ve been around in Silicon Valley for more than twenty-five years,” says Darius Dunlap, longtime Bay Area entrepreneur and member of the board of advisors at the Silicon Valley Innovation Institute, “and I think the biggest thing about the area now is that a lot of people are more convinced than ever that they can do it. You know? There’s that attitude of ‘I can start a startup.’
“The downside of that, I think, is you have a lot of people with really half-baked ideas who are just sort of going on the romance. They really have no idea what they’re in for or how they’re going to do it. It’s just this sort of ‘let’s do it, we’ll get rich’ thing, sort of a forty-niner kind of trend. There were a lot of serious miners that came to California for the Gold Rush, but there were also a lot of people who had fantasies of getting rich quickly as well. And I think there’s a bit of that, particularly in Silicon Valley. You see a lot of people coming to Silicon Valley because that’s where it is, that’s where things are happening, but with very little idea as to what they’re going to do when they get here.”
But, he admits, that probably isn’t going to change anytime soon. According to Dunlap, out-of-town tech companies are increasingly sending their executives to the Bay Area to take advantage of what the Valley has to offer—the events, the conferences, the access, the kind of tech community that they may not have back home. It’s Valley mystique by osmosis, and it allows entrepreneurs to stay in touch with the industry at large even if they don’t live there. The simple fact that this is happening, Dunlap explains, is proof that the Bay Area remains at the center of gravity for the entire high-tech industry.
“It’s kind of like, take the music industry or the acting profession,” he says. “It’s always been that if you wanted to be an actor you have to go to New York or LA. Yeah, there’s a lot of work for actors elsewhere, but that’s where the whole thing is.”
It’s an apt metaphor, because the general vibe these days nationwide is that Silicon Valley is becoming a sort of new Hollywood for tech workers. It’s where the money is; it’s where “the dream” happens.
“People want to be Mark Zuckerberg like they used to want to be Michael Jordan,” Kromer says. “So it’s like some people don’t even care passionately about the project that they’re working on; they just want to be famous. It’s like, this is the best way to be famous nowadays, to have a hot startup.”
And that attitude—all too common in the Bay Area, Kromer admits—is a problem for some founders.
“I’ve been doing this for twenty years in both Texas and California,” says John Price, CEO of Austin, Texas–based consumer products search engine, Vast.com, and former executive with legendary Austin enterprise software firm Trilogy. “So I’ve been living the comparison.”
Price graduated from the University of Texas at Austin (UT) in 1982 and immediately moved to the Bay Area to start his career in electrical engineering. His first experience with entre-preneurship came at Neuron Data, an artificial intelligence firm that he cofounded with a group of French scientists. He joined Trilogy in 1992 alongside “a bunch of Stanford kids,” where he spent more than a decade managing sales and business development. At its peak, Trilogy employed some 1,200 people and generated more than $250 million in annual revenue. Its training program for new employees—Trilogy University—was the subject of a 2001 feature in the Harvard Business Review, and its recruitment program, which managed to attract more than 1,000 high-level engineering grads from MIT, Stanford, Caltech, and other top programs to Austin, landed it in a 1998 issue of Rolling Stone under the headline “Wooing the Geeks.” The company effectively imploded after the dot-com crash and went through multiple rounds of layoffs before emerging as a shell of its former self.
But, in the mid to late nineties, Trilogy was the big time; a multimillion-dollar software success story, even though it was running into problems in the Bay Area.
As Price told Forbes in 2012 about those early years, “We already could see the signs of how difficult it was going to be to build a startup in the Silicon Valley where the competition for talent [was so fierce].” So he and the company’s founders decided to move the bulk of the Trilogy operation from California to Austin, Texas, to take advantage of the state’s business-friendly regulatory environment and its rich talent base, courtesy of UT. It was a radical move at the time—tech in Austin was all but unheard of at that point—but in hindsight, the relocation plan looks amazingly prescient.
