Why Startup Life May Be Better Outside of Silicon Valley

Kansas Skyline

“To win big, I need to move to Silicon Valley.”

I’ve heard this over and over again from founders. But why? Silicon Valley might be a tech Mecca, but living costs are through the roof, housing is scarce, and competition is fierce. If you’re hitting the right fundamentals, you should be able to launch your startup anywhere — for instance, in Kansas City where startups are thriving and you can find the world’s best BBQ at a gas station

“Seriously?”

Seriously.

Recently, I judged a Kauffman-sponsored Lean Startup weekend and before announcing the winners, I asked how many thought their startup would be further along if they were living in Silicon Valley. The results were mixed: one-third said yes, one-third said no and the remaining just shuffled in their seats, waiting for me to simply announce the winners and stop pressing them for free market research.

So while the proverbial jury is still out, let me proffer at least five reasons why startup life may be better outside the iconic Silicon Valley.

1) It’s hard to bootstrap when bootstrappedHot Pocket

San Francisco is not only the globe’s tech Mecca, it is also noted as the most expensive city in America and the most unaffordable city for home ownership.  It is hard to bootstrap a business when you are well, bootstrapped yourself. It’s not such a huge problem in other parts of the world. A serial entrepreneur living in the Midwest told me he had figured out how to live on $2.50 a day and care for himself, his spouse—and their three teenaged kids. And in case you are wondering, the family doesn’t live under a tunnel, at a shelter or in a used Camaro.

The lower cost of living extends to the business world as well.  As one entrepreneur who left San Francisco for St. Louis put it, “The leading cause of startup death is running out of money. Moving to a cheap city and doubling (or more!) your company’s runway will more than likely vastly increase your chances of eventual success.”

The point is, as beautiful as it is, San Francisco is a terribly expensive place to live and work.  When the enterprising Girl Scouts have to raise their cookie prices in Northern California (the only chapter to do so) so the organization can make its rent, you have to wonder if there are more economical places to start a business?

2) It’s better to be where your customers are

FiDi

All the technology, people and money offered in the Valley won’t help your startup if your product or service does not solve a basic need or problem. To ensure good product/market fit, entrepreneurs are told to go out into the streets and “talk to your customers.”

Getting out of the building, talking to customers and conducting experiments is at the heart of the Lean Startup process. Walking the Embarcadero in San Francisco is perfect if your customer is an early adopter evaluating a new gadget; that tactic is not so great if your target is a cash-conscious kid who prefers the skater park near the Mall of America.

Customer development (à la Steve Blank) is made easier if you live in places where your target – be it suburban moms, picky tweens or self-indulgent dog owners, live.  Talking to the ideal target is how Nicole Montoya, founder of Cheddarup got her idea to develop an app to alleviate that awkward moment of splitting the tab or remembering to pay your friends.  Talking with hundreds of “schleppers is how Ben Rendo, founder and maker of Mighty Handle, refined his idea to create a shopping carrier that enables someone to easily carry up to 50 pounds of groceries across a parking lot, up a flight three flghts of stairs and into the house in one trip. (Editors note – I am obsessed with Mighty Handle and am now an investor)

According to Kartik Hosanagar, a professor of online commerce at the Wharton School of the University of Pennsylvania “Silicon Valley is filled with entrepreneurs working at a tech firm, surrounded by the tech 1 percent, solving problems for the 1 percent.” In a recent NY Times article, Kosangara argues, these companies need to “Extend their reach and understand the complexity and diversity of their users and potential users.”

The punchline? The startup community is littered with ideas that are vitamins, not painkillers or better yet — Viagra. Validating your product idea with customers who conveniently live up the street or across town is easier, cheaper and better to ensure ideal product/market fit. Otherwise you’ll end up making something people want, but not something people need.

3) Ideas can be based anywhereshutterstock_112321064

So many amazing ideas are coming out of Silicon Valley.  The great news here is no matter where you live—Kansas City or Kazakhstan, Syracuse or Shanghai, Toledo or Tel Aviv, anywhere with an internet connection really—you are a just a click or swipe away from everything you need to start a business.

A serial entrepreneur and friend of mine, Munro Richardson, is currently in “stealth mode” looking at his next business. We met for coffee a few weeks ago and he told me that for the past four days he has been “holed up and glued to General Assembly.” Within a matter of days, he and his business partner were able to flesh out a business plan, build a working prototype and begin aggressively validating the MVP with potential customers.

Whether it is Skillshare or Slideshare, Founders School or Founders workbook, or sites like this one, the resources are endless. Some of the best resource lists are Steve Blank and KISSmetrics.

The reality is there really isn’t a better time to learn how to grow a startup. The web makes it possible anywhere and everywhere. The only limits to growing your startup are the limits that you set yourself.

So many amazing ideas are coming out of Silicon Valley.  The great news here is no matter where you live—Kansas City or Kazakhstan, Syracuse or Shanghai, Toledo or Tel Aviv, anywhere with an internet connection really—you are a just a click or swipe away from everything you need to start a business.

