Does the Location of Your Startup Determine its Success?
Does the Location of Your Startup Determine Success?
I’ve bootstrapped tech startups in Boston, Silicon Valley, and, most recently, in the Midwest, but still get ribbed by my coastal colleagues about what it’s like trying to build a business in a "fly-over state."
My current business, though decidedly advanced tech, is not based in California’s Silicon Valley, New York’s Silicon Alley, or even a full-fledged member of the amorphous Silicon Prairie. My 60-person, seven-year "startup" is based in Carmel, Indiana, just north of Indianapolis, a city clearly better known for its car races and quarterbacks than for its tech sector.
Of course you can build a great startup in the Midwest.
East and West coast tech gurus and titans insist that you can only be successful if you have access to their local workforce, infrastructure, capital, and brainpower. But can you successfully build a startup in the Midwest? My conclusion: Well, kinda sorta.
In today’s interconnected world, you can be wildly successful if you produce an exceptional product, you understand your market, and you have the right folks in place to run your business. Even in the Midwest.
ExactTarget (recently acquired by Salesforce.com for $2.5 billion) and Angie’s List (ANGI), both located in my "small town" of Indianapolis, prove my point. The quality of the workforce in our region is exceptional. We have hard-working, committed folks who care deeply about the company and are not digging for the next opportunity at the expense of doing their jobs.
That said, funding and talent are what determine success.
Face it: Most funding from VCs is put to work in Silicon Valley.
Operating outside those Valley/Alley/Prairie (VAP) areas makes it that much harder to attract funding, although VCs seem hungry to reach outside their normal target areas to find the good ideas that they presume are hiding under rocks. VCs often can negotiate more favorable terms for themselves when there’s less competition. But too often companies outside the VAPs struggle just to get a hearing for good ideas.
I remember being on a private capital raise "road show" a few years ago. I put my idea in front of more than 50 potential funding partners. At least half of them overtly raised the issue of our Midwest location. Some wanted me to move the company. Others just groused about the prospect of the multi-day flying trek that it would take for them to attend board meetings.
Indianapolis has recently announced nonstop flights to SFO that will begin in January, but the devil is in the details. Because of the way flight times pan out, VCs would have to make a two-day journey out of it instead of a convenient single-day commute.
The same issue arose in Austin, Texas, but corporate, city, and state officials wanted to even the playing field for promising ventures located in there. So two decades ago, they had the vision to create the “Nerd Bird” flights from Austin to San Jose. Is it any wonder that Austin now hosts SXSW, a venue that has had significant bearing on the prospects of tech bright stars, including Twitter, Foursquare, and others?
Flight times are critical: Make them work for you.
My final word on the likelihood of getting venture capital from Silicon Valley: If you happen to live in a city that has a nonstop, business-class, WiFi-capable flight twice per day, your chances of getting funding just went up by a quantum leap.
The same math applies when you're trying to convince talent, such as developers, CEOs, CMOs, and data scientists, to interview at your company. Having the sojourn be a one-day, no-hassle trip makes a huge difference.
How does Indianapolis (and comparable U.S. cities) stack up?
Let’s look at how Indianapolis stacks up against the various Valleys, Alleys, and Prairies in three categories.
Access to brainpower: Even if you spend $60,000 a year in tuition and fees at Stanford (or $43,000 at MIT), there’s no guarantee that you will be an automatic success at running a tech business. For every MarissaMayer there are hundreds of grads from prestigious schools who flop. There may be higher concentrations of experienced talent in the VAPs, but it's possible that being around so much talent just tempts folks to jump from one bright shiny company to the next. When we recruit out of the VAPs, we have no problem selling a better lifestyle, lower cost of living, and pleasant working environment. But remember, you still have to convince candidates to hop on that plane.
Cost of Living: According to this cool little calculator on CNN Money, housing is 259 percent more expensive in San Francisco than in Indianapolis. Groceries, transportation, and utilities are, respectively, 33, 15, and 5 percent extra. New York City housing is an eye-popping 448 percent more than it is here. Groceries, transportation, and utilities are, respectively, 60, 27, and 45 percent more. No, we don’t pay the same salaries as the VAP companies (except in some key management positions), but I assure you that our folks save far more money after deducting expenses from income.
Lifestyle: This is largely a function of how much time you don't have to spend at work. Sure, it sounds thrillingly jazzy and yes, stoic, to hear about VAP folks' 14-hour days and always-on nights. But successful types here talk about getting home for dinner with family and then logging back in for some virtual work hours after tucking their kids into bed. These successful local folks have families that need nurturing and little league games, recitals, and school plays to attend. Without sounding like the local chamber of commerce, there is not a sport or family activity that can't be done here more cheaply or easily than on the coasts.
If one high-tech sector is any indication, Indianapolis stacks up exceedingly well against the VAPs. Information Technology represents 19.4 percent of the "Top Ten Industrial Sectors by Inc. Firms in 2005-2010." For Information Technology, Indianapolis ranked right up there with Baltimore, Boston, Chicago, New York, and San Francisco, according to "An Analysis of the Geography of Entrepreneurship" of Inc. 500 companies.
So let me reemphasize what I said above: In the interconnected world of today, you can be highly successful from almost anywhere if you produce an exceptional product, you understand your market, and you have the right folks in place to run your business.
Ultimately, it’s all about connections. At the end of the day, it doesn’t matter where you’re located as much as how robust your talent connections, online connections, and flight connections are. If you’re well connected, the world is your oyster.
SCOTT JONES | Columnist | CEO ChaCha
Scott A. Jones is a veteran entrepreneur, venture capitalist, and co-founder of ChaCha, a real-time Q&A service that has answered more than 2.5 billion questions from 45 million+ unique users per month. Jones co-founded Boston Technology and Gracenote, the planet?s largest music meta-data service. Jones has been featured in the Wall Street Journal, The New York Times, CNN, and Fortune Small Business.