Does it Matter Where You Build Your Startup?

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You hear it all the time “It doesn’t matter where you build your startup.”, or “If you don’t build your startup in Silicon Valley, you don’t want to win bad enough”.  Either way, Robert Scoble left a very thoughtful answer arguing for the types of things that happen in the valley that definitely gives you an advantage.  We agreed with him so much, we wanted to share his opinion with you.  Though we could have written our own rendition  it wouldn’t have given it the justice Scoble has.

[Scoble's answer from Quora copy/pasted below]

I meet with startups from around the world. There are several reasons that more big tech startups come from here than from any other place.

  1. Access to role models. One CEO, as we drove by Apple’s headquarters, told me how he watched Apple growing up from a startup, like I did (I lived a mile or two away and got a tour when it was smaller than Y Combinator back in 1977). He said “if Apple can do it, anyone can.” More on why role models are so important later.
  2. Access to funding. Apple needed funding to get started. So does every startup. Only a few can go it on their own with just friends and family money. But here even friends and family money is easier to get because of the role models. We all know that if we give you $10,000 (what GoPro started up with, by the way, less than two hundred yards from my house) that it could become a billion-dollar company someday. How many people around the world know that’s possible? Not many, in my experiences.
  3. Access to business infrastructure. Need a lawyer that understands how to help startups? They are here. Need an office with good startup help? Go see something like Plug-n-Play that houses 300 startups. Need a PR firm? They are here. Need a mentor who has built a company before? They are here. Need a launch vehicle, like a conference? They are here. Need a CFO who understands how to get a company ready for an IPO? They are here. Etc etc. Yeah, they might also exist elsewhere, but not in high concentrations like in San Francisco, Seattle, Boston, New York, Los Angeles.
  4. Access to distribution. How will you get your new service into the hands of people? How about app stores? Amazon, Apple, Google, Microsoft, and Facebook have them. Who else? No one with serious ones. How about search engines? How about partnership possibilities (want OpenTable to distribute your stuff, for instance?) Those distribution and partnership opportunities are probably in San Francisco or New York. Rarely other places. Not to mention that most of the world’s tech press is located in San Francisco or New York.
  5. Access to monetization capabilities. You want ads? New York has them. Who else will deliver you the USA market, which is still the richest in the world (at least for a few years until China totally takes over). There are other markets that can monetize, but they are not as profitable and harder to kick off a worldwide brand with.
  6. Access to Talent. The modern company will probably need a big data expert. Someone who knows how to push around a big Hadoop cluster, for instance. Do you have one in your local community? Probably not, but they exist like flies in San Francisco area. Google, and many Silicon Valley tech companies (HP, CIsco, Sun, Yahoo) started at Stanford University, which continues to pour out a lot of top-rate engineering and business talent.
  7. Access to practiced management. Can you find a CEO that’s led a startup out of two-person eating-ramen mode yet in your local community? That understands how to handle HR problems because she’s done that before? Understands how to deal with the world’s top press? Understands how to get into Larry Page’s office and make a deal with Google?
  8. Access to production. Oakley, GM, Ford, Boeing and many others make their own products here, which makes it easy to find people who understand how to make things. Apple goes to China, but even there many Chinese manufacturing lines cater to American markets.
  9. Sheer serendipity. Often when I’m at dinner, drinking coffee in the San Francisco area I meet random execs from startups and big companies. This simply doesn’t happen in mass many other places in the world. I’ve witnessed these kinds of happenstance meetings turn into major business deals. Hard to put yourself in play elsewhere.

The main thing, though, is the belief that it can be done.

The company I work for, Rackspace, started up in San Antonio. Part of that was the simple belief, on our chairman’s part, that it could be done without moving to San Francisco. It certainly is easier to have that belief when you’re surrounded with other examples who have done it (San Antonio was also home to AT&T, for instance).

Just the other day I heard two surfers talk about how GoPro started on the waves of Half Moon Bay and now is a billion-dollar business. Even surfers here know that they could become a billionaire, so are more likely to start their own companies. It’s the belief that really gets things going here. That causes people to take risks (and be backed up by friends, family, and community). That rarely happens around the world.

Do you agree with Robert about whether or not it matters where you build your startup?

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Comments.

  • R. A. Kemple

    I agree with your article in part, yes it does matter where you locate your start-up Its good to have other like companies located around you so you can feed off their past success and the professional knowledge pool that’s been built in the area. However, there are other things to be concerned with. Depending on what your company does, you may have regulatory compliance issues. Regulation agencies vary from state to state so it may be more beneficial to locate in a state that has less ridged regulations. or even beneficial regulations. Taxation and costs of facilities are also big issues. State taxes and property costs could easily be the difference between bankruptcy and success. Some states like Texas, have no state income tax, which can save a company millions of dollars a year. Also, logistics is always a concern. What is your shipping alternatives, and how effectively can you ship your product around the country/world. Centrally located cities like Kansas City, Mo allow you to ship no more than half way across the nation, they have huge rail hubs, international airports, large water ways like the Missouri River, easy interstates highway access, and easy access to the Great Lakes which provide ocean access. Not to mention, they also have a highly active tech sector that includes companies like Black and Veach, Honeywell, Garmin, Sprint, Cerner, and GE, low taxation, reasonable regulatory climate, and low costs of property. With the advent of the internet, knowledge sharing, finding professional talent, gaining advice to help you with your start-up questions, locating investors and partners, and getting legal advice has become significantly easier and less reliant on your location. However, the internet has yet to replace the need for a good railroad for shipping your product and it has done nothing to change or ease the regulatory climate that companies do business in. These items are absolutely dependent on your location, and so far there is no work around. So, when choosing a location for your start-up, it is good to see what companies are in the area, but it is essential to know the legal, physical, and regulatory environment of the area, and to choose an area you can reasonably do business in.

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