The following originally appeared as a comment on Ben Casnocha's post discussing whether or not you have a greater chance of success if you start your company in Silicon Valley. Ben argued that the Valley ecosystem did give you a leg up, while others like Fred Wilson argued that you were better off in a less crowded environment. Here's my take:
Ben and I chatted about this topic before he posted, and could boil down my thoughts to a single sentence:
"Wishing doesn't make it so."
We may wish that the world were fair, that it was just as easy to build a high-tech startup in our hometown as in Silicon Valley, but the fact is that it is not.
The Buffett paradox does not invalidate the fact that New York is the capital of finance any more than Buffett's amazing performance invalidates the general value of the efficient markets hypothesis. Six-sigma exceptions do not invalidate a rule of thumb.
Fred's "supply and demand" argument is true on some levels, but the fact is that in the case of clusters like New York for finance and publishing, and Silicon Valley for tech startups, supply and demand continually reinforce each other in a virtuous circle.
To some extent, one can also make a "big fish/small pond" argument; this may help your ego, but I suspect that the smaller fish in a big pond tend to do better, lifted by the rising tide.
On a side note, I tell all the entrepreneurs that I advise that if they want to make money, they should move to Manhattan and work on Wall Street. The expected value is higher, with much lower variance.
Ultimately, I can understand why people believe things like, "Silicon Valley is not a better place to start my company." It's unpleasant to contemplate the unfairness of the world. It's inconvenient to move one's family. But these seductive false beliefs are ultimately self-defeating--maybe not for everyone (after all, companies started in New York do succeed, just as great investors do arise in Omaha [though even the great Buffett studied at Columbia, natch]) but for the majority.
Life is unfair, folks. All men are not created equal. Nice guys do sometimes finish last. And the best place to start a high-tech startup is Silicon Valley.