Google. Facebook. Salesforce.com. There's no question that Silicon Valley has seen the birth of the most stunningly successful start-ups the world has ever known. But that era is over, according to Jan Rezab, the outspoken CEO the social media software company SocialBakers.
The most successful mobile game of all time, Angry Birds, comes from a Finnish company, Rezab notes. HootSuite and Radian6 were founded in Canada. "That's significant," he says. "You don't see these industry leaders coming out of the U.S. anymore. And the next Facebook won't come from the United States."
The reason, he says, is simple economics: Engineering and Web development talent here cost too much. Start-ups can use smart strategies to hire top talent on a small budget, but when it comes to high-tech skills, "they're competing against Google and Facebook," Rezab says. "I was talking to a founder who was hoping to hire a senior developer for $270,000. He knew he could hire developers for $100,000, but this one was really good."
In other countries, such as the Czech Republic, where SocialBakers is based, engineers and Web developers might cost one fifth as much, he says. "Paying five times more really isn't viable," he argues. And so, he says, American Web-based start-ups, especially in the B2B market, will face overpowering competitive pressure from companies based where tech talent is more affordable.
What to do? Here's Rezab's advice for American start-ups that want to be competitive in today's world.
1. Target local consumer markets.
"B2C companies tend to need a local presence," he says, noting that Groupon learned this the hard way when it tried to succeed in markets where it didn't have boots on the ground. You'll have an easier time competing if you take this approach.
2. Outsource development work.
Some of the most successful software companies in the U.S. send all their development work abroad, Rezab says. "If I were a founder of a small software company in the U.S., I'd try to find a business partner in Europe where I could outsource."
3. Consider a move.
It's not as crazy as it sounds. Tech talent is a lot more affordable, lingering financial doldrums may mean you have your pick of able employees, and many foreign governments offer funding to lure in entrepreneurs. Starting a company in Europe might just make a lot of sense.
4. See the world.
In addition to our expensive tech talent, American entrepreneurs face another disadvantage in the global arena: The sheer size of this country tends to make us blind to others. "The United States is one market with one language and no local issues," Rezab says. "When a company expands throughout the United States, it doesn't have to deal with international cultural barriers." Companies in smaller countries encounter cross-border issues quickly and learn to deal with them early on.
The quickest way to gain an understanding of cultural differences in different countries is to go see them for yourself, Rezab says, so he advises traveling the world to learn how business operates in different places. "That problem goes away once you really start traveling," he says. "Become an international citizen."