Posted at 1:00 am on 06/12/2014 by Dr. Rahul Razdan
Silicon Valley enjoys many advantages which has
made it the juggernaut for software startup activity around the world. Among the
significant advantages include:
- Access to Talent: Silicon Valley is a magnet for
talent. This starts with the world-class universities such as Stanford or Berkeley
which attract talent from around the world. In addition, Silicon Valley benefits
from "immigration" not only from overseas, but more significantly from
other parts of the United States.
- Access to Capital: Over the years, Silicon Valley
has developed a broad/deep institutional venture capital community. However, just
as importantly, there is a broad and deep community of angel investors. For most
software startups, a small angel round is often the crucial starting point.
- Access to Customers and Partners: Silicon Valley
is a large population center, so there is easy access to a large local consumer
market. In addition, for any software startup looking for partners or commercial
customers, Silicon Valley offers convenient access to decision makers from nearly
every interesting technology company in the world.
All of these advantages combined with a true culture
of entrepreneurship makes for a formidable combination.
How can one build a software
startup outside Silicon Valley?
Our work in central Florida has shown that there
are some interesting and subtle advantages to building software companies outside
of Silicon Valley. These include:
- Disproportionate access to ideas: In Silicon Valley,
a ready population of seasoned entrepreneurs compete for the best ideas. In central
Florida, three universities (University of Florida, University of Central Florida,
and University of South Florida) engage in over $1Billion of research, yet the population
of seasoned entrepreneurs which can commercialize this research is tiny in comparison.
For a seasoned entrepreneur, the area offers disproportionate access to the best
ideas from this research.
- Disproportionate access to talent: In Silicon Valley,
the competition for talent is very intense. Large companies such as Facebook/Google
compete for talent not only against each other, but also against startups. For the
central Florida area, we have found many talented engineers who would like to stay
in the region because of family or lifestyle, and the relative lack of opportunities
allows a startup to be quite competitive.
- Disproportionate access to local markets: In general,
innovative companies have been developed in places such as Silicon Valley and over
time build distribution to reach external markets. As an example, Florida offers
mega-markets in areas such as tourism and healthcare where a startup can offer solutions
and has access to local markets.
- Outside the Bubble: Much like New York for finance,
Silicon Valley operates in an internal bubble with an intense level of herd-like
behavior. Areas of investment come in/out of favor quickly. Similar to outside investors
such as Warren Buffett in the finance industry, software startup companies outside
the valley can focus on fundamentals and be shielded from the churn generated within
the Silicon Valley bubble.
- Super Lean Startup: Because of all of its advantages,
Silicon Valley is a very expensive place to operate a business. While it is possible
to run a lean startup model in Silicon Valley, the magnitude of the money required
is non-trivial. Comparing Silicon Valley to central Florida, we estimate a 3X advantage
in cost. That is, one can make investment capital last 2-3X longer in central Florida
vs Silicon Valley for software companies. Ultimately, this leads the most important
advantage for a startup... time.
We have successfully demonstrated this model with
an IP startup (WiPower) which survived through the 2008 financial crisis in the
area of wireless power, and had a very successful exit in 2010. We are now running
this same model with our current startup (Ocoos) in the area of internet marketing
for the small and medium sized businesses (SMB). We have taken full advantage of
this outside Silicon Valley model for Ocoos by:
- Licensing leading edge technology from University
- Attracting A-level players from local universities
into the company.
- Focusing on the SMB market (Florida has a large
percentage of SMB businesses from the tourism/healthcare/real estate industries).
- Running with a burn-rate impossible in Silicon
Having said all of the above, our last startup
(WiPower) was acquired by a Silicon Valley based company.