4) Two words: talent war

Once you have a great idea that solves a real problem, the challenge becomes assembling and retaining the team you will need to ensure the success of your idea. While the war on talent is fierce, it absolutely has to be more challenging in Northern California than in other areas. For example: as a fledgling startup you want to hire the very best engineer out there.  You can sell her on your immense passion, amazing flexibility, and vast upside – but seriously, how do you expect to compete with Valley companies offering free made-to-order drinks, unlimited Ben and Jerry’s ice cream and Swedish massages?

Alas, most places around the world don’t offer such perks. So while this may be seen as a travesty, it makes it just a little bit easier for a startup to hire and retain talent based on the job and the mission at hand—not just because organic chicken tikka masala is being served at noon.

5) ‘Offline’ hubs aren’t in Silicon Valley

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Way back in 2012, 30 percent of shoppers turned to Amazon to research their most recent online purchase. A mere 13 percent turned to Google.

A growing number of experts are recommending online retailers consider showcasing their products in brick and mortar formats as a way to stand out. According to Pratik Dholakiya, “In such a competitive environment, it’s easy to see how offline exposure might actually be an easier way to build a customer base. In any case, it’s impossible to compete on price.”

If offline is a potential key ingredient to winning customers then the skills needed—retailer relationships, logistics, sales, SKU management, distribution, the list goes on and on—are not centered in Northern California. The centers for these skills can be found in manufacturing facilities and retailer/broker offices littered around the globe.

Are we all just kidding ourselves?

There is (at least) one area where Silicon has everyone beat—access to capital.

Maxwell Wessel recently published an article on Harvard Business Review. He analyzed AOL’s publicly available CrunchBase data, and found that the average Seed and Series A stage companies take about 10% longer to raise funds outside of California, New York, and Boston than super-hub counterparts. That clearly points to where most of the money is.

According to Wessel, startups outside the valley are disadvantaged because they will “Spend more than a month longer searching after Series A capital and more than two months longer searching after Series B capital.” All that search time could be development time, but is that really a bad thing?

While Wessel may be right, it probably does take longer and startups need to work harder to raise money in “non-super hubs,” companies searching for capital still need to work harder to produce results: solve real problems for real customers, produce real EBITDA and generate real value. The good news is, with crowd sourcing there are new alternative funding sources beyond venture capital, so that both securing capital and developing the startup can be done simultaneously

In response to Wessel’s article, Dave McClure left this comment:

“(Your article) places too much emphasis on access to capital and acquirers, and far too little emphasis to customers and talent…While capital and acquirers do matter from an investor/ economic perspective, there should be some balance to finding the people who can build your product, get customers, and make them happy.”

Yup. That about sums it up.


Anita Newton is a startup advisor and VP of marketing at Adknowledge. Her experiences include:

  • Working with start ups including CMO at Zave Networks (acquired by Google)
  • Advising Trellie, Mighty Green Solutions and Kauffman Foundation
  • Coaching robotics and mentoring young women in technology
  • Running sales & marketing at Procter & Gamble, Sprint and AMC theaters

Schedule a call with Anita to talk about digital marketing, entrepreneurship, and leadership.

Photo Credit: Shutterstock/Rudy Balasko, lcarus66, alphaspirit, bbbb, Antonia Sotnykova; Michael Jirout

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Comments.

  • Erik Wullschleger

    Awesome post Anita! I love the point about the tech 1% selling to the tech 1%. I heard a similar comment the other day about designers who design for designers…not practicality.

    We get so enamored with novelty and elegance that it sometimes removes focus from solving the problem.

    Well done!

    • Anita Newton

      Eric Thanks for the kind words. I think the 1% comment is so on point. It is why it took so long for fashion houses to design for people other than those who are a size 0. last I checked the average size of the American Female was size 10? 12?

  • Alana Muller

    Aw, man, now the secret is out! KC really is the best place to live… and startup a business. Well said, Anita!

  • http://www.wpcurve.com/ Alex McClafferty

    Hey Anita, just the other day… I lauded the benefits of sandwiches, barriers to entry, smart people, x as a service and open minds as key reasons why people *should* live in SF… Would love your feedback! http://startupchat.quora.com/Sandwiches-and-4-other-reasons-to-start-up-in-San-Francisco

    • Anita Newton

      Alex – First of all. I love sandwiches too (hold the tomatoes). We have that in common! Sometimes I think ‘where you stand is where you sit.’ I will check out your link and get back to you. Thanks for the opportunity!

  • orangesprocket

    Great article. Although I believe you’re bang on. Startups need to get out of their home base from time to time to learn what’s happening in the rest of the world. There’s a vast knowledge and experience base to tap into. Not that they need to move to the Valley, KC or other hot areas but it’s essential for them to experience it. Cheers!

    • Anita Newton

      Great perspective. And I agree! There is an energy, talent, know-how (not to mention capital) that these entrepreneurial areas offer that is beneficial to any entrepreneur. Thanks for the comment