Now, the Texas capital has a reputation as a tech-friendly small city, complete with plentiful office space, diverse housing options, and plenty of after-work entertainment. (Austin’s official motto is the “Live Music Capital of the World,” and more than 100 local venues host live acts every night of the week.) The cost of living is reasonable, the tax structure is extremely pro–business, and the city’s well-known “laid-back cool factor,” courtesy of events like the annual Austin City Limits music festival and the South by Southwest music/film/interactive conference held every March, make it easy to recruit from out of town. To hear the locals talk about it, everyone wants to move to Austin. It’s what the Bay Area’s tech scene would look like if it was purely urban, Price says, rather than stuck out in the San Jose suburbs. (“The lights go out at nine o’clock in Silicon Valley,” he says with a laugh.)
“So here in Austin we skipped the Silicon Valley stage and now we’re just like San Francisco. Austin has tipped as an urban city. Five years ago downtown was where you partied, not where you lived. Now there are condos, lofts, literally people are moving out of the suburbs and moving downtown. It just tipped. And there are all these techies hanging around downtown and running startups.”
Price is not alone in this realization.
Jay Gierak and Nathan Labenz learned that there is tech life outside of California in 2012 when they relocated Stik, their social-based recommendation app, from San Francisco to their hometown of Detroit, Michigan.
“It was really an easy decision for us to make,” Gierak says from the company’s new office near the Detroit Lions’ home at Ford Field. “The fact is, it kind of sucks to be in Silicon Valley if you’re not well funded. It’s difficult to retain talent in that environment, and it can be really difficult to stand out from the crowd. It’s the best place in the world to be if you have $50 million in the bank, but for the rest of us it can be really tough.”
Detroit, it turned out, was the answer for them. The area is home to a surprising community of engineering and scientific talent, thanks to the thousands of workers who moved to the area over the years to work in the auto industry, and the University of Michigan and Michigan State University are nearby for more software-specific workers. The cost of living is shockingly low, so founders don’t need to pay their developers as much as they would in the Bay Area, and given the lack of overall competition in the area, staffing a startup is generally an easy prospect in Michigan. The tech community isn’t as deep as other cities, but local entrepreneurs say there is enough talent to go around and poaching generally is not a problem.
Stik operates out of the Madison building, a venture-backed coworking space located a few blocks from the Detroit River in the center of downtown, where the founders and their employees can work surrounded by more than a dozen like-minded tech companies. Urban, loftlike living is available right around the corner.
“We found that we could attract and retain better talent here than we could in Silicon Valley,” Gierak says, citing the nearby research universities and the low cost of living in what is, believe it or not, becoming a pretty nice place to live.
It is also an opportunity to be a part of something bigger than just the next hot app or the next Facebook clone.
“Downtown Detroit is developing something special around its burgeoning tech community, and we want to be part of it,” Labenz said in a statement at the time of the move. “We are excited to collaborate with other Detroit-based companies that are making a positive impact, and we are eager to grow our business with some of the best tech talent in the country.”
The fact is, bright ideas are not geographically limited, and innovation is happening every day in cities all over the country and around the world. What’s more, it is now cheaper than ever to start a technology company, thanks to plug-and-play platforms like Amazon Web Services that all but eliminate the need for expensive hardware and infrastructure. It’s becoming less risky, too, as more and more founders are following the popular lean startup model that encourages quick deployments, bare-bones testing, and “failing quickly” when an idea doesn’t find a profitable market.
The primary hurdle at this point is coming up with a good idea and finding a way to monetize it. And Silicon Valley doesn’t have a monopoly on that.
“People’s perceptions of places like the Valley are colored by the notion that they have some sort of advantage,” explains Thom Ruhe, vice president of entrepreneurship at the Ewing Marion Kauffman Foundation in Kansas City, Missouri. The Kauffman Foundation is a nonprofit dedicated to advancing entre-preneurship, among other things, and is a strong supporter of coast-to-coast startup ecosystems. “What they really have going for them [in the Bay Area] is population density, so startup [founders] feel that they have to go there to be successful. It’s like an actor going to LA to be successful. But there’s no rule that ideas are limited to the coasts. It’s not about having the ideas; it’s about having the support system around to take the ideation phase to a commercial operation.”
