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5 Reasons to Move Your Startup Out of Silicon Valley

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All tech startups need just a few ingredients to germinate: sophisticated money; first-rate technology universities; and a few template successes (a Google or a Facebook, and so on) to encourage founders to get off their duffs. Contrary to current wisdom, these ingredients exist in many communities outside of Silicon Valley –- in fact, they always have.

When you add a large and economically accessible employee base to our first three criteria, you have the recipe for successful startups. Tel Aviv is a good non-U.S. example. Israel has more PhD’s per capita than any place on Earth, plus a military that turns out gobs of advanced technology. The result: There are now more VC’s in Israel than there are rabbis.

Similarly, after World War II, oil companies in Texas needed to find new sources of petroleum, and they turned to geological survey companies for help. One of them had a little subsidiary, Texas Instruments, where the computer on the chip was eventually built. Some years later, Michael Dell arrived at a much-enhanced engineering school on the campus of the University of Texas, and the rest, as they say, is history. [digg=]

I am what you might call a startup gray-beard and I’ve seen it all. Founders can sometimes get too fixed to the idea that they must be in a certain incubating environment to succeed, when really, getting out of the startup fishbowl is sometimes the best thing they could do. I often encourage startups I invest in or founders I counsel to be contrarian and start their firms outside of the Valley, or failing that, to move East while they still can.

If you want to stay stateside, I’m partial to Boston, my home town, but there are plenty of other cities to consider, too. My top non-Silicon Valley cities are: Boston; Pittsburgh; Philadelphia; Austin; Research Triangle, N.C.; Minneapolis; Tallahassee; Toronto; and Basking Ridge, N.J. Here’s why:

1. The weather sucks in some of these towns (not Tallahassee) so your people will actually work instead of bugging out at 5:15 to train for a marathon, triathlon or Ultimate Frisbee.

2. You can recruit better outside the fishbowl. Every technology company hits the wall — some multiple times. In the Valley your employees will bail at the first sign of trouble and jump to a better job in the next parking lot. That means you will have to spike salaries to rebuild your team. Other places in the world aren’t quite so spoiled – or they come to you already cynical and stay through the rough times.

3. You won’t get lost in the startup maze. In the Valley, every VC has a portfolio company in each flavor – their own LP’s can’t tell them apart.

4. In my experience, other startup communities aren’t as pre-occupied with the “exit” as Da Valley. SV VC’s have attention spans measured in picoseconds and will sell/merge your company at the first sign of trouble. I can say that in Boston, at least, we are used to gutting out long “winters.”

5. Academics make great board members. Each of these cities has a rich educational environment and are great places to recruit sartorial advisors. And unlike at Stanford, you wont have to give up 1 percent of your equity just to put the provost’s name on your board!

Howard Anderson is a founder of The Yankee Group, a cofounder of Battery Ventures, and a professor of business at the MIT Sloan School of Management.

79 Responses to “5 Reasons to Move Your Startup Out of Silicon Valley”

  1. 1. The weather sucks…

    Why is it that everyone in California sites weather as the primary driving force in their lives, and how is is **SO** much better than anywhere east? I live in and near the Adirondack Mountains in upstate NY. We have four very distinct seasons, along with heavy snow all winter – and I love every second if it.

    I lived in the valley for 3+ years and could not wait to get out. Six months a year of stay-in-the A/C weather combined with 11 months of brown, almost treeless hills, unbearable traffic, and a total lack of deep culture, had me yearning for the crappiest January day back here……

  2. Gavin Newsom

    *Tel Aviv – Not really sure I want to set up shop on the gaza strip.
    *Houston – Mosquito’s the size of birds + sick ass humidity
    *Boston – Great schools. Weather SUCKS!
    *Philadelphia – Eagles, Flyers and 76ers stink!
    *Austin – good school. young town & hot chicks. This is a possibility
    *Research Park – hmmm, need to chew Copenhagen Tobacco to be accepted in the state. No thx
    *Minneapolis – minus 30 degrees. No thanks
    *Toronto – taxes suck! very humid
    *Basking Ridge – maybe if you are a biotech. weather sucks
    *Tallahassee – never thought of this one. Hot chicks though

