Wednesday, July 6, 2011

Should we all move to Silicon Valley?

I keep thinking about this exit interview that Brian Sierakowski did with Paul Capestany, who is leaving Baltimore to move to San Francisco (joining the likes of other smart former Baltimore/Maryland transplants Patti Chan, Clarence Wooten, Paul Singh, Jared Goralnick, and others). He wants to start a high-risk/high-reward consumer Internet company.

I respect Paul and count him a friend. He's done a lot for the cause of entrepreneurship in the city and we all owe him our thanks! I wish him luck. And I can really understand where he's coming from. San Francisco is a cool place for web entrepreneurs to be.

All things being equal, if Paul's dream is to start a big, risky consumer Internet company, he may have an edge by starting it in San Francisco. If you're in a smaller, less-connected city like Baltimore competing head to head with a company based there, you may be at a serious disadvantage (Paul Graham makes the point in an essay about startup hubs).

But are all things equal? Let's break it down.

People in San Francisco Are More Risk-Tolerant

Paul says he can't find enough risk-takers here, but is the talent hunt any easier out there? I assume the main types of people he needs are technical cofounders and designers willing to work for equity in lieu of cash. Those are in short supply across the world, no more so than in San Francisco. Here are two anecdotes:
  1. I recently had a vivid conversation with someone starting a company in San Francisco with every advantage you can think of: prominent name-brand angel investors, a beautiful downtown office space, cutting-edge technology, early traction, etc. But this person had interviewed over and a hundred people so far and could not find anyone skilled willing to work for part equity and part salary. Pretty much every day you can find an article on tech blogs about the crazy salaries that startups and established companies are throwing at web practitioners. Competition for talent is fierce. And since all you really need for most ideas is one smart, hard-working coder,  I wonder what the real odds are for finding such a person out there vs. somewhere in Maryland where the community is more close-knit.
  2. I've worked with well-respected, experienced entrepreneurs who have sold multiple companies here in Baltimore and in Austin. Despite their track records, rich network of connections, and geographic advantages, they've still had to work hard to secure investment and find talented developers. My point is that all of the problems outlined in Paul's interview are going to exist in any city, even for proven entrepreneurs. If being in Silicon Valley makes those problems 5% more tractable, maybe that's a worthwhile edge to have. But is it really 5%? Who knows? 
Also, no matter where you live you can still get people to build your prototype for not much cash. There's a lot you can do absent a cofounder to develop and test your ideas in the marketplace. See Sivers and Freedman.

It's also worth pointing out that successful Internet companies get built all the time that are based elsewhere. 37signals, LivingSocial, BillMeLater, OtherInbox, Etsy,, OpenDNS,, and Millenial Media are a few that jump out at me without thought.
Investors in San Francisco Are More Risk Tolerant

I'm sure this is true, if only because they have more experience with startups and risk. Yet I wonder if it's really relevant. Starting a web company and getting it to the point where your business model is proven, is practically free. Growing a company from that point ("scaling it" in startup parlance) is what costs real money, and it seems vastly easier to raise money for growth than for starting from scratch, especially in the era of AngelList. And mid-Atlantic companies with traction and have real growth prospects can definitely raise money: in our own backyard, LivingSocial, AwayFind, and Shortmail have raised plenty of money from around the country. Locally, I got to meet a lot of angel investors while I was helping fundraise for Startup City, and I found some of them were quite risk-tolerant and ready to commit to funding us on the spot.

Believe me, I've been there

I hope it doesn't seem like I'm picking on Paul or others who have made that choice. I've never felt the urge to move to San Francisco but I was oft-tempted to move to Austin when I was working full-time on OtherInbox. Paul is right that there's something extremely stimulating about being around people who care about the same things you do and have the same imagination you do. It's just not mainstream (yet) for people to be starting companies and (especially as a man) it can be difficult to make friends with people lacking the same obsessive dream. It's just a really nice thing to have in common with your friends.

This may be the most decisive factor making people want to move. We imagine that every coffeeshop we walk into over there will be like the hallway track at SXSW. I know I've dreamed that dream! I once sent Dave Troy a distressed email while sitting in my office in Austin, in a moment of particular geographic jealousy, whose contents were pretty close to Paul's exit interview. I wish I could find Dave's response but it was basically what he later wrote in this post: "Being in 'a' place is more important than being in 'the' place". I take great comfort from that thought. I sometimes fear I've become an apologist for Baltimore, a storied, troubled city to be sure but a place which needs no apology. It's a place in a way that Silicon Valley never can be (have you ever met anyone who grew up there or lived there for their whole lives?). Baltimore has changed me in a million ways, becoming a part of me and I part of it; I'm supported by wonderful friends and family, as well as professional colleagues who form a great (albeit small) community of innovators. That's a huge asset, a massive competitive advantage, one that I was undervaluing until I wrote this essay.