That’s where startup ecosystems outside of the Bay Area typically fall short. They may have access to great minds and all sorts of new ideas, but without a true support network in place—including engineers to build the product, MBAs to sell it, and venture capitalists to fund it all—it can be difficult for new entrepreneurs to get too far beyond the “thinking about it” phase to create a viable business. These are significant limitations, and the solutions aren’t yet obvious.
“In places like here in Kansas City, for example, it’s the polite Midwest,” Ruhe says. “And part of that culture is holding us back. It’s very nuanced, but it’s hugely significant. If you’re in Menlo Park and you bump into someone at a party, the first thing they’ll probably ask is what you do. Out there, if you’ve worked at four different companies in three years, that doesn’t matter, they don’t care. Your identity is what you do. I’m a CFO, or I’m an engineer. Come to Kansas City, Omaha, Minneapolis, and take the same scenario, but the question isn’t ‘what do you do?’ It’s ‘who do you work for?’ Your identity here is around who you create value for. It’s a slight difference, but the implications for our economy are significant.”
It’s a mind-set, he explains. In some areas, you have workers saying, “ I can function in various companies and organizations.” In others, it’s more along the lines of, “I’m a cog in a wheel.”
“That’s not where job growth is happening in this economy; it’s not helping us,” Ruhe says.
The good news, according to Ruhe, is that these attitudes are now changing as Silicon Valley–type support networks have begun spreading across the country as VCs, angel networks, and other investors expand their search for the next big thing in tech. Smart investors know that good ideas and low valuations are easier to find in out-of-the-way places like Miami, Portland, and Raleigh, among others, so it’s a way for them to get in on the ground floor before it enters the mainstream.
“I think that with increased social awareness and by educating people about the importance of entrepreneurship, the climate for startups nationwide is getting better,” Ruhe says. “In Kansas City, we have things like Silicon Prairie News that’s starting to increase awareness, and more and more community building is happening around this. At the risk of sounding cliché, it doesn’t take a village but it takes a region to do this. You need a continuum; you need people with ideas and vision; and you then need to have the activists, the change agents, who might not be creating the ideas but have the gumption to act on them and do something about it.”
Consider Boulder, Colorado, for example. In the last ten years, the city has emerged as one of the hotter technology cities in the country, becoming home to a blossoming startup community centered on the now-national accelerator program TechStars and venture capital firms including The Foundry Group. As of 2013, about 23 percent of Boulder’s workforce was employed in the technology sector, which includes startups, larger companies, government agencies, and the nearby University of Colorado Boulder. Not too shabby for a borderline ski town that until recently was probably better known outside the city limits for the 1970s sitcom Mork and Mindy, the murder of Jon Benét Ramsey, and the annual, open-air marijuana festival on the university campus.
What brought tech entrepreneurs to a city like Boulder? Lower costs, for sure, but there are cultural elements at work as well. Boulder has a reputation as one of the “nicer” cities in tech, which isn’t something you often hear about Palo Alto or Menlo Park. There’s a real community feel in the town, where give-before-you-get is the prevailing attitude, and founders feel safe to step up and help each other out, competition be damned. It’s a small community—reputations are important. And what Boulder might lack in resources it makes up for with quality of life, which makes it easier to attract talented, out-of-town workers and keep them there over the long term.
It’s not just Boulder. In Austin, you get all the resources of the University of Texas system with heavy helpings of Texas hospitality, acres of inexpensive office space, and a beautiful, easygoing quality of life. Ditto for Raleigh, where the Research Triangle Park serves as the anchor, along with Duke University, the University of North Carolina at Chapel Hill, and North Carolina State University. In Detroit, there isn’t a strong local university (unless you count the University of Michigan, thirty minutes up the road in Ann Arbor), but there is a core group of dedicated investors working to create a viable tech ecosystem as part of the city’s overall revival. And the examples go on and on.
