Silicon Valley: To Move, or Not to Move

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This week our content team put out a short report, Marking Your Territory, that looks past the three major VC hubs of Silicon Valley, New York, and Boston to identify five other cities that are blossoming as centers for entrepreneurship. Brendan Cournoyer, the associate who put together the report, asked me to contribute some analysis. The work I did got me thinking about entrepreneurship hubs, and I kept coming back to one core question:

Will a move to Silicon Valley really help a company’s chances of being a successful?

Many intelligent people would respond to that question with an unequivocal yes. The high-profile members of this TechCrunch Panel unanimously agreed that the Valley’s network of technology advisers, developers, VCs, and journalists are an irreplaceable resource that gives local startups an edge over their competition. In his blog post entitled Why Startup Hubs Work, Paul Graham of Y Combinator echoed this sentiment, emphasizing the importance of chance meetings with people who can help you build your business. The common theme is that Silicon Valley is a place where tech people congregate, and having lots of tech people nearby contributes to your success.

To be sure, there are definitely some advantages to being located in such a center of activity. In Silicon Valley, entrepreneurship is king, and while I haven’t ever lived there, I’m certain it would be a fun place to start a business. But there are also reasons why Silicon Valley wouldn’t help, or would even hurt your chances of succeeding. Here are three:

1)       The world is getting smaller by the minute. Back in the roaring nineties, I’m told that if you wanted to introduce yourself to a VC you had to shake their hand, and if you wanted to hire a developer you had to post an ad in a local newspaper. Now we have Twitter, LinkedIn, GoToMeeting, Skype, and scores of other billion-dollar companies built to connecting people remotely. Of all people, you’d think the Silicon Valley types who created and funded these companies would appreciate how much social networking and advances in communication technology have changed the world. Face to face meetings are still key, but a lot can be accomplished at the early stages of an investment or advisory relationship without them.

2)      Entrepreneurship may look like a cocktail party, but it’s really a street fight. Probably the most common argument in favor of the move to Silicon Valley is that there are way more developers and VCs for a young company to draw on than anywhere else in the world. Very true. But there’s also way more young companies clamoring for those resources. Unless your idea is so amazing that VCs are falling over each other to invest (rarer than you might think), you’re going to have to elbow out direct competitors to get to Silicon Valley’s gravy train. And as for developers, watch out if your company stumbles, because there’s an army of fresh startups waiting in the wings to poach your employees. I think this is what Mark Zuckerberg had in mind earlier this Fall when he lamented the Valley’s “short term” focus. As Californians saw 150 years ago during the Gold Rush, too much competition can neutralize the benefits of a resource.

3)      There’s value in thinking differently. Being surrounded by like-minded entrepreneurs can be stimulating, but it can be dangerous as well. Hubs of all kinds (Wall Street is equally guilty for finance) tend to inspire a herd mentality that’s difficult to break out of. If you stock your social media company with ex-Facebookers, model your management style after Zuckerberg, and look to all of the same VCs for funding and advice, you’re probably going to end up with a company pretty similar to Facebook. I’m not sure how to build the next Facebook, but I can tell that building an exact replica won’t get you anywhere. Keeping a healthy distance from the herd can help you differentiate yourself to customers, employees, and investors.

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Hubs are powerful, but they aren’t impenetrable. During the cold war, the East Coast was the epicenter of technology, home to the most cutting edge Defense contractors. But Silicon Valley broke that dynamic by taking the forefront in personal computing, and after that, the internet. Now the region attracts almost 40% of total US venture capital dollars, more than three times that of lesser hubs Boston and New York.

My point is, the people who built Silicon Valley weren’t interested in rubbing shoulders with the fat cats they were looking to dethrone. They set out to build their own unique culture, as different from the status quo as possible. And that culture beat the tar out of the incumbents they were up against. That’s the frame of mind that drives most of the best entrepreneurs: if you truly believe in your idea, you shouldn’t need to be surrounded by like-minded people to validate it.

Don’t get me wrong, Silicon Valley has and will continue to produce a ton of people that excel at this type of independent thinking.  We count a handful of them among our portfolio companies here at OpenView. I just have a hard time giving Silicon Valley too much of the credit when we’re finding equally promising companies everywhere from Philadelphia (Monetate, NextDocs, and Xtium), to Idaho (Balihoo). When it comes to the business model of a prospective company, our investment team is extremely picky. When it comes to its location, not so much.

So if you’re a talented entrepreneur with an expansion stage company, don’t worry about moving it to Silicon Valley. Stay right where you are and concentrate on building your business. We’ll come to you.