I’ve spent much of today, interviewing Australian tech company founders on why they moved to San Francisco for a project I’m doing.
One question I’m asking is what advice they would give others planning a similar move.
Every response so far has been, “do it now. Don’t wait.”
So what are you waiting to do?
Anna Weiner writes a great piece on the brutal realities of working for tech startups. The food might be good but they are an anxious and stressful place to work. This story is worth a read for anyone considering working for one.
What happens in Silicon Valley when your startup doesn’t fit into the current hot ‘unicorn’ categories?
I recently spoke to one female founder about her business and why she chose to setup on the US East Coast rather than follow the popular path of establishing a San Francisco base. Her answer shows the obsessions Silicon Valley investors have and why the Bay Area model may not be right for all companies.
Originally we planned to set up in the Bay area. That’s what you do right? So our company’s registered office was in Palo Alto and then I started plans to have three of my staff and myself relocate to San Francisco. I took onboard some Silicon Valley Advisors and this was a pretty horrific experience that taught me a lot. Here is my experience of trying to set up in the Bay Area then not. This is my cautionary tale to other Aussie Start Ups.
The Valley comes with a certain formula that gets beaten into you. Here’s how it goes:
A Start Up must:
- Be in the Bay Area
- Have had an MVP in market
- Be an incorporated US company, preferably a Delaware company if you want US VC investment
- Have a Run Rate (annual revenue) of $3-5million dollars in order to attract investment
- Not be enterprise software
- Be a SaaS company like Atlassian with a similar business model
- Have a product that is inexpensive where clients can self-install and there is no professional services or servicing required
I found the Silicon Valley Advisors I dealt with to be arrogant, formulaic and could not see potential outside of the standard Unicorn-creating formula. So I realized the Bay Area was not going to be a good fit for My business. Additionally I figured that none of our clients were actually based in the Bay Area and I needed to be near them. As a FinTech company the logical thing was for us to go to where our clients were so that we could constantly listen to them. Listen to their problems, understand their business, build relationships, have them help us figure out what our product should be and pay us
So we moved to NYC and set up on office in Chelsea. From NYC it takes only a couple of hours to get to Boston, Baltimore, Philadelphia, Columbus, Chicago, even Texas to be with clients.
Also the investment discussions are much more ‘normal’ and investors are respectful of me as the CEO and Founder and my background and potential to build a significant, revenue led and profitable large software company. They are backing me and value that I am experienced. Not once has age or gender come up. In fact to be fair, probably the opposite. Being a woman over 40 seems to be appealing to East Coast clients and investors.
The founder’s experience also betrays a herd mentality among the Silicon Valley investors, something that may be a weakness for the industry and the region. It certainly indicates the dominant business model may be very fragile as markets turn against tech unicorns.
Can Japan reinvigorate its startup community? A story in the Wall Street Journal describes some of the attempts to encourage entrepreneurs in an economy that has been stagnant for a quarter century.
In many ways Japan is a prototype for the modern global economy, just as the Japanese tried to stimulate their economy following their 1989 bust by pumping money into their deeply corrupt construction industry , so too has the rest of the world tried a similar strategy with the banking system after the 2008 crisis.
The results in both cases been the same stagnation as the money is wasted on non productive schemes and speculation rather than investment in job and wealth creating businesses and innovations.
Now the Japanese are looking to a bottom up stimulus to their economy which challenges the country’s social norms where getting a ‘safe job’ with a large corporation is seen as the best prospect for young people.
While this is a change from the accepted wisdom, the entrepreneurial model really isn’t that strange for the Japanese with a range of successful technology companies started by post World War II entrepreneurs ranging from Sony to Softbank.
The Japanese model though may not be suited to the Silicon Valley venture capital model and this is where it’s dangerous to make comparisons with what works in San Jose, Tel Aviv or Shoreditch.
Japan’s strengths in industrial engineering may well make its businesses well suited for the Internet of Things the Wall Street Journal article quotes serial entrepreneur Taizo Son as suggesting. Interestingly, the 43 year old serial entrepreneur is the youngest brother of SoftBank founder Masayoshi Son.
Another area where Japan is a glimpse of the future is in the aging population and it may well be that harnessing the abilities of older entrepreneurs is another area where the country can either show the way to success or what not to do with an older, stagnant economy.
In many ways Japan is a pointer to where the world is heading. How they manage the early twenty-first century will be a lesson for the rest of us.
Being a startup in an unsexy industry can have its advantages believes one founder, particularly when your only competitors are sales and marketing focused corporates that struggle to innovate or execute on new ideas.
“There are some advantages of being in a non-sexy industry,” says Ziv Kedem, co-founder and CEO of Israeli company Zerto, “It means there are not too many people doing it and not too many can convince VCs this is a multi billion dollar market.”
Kedem was speaking to Decoding the New Economy during his recent visit to Sydney about Zerto, a disaster recovery software company – a distinctly unsexy business – which is his second startup following the sale of his first, Kashya, to storage giant EMC in 2006.
The advantage with being non-sexy is often the only competitors are large corporations, a prospect that doesn’t phase Kedem. “If the competition is only coming from the large vendors then there won’t be any innovation there,” he smiles.
Kedem’s view is many large companies are focused on sales and marketing, which means they don’t have the skills or the motivation to execute business plans in new sectors.
In many respects this echoes the experience of Seth Godin who expected Google becoming a competitor to his Knol business would be the fledgling company’s death knell. Instead Knol survived and Google’s notoriously poor attention settle upon another shiny, sexy industry to disrupt.
The problem for those non-sexy industries is raising investor money as the presence of a Google, Microsoft or Amazon in the market tends to scare VCs, private equity firms or retail investors away.
Unlike his compatriot, John Medved, Kedem doesn’t see crowdfunding as a way around an investment drought as smaller investors are attracted to the ‘sexier’ businesses as well and raising the substantial amounts necessary for enterprise ventures is difficult on those platforms.
When a startup can find an investor, Kedem recommends not being shy about raising funds. “It’s rare to meet someone who raised too much,” he states.
Kedem also recommends investing in the team and looking for skills that the company will need in the future, not just today. Talking, to everyone from investors to customers to peers, is also important and he believes this is why Silicon Valley and Israel are so successful as technology hubs.
The most important aspect for an entrepreneur is self belief says Kedem, particularly when raising funds. “You’re doing the investor a favour when you go to them,” he says.
Ultimately that self belief is probably what everyone in business needs, particularly when facing a huge competitor.
Regardless of how unsexy your business is, believing it addresses a problem that people will pay to solve, may well be its greatest asset.