LearnResponse to Paul Graham on Startup Hubs

Ryan
writes on October 11, 2007

Paul Graham just posted a lengthy post in response to my on-stage rebuttal to his talk at FOWA. I disagreed with what he said during his talk at FOWA so I felt compelled to stand up on-stage and respond very quickly.

One of the main reasons we organize FOWA London is to encourgage people to build web apps here in Europe. We want people to feel encouraged, equiped and connected after the show. Saying “Well, you’ve got a better chance if you just move to Silicon Valley” makes my blood boil. It just isn’t true.

I won’t try to summarize his post here, as that wouldn’t do it justice (please take a minute to read it). However, I’ll try to explain why I think he’s wrong.

Silicon Valley vs The Rest of the World

In Paul’s talk at FOWA, he essentially said that startups have a better chance of succeeding if they are located in a ‘Startup Hub’ – a city where there is a large amount of support (funding, legal, news coverage and social). I fully agree – startups have a better chance at succeeding with support.

But I don’t think that’s the whole story.

I just spent 14 days travelling around various cities in Europe on our FOWA Road Trip. I shook a lot of hands and had a ton of great conversations with folks who are building web startups.

It was amazing how many people are launching web apps outside the US / English speaking market. They’re excited, motivated and many have already launched their apps. These folks are getting more and more support from movements like Seedcamp and investors like 3i, Index, Advent and Accel.

Events like FOWA, dConstruct, Mix and Max are also equipping people in Europe – the level of support is skyrocketing. There are also a ton of BarCamps and Open Coffees sprouting up. Not to mention the excitement around mobile (Mobile Mondays, Sweedish Beers, etc).

It seems crazy to discourage that growth by saying that people should move somewhere else. How can we get to that critical level of support here in Europe if we always have people saying everyone should move to Silicon Valley?

Look at last.fm (£140 Million!) and moo – if you ever needed an example that you don’t need to move to Silicon Valley, they’re surely it. I’d like to also humbly put forward DropSend. We’ve managed to succeed and we’re not even in London.

100 Million vs 1 Million

Paul didn’t clarify in his talk or post whether he was referring to startups who are funded or those that are boot-strapped.

This is a vital issue to clarify. If a web app is boot-strapped (as DropSend was) you really don’t need to move to a startup hub. Why? Because if it’s a decent idea and you’ve got a little bit of business sense, you can turn that into a product that is worth upwards of $1 Million (depending on the idea and market). If you’ve thrown $35,000 at a web app and you can eventually sell for $1 Million, that’s a pretty damn good return on your investment.

That’s the crux of my frustration with Paul Graham’s attitude. I almost felt as if he was saying “Yeah, for you little guys, you can stay wherever you are. But if you want to be a real startup and play with the big boys, better get yourself over to Silicon Valley.”
There’s way too much pressure in the web app industry to be the next $100 million dollar company. Screw that. Let’s all focus on being passionate about our great ideas and growing them into viable, profitable businesses. There’s nothing wrong with that 🙂

Paul’s a smart guy, but just because he says you need to move to Silicon Valley doesn’t mean it’s true.

I’d be interested to know what you think – looking forward to the discussion 🙂

(Thanks to flickr.com/photos/sergiopepe for the photo)

52 Responses to “Response to Paul Graham on Startup Hubs”

  1. Silicon Valley vs The Rest of the World
    Both will win

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  4. http://www.startupwarrior.com makes it very clear that there are many more startup hubs beyond Silicon Valley.

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  6. I would be very happy selling something for 1 million that only cost me $35000 to start.

    And I certainly don’t thing you have to move to SV to be successful. If I did – I probably wouldn’t feel so successful anyway. Did you read the interview where folks in SV who were worth around $10 mill said they felt poor in relation to some of their neighbours. None of them sounded happy, or satisfied with their levels of success.

  7. In light of Steve Rubel’s recent comments and Mike Arrington’s too, my view is that Paul Graham’s ‘all other things being equal’ caveat nullifies the comparison between hubs. SV doesn’t sound that great to me at the moment…!

    Here are my thoughts on it…

  8. I loved that just days after FOWA Jaiku (a Finnish company and was presenting at FOWA) was bought by Google. Jaiku is doing some insanely brilliant things and was noticed. Granted Jyri gets to the Bay Area every now and then, which helps, but I strongly believe it would have been more difficult to build in SV.