What is your actual goal?

If your goal is to build and own a thriving business producing an awesome, innovative software product that helps helps the world, while building wealth for your family, your employees, your investors, and your community, then I think you absolutely do not need to move from wherever you're living. You just need to think about what sorts of businesses are going to work in your town. There are many, many niches out there that you can dominate without being in California. I would look for unsexy, comfortable industries in your area where there are many competitors but little competition.

I wish everyone thinking about moving to the Valley could spend some time with my friend Chris Ashworth here in Baltimore. In terms of personal happiness, self-actualization, and all-around awesome lifestyle, he's by far the most successful entrepreneur I know. He started Figure53, a wonderful company that makes software for sound designers used in theaters around the world, including Broadway and the Olympics. He makes a good living at it, employs six people, and is very obviously having a great time.

If you absolutely are committed to starting a consumer Internet company I can see the argument for moving to San Francisco, but I would carefully examine your assumptions about what's going to be easier and harder for you when you get there. I personally would try and launch the company right where I am, because when you demonstrate traction you'll have a much easier time solving the "talent + investment" problem in whatever city you're in. People will start seeking you out!

I do think there's a lot to be said for living in a city, any city, because of the intangible benefits that accrue from density (well explored in the book "Where Good Ideas Come From"). You get better ideas if you're mixing with smart people regularly. Here in Baltimore there are a ton of meetups; tons of people with web and mobile and design skills; and tons of companies that make great money using Internet technology. I'm sure most cities are like that.

Good luck!

Paul is a super smart, charismatic guy who is going to be a big success wherever he goes. This essay wasn't meant to try and talk him out of it; I only meant to explore his very understandable motives in light of my own decision to stay put.  I'm sorry to see him go, and I hope someday he and I are sitting on the boards of each other's companies! In the meantime if anyone in San Francisco reads this blog, you better get in touch with this guy now before he gets too connected to have time for you!


bhalliburton said...

I am a guy who always told Paul he should probably move, so there you go.

Couple of thoughts:

1) There is a difference between a small business start-up and a scalable start-up. (Stephen Blank terminology)

A scalable start-up has to target markets > $500m in size because it intends to become a >$100m revenue company in a few years time.

You can start a small business start-up (a business that feeds your family by serving a known customer with a known product) anywhere - it probably pays to start it in a geography where your customers are.

A scalable start-up needs to be in a place that maximizes your access to highly specialized talent and a place that makes you appealing in an acquisition.

I think the ecosystem for scalable start-ups in SF is simply extraordinary - investors with appetite for risk, people that have built highly scalable computing environments repeatedly, engineers with a willingness to take equity positions, and people with a deep understanding of how start-ups do it.

My deepest concern is the investor issue and the exit issue: I am under the impression that many angel investors invest both because it is lucrative and because it is fun. They want to be involved. That generally necessitates needing to be close to the start-up. While geographically "non-SF" start-ups raise money on AngelList every day, have no doubt that most of the money goes to SF firms, it comes from SF people, and many of these SF people have no interest in investing outside the valley.

Similarly, most acquirers are in the valley. If they acquire you and you are down the street, that makes it easy for them to imagine integrating you.

A great business can overcome these barriers. But recognize: They are barriers.

Doing a start-up is hard enough. Raising money is hard enough without extra impediments. Selling your company is hard. Why make it that much harder?

I have always said that it is great that people like you and Dave Troy rep for the region. Without people like you, the region will never get better. But you can't begrudge a guy taking the path of least resistance when he has already chosen the hard road of entrepreneurship. I think, generally, it is safe to say that we stay for other reasons than "this is the best place to start a tech company."

SF is the best place to start a tech company. We live and share our lives with others here in Baltimore and want it to be the best it can be.

P.S. If you are an engineer living in MD and thinking about moving to SF, contact me and I will help you get a job locally.

bhalliburton said...

Hmmm, I guess that was just one long thought.

My word, I am quite dull.

mindgrub said...

I was working in NYC and came back to baltimore to start mindgrub because of our killer talent pool and lower cost of living. How about an enter interview?