In short, there are ways to do business in these new hubs that may not be possible in Northern California. Not necessarily better, not necessarily more effective, but different. As a result, there are now ways to stand out from the crowd and make a splash in technology without swimming in the same Bay Area pool as thousands of other entrepreneurs. And, the fact is, in this data-driven age, startups don’t really need to be in the Valley anymore. With a high-speed line, talent can be effectively located anywhere.
The investment numbers are starting to catch up to this new reality. According to the National Venture Capital Association (NVCA), New England, primarily Boston, accounted for about $3.2 billion in VC funding in 2012, followed by $2.7 billion in the New York metro area, and $2 billion in greater Los Angeles. A decade ago, all three of these areas accounted for just $5.6 billion in funding combined. Texas is on the rise at $1.9 billion as of 2012, followed by the combined Midwest region encompassing Kansas City, Minneapolis, and Chicago at $1.4 billion, and the Southeast region at $1.1 billion. Denver/Boulder saw $683 million in venture investment in 2011, while the Washington, DC, area generated $979 million.
Some of these regions are also becoming known for specific technologies. Orange County, California, has an emerging reputation for ophthalmology startups, for example, while Minneapolis–St. Paul is known for its medical device companies. Raleigh has a strong base of biotech startups, while New York City has zeroed in on technologies to support financial services companies. As with any economic development effort, developing a specialty is about leveraging established local industries and building on a city’s past successes.
This kind of “clustering” is good news for everyone involved, explains NVCA president Mark Heesen. Venture capitalists who are interested in investing in medical device startups, for example, know that eastern Minnesota is a good place to look for opportunities due to the cluster of device startups that are located there. And it has a snowball effect. Money gets invested into the Twin Cities ecosystem, supporting the companies that are there and leading to the development of more similarly minded firms nearby. These startups, in turn, attract even more outside investment, and the cycle continues. For developers, salespeople, and the other employees of these startups, local competition like this is a good thing; there’s always another place to send your resume if your current shop goes belly-up, which is a characteristic of a healthy ecosystem.
Still, Heesen says, even the best-known startup hubs face an uphill battle:
It’s difficult to see another version of Silicon Valley springing up in the next thirty to forty years. Israel has tried to replicate it, China has tried to replicate it, even Russia has been trying to replicate it, but it’s a very difficult thing to do. The colleges in the Valley were an integral part, but we also saw several incredibly successful companies take off and, most importantly, stay in the area. Everything else grew from there. It was a perfect storm that we probably won’t see again in our lifetimes.
But it won’t be for a lack of trying. Improving the odds of startup success outside of the Bay Area was the idea behind the Startup America Partnership (SUAP), a national organization dedicated to creating strong startup ecosystems from coast to coast. Launched in 2011 alongside the Obama administration’s startup initiative, and now part of an organization called UP Global with Startup Weekend, the group is backed by the Kauffman Foundation and the Case Foundation, along with a collection of corporate sponsors like American Airlines, American Express, Dell, Intuit, and Microsoft.
“We highlight the importance of startups as innovators and job creators,” the organization writes on its Web site. “We give startups access to the relationships, opportunities, and knowledge they need to succeed. We celebrate entrepreneurship as a core American value. We aspire to make creating or joining an American startup the most desirable job in the world.”
What started out as an effort to deliver free and low-cost support and services to entrepreneurs (via SUAP’s network of corporate partners) has evolved into a regional network of startup ecosystems, connecting founders, investors, workers, and, eventually, potential customers. So far, in addition to gathering more than $1.2 billion worth of service offers that have benefited some 3,000 young companies, the group has worked to develop a collection of mentors in these far-flung cities and towns, tapping local entrepreneurs, investors, and others in hopes of growing and sustaining these ecosystems.
