Monday, February 19, 2007

Willie Sutton and Silicon Valley

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.


Foobarista said...

Speaking as a techie who's been the first "non-C-level" hire at several startups, one problem I'd mention is getting the technical talent at a technology startup. You may be able to outsource the website implementation for a social networking startup to hot young script-kiddies in Bangalore, but if you have a "technically dense" startup with lots of IP, you're gonna need at least a few top engineers at your HQ - even if you outsource a lot of the coding.

There are some top people in Colorado and elsewhere, but the deepest pool for such engineers, as well as the experience in startup environments, is here in Silicon Valley. Also, the market for good engineers is such that they're unlikely to move, especially if the draw is something like "you can buy a McMansion and the skiing is good" (and I'll pay you 25% less...)

Part of the reason for this is startup failure. An engineer in a failed startup in Colorado probably has to move back to Silicon Valley to get the next job. Frankly, I wouldn't take a job outside the Valley, unless it was my own company and there was a darn good biz-related reason to leave, since I figure that chances are extremely good that I'd be back within a few years.

Jack Poller said...

I agree completely with foobarista. My motivation in moving to Silicon Valley was that if I didn't like what I was doing there was plenty of choices.

In the intervening years and startups, I've come to value that one decision among all others. I've recently been associated with two startups with remote teams - one team in Rochester, MN, and the other in Colorado Springs, CO. In both cases, as the startups failed, the remote teams were left in very untenable positions with very few options for alternate employment.

I've also found that, outside of Silicon Valley, the talent is technology specific. Colorado seems to collect the storage technologists. Austin, TX, seems to collect DSP and ASIC folks, etc.

As I now venture to start my own company, I'm confident that regardless of the direction I take, or the particular technology I need, I'll be able to find it in Silicon Valley.

Tim Taylor said...

Interesting idea Chris, for me ideas that make sense (i.e., customers are willing to pay for it) will find financing (if nothing else from the customers themselves).

NYC, Silicon Valley, etc. it just doesn't matter, companies that solve problems find funding in my experience (particularly at the angel level).

Chris said...


I was a Stanford undergrad, and it is my personal experience that Silicon Valley is like the proverbial "Roach Motel"--people move in, and they rarely move out.

I often read in the Economist that America's tolerance for failure is one of the main reasons that we lead the world in entrepreneurship--this is never more true than in the Valley, where startup failures are a badge of honor (provided you comported yourself well and didn't end up in jail) rather than a stigma.

Indeed, research shows that VCs are slightly more likely to fund a failed entrepreneur than a first-timer, and that entrepreneurs who have previously failed are more likely to succeed.

There are a lot of things I don't like about the Valley--the materialism, the tunnel vision, San Francisco (, but despite these, I know that professionally, there is no better alternative for me.

Chris said...


I agree with your comment and assessment. One thing that Silicon Valley has excelled at over the years is creative destruction and adapting to new technologies. Boston went through a tremendous bust after the fall of the mini-computer. The Valley, on the other hand, has so many different technologies in its portfolio (Semiconductors! Software! PCs! Biotech! Solar! The Internet!) that it is constantly reinventing itself. Indeed, reinvention is a personal theme as well--I know people who went from being semi guys to solar guys, or from PCs to the Internet and back again.

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