New start-up hubs challenging Silicon Valley - study

http://www.reuters.com/article/idUSL5E8MJK6220121120

by thinkisgood • 14 years ago

22 18 14 years ago

I'm proud to be a part of a small but growing one in Madison, Wisconsin.

At the end of the day, the nerdy dream I always had was to transcend physical location, so I'm always surprised how passionate others can be about where they physically live.

saryant• 14 years ago

Until recently I lived in San Antonio, TX and over the last year the startup community there has really begun taking off.

Rackspace is aggressively working to build a community there through efforts like Geekdom[1] and 3 Day Startup[2]. Two of the universities (TU and UTSA) are working with Geekdom to build entrepreneurship programs and companies are starting to come out of these efforts.

SA already has a tech community (Rackspace, Denim Group, the massive development groups at USAA, HEB and cyberdefense firms that are doing really cool but unseen stuff) and Geekdom has become the catalyst to draw them all together.

I was there this weekend for 3DS and I'm about to move back to work on some ideas with people I met over the last 72 hours.

1. http://geekdom.com/

2. http://sanantonio.3daystartup.org/

w1ntermute2• 14 years ago

Ironically, the existing people/companies that are already there aside, Silicon Valley (and California in general) is a horrible place to found a tech startup. The cost of living is high and the taxes are high, with the former being an obstacle for bootstrapping a startup, and the latter being an obstacle when your company grows in size. The Democrats got a supermajority in the state House and Senate in the recent elections, so now they can unilaterally raise taxes, with the Republicans basically left powerless. No doubt many people will start to feel the squeeze in coming months as tax rates shoot up.

One of the big advantages of California is the year-round nice weather, but when you're sitting inside in front a computer, that doesn't really matter all that much. Moreover, a tech company, more so than many other types of businesses, can effectively work with people in remote locations.

Unfortunately, this is a problem that can't be solved easily over short time scales. The only hope is that people start realizing you can be "ramen profitable" a lot quicker if you choose to base your startup in, say, Kansas City (and there's always the nice added bonus of super-fast Google Fiber).

joonix• 14 years ago

The Democrats do not have a majority in the House, the Republicans do. And the Democrats do not control enough of the Senate to be immune to the threat of filibuster.

You are contradicting yourself, regardless. You are arguing that higher taxes will kill those seeking to bootstrap companies -- but if people are bootstrapping and have no income, they pay no taxes, and they most certainly aren't being hit by the only tax increases that are now being discussed: those on high earners making over $200k. It doesn't affect them.

Cost of living really doesn't matter that much to tech startups. If it did, everyone would be rushing to rural Nebraska to bootstrap their startup. In reality, you can find cheap rent anywhere, even SV, you just have to compromise on space and housing/location quality.

natrius• 14 years ago

He's talking about the California legislature, not Congress.

http://graphics.latimes.com/2012-election-results-california...

w1ntermute2• 14 years ago

> The Democrats do not have a majority in the House, the Republicans do. And the Democrats do not control enough of the Senate to be immune to the threat of filibuster.

Trying reading my post again:

> The Democrats got a supermajority in the state House and Senate

And this:

> You are arguing that higher taxes will kill those seeking to bootstrap companies

You really need to work on your reading comprehension. Read this again:

> The cost of living is high and the taxes are high, with the former being an obstacle for bootstrapping a startup, and the latter being an obstacle when your company grows in size.

It's the high cost of living that will kill bootstrapping companies, not the high taxes.

> Cost of living really doesn't matter that much to tech startups. If it did, everyone would be rushing to rural Nebraska to bootstrap their startup.

You've made a common logical fallacy. People aren't "rushing to rural Nebraska to bootstrap their startup" because the high cost of living is a pill worth swallowing considering the networking benefits in SV. That is, there's a net benefit to being in SV vs. being in rural Nebraska. However, like I said in my first post, this is not something inherent to SV - it's just a matter of where the people and companies happen to be at the moment.

Moreover, you've resorted to reductio ad absurdum here. I clearly stated in my first post that a good option in the Midwest for founding a startup would be a medium-sized city like Kansas City, not "rural Nebraska".

