Techies, VCs, and the press are always swooning over the glory of the Bay area. This is where all the excitement, the money, and the people are, they say. And that’s true to the extent that your great big idea fits the current cultural mold of that environment.
If you’re looking to build the next web 2.0 social media eyeball-collecting application, don’t want to worry about boring details like revenues, and hope to either flip to Google for an early $20 million or get that Facebook billion-dollar valuation, the Bay area is exactly where you want to be. No where else do you have the connections, the people, and the atmosphere available to make that dream happen.
But this strain of startups is a highly inbred line that holds more risks than most people realize. It’s not that they never work financially, enough people are sipping Margaritas on sunny beaches from towering buyouts to prove the contrary. And it’s not that they don’t work socially — I personally enjoy YouTube as much as the next guy. It’s that the Bay area pipeline for building web businesses isn’t optimized to carry much else than these stereotypes.
Other people’s money
If your idea for a web business is more along the lines of the mundane “product * price = profit” (3P) variety, I think the culture of San Francisco and that famous 20-mile radius around Stanford is anything but helpful. I might even go as far as say it’s downright harmful.
The flush availability of other people’s money is simply too tempting. When you’re not spending your own money, it’s easy to splash on a big open office on day one, a staff of 10+ in no time, and have few worries about paying the bills on the 1st of the month. It takes away much of the urgency to make money that I think is critical to build sustainable businesses. It gives you too many resources to be satisfied building simple tools for niche markets. Everything becomes about catching that huge wave.
Fighting for talent
And besides the simple temptation of having a few million dollars in the bank account — even though they’re not really yours and probably never will be — it breeds an asset bubble for everything else. When tons of half-baked startups out there have a million-dollar bank roll, they’re going to be looking pretty sharp when shopping for talent.
If you’re a programmer or designer working in this area, you probably have more than a few friends or acquaintances who got filthy rich simply being on the ground floor of Google or YouTube or some other company that either made them a millionaire through acquisition or IPO. Are you really going to be interested working for a company that simply aims to make a few measly millions for the first couple of years? Why settle for something that’ll take 5, 7, 10 years to mature when you can instead just hop from company to company every 6-18 months in search of that lottery ticket.
So while there is undoubtedly legions of good people available, you’re unlikely to be able to hire or retain them in an environment where every business magazine cover of is telling people that the next billionaire is even younger than the previous. No wonder people feel stressed out to make it huge before they’re 30 and will jump at any opportunity that looks like this might be it.
But where else?
If San Francisco, the Bay area, and Sillicon Valley aren’t good places to start a web business of the 3P variety, where is? Well, I’d say just about any place but. Basecamp came from Chicago/Copenhagen, FogBugz from New York, Campaign Monitor from Australia, Shopify from Ottawa, Freshbooks from Toronto, Blinksale from Texas, and there are tons of other applications of the same ilk that come from all over the world.
So stop worrying to much about where you are and start worrying about how you’re going to make your business succeed the old fashion way: Through having a better product than the competition that people are willing to pay for.
P.S.: None of this means that it’s impossible to build a web business in San Francisco that makes money by selling a product. There are plenty of examples of that too. Like TypePad or FaxItNice. This is an argument that the area is overrated as a great place for starting a company.