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5 Reasons to Move Your Startup Out of Silicon Valley

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. Bootstrap in Boston

    I love Boston, but I have to agree with (almost) all of the comments, and disagree with Mr. Andersen. After going through the VC mill here and seeing others do the same, it is painfully apparent that if you cannot bootstrap your business, or have another side business that provides cash flow to fund, you are best off leaving Boston. VC’s here expect early stage equity without risk. This is a great place to get educated, but if you have a good idea and expect VC funding, go west young man/woman. Don’t even hesitate. Maybe Boulder or another town, but leave the bean counters in Boston. Rather than attempt to shade folks’ eyes to support the local start-up economy, people like Mr Andersen can best achieve this good goal by applying their reputation to addressing the real problems embedded in the local VC / angel / regulatory scene. Doing otherwise just encourages more brain drain. Sorry to see the good ventures leave! ;_-( , we need the jobs.

  2. Watch this video of Ron Conway & Mike Maples:

    Very persuasive, but right now we remain loyal to the UK, and believe enough in our concept and country to launch here first, as that we hit a deepening credit crisis.

    Don’t forget Manchester, London & Leamington Spa. 2 big cities and one small town in England (UK) that we hope gets placed on the startup map. With some of the best universities in the world, and a global economy, success should not be so constrained by location. Come on England.

  3. Toronto, yes, absolutely! It’s the third largest ICT cluster in North America, and it’s growing every day.

    It also has a wealth of homegrown talent thanks to three universities and a large population of talented new Canadians.

    Plus, yes, six months of bad weather will keep people at their desks-unless it’s there’s a Leafs playoff game, in which case all bets are off.

    If you’re looking to move operations, Toronto is truly the way to go.

    Christie Adams

  4. snyggast has it right. Anderson is clueless when it comes to the West Coast. Even if you think SV is pathological in terms of labor turnover or costs, there’s no way you get the entrepreneurial spirit of the West (or even Austin) in Boston or NJ, even if the talent is as good. Trying and failing is normal out here, as Saxenian noted it is not in the establishment East.

  5. I couldn’t agree more, We started in Fairfield IA (next time you are passing through Fairfield IA, please stop in for Chai or corn on the cob!) . In two years we have launched 4 websites and raised over $5 million in financing. We have a highly talented and very diversified workforce with very little turn over. Probably the only real negative here has been a lack of appreciation for equity incentives- we are one of the few firms here to offer stock options.

    You can’t beat Silicon Valley for somethings- access to capital- both intellectual and monetary, but here in Silicorn Valley, as they call it, you can get a lot more bang for your buck and keep your best people even when you the inevitable hit bumps in the road.

    Mark Deuitch
    JACI Group Inc.

  6. What’s interesting to note about startups in Tel Aviv is that they tend to move to SV or the Boston area once they reach a certain size/level of success. The market in Israel is too small.

  7. cant believe it took all the way until “snyggast” to see San Diego… good keep that a secret for us who know the weather, brains, infrastructure, money is here and if you need to be in SV its easy commute..

  8. I agree especially with reason number 1! Though the weather does tend to be pretty average in Philly, we get our good days… but definitely a lot of what you said are true. Good eye!

  9. Is this guy serious? Here is my assessment of Boston for a guy from that city:

    1 Boston weather SUCKS, winter is long and cold followed by two beautiful weeks of spring followed by three months of hot sticky, gross summer, followed by three weeks of beautiful fall, and then winter starts again.

    2 Boston is for drinkers. What is there to do in Boston other then, uh, drink? Ya know why so many people drink in Boston? Because the winter is so freekin long and cold!

    3 Boston drivers suck. Boston has consistently ranked in the top five, and is currently third among cities with the worst road-rage problem, even Bostonians have a sense of humor about this:

    4 Harvard isn’t Stanford. MIT isn’t Stanford. Nothing is like Cal anywhere in the entire world… Sorry guys, but Harvard and MIT have not yet spawned talented founders AND major early contributors at companies like Cisco, Sun, Netscape, Palm, Google, Yahoo and countless others…

    5 Lifestyle in the Bay Area is like no other. We can be out doors most of the year and exercise. We tend to eat healthier then you meat (flesh) eaters in Boston because we have the largest farm economy in the U.S. and we get fresh fruit and veggies year-round and pay less for higher quality produce then you do. We also have a lower gas and electric bill then you do, what with all that heating and air-conditioning (due to your sucky weather).