> In reality, you can find cheap rent anywhere, even SV, you just have to compromise on space and housing/location quality.

Which means that if you "compromise on space and housing/location quality" in a place with a lower cost of living, you'd get even cheaper housing. Another common logical fallacy.

muzz2• 14 years ago

"Ironically" many of these have been the case for decades while the gap between Silicon Valley and other locations only grew.

btrautsc• 14 years ago

Chattanooga, TN (which already has 1Gig fiber deployed throughout the city) is definitely heading in the same (right) direction. The cost of living is drastically cheaper, and the quality of life with easy access to mountains, rivers, lakes, shops, cafes, etc can be drastically better. The drawbacks of course are obvious; hiring enough talented people, smaller city environment, relocation, creating connective tissue with other startup people/ funders to create network effects. But, if you're build a product, service, company and don't immediately have a product-market fit, this environment allows you to stay alive longer, which can allow you to find success, whereas your seed funding or quick-market play would have died and dried up in more expensive towns.

shawnee_• 14 years ago

Although this is probably won't be a popular viewpoint, Silicon Valley is likely reaching the end of its glory days. For the past 30 years or so, it has been able to exist as a largely insulated bubble -- mostly because it has been able to flex and grow as the rate of increasing demand started its exponential slope upward. But the reality of today is that demand for technical workers has outpaced SV's ability to grow. Because it is a peninsula, with limited space for growth and housing, the bubble is not infinite. Prosperity generally demands space, and there's just not enough of it here on this bleeding edge.

So, it's inevitable that other places will eventually benefit from the spillover. The questions are: where and how and when? Whatever cities can employ the most forward-thinking civil engineers and planners to literally build the city of tomorrow will be able to create an environment where cost of living coupled with a good cultural and environmental climate make it totally worth it to build a company elsewhere.

JVIDEL• 14 years ago

I agree about the limits, but the problem is not urbanistic, in fact afaik the French tried to make a techhub in the nineties by offering great offices for cheap and it didn't work.

What limits other hubs are taxes and legislation: a guy I know in Brasil had tons of stories about taxation over there, and it wasn't pretty. Another guy in Europe said in some countries its nearly impossible to fire an employee.

Then there's funding: in some places there really isn't any, and what little there is comes with a price, like 60% of your startup up front for $20K or less.

Those are the things that really add up, Silicon Valley is not just SF, there are places nearby which are much cheaper. On the other hand you can't escape taxation (unless you like being in jail) or labor laws. And if there are no investors you are screwed too, unless you have rich parents.

mikeyouse• 14 years ago

The success of Silicon Valley isn't limited to the tech workers though, the entire infrastructure of the area is designed for startup success. All the financiers, lawyers, professors, etc. are 'lazy' in the sense that they prefer their companies and investments to be close to where they live.

There is ample supply of tech workers / infrastructure in NYC, Boston, LA, but the list of cities is a short one. There will absolutely be more companies formed outside of the SV area, but there is still plenty of room for growth here as well. There are a half dozen cheap communities in the East Bay which still have low housing costs, plenty of commercial vacancy, access to public transit and are actually a closer commute compared to driving to San Francisco (with Palo Alto as a center-point).

I have personal experience with two similar companies, one in 'Silicon Valley' proper and one in the East Bay. The company in SV had more employees by a factor of 2x, but was paying 15x more in rent for their commercial space! Both were backed by Sand Hill VCs and had professors from Stanford / Berkeley involved in the efforts. This could just be another data point in the "SV is too expensive camp", but it also points to the affordability of nearby areas which haven't seen the same level of expansion yet. Look up commercial / industrial real estate in Newark / Fremont / Hayward / Milpitas, you'll be shocked at how affordable it still is.

You don't need to build cities from the ground-up to have a climate hospitable for investment and venture success, it's much easier to be proximal to where such a place already exists.

ChuckMcM• 14 years ago

I would agree except this 'bubble' is more like 50 years old at this point.

That said, it would be great news if more innovation centers spring up and survive, I'd love to have reduced traffic burden and a chance for entrepreneurs to get the same benefits they get in the Bay Area in terms of energy, funding, and community.

