Starting Up Outside of Silicon Valley May Be Tough, But It Lays the Groundwork for Generations of Entrepreneurs
Editor’s Note: In the new podcast Masters of Scale, LinkedIn co-founder and Greylock partner Reid Hoffman explores his philosophy on how to scale a business -- and at Entrepreneur.com, entrepreneurs are responding with their own ideas and experiences on our hub. This week, we’re discussing Hoffman’s theory: Silicon Valley has an inimitable blend of talent. No other region can match its collective capacity or wisdom for scaling, except maybe China. Listen to this week's episode here.
There’s absolutely some truth to the idea that Silicon Valley is the best place on the planet to build and scale a business right now. Doing it elsewhere is without a doubt a risk, but it’s not as if it’s not happening, and happening with frequency.
After all, there are quite a few success stories of massive growth coming from various corners of the world. Spotify. Snap. Wix. And ahem, Fiverr.
It starts with understanding what makes Silicon Valley so damn attractive today, and ends with a recognition of why it’s so worthwhile to build businesses elsewhere.
Location, location, location
There are a number of reasons for Silicon Valley’s dominance that are foundational ones. These are building blocks that, for the most part, can be recreated anywhere in the world.
- Great young talent. Whether it’s Stanford, Berkeley, San Jose State or Santa Clara, the Bay Area is home to a huge volume of diversified tech talent. The economies of scale impact everyone from developers to marketers and salespeople.
- A culture of accepting transplants. The Bay Area may be home to many, but it’s never been heavy on natives. As a region that has been growing since World War II, the Bay Area and Silicon Valley have been largely accepting of transplants and immigrants. That makes it an easy place to relocate from both a policy standpoint in California and from a cultural standpoint.
- Easy access to capital. As the birthplace of the venture capitalist, there’s quite a bit of access to the funds so many startups need to grow. According to the Martin Prosperity Institute, 25 percent of the world’s venture capital dollars are based in San Francisco and San Jose.
- An appetite (and governmental blind eye) for innovation. While Airbnb may have become embroiled in controversy and a ballot proposition in 2016, the company was able to use the Bay Area as a test bed for some time without any governmental handcuffs. As Uber and Lyft grew into global players with push back from taxi unions in places like New York and Washington, D.C., Silicon Valley had little to no issue with the ride hailing concept.
- High of 75, low of 55. It’s tough to beat the Bay Area’s weather, and while this may seem trivial, it’s an absolute draw for talented individuals all over the globe. San Jose has 257 days of sunshine a year. Seattle? Just 152.
Related: Utah, the Next Silicon Valley?
Giving a man a fish or teaching him how to fish . . . with dynamite
However, there is one additional and substantial reason Silicon Valley continues to be number one in terms of scaling a business, and it’s something Reid Hoffman discusses in this week's episode. There are simply more people in positions of leadership who have done it before. The idea of crazy, hyper growth is second nature in Silicon Valley, and the “muscles” needed to generate such growth are already developed in the region through the personalities and leaders that do business there.
The “PayPal Mafia” is a group that many of us in the tech community revere, but what are we really talking about? We’re talking about a group of smart people who built a company that had explosive growth. Those people then went on to form other companies in Silicon Valley, spreading their knowledge and experience. Those companies created a new class of entrepreneur, seasoned with previous scale-driven success. What each of them has done is truly impressive, but what’s worth noting is that much of that success has remained within Silicon Valley. Not a ton of those pioneers have left the friendly confines of the Bay Area, and it’s this generational “passing down” of experienced and skilled hyper-growth builders that many other areas lack.
The new kids on the block
While Silicon Valley is the best bet today, I’m confident that the next wave of Silicon Valleys are growing before our very eyes, and for those of us building those communities, the payoffs extend far beyond our current ventures.
Avenues to access capital are quickly expanding. New resources like crowdfunding as well as the influx of institutional investors into places like Israel are already bearing this point out and increasing the flow of money to other regions. Talent -- a resource that’s always constrained due to the local supply -- is far more accessible through a variety of means, including digitally. Not to mention the opportunity many governments have to adopt new regulations to spur innovation-driven immigration to enable greater numbers of talented individuals to enter an ecosystem.
Israel is a good example of a place where one particular vertical has churned out successes in the form of cybersecurity. Supply of talent has been exceptionally strong, as has innovation. Successes like Checkpoint have fueled more businesses in that industry, and it’s created a pathway for others to find success. Success itself becomes cyclical, driving other variables like talent supply and funding. It is a self-fulfilling prophecy.
As businesses like Spotify, Snap, Wix and Fiverr have sustained success, they will create new, experienced “masters of scale” in their regions of the world, which will drive the same cyclical returns in those ecosystems. This process is already underway, and for those of us who are engaging in this transformation, we’re creating ecosystems that will fuel entrepreneurship for generations to come, creating buzz, experience and enthusiasm that sit within the culture of a region, just like Silicon Valley today.
Hoffman is right. It’s not impossible to start a successful company outside Silicon Valley, it’s just damn hard. Not only is that changing, but the reward for taking that risk is much larger than any individual success. It’s the actions of pioneers, and as successes pile up, it will only become easier and easier.
Now if we could only get the weather part figured out everywhere else . . .