    Interesting post. Perhaps a better debate is which city to choose in the bay area for your start up!
    1) Mountain View
    2) San Jose
    3) Cupertino
    4) San Mateo
    5) Salesforce
    6) Pleasanton
    7) Walnut Creek
    8) Marin
    9) Fremont
    10) Emeryville
    11) Menlo Park
    12) Palo Alto
    13) Berkeley

    Best place on earth is the bay area. Which city will have the next $1B start-up

  3. what crap? I have been both in Boston and SV. There is no place like SV on the planet. The definition of whats ¨cool¨ in the valley is far far more interesting than the waspy 16th century definition of boston area startups.No wonder facebook had to move from there to SV to actually realise its potential. Route 128 was dead when DEC,Data General and other folded up in later 80s.

    Stanford is far more practical than MIT in CS and UC Berkeley is far more theorectical than Harvard. Forget this rant. Why bother when truth doesnt depend on number of believers.

  4. joshtabin

    I love posts like this (i.e., the grass is always greener). I absolutely agree that you don’t need to be in the Bay Area to start a technology company…but not everyone does; you just hear about them all the time because of this site and TechCrunch. Here in Houston (not on the radar screen apparently but I’m also happy to keep the bottom feeders out), we have technology startups of all flavors: nanotech (the birthplace of nanoscale sciences), biotech/life sciences (home to the world’s largest medical center), energy and clean tech (Houston IS the energy capital of the world), IT/Web 2.0 and NASA inspired spin-offs (JSC is a major complex). Granted that finding product marketing talent for web or mobile applications is challenging, but not an insurmountable obstacle for competent entrepreneurs.

    Too much weight is put on where you get started. Talent is ubiquitous and not the sole byproduct of template success stories. Capital is distributed and will seek good deals in all corners of the Earth. And ideas are the domain of the mind which has few boundaries.

    If you hate the weather, indigent population or hyper-competitive environment then you should leave for (sidebar: I just noticed the smiley face on the bottom of this page…nice touch) somewhere new. But don’t expect it to be a problem free place. If you want to be succeed, you need to accept challenges and overcome them; success requires it. As Dr. Seuss wrote in his wonderful book I Had Trouble in Getting to Solla Sollew:

    “I learned there are troubles of more than one kind.
    Some come from ahead and some come from behind…
    But I’ve bought a big bat. I’m all ready, you see.
    Now my troubles are going to have troubles with me!”

  5. In 15 years you will see Buffalo, NY on the list.

    – a dozen college and universities in the area
    – cheap skilled labor, space, utilities
    – a growing number of technology starts
    – 8 months of inside weather (well, from those not here)
    – a lot of old money starting to create new money

  6. One more comment why Tel-Aviv is so much better than Boston.

    Howard should ask Scott Tobin, a partner at Battery Ventures why did he just leave Boston and moved with his family to Israel where he will be working.

    Basically, because there are no more deals to be made in Boston.

  7. This is BS, Howard’s idea to attract new business to Boston

    I agree with Mark’s comments on Boston VCs.

    I have started two hi-tech companies in Boston, one had a successful exit for 03 and another one did not get any funding. I have lived over 20 years in Boston. Yes, it was the place to be in the 80s and 90s but not in the new millenium, specially if it’s a hardware, fabless semi or software.

    There are basically no jobs in the Boston areas, because there are no start-ups in Boston. There are no start-ups because no VC want to invest in any company unless they are pre-aasured that you will have a good exit or a gazillion users/customers ala facebook. So all the good engineers are leaving, or changing careers. Life sciences start-up do not want to pay engineers salries in the 100k+.

    Only lawyers and MDs will be left in Boston, in any case these are the people who can afford to pay Boston’s real-estate prices.

    There are two good locations for a start-up: SV and Tel-Aviv. That’s where I have been for the past 12 weeks, thinking about either joining an Israeli start-up or starting my own.