“The job of SUAP . . . is not to offer more of the fine words and sugar highs that abound in the world of entrepreneurship, but to redraw the landscape of America’s economy so that more people felt confident enough to start their own businesses,” the organization wrote in its 2012 report on the state of US entrepre-neurship. “There would be cheerleading, of course. But there also would be hard work in the many areas that affect entrepreneur-ship. That hard work would include drawing attention to, and encouraging the study of, legal and policy barriers faced by entrepreneurs. Among the issues that have arisen are tax incentives that could help both startups and the broader economy; changes to the immigration laws to enable more talented people to stay and work in the United States; new models of venture financing, such as crowdfunding; helping to lower the burden of student loan repayments; and providing more free resources to help entrepreneurs spend less to get started.”
In the words of SUAP chairman Steve Case: “What you are doing as entrepreneurs isn’t merely about providing that product and supporting your family. The collective effort is what makes this nation great. What’s your part in the tapestry of entrepreneurship?”
This regionalism isn’t one size fits all, though. Tech ecosystems do share many similar qualities, but the range of needs and unique challenges between cities can be significant. Florida has a large community of high-net-worth individuals and plenty of available capital, but its investors are not familiar with the tech market and as a result are less likely to put their money to work in local startups. Iowa has an established community of IT, software, and biosciences companies, but is having a hard time getting them all to think outside of their silos and work together as an ecosystem. Texas is very capital-rich, but, like Florida, that money isn’t finding its way to startup founders, while Connecticut has money but no functional startup community to invest in. Massachusetts has a wealth of resources of all types available, but they’re all centered in Boston instead of being spread across the state, while states like Nebraska, Vermont, and Maryland are having trouble attracting and retaining talent in the first place.
“The most frequent problem in the regions is that ideas aren’t big enough or innovative enough,” says Donna Harris, managing director of the Startup Regions at SUAP. “Once they grasp that they don’t need our permission to act, the creativity starts to flow. You don’t need man-on-the-moon ideas, just very simple, new ways of thinking about old problems.”
Entrepreneurs themselves are fully aware of the pros and cons of starting a business in one of these new tech cities. For example, Rich Winley, the cofounder of independent restaurant discovery app No Chains, has written widely on the distinctions between the startup ecosystem in the Bay Area versus the rest of the country. He started his company in his hometown of Greenville, South Carolina, before eventually moving the operation to Houston.
“I’ve heard the founders of some of the iconic companies in the Valley say things like, if you want to be a politician go to DC, if you want to be in fashion go to NYC, if you want to be an actor you go to Hollywood, and if you want to be in tech you need to be in the Valley,” Winley wrote on his blog in late 2013. “Now, this statement has a great deal of validation, of course, and I’m not arguing that your chances of succeeding are probably a bit higher if you live there. My problem with the statement is that it can make an aspiring tech entrepreneur feel like he or she can’t make it anywhere but the Valley. So, in my humble opinion, I think statements like that hinder the creativity that we [tech entrepreneurs) are infamously known for in this world. Don’t get me wrong, I know we have small bubbles of tech in other areas of the country, but what do you think really drives a successful tech community? I think it’s based on who’s been there, done that, and exited.”
The real issue, he argues, is that Silicon Valley has a long history of innovation and success backing it up, with dozens of successful companies and founders that have exited and reinvested their capital back into the local community. So when a founder sets up shop in that area, they have access to all of that expertise, funding, and mentorship. And when they eventually exit, they’ll often give back to the community themselves. In short, the Bay Area has an ecosystem that has been refreshed and reinforced over and over again through the years by early players like Hewlett-Packard and Intel to more recent success stories like Facebook, Google, and Twitter.
“So all of these VCs and angels on Sand Hill Road came from being early in a company or exiting out of a company in the Valley ecosystem,” Winley writes. “What makes it work is that they invest back into that community. So with all that being said, it’s hard to build a community like the Valley unless you have some major wins.”
Having that community matters, especially for startup founders, because by definition they are getting started in a business that doesn’t come with a game plan. There’s no template for creating a successful startup; it’s a different kind of business than most, and part of the startup experience is figuring out a way to find success without a map.
