Can you build “Silicon Valley” companies outside of the Valley?
July 14, 2014
The big debate among tech circles has always been if it’s possible to build a “Silicon Valley” company outside of the Valley. Is Silicon Valley a physical place or a state of mind? Can upstart ecosystems in New York, Los Angeles, Toronto, or Seattle churn out tomorrow’s billion dollar tech companies? Considering a large proportion of Version One’s portfolio is located outside Silicon Valley, I absolutely believe that major tech companies can emerge outside of the Silicon Valley bubble. But there are some considerations…
When it comes to hiring, start-ups located outside of Silicon Valley have an initial advantage, because there’s a lot less competition for engineers. Smaller start-ups in Silicon Valley, particularly those in un-sexy markets, have a tough time drawing in top engineers and designers. A start-up located near a strong university system, like Toronto-Waterloo, has great access to talent without having to compete with 20 other companies and ballooning pay scales. As a result, they can get the talent they need while keeping their payroll expenses relatively low. Starting a company is one thing, but scaling is much tougher outside of Silicon Valley. While smaller ecosystems provide a strong pool of engineers and designers, they’re lacking senior talent. It’s relatively easy for a company to scale to 20-25 employees in Seattle, but when a start-up is ready to find its first VP of Sales or Marketing, it often needs to look beyond the local area. In many cases, a start-up will either need to relocate or open a second office in order to attract the right senior level talent.
The other consideration is the type of business. B2C start-ups typically have more flexibility for where they can be located, while enterprise oriented startups need to be where the customers are…and that means Silicon Valley. B2B start-ups need to have at least sales and marketing based in the valley, if not their entire operation. Keep in mind that SaaS and consumerization of IT are changing this dynamic slightly. Today, it’s a major advantage to be able to drive down 101 to meet your customers, but just 5-10 years ago, it was mandatory. Of course, all these points are generalizations.
The truth is that a great company can be built anywhere, just as building a viable tech start-up is tough no matter where you are. In many cases, success comes down to the founder’s ambition and mindset. Today we’re seeing more founders start a business on their home turf, come to Silicon Valley for an accelerated program like Y Combinator, then bring the Valley mindset back home. As more Valley-based investors and incubators reach out to assist founders across other ecosystems, the Valley can just be a state of mind.