    Even Robert Swanson, a biochemist at UCSF, who co-founded Genentech, was smart enough to leave Boston where he earned his BS in Chem from MIT and his MS in Management from the Sloan School. Did he start what would become the a company considered “the founder of the biotechnology industry” in Boston? That would be a NO. He probably preferred the weather, lifestyle and drivers in the Bay Area.

    Don’t get me wrong, I have nothing against Boston as a city or as a place to live. Boston has its own unique wonderful attraction and it is a fantastic place for a young person to attend university. But Boston is no substitute for Silicon Valley and no company could convince me that living there is equal to or better then living here. And I do not believe for one minute that the talent pool in Boston, or anywhere else in the world, is equal to that of Silicon Valley. People are drawn to this place from all over the world because it is a true meritocracy and there is no other place like it. Silicon Valley cannot be duplicated in Boston or anywhere else in the same way that Paris or Rome cannot be duplicated in Las Vegas.

  10. what do you get when you add 3 measures of money, one measure of technology, and again, two measures of money? You get SV. Having lived here for 7 yrs, I have to say, this is hardly a techy place. SV is the playground for VCs… And the entrepreneurs are toys in their hands, well, mostly…

    BTW, Howard is not trying to attract businesses to Boston. He has accomplished enough, and does not need that cash. He has mentioned other cities. Read the post again…

    With the economy going downhill, getting out of Silicon Valley might be a good idea…The real-estate bubble here sucks anyway, check my articles below:

  11. Silicon Valley is expensive and getting to VCs is harder than most places, but my experience with the Austin and Boston groups is the former want nothing to do with anything outside of their circle and the latter will shut down a company in a heartbeat as soon as they get bored. Silicon Valley VCs, once you get in with them, are generally the most loyal, the most helpful and the best funded.

  12. I’ve been trying to figure out if longer term I want to move my company to SV from Toronto. Forbes rates Toronto as #1 in world for both personal and business life. Boston does seem like a great place to do business and the sports teams are pretty decent as well. Thanks for your opinions Howard.

  13. How about Midland, Texas??? This is where we started Cocktail Match. I’m probably the only tech start-up guy here but entrepreneurship from Oil wildcatters runs deep. As we grow, Austin will most likely be our best fit but these days you can start from just about anywhere.

  14. silicon valley is the best and will continue to be in the near future too… it’s not 1 or 2 things needed to make a startup get going & make it success. it’s 100 different things needed to get a startup going & make it success. all those necessary ingredients are available with in 25mile drive.

  15. Add to be talking about this today… I’m a software engineer thats relocating to Silicon Valley after living here in Boston and working for a start up. Salaries are definetly much better there, and I hear the quality of life is better.

    … I’ll tell you in 6 months if it was a good move.

  16. I have to give my friend Josh Tabin, the co-founder of credit for beating me to the punch to tout Houston as a great place to build a startup. Houston has tons of talent, top schools like Rice, Baylor, U of H, and St. Thomas, a deep pool of Angel money, a culture of entrepreneurship, and a vibrant startup community with lots of BarCamps, Coworking and Tech Happy Hours. One thing that a lot of people tend overlook is the fact that Houston has customers who love buying local – that’s true for consumer facing deals as well as enterprise-level transactions. I love Austin for it’s laid back lifestyle, but Houston is probably the best city in the world to actually ‘get things done’. I’m clearly biased, but I’d take two seasons (Hot & February) over snow tires and shoveling sidewalks any day of the week.

  17. Interesting that you included Toronto. I’ve started a companies in Toronto, as well as Cambridge (which we recently relocated to Mountain View). I think Toronto suffers from a lack of capital appropriate for web start-ups, and I’m sure many others on your list do too. There’s a huge gap between conception and Series A that needs to be addressed before the places on your list will be taken seriously. Sorry, but I still think the advantages of being located in the valley easily outweigh the disadvantages.

  18. Q: Why do people rob banks?

    A: Because that’s where the money is.

    (in the case of tech startups, it’s also where the people are)

    you can do a great startup anywhere, and outside the US it might be a different story, but still — most startups are started in Silicon Valley / San Francisco, probably because this is mecca for both VCs & Geeks. at least in the US, ~1/3 of all startup capital goes to Northern California.

    lastly, Paul Graham has 2 excellent essays on this subject:

    ’nuff said.