“If you’re going to start a real estate brokerage, there’s a template,” explains Darius Dunlap. “It’s very much known, it’s very controlled by laws, and there’s a way you go about it. And, other than the subtleties of it being a relationship-based thing, other than actually running the business and making it successful, you know what business you’re in and you know what the value proposition surrounding it is. You know what you’re going to sell. With a startup, by definition, at least some of those things are unknown, and you’ve got to figure them out as you go, so a community can be really helpful.”
The flipside, of course, is that entrepreneurs need to give back to their community once they find success of their own in order to keep the ecosystem going. That’s the grease that keeps the system running year after year, everywhere from Silicon Valley to Muncie, Indiana: that culture of reinvestment and giving back to the city and community that helped you get where you are. It enables future founders to get a foothold in the market and, over the years, keeps the ecosystem together, that spirit of “give before you get.”
That’s the driving force behind Boulder, Colorado–based venture capitalist Brad Feld’s 2012 book Startup Communities: Building an Entrepreneurial Ecosystem in Your City and his general approach to ecosystem development overall. There are cultural elements at play in every startup city, he argues, many of which are unique to that area, but the importance of community and inclusion are universal.
“Startup communities need both leaders and feeders,” Feld wrote. “The problem comes when the feeders try to lead or when there is an absence of leaders. If the startup community has a culture of inclusiveness, it will constantly have entrepreneurs step up into leadership positions. . . . The entrepreneurial leaders also need to be inclusive of any feeders who want to participate.”
According to Feld, the startup community needs to be a big tent, open to anyone and everyone who wants to participate. But it also needs to have enough structure and leadership in place to ensure that it survives over many years. Investors need to be at the table alongside serial entrepreneurs, job-seeking developers, business mentors, and wannabe founders. The primary rule? The entrepreneurs themselves need to be the leaders of the ecosystem and the ones to decide where the scene is going.
“Today, we are in the midst of a massive shift from the hierarchical society that has dominated the industrial era to a network society that has been emergent throughout the information era,” he wrote. “The Internet is ushering in a postinformation era, one in which the machines have already taken over and are waiting patiently for us to catch up with them. This postinformation era is one in which man and machine are interwoven.
“In this world, the network dominates in both the online and the physical world. Throughout the network are nodes, each of which began as a startup. Nodes are continually emerging, and a rigid, top-down hierarchy no longer dominates. The energy, activity, and innovation in society is diffused across the network and concentrated in unexpected places that often didn’t exist before.”
“How important is high-tech employment growth for the US labor market? As it turns out, the dynamism of the US high-tech companies matters not just to scientists, software engineers, and stock holders, but to the community at large,” wrote economics professor Enrico Moretti, author of The New Geography of Jobs, in the Bay Area Council Economic Institute’s 2012 tech industry employment report. “While the average worker may never be employed by Google or a high-tech startup, our jobs are increasingly supported by the wealth created by innovators. The reason is that high-tech companies generate a growing number of jobs outside high tech in the communities where they are located. My research shows that attracting a scientist or a software engineer to a city triggers a multiplier effect, increasing employment and salaries for those who provide local services.”
This is why I see entrepreneurship as the key to fixing America’s stalled economy. It takes creativity to uncover new markets and create demand for new products, but that’s what we’re going to need to drive economic growth down the road as legacy industries like manufacturing, brick-and-mortar retail, and financial services shrink over the next several decades. This is where growth will be happening in the near-term.
“There’s an oversupply of innovation in America and an under-supply of rare, truly gifted entrepreneurs,” Moretti writes. “To fix this, we need to make identifying entrepreneurs as intentional as we do finding kids with genius IQs or recruiting the next football, basketball, and baseball stars.”
It sounds flippant, but this stuff matters in the big picture of the US economy, as evidenced by the fact that President Obama addressed the growing importance of the startup economy in his 2012 State of the Union address.
