Where to Start Up? 6 Things to Consider
You probably think that it doesn’t matter where you locate your start-up since you can access anyone in the world through the Web or a phone call. If you think that, you are wrong.
That’s because some regions of the world are better for different kinds of start-ups depending on the industry. For example, consumer-focused Internet start-ups thrive in Silicon Valley, Boston’s best for biotech and big data, and for media- and fashion-focused ventures, Manhattan’s the biggest apple.
But relocating is a pain in the neck. So if you decide to do it, you better be sure that the benefits of moving outweigh the costs. To do that, you need to gauge how much better off you’d be if you located your start-up in a place that would boost your odds for success.
To do that, you have to analyze the fit between your start-up’s current start-up common and the one where you should consider relocating. The start-up common includes six elements that reinforce each other to attract entrepreneurs with specific skills and ambitions.
Here’s how you can use these six elements to decide whether to relocate your start-up.
1. Pillar companies
Different regions of the country may have big companies started there that lead the world. Such pillar companies are a valuable source of talent and early adopter customers for your start-up. For example, in Apple, Google, and Facebook are Silicon Valley’s pillars and media companies like The New York Times and CBS as well as big financial institutions like JPMorgan Chase and Goldman Sachs are among Manhattan’s pillars.
If your start-up is targeting the consumer Internet and you’re located in a part of the country where there are no consumer Internet pillar companies, you might consider moving to Silicon Valley. If your venture is focused on genetic engineering or big data, you may want to move to Boston.
Universities are accelerators (a kind of post-graduate school for start-ups) are a great source of intellectual property and talent. Silicon Valley hosts Stanford, U. Cal. Berkeley, and Santa Clara University and accelerators like Y Combinator.
Of course these schools are quite well-known and that means that the price of acquiring such talent gets bid up. Many start-ups outside of Silicon Valley have found surprising reservoirs of talent in their local schools.
For example, Becker College in Worcester, Mass. hosts a vigorous video game development school--the Digital Games Institute--that produces talent at a lower price to potential employers than Silicon Valley would charge.
But if there is a big gap between the talent your start-up needs and what’s available locally--particularly for work that can’t be outsourced--you might consider moving closer to the talent.
3. Human capital
Your start-up needs more than just product developers. And the full range of talent that your company needs--C-level executives, functional vice president types, engineers, sales people, and marketers--may not be widely available where you’re venture is headquartered.
That broad range of human talent could come from the pillar companies, universities, and talent that’s attracted to a region from around the world. For example, of the roughly two dozen entrepreneurs and investors I have interviewed over the last six months to understand start-up commons, I would estimate that at least 90% of them came to Silicon Valley from somewhere else in the world.
If the place you’re located has enough human capital to meet your start-up’s needs, then you may be better off staying put. But if you lack that talent, you might consider moving to a place where it’s more widely available.
4. Investment capital
As I pointed out in my new book, Hungry Start-up Strategy, your start-up needs different kinds of capital at different stages -; bootstrapping, founder financing, or friends and family money to get a business model, Angel capital to win customers in a specific market segment, and venture capital to expand globally and broaden the product line.
Silicon Valley has deep pools of all these kinds of capital. And if you’re located in a place where you can readily get these different kinds of capital for your venture, then by all means stay where you are. Otherwise, consider moving to a place where investment capital is more widely available.
Is your start-up in a location where there’s a big pool of experienced investors and executives who can mentor your company and its talented professionals? Stay put if your start-up has ample access to mentoring with strategic vision, acquisitions, raising capital, performance monitoring, organization design, culture, hiring and firing, product development, and getting customers and partners.
Furthermore, to motivate your top talent, you should stay where you are if there are great mentors for your talented professionals. You’ll know this is true if your talent can get help with career advancement, skill enhancement, coaching, introductions to helpful others, and basic needs such as housing.
If you’re start-up has good access to such corporate and professional mentoring, don’t move. Otherwise, consider going to a place where such mentors are widely available.
Do people in your venture’s location network with each other and offer their help readily? Or do they keep to themselves and try to outdo everyone else?
There are big differences in such values depending on where you’re located. Silicon Valley has a unique set of values that guide the way people behave -; it bets on ideas that will disrupt the way the world works, it pushes people to give back without expectation of short-term gain, and it rewards intellectual humility.
Such values may be critical to your venture’s prospects for success. One entrepreneur who relocated to Palo Alto told me that in London -; where he came from - it is very difficult to meet with people who have capital or valuable advice and those masters of the universe only help if they see an immediate short-term benefit for themselves. This helped prompt him to leave London.
Should you stay or should you go? Use these six start-up common elements to decide.
Strategy consultant, startup investor, teacher, corporate speaker, pundit, and author of 11 books, Peter Cohan has invested in six startups, three of which were sold for a total of $2 billion. Before founding Peter S. Cohan & Associates in 1994, he worked with HBS strategy guru Michael E. Porter.