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Why It Makes Sense To Start Your Company Outside of The Valley

It feels like an unwritten rule that if you’re starting a business, you have to do it in Silicon Valley. Everyone who’s anyone is there: Google, Apple, Facebook, Groupon and so forth. Surely your startup won’t amount to anything if it isn’t there as well. Or will it? Believe it or not, there are actually several compelling reasons to consider starting your company outside of the Valley – especially if you don’t have access to big-time VC or angel investments.

Independence

Human beings are social creatures. We’re constantly comparing ourselves (our appearance, possessions and status in life) with those around us – often without even realizing it. Sometimes this is a good thing, like when a friend’s progress inspires us to work harder. But other times, our comparative impulses can lead us down the wrong path. We start emulating the wrong people and lose sight of what truly matters to us.

This is as true of Silicon Valley as anywhere else. With so many other entrepreneurs and “experts” clustered around you, a young startup can easily be swayed by popular ideas of what they “should” be doing – and away from what they want to do. Contrast this with a non-tech city where there are few (if any) standard expectations of how startups should behave. This allows the founder to retain an independent spirit and follow their own vision with ease.

Lower Cost of Living

Cost of living may not be a huge concern when you have $50 million in venture capital to play with. If you’re bootstrapping, though, costs become paramount. As Penelope Trunk explains on her Brazen Careerist blog:

“There will be months when you cannot pay people. There will be days when you worry you can’t pay your own bills. You will fall behind much faster in Silicon Valley than you will in Iowa. And a big reason that startups fail is because the founders don’t keep going— searching for what will work. Living somewhere inexpensive gives you leeway: a way to have a decent lifestyle while you’re gambling that a dream will come true.”

It’s true: living in the Valley is not cheap. In fact, it’s largely for this reason that more people have left California than moved there for four straight years and counting, according to NBC Bay Area. This isn’t to say you can’t eventually relocate to Silicon Valley – just that it may not be the ideal place to start a cash-hungry business from scratch.

Lower Wages for Top Talent

Going hand-in-hand with lower cost of living is the ability to pay lower wages for top talent. Top-notch programmers and business development people in Silicon Valley know how valuable they are. In fact, there is currently a slight shortage of tech talent in that area. Demand exceeds supply, and these valuable professionals have their pick of high-paying gigs to choose from. In other words, they have no real reason to accept less from a bootstrapping startup (unless they are unusually passionate about what you’re working on.)

This isn’t the case in other cities. Top programmers in Portland or Raleigh-Durham (where Shoeboxed.com is located) don’t have as many lucrative opportunities to choose from. As a result, startups can pay lower wages for equal or similar quality talent in those cities and keep personnel costs down.

Fewer Nearby Competitors

As noted earlier, there is a popular belief that any startup with serious aspirations has to reside in California. If you’re in a competitive market, there’s a good chance most of your competitors are there as well. Believe it or not, this is actually an advantage for you.

In the Valley, your competitors are all duking it out for press mentions from the same magazines, the same blogs and the same tech pundits. Meanwhile, you can build a groundswell of buzz and publicity from a totally different part of the country. Unlike Silicon Valley, your city probably doesn’t see ambitious new startups being launched on a daily basis. Thus, it will be easier to grab headlines in these places than in a traditional startup hub.

Relative Obscurity

Silicon Valley is a flashy place. Every startup believes they are going to change the world – and they want everyone to know it. But isn’t there something to be said for flying under the radar? Do the best businesses in the world shout from the rooftops about what their trade secrets and plans are? Of course not. When they find a winning formula, they use it and keep quiet about it.

This is infinitely easier to do outside of the Valley than within it. After all: who really expects the next big startup to be located in a city like Pittsburgh? No one – but that’s where Groupon started. By running a quiet operation in an obscure city, you can put precious distance between yourself and competitors who don’t even know you exist until it’s too late.

Lifestyle Flexibility

Silicon Valley, for better or for worse, is a place for founders who are all about their startups. People who live and breathe their businesses to the exclusion of almost everything else. There’s nothing wrong with a startup-obsessed culture per se, but it’s not for everybody. If you’re an avid outdoorsman, for example, there’s no rule saying that you can only run a startup in a big city.

Freeing yourself to consider non-Silicon Valley locations lets you build the startup around your chosen lifestyle, rather than the other way around.

What do you think? Do you agree?

  • http://www.photorious.me Eric

    Agree 100%. Especially with the independence part of it. Much easier to ignore what everyone else is doing and “innovate”. You know, do what everyone else isn’t doing.

  • http://BrophyWorld.com Mark Brophy

    This is a good summary of reasons why you might want to locate your company outside Silicon Valley, and there are others. For instance, Silicon Valley enjoyed explosive growth in the 1950-1985 period, much greater than Texas, but population growth has decreased to the overall United States growth rate, and now Silicon Valley starts businesses that export wealth and jobs to other states and countries.

    Many Silicon Valley start-up companies aspire to be listed on the NASDAQ stock exchange, or to be acquired by one of the large companies of that index such as Google, Cisco, Intel, or Microsoft; and the NASDAQ has declined 50% during the last 10 years. In the same period, the IPSA performance of Chilean companies quintupled. Starting your company in Chile is a good option to consider. I wrote about this in a couple of blog posts:
    http://brophyworld.com/move-to-santiago-chile/
    http://brophyworld.com/why-does-start-up-chile-want-to-mimic-silicon-valley/

  • http://www.peaksmart.com David

    Great article, but one clarification – Groupon is based in Chicago.

  • Allison Canty

    Thanks for the comments! @David – Groupon has two locations. They are located in Chicago, IL and in Palo Alto, CA