    Since the 90s I have been working with technology companies in Europe and the US, with start-ups and mature companies. There is far too much of a push in the US to get to market when taking VC money. Time-and-time again in companies put forward products that are not scaling well or are not fully ready as the competition is high. In Europe the pace is a little slower and calculated with a focus on getting things right. Europe also has a good safety net to provide health care and other human needs that make taking a risk on building a product less painful. I prefer the European model, which became the pattern in the Bay Area from 2001 to 2004 and some great products emerged in that time.

  9. Mr. j anon on October 17, 2007 at 7:18 pm said:

    I wasnt in the same auditorium, however will we get to see you come on stage as a DVD Bonus? on this years FOWA Conference in a box dvd?

    Mr j.

  10. Simon Griffiths on October 15, 2007 at 12:17 pm said:

    I have to say that I read his post, and to be honest there are some points that I think are valid.

    Firstly, there is no doubt that there are more start ups close by in Silicon Valley, so there is a networking effect. However it seems very odd to me that a guy looking at web2.0 startups can’t apreciate the opportnities the web has for communication. Look at this blog post. You are probably getting opinions from all over the world.

    Secondly, and this is probably the cruncher for some people, there is no doubt that you get more money for a venture capital in Silicon Valley. I have to say that in my opinion the stupid amounts of money they are touting around, only show that the investors have no idea of what they are doing or the ebb and flow nature of the web.

    One thing I did notice in the posts though was the comment about Dropsend, as it was interesting that it is making good money (probably more than most other startups), but not as much as it probably could. I have recently looked closely at all the competing products. Dropsend to me has always worked the best, and I have been an irregular user for a while. We were going to buy in a service that allowed us to send large files around our corporate network and elsewhere, which at the moment is a pain. The one thing Dropsend didn’t do was allow us enough customisation to make it look like the email was from us. I know that we were willing to pay US$200ish per month for the right service but couldn’t go with you guys, in fact didn’t find any reliable service we could go with in the end. Just thought I would get in my 2c worth, as there must be lots of companies like us struggling with this problem!

  11. Paul’s post with the “one of the organizers” – Calling Ryan One of the orgenizers. WTF ?? . He should be addressed as Mr. Carson you smock. Ryan is the face of this expo and it’s a great one, and he’s a great person.

    And no we are not going to run to silicon valley thank you very much. We can make it big time and here in London.

  12. I don’t know that it’s true that it is only Silicon Valley, but i do believe there are specific geographical “requirements” to being a startup – if you are not in them you have much less of a chance.

    It really makes for a lot of lost opportunities.

    Amazing that China, India and so on are only attracting major investment relatively recently as if they all suddenly became smart. Unfortunately geography is still holding back some great ideas.

    Still, we keep trying 🙂

  13. Maybe moving out to the US was an important thing for app developers, or just any internet type people in the past, “it’s who you know” being an important part of the process and all that.

    The beauty of things like FOWA and, well, the internet is that it’s hopefully starting to break that down, so it doesn’t really matter where you are, just as long as the idea flies.

    And I say keep the comments, most people are capable of independent thought and can decide who they agree with, allowing discussion rather than stifling it is a plus in my mind.

    Even if I disagreed with Ryan, it wouldn’t put me off any of the conferences or web products, because I’m not an idiot.

  14. Tech crunch has a VERY similar debate raging over the last 2 days.

    http://uk.techcrunch.com/2007/10/12/dear-vcs-look-at-the-idea-not-the-postcode/

    Interesting that this topic has come up albeit in two different ways.

    Start-ups need all the support they can get.

    Sometimes it might seem like serendipity that you get a piece of cracking advice from a developer with the same problem, that you bump into a VC who intros you to an angel, that you end up having coffeee with Google’s head of acquisitions. Then again maybe it’s part of the ecosystem / community / hub.

    Ryan needs to be congratulated for creating a wonderful forum for the community to get together and maximize their serendipity.