I suspect however that the next "exodus" won't really happen until you really can work anywhere and get solid telepresence or something like it experience.

muzz2• 14 years ago

This "viewpoint" has existed in many different ways and forms over the last 30 years.

Whether it was communications that would kill the Valley's proximity advantage (be it via the Internet, or even cheaper telephone and fax before that), or labor cost advantages (not just other states, but then other countries like India, China), or lower tax rates in other places, etc.

micro_cam• 14 years ago

I often wonder why more small companies don't locate in smaller "lifestyle" cities to facilitate recruiting. I suppose that places like Seattle, Boulder and Salt Lake fall into this category but as someone who just moved from Seattle to rural Montana near Missoula I am constantly surprised at the number of really talented individuals willing to take paycuts to live and work near the mountains.

guimarin• 14 years ago

The world economy ( the west + china ) is collapsing. Investors are seeking yield frantically. It's not surprising that high-tech is flourishing in this climate. It's also not surprising that high-tech is now being applied to new industries ( bio-informatics ), and that those industries are based in different geographic areas. SV isn't going away, though. Their are socio-cultural issues at play that took generations to build in the Valley, and replication in other places is not happening overnight. There are a lot of places this article could have gone, but didn't and that was sort of disappointing.

michaelochurch• 14 years ago

The advantage of the existing hubs is the difference between a continuous vs. discrete labor market.

If you want a Scala + NoSQL + NLP full-stack expert with 10 years production experience with the JVM and 2 years as a product manager, and you want such a person to start in 3 weeks, you can find that in California-- for some price. In Madison, there are still a lot of great people, but not the massive number of technical people that makes it likely that you'll find an ideal match.

If you can't afford any hiring latency and have strict requirements, you need to be in a hub. All that said, I think these grow-fast-or-die efforts are pretty stupid. If something adds genuine value and isn't just trying to first-post some obvious idea, does it really need to grow at 20% per month?

Also, a lot of these work that startups are doing isn't that complicated and doesn't require the level of people they think they need. I hate that social-climbing useless selectivity of needing awesome people to do mediocre work, largely because these startups lie about their intentions and I'm one of those "awesome" (?) people they're looking to court (and then underemploy on their mediocre idea).

The continuous-market effect goes both ways: if your startup goes belly-up in California, you'll have 4 interviews in a week. If you hauled ass out to the Midwest and that happens, you'll probably have to move again for your next opportunity. Also, some cynical realism: it's harder to start a bidding war (which is how most people get their best jobs) in Minnesota.

The rest of the country has quality people and companies, but not the critical mass of them that creates a continuous market. Investors generally aren't comfortable launching a business in a place with a discrete labor market.

I'd love to see a better distribution of opportunity. It'll (a) generate more eligible places to live, and (b) lower the rents for those of us who stay. However, I think that's a really hard problem to solve, because technology has become so specialized that very few regions are big enough to support a continuous labor market.

Honestly, I'm a major fan of the Midwest: a lot of really great people are out there, and they have no idea what they're worth and what they could do in technology. That said, I tend to think the advantage of the hubs is vast. I'd probably move to California myself (as opposed to #2 New York) if it weren't for strong family reasons to stay here.

daniel-cussen• 14 years ago

Since when is New York #2?

I thought that, for tech startups, it was, #1. Silicon Valley, #2 Tel Aviv, #3 Boston/Route 128, and then came some sorting of New York, London, Singapore, that triangle in Virginia, whatever city is in the lead in India, etc.

SatvikBeri• 14 years ago

Here is an interesting report on different startup hubs. The top few hubs are Silicon Valley, Tel Aviv, Los Angeles, Seattle, NYC, Boston. NYC is #3 in terms of # of startups, but falls behind on metrics such as talent availability, startup support, and "mindset" (how good the founders are.) Worth a read even if you don't agree with the exact methodology.

http://cdn2.blog.digital.telefonica.com.s3.amazonaws.com/wp-...

New start-up hubs challenging Silicon Valley - study

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