  8. For reason #2 is seems that you have confused recruitment with retention and failed to even make the point you were aiming for. In the valley people know that startups come and go, so the large number of available jobs makes it easier to stick with a company until it really does fold (i.e. you know that within 48 hours you can have two or three interviews lined up with prospective employers) while in areas where tech jobs are scarce you are going to find you best talent poached by other companies or shopping their resumes around at the first whiff of trouble.

  9. Tony, you’re probably right, but with Stanford right around the corner…

    Where would I put the company if I only wanted to hire hot women and dress them in lame (that’s ‘la-may’, but perhaps not) jumpsuits?

  10. Reason #1 seems wrong on every level. I’m never more productive than when I’m training for an event. Except for an electrical storm once, I’ve never avoided marathon training outside because of weather (or even daylight). Mornings are usually the best time to run, anyway, because it’s cooler and marathons always start early in the morning.

    What better way to identify people with drive than by looking for those who are willing to put in hours of hard work every week for something that only they care about? Give me a marathoner over a blogger any day of the week.

  11. I agree with the article’s premise but disagree with the correlation between weather and employee commitment. Having heard this in the past you are short changing your company if you are worried about people taking off at 5:15. You probably hired the wrong people. As a marathoner, I can vouch for working through some nasty problems during my weekend long runs. This often led to heading to the office before I lost the valuable solution. Invariably you think about work to take your mind off the other pain.

  12. This comes across as a (totally lame) attempt to persuade people not to leave Boston.

    I mean the reasons aren’t even valid – ‘you can recruit better’? Well not if there aren’t any people in the area who’ve got experience is ‘topic x’.

    And I don’t know if the weather comment is meant to be funny, but it is flat wrong. You want people to be able to enjoy themselves in the limited time they do get off.

    Boston has a lot more fulsome start-up ecosystem than most other spots on Howard’s list, but Silicon Valley is the cat’s meow. The complete package of ideas, talent, money, etc.

    Of course there are exceptions to every rule and if there’s a compelling reason to be somewhere else – specific niche ecosystem or whatever – then that’s where you should be. But if you have latitude of choice, SV has got to be at the top of the list.

  13. Yo Mark, wish you good and cheap luck to you in Portland, Maine, ha ha. With cheap workers and cheap office space you can do some cheap products and sell them in some cheap markets. You are right, Silicon Valley is not exactly the place for being cheap.

  14. Yo Mark, I did 15 years in SiliValley, mostly in start ups. The valley is great early in your career to learn stuff. Once you know what you’re doing you’re better off being away from the echo chamber, near real users and focusing on them, not the circle jerk that is the valley.

  15. Complete Baloney! I used to work for a startup in Boston. It was a prison in there. The VCs there totally suck. They are mostly old men who dont have a clue as to whats happening in the real world and would rather retire. They had hardly anything to add to the company other than money. There are so few startups in Boston and a total lack of mobility and choice in employment. The VCs know this and use all kind of pathetic tricks in the bag to prevent the employees from leaving. As a result there is no passion among employees either. Contrast this to the vibrant scene in Silicon Valley. I would rather be a non-descript entrepreneur in the Valley than one of the few entrepreneurs in Boston, because Boston is a backwater in every sense. As for all the other “wannabe” places promoted by other commenters here, all I could say is “you guys are missing something!”.

  16. We’re loving Toronto as the home for our startup. Nearby Waterloo is a hot spot for successful tech companies like RIM, and a rich source of talent, while TO is a world-class city with enormous diversity- the world represented in one place, so to say.

    And contrary to popular belief, we do get to go out and shoot the frisbee around every now and then, just maybe not in January!

  17. Uh, Paul, if your company has mostly straight men, Silicon Valley is the best then: there are a lot more single men than women, which is the opposite of most large metro areas (e.g. New York City).

  18. Austin (aka the “Silicon Hills” as it was referred to in its glory days) is quickly becoming a hot bed of mobile and semantic technologies. Our Ruby on Rails community is also really strong.

    Some cool stuff’s happening around here. You should come check us out sometime (and not just in March during SXSW!).