    Two pleas

    1) Lets remember that you you can build great businesses without them riasing £10mm from VCs and gunning for $1bn valuation.
    I feel strongly about this

    2) Lets celebrate what we’ve got in Europe and stop sticking the boot into our ecosystem. I think it’s never been healthier:
    I feel strongly about this

  15. Ryan, Paul Graham seems to have a gift for button-pushing, as I discovered last time he ventured beyond Silicon Valley across the Atlantic:

    http://adactio.com/journal/1129/

    The thing is, Mr. Graham is simply following the advice given to all struggling writers: write about what you know. He studied painting and then became a hacker so he wrote about hackers and painters. He had a startup in the valley so his worldview on startups is anchored in the valley. That’s all well and good but the problem is that he extrapolates his personal experiences into universal truisms, unable to tell the difference between his own subjective reality and the objective reality outside the valley.

    Don’t get me wrong: I have nothing against existentialist solipsists but they’re probably not the best people to take advice from.

  16. I’m starting to think that having a blog for your business MAY be a bad idea. From a business perspective, image does play a part and so far, many people seem to have alot of negative views about what you are doing. Whether you’re a business start up to a multi billion dollar company, you’ll always get the critics. It doesn’t matter what you do, donate all your money away to charity or just doing what you love to do, critics will always follow. Even when you’ve passed away. In my opinion, after reading your blog for nearly two years now, its time to shut down the “leave a reply” feature, it’s not really helping you or your business. If people want to send you negative responses, they should contact you directly and not try to infect others.

  17. Damn it, so London isn’t a start-up hub then? Oh well … no more Dopplr, Last.fm, Blognation, Flexiscale, Moo Cards, Zopa, FriendVox, Seedcamp, TrustedPlaces, Open coffee, Mashups, FOWA ……. and on and on and on. Good on you Ryan.

  18. If this debate had occurred last year I would wholeheartedly agree with Paul Graham. The Valley was THE place. e.g Peter Nixey had tried to raise capital in London and could not. He moved to the Valley and did so in UNDER A MONTH from YCombinator.

    Since then as Ryan points out, many people have invested in creating an ecosystem outside of the Valley. It is far from perfect and probably another 12-18 months before we start to really see a more mature European ecosystem.

    IMHO some of the key success factors in the Valley were the arrival of serial entrepreneurs like Reid Hoffman who flush with cash from their own exits bridged the equity gap between seed and VC funding. This enabled many more startups to grow.

    We are beginning to see those same type of second generation serial entrepreneurs/investors in Europe e.g Atomico (Skype), Brett Hoberman (LastMinute), Hugo Burge (CheapFlights), TAG (Robin Klein) etc. which has led to the successful funding of WAYN, Reevoo, Moo, Trusted Places etc.

    Hopefully the Last.FM founders and Jyri at Jaiku (who sold out to Google) will join this growing band of entrepreneurs come investors.

    So lets see in a years time, hopefully Ryan the balance of Valley v European speakers at FOWA will be more towards Europe/World in flavour?

    Maybe even blognation and our work to help uncover global startups might even be recognised by Carsonified?

  19. Sorry, from what I remember it is a complete failure. Did you not try to sell it for a long time?

    It’s making a profit of $13,000 per month. Hardly a failure.

    Yes, we tried to sell it but it didn’t work out. It’s not becuase it was failing, it’s because we wanted to build a new web app.

    Now we’ve decided to put a full time manager on DropSend and I can’t wait to see how much it grows!

    Next time, before you comment, try to get your facts straight.

  20. “Iâ€d like to also humbly put forward DropSend.”

    Sorry, from what I remember it is a complete failure. Did you not try to sell it for a long time?

  21. There is a whiff of cultural imperialism here, the suggestion that USA centric is better, or you have to be American. Don’t think was intended, explicitly, but there is a tinge of it. Doesn’t go down well in Europe, even if the Americans would let us move there – grin.

  22. Who cares. Really. You’ve done a great job with your web apps and made it up on stage. Now can you deal with the criticism?

  23. Working for a success Web 2.0 Company that has built itself up outside the valley, I can certainly see some advantages to the close geographic proximity – but there are disadvantages as well. I was also reminded of an article I saw a few weeks back in the WSJ – Web 2.0 Deals Spread Beyond San Francisco that I think contributes to the case that while those advantages may exist, the entire space is evolving beyond those geographic limitations and they will continue to be less and less of a factor – and certainly are not a necessity to success. ONEsite has proven that, as have several others.

