Society and business in the 21st Century
Despite having spent a hundred thousand dollars on a chrome panda for their office lobby, Dropbox are warning staff that benefits are about to tighten, Business Insider reports.
The warnings from Dropbox’s management are a clear indication that tougher times are approaching for tech companies. For those wanting to imitate the Silicon Valley greater fool model or get a slice of it, that opportunity may have passed.
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.
Autodesk’s firing of ten percent of its workforce indicates some harsh times are coming for tech workers.
For listed tech companies 2016 has been a bloodbath to date however design company Autodesk seems to have bucked the trend.
The key to keeping investors happy seems to lie in announcing major layoffs, in Autodesk’s case ten percent of its workforce which equates to 950 workers.
Autodesk’s management are painting those layoffs as being due to the company’s transition to cloud services with online subscriptions making up over half the business’ revenue.
Regardless of how valid that reasoning is, the message to the tech workers is clear; more tough times are coming.
With investors ruthlessly expecting better profits, focused leadership and leaner workforces many managers are going to have to face some tough decisions in what’s looking like a difficult year.
Silicon Valley could be soon surpassed by China warns Uber’s Travis Kalanick.
While sceptics could dismiss Kalanick’s claim as his simply sucking up to his hosts in Beijing where he made the comment, or put the statement down to a PR campaign for his company’s renewed push into China, there may be a kernel of truth.
If for nothing else, the Chinese diaspora across the Pacific Rim is known for its entrepreneurial drive. From Bangkok to San Francisco and Sydney, Chinese communities have a reputation for being full of smart and hardworking business people.
Added to the Chinese cultural aspect is history. Fifty years ago car makers in Detroit and motorbike manufacturers in Birmingham, England, scoffed at the idea that their Japanese competitors could overtake them.
Within a quarter of a century they were proved wrong.
Another concern for Silicon Valley is that it could be losing its edge. As veteran journalist Tom Foremski points out, increasingly workers in the Bay Area live in a privileged bubble.
Foremski discusses how younger, creative and innovative workers are finding opportunities in cheaper and more diverse American cities like New York’s Brooklyn.
America’s diversity, and depth of its economy, will continue to be a strength for the foreseeable future but Americans, particularly those in the Bay Area, shouldn’t be resting on its laurels.
Travis Kalanick’s warning might be dramatic, but it isn’t beyond the realms of possibility.
The rise and fall of industrial hubs is a topic that fascinates this blog and the excellent BBC and US National Public Radio series Six Routes to a Richer World discusses how countries as disparate as Germany, Brazil, China and the United States are carving their own paths to prosperity in the 21st Century.
In the US segment, the show looks at one of America’s industrial centres of last century – Dayton, Ohio.
The home of the Wright Brothers, Dayton also saw the invention of the cash register, air conditioner and even the self starting motor. In the early part of the Twentieth Century it held the most patents per capita of any US city and workers flocked to the region for high paying manufacturing job.
Manufacturing, and research, is largely gone from Dayton today and the question posed is could the successful cities of California’s Bay Area follow a similar path this Century.
Whether Silicon Valley and San Francisco fade will be a matter of historical forces that are difficult to see right now, but the likelihood can’t be underestimated.
The World Economic Forum asks can Europe build its own Silicon Valley?
It seems the answer lies in money, investors’ money to be precise, with a lack of VC funds to finance emerging businesses and a lack of acquisition hungry corporates providing high profile experts argues the WEF piece’s author, Keith Breene.
That appears to be a strong argument although there’s still some strong contenders for European tech hubs with the WEF identifying Munich, Paris and London as being major centres.
London’s claims are reinforced by the city’s strength in financial technology with KPMG nominating 18 of the world’s top 50 fintech startups being based in the British capital.
Interestingly, the Belgium town of Leuven which has styled itself as a centre for 3D printing and beer features on the WEF list of European startup hubs as well.
While it’s unlikely Europe can create a ‘Silicon Valley’ – even the post Cold War US would struggle to do so today – the presence of major centres like London and specialist hubs like Leuven indicates another important aspect of creating a global centre, that of having an existing base of businesses and skills.
That skillbase isn’t built up overnight, it’s a decades long process of commitment from industry, investors and governments and often as much the result of a series of happy accidents rather than deliberate planning.
It may well be the question of Europe creating a Silicon Valley isn’t really relevant with the bigger issue being how the continent’s cities and nations put in the conditions to develop long term industrial hubs. Trying to ape today’s successes for a project that will take decades to come to fruition could be a big mistake.
The Obama Administration teams with Apple, HP, Boeing and others to develop a Silicon Valley based wearable tech hub with $170 million in funding reports Venture Beat.
Over $17o million will be invested by the US government and its private sector partners in hybrid flexible electronics manufacturing research that may well underpin the next generation of wearable and embeddable devices.
For the US, its success in the electronics industry is based upon its strong research sector. Making the investments today will help the nation compete as the technology landscape evolves.