“You see, an economy built to last is one where we encourage the talent and ingenuity of every person in this country,” Obama said. “That means women should earn equal pay for equal work. It means we should support everyone who’s willing to work and every risk-taker and entrepreneur who aspires to become the next Steve Jobs. After all, innovation is what America has always been about. Most new jobs are created in startups and small businesses. So let’s pass an agenda that helps them succeed. Tear down regulations that prevent aspiring entrepreneurs from getting the financing to grow. Expand tax relief to small businesses that are raising wages and creating good jobs. Both parties agree on these ideas. So put them in a bill, and get it on my desk this year.”
According to the US Bureau of Labor Statistics (BLS), there were about 6 million Americans working in high-tech jobs as of 2012, up 3.3 percent compared to 2011, and that number is expected to grow by 16.2 percent by 2020. For computer and information technology occupations in particular, the market is expected grow by 22 percent by 2020, adding more than 750,000 jobs, while the market for computer systems design and related professionals is expected to increase by 47 percent in that time.
None of this is anything new, of course. According to the Bay Area Council Economic Institute, since 2004, employment growth in the tech sector has outpaced growth in the private sector as a whole by a ratio of 3:1, and this trend is on track to continue until at least the end of the decade. All this while employment for the country overall is expected to grow by just 13.3 percent. What’s more, the average tech industry worker earns between 17 and 27 percent more than a comparable worker in another field, meaning tech jobs are more valuable to the economy than those in other industries.
“A strong and vibrant technology industry is critical to supporting an economic recovery, and while the tech industry has weathered the downturn better than most, we can’t take its strength for granted,” says former TechAmerica Foundation president Jennifer Kerber in response to the BLS job growth numbers. “Global economic and market forces continue to put the technology industry in a position of intense competition—a competition for innovation, where labor and intellectual property provide the foundation for growth. America can only realize the full promise of an innovation economy with smarter public policies focused on developing and attracting the best talent, investing in research and development, and growing and securing our information infrastructure.”
Despite the title, this book is not intended to be an indictment of Silicon Valley culture or success. Nor is it intended to question or otherwise shed doubt on the economic forces that have been working quite effectively in the Bay Area for the better part of a half century. The fact is, the Silicon Valley region is home to the most vibrant and effective technology ecosystem in the world, bar none. There’s no taking away from that achievement or the innovations that still come out of the Bay Area on a daily basis.
Rather, the idea here is to shine a light on all of the interesting things that are happening everywhere else—away from the spotlight, away from the big money, and away from the unique cultural advantages that have made the Valley what it is. It’s one thing to build a multimillion-dollar company in Mountain View, but it’s another thing entirely to do that in a place like Downtown Detroit, or Central Texas, or off the Las Vegas Strip. These are cities without the built-in advantages that come with a Bay Area address, and, as a result, exiting in one of these off-the-beaten-path markets is a lot more difficult.
Those that are able to pull it off say it’s a get-your-name-in-the-paper, your-photo-on-the-news, cement-your-position-as-a-pillar-of-the-local-startup-ecosystem kind of a big deal, and with good reason. Sure, the exits are usually (but not always) smaller than the eye-popping deals that happen in Silicon Valley, and they happen less often, but the economic impact on these cities is very real. A $100 million startup in Durham, North Carolina, that employs fifty people? That’s an important part of the local economy, not to mention a pretty important part of the lives of those fifty employees.
This isn’t happening everywhere yet, though that is likely coming sooner rather than later, but a number of US cities have emerged as startup hubs in recent years, each with their own unique challenges and advantages. Over a period of about ten months in 2013, I visited seven of them—Boulder, Colorado; Kansas City, Missouri; Detroit, Michigan; Las Vegas, Nevada; Raleigh, North Carolina; New York, New York; and Austin, Texas—talking with entrepreneurs, meeting with investors, touring incubators and accelerators, and generally getting a hands-on feel for what being a startup founder or employee in each city was really like. This book is the result of what I found to be a universal truth among all of these startup ecosystems: Sometimes it’s about money, sometimes it’s about community, sometimes it’s about individual leaders, but the driving force behind every startup ecosystem comes down to one thing—a city’s culture.