  24. The main point of my post was to say that someone in Paul’s position should be encouraging other cities to become Startup Hubs, not just telling everyone to go to Silicon Valley.

    It’s not healthy for the industry to be so centralized in one place.

  25. I believe there are two fundamentally different ways to start a startup: one is having an external investor most of the way, and the other is bootstrapping your company as much as possible. Neither of them is any better or more “right” than the other, and neither is suited to all kinds of startups; but people somehow seem to be seeing only their part own of the elephant.

    Paul, who is an investor, sees things from his side of the fence where it makes most sense to move to SV. Ryan, who is a bootstrapper himself, lives on the opposite side, where the laws of physics are completely different. Neither one is wrong, it’s just that they live in different worlds.

  26. Ha! People always react as though Paul is calling their baby ugly.

    When he writes about the advantages of Silicon Valley for a startup, people think he’s saying that their hometown is a bunch of losers.

    When he writes that your college doesn’t matter (to the probability of startup success), the Ivy kids get bent out of shape and reminisce about their great times at Harvard.

    But Paul’s merely a student of the startup. He’s systematically identifying the controllable variables of startup success. Choose to manage whichever of those variables work for you.

  27. prankster on October 11, 2007 at 9:12 pm said:

    Paul is a really smart guys. What he is suggesting is that if you can move and you want to start a startup, moving to Silicon valley will improve your chances for success. He is not suggesting that you will fail if you dong move to silicon valley. In any case, the kind of talent you find in SV is much better than any other place. That makes it easire to find more passionate co-founders. There are also so many more investors there. At times you might be able to book an appt with a VC just because of the address of your office. So I agree with Paul, moving to SV will improve your chances of success but its not a requirement for success. And btw Atlanta is hosed. The example that you show is more of an exception than a rule.

  28. My first web startup was built and sold from Anchorage, Alaska– so on one hand I agree with you.

    But there are plenty of challenges that a startup can have that are harder to deal with outside of a hub… Sure– maybe you’ll never hit those challenges. And there are plenty of counter examples of startups who’ve soared from a different spot.

    But what if your startup is merely good? What if you’ve got a LITTLE traction, but bootstrapping isn’t going to cut it like you thought it was going to– and you need to get funding? Easier in a hub. What if you need great counsel (CPA, lawyers, etc) who are smart about startups? Easier in a hub. What if you really need to hire experienced/smart people fast? Easier in a hub (Maybe?).

    All of these problems (and more) are solvable outside of a hub– but might require more time, effort, or money…. Which (for a merely good– not great– startup) might make the difference between success or failure.

  29. I think Paul makes a good point. Though it’s not necessary, I think it does help if your Startup is based in Silicon Valley. I’m in Florida, and though there are a few great startups rooted here, it would be very beneficial to be in a place where you don’t have to worry about infrastructure problems, and had access to a wealth of knowledge.

    I also disagree with the way you address you discern with his points. It’s cool that you disagree with him, but as an organizer of the event, I don’t think it’s fair going after the speaker directly after his presentation. Save it for the blogosphere. It just sounded kinda Bollinger-ish to me.

  30. Ryan, completely agree with you. The only good reason to move to silicon valley is for the venture capital.

    But Paul’s talk begs the question, if startups are so cheap to start why would you take money to start them?

    If that’s the case, then the founder’s mindset should be more like a small businessman’s. Find paying customers ASAP and get a profitable stream of revenue. If that’s your mindset, then it’s actually detrimental to be in silicon valley (where lifestyle business and single-digit millionaire are both pejoratives).

    You make a good point that founders who have less than $100M exits can still do well financially. There seems to be two benefits to starting a small business on the web vs. starting a meat-space small business. Growth of the web business isn’t limited by time/capital investment and the web business can often be completely automated so that you can start more web businesses. I’d be interested in someone calculating the expected earnings of the folks over at 37 Signals vs. the expected earnings of the founders of a thrice-funded startup selling for 100M.

  31. Has he seen some of the startups coming out of SV recently.

    I think it helps for sure but with sites like Blognation and TCUK shedding light on startups else where in the world (read the UK really:p) then I see no reason to goto SV. However I would go there if I was asked too.

  32. You are mis-interpreting what Mr. Graham is saying. All he is saying is a few basic things:

    1. All things being equal, the more start-up oriented resources in close proximity to a company, the easier it is for that company to be successfully.

    2. Start-up resources (like any other community-oriented resources) have a network effect. This network effect is why it is unlikely for another Silicon Valley to form anywhere (as long as physical movement doesn’t pose a significant problem).

    He never said that any other way to do startups is impossible, merely that it is harder, as long as moving doesn’t impose a significant cost. Three quarters of your essay is a response to a perceived attack that never happened.

  33. This doesn’t do anything to dispute what Paul Graham has said. To me, it seemed clear he was saying that, all things equal, your startup has the best odds in Silicon Valley. You go on to say that it is bad for Europe to make this claim, that there are many resources for startups in Europe, and that there have been several successful startups. This is true, however, none of this in any way disputes the claim that moving your startup to Silicon Valley provides you with the best opportunity.

  34. I also think that Paul is one smart guy and he is telling people to move to SV to keep the Y Combinator deal flow going. Nothing they are doing is unique. And Atlanta is far from hosed. http://tinyurl.com/3cqjj2

  35. It’s not a question of whether you “need” to move. How much will it help? Will a move be worth it? That’s the question to answer.

    Startups usually can’t afford to make short-term sacrifices simply for the benefit of startups that might come along later.

  36. Jon Harper on October 11, 2007 at 7:14 pm said:

    Of course you don’t “need” to move to Silicon Valley.

    His point was that success is more probable if you move there. Which is true for most cases.

  37. hey Ryan –

    I’m glad you’re responded to his essay from yesterday. I wasn’t there but I was picturing you walking out on stage telling him just why in today’s world startups don’t have to be in Silicon Valley.

    They certainly can be, and and there clearly are some advantages. I believe there’s a big difference between bootstrapped startups and startups that are built from day one to be VC funded. If you’re bootstrapped startup, there are actually a lot of reasons not to be in Silicon Valley, which is one of the reasons were here in New Orleans. I’ve talked about this before, and so have others that I respect.

    At any rate, I think it’s important to look at the frame of reference from which Paul Graham is making comments like these. He runs a startup incubator, based in Silicon Valley, with funding rounds in Boston, but aware he’s still encouraging startups that he invests in the air to move to Silicon Valley. His comments at FOWA, and in his essay, clearly must be understood in with context that the overriding goal of Y Combinator is to move as many startups to Silicon Valley as possible.

    I think his comments must be taken as a sales pitch for both Silicon Valley and Y Combinator. And he has every right to do this.

    But that doesn’t mean it’s the right thing for everybody. Entrepreneurship doesn’t exist in one locale, and neither does success.

  38. hey Ryan –

    I’m glad you’re responded to his essay from yesterday. I wasn’t there but I was picturing you walking out on stage telling him just why in today’s world startups don’t have to be in Silicon Valley.

    They certainly can be, and and there clearly are some advantages. I believe there’s a big difference between bootstrapped startups and startups that are built from day one to be VC funded. If you’re bootstrapped startup, there are actually a lot of reasons not to be in Silicon Valley, which is one of the reasons were here in New Orleans. I’ve talked about this before, and so have others that I respect.

    At any rate, I think it’s important to look at the frame of reference from which Paul Graham is making comments like these. He runs a startup incubator, based in Silicon Valley, with funding rounds in Boston, but aware he’s still encouraging startups that he invests in the air to move to Silicon Valley. His comments at FOWA, and in his essay, clearly must be understood in with context that the overriding goal of Y Combinator is to move as many startups to Silicon Valley as possible.

    I think his comments must be taken as a sales pitch for both Silicon Valley and Y Combinator. And he has every right to do this.

    But that doesn’t mean it’s the right thing for everybody. Entrepreneurship doesn’t exist in one locale, and neither does success.

  39. i think it depends on the type of business you are trying to build – if it’s media or entertainment then London might be a better place. For example, Last.fm really benefited from being in East London, rather than in Silicon Valley which is hardly known for it’s underground music scene.

  40. My inherent punk attitude would urge me to say: bollocks to startups, where are all the upstarts these days?

    Anyway, does Silicon Valley still exist? I though it had been thoroughly mined to provide the raw material for tit jobs, or am I thinking too literally here?

    Knowing me, that’s highly probable 😉

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