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Archive for January 15th, 2008

http://www.paulgraham.com/siliconvalley.html

Why to Move to a Startup Hub

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October 2007

After the last talk I gave, one of the organizers got up on the stage to deliver an impromptu rebuttal. That never happened before. I only heard the first few sentences, but that was enough to tell what I said that upset him: that startups would do better if they moved to Silicon Valley.

This conference was in London, and most of the audience seemed to be from the UK. So saying startups should move to Silicon Valley seemed like a nationalistic remark: an obnoxious American telling them that if they wanted to do things right they should all just move to America.

Actually I’m less American than I seem. I didn’t say so, but I’m British by birth. And just as Jews are ex officio allowed to tell Jewish jokes, I don’t feel like I have to bother being diplomatic with a British audience.

The idea that startups would do better to move to Silicon Valley is not even a nationalistic one. [1] It’s the same thing I say to startups in the US. Y Combinator alternates between coasts every 6 months. Every other funding cycle is in Boston. And even though Boston is the second biggest startup hub in the US (and the world), we tell the startups from those cycles that their best bet is to move to Silicon Valley. If that’s true of Boston, it’s even more true of every other city.

This is about cities, not countries.

And I think I can prove I’m right. You can easily reduce the opposing argument ad what most people would agree was absurdum. Few would be willing to claim that it doesn’t matter at all where a startup is—that a startup operating out of a small agricultural town wouldn’t benefit from moving to a startup hub. Most people could see how it might be helpful to be in a place where there was infrastructure for startups, accumulated knowledge about how to make them work, and other people trying to do it. And yet whatever argument you use to prove that startups don’t need to move from London to Silicon Valley could equally well be used to prove startups don’t need to move from smaller towns to London.

The difference between cities is a matter of degree. And if, as nearly everyone who knows agrees, startups are better off in Silicon Valley than Boston, then they’re better off in Silicon Valley than everywhere else too.

I realize I might seem to have a vested interest in this conclusion, because startups that move to the US might do it through Y Combinator. But the American startups we’ve funded will attest that I say the same thing to them.

I’m not claiming of course that every startup has to go to Silicon Valley to succeed. Just that all other things being equal, the more of a startup hub a place is, the better startups will do there. But other considerations can outweigh the advantages of moving. I’m not saying founders with families should uproot them to move halfway around the world; that might be too much of a distraction.

Immigration difficulties might be another reason to stay put. Dealing with immigration problems is like raising money: for some reason it seems to consume all your attention. A startup can’t afford much of that. One Canadian startup we funded spent about 6 months working on moving to the US. Eventually they just gave up, because they couldn’t afford to take so much time away from working on their software.

(If another country wanted to establish a rival to Silicon Valley, the single best thing they could do might be to create a special visa for startup founders. US immigration policy is one of Silicon Valley’s biggest weaknesses.)

If your startup is connected to a specific industry, you may be better off in one of its centers. A startup doing something related to entertainment might want to be in New York or LA.

And finally, if a good investor has committed to fund you if you stay where you are, you should probably stay. Finding investors is hard. You generally shouldn’t pass up a definite funding offer to move. [2]

In fact, the quality of the investors may be the main advantage of startup hubs. Silicon Valley investors are noticeably more aggressive than Boston ones. Over and over, I’ve seen startups we’ve funded snatched by west coast investors out from under the noses of Boston investors who saw them first but acted too slowly. At this year’s Boston Demo Day, I told the audience that this happened every year, so if they saw a startup they liked, they should make them an offer. And yet within a month it had happened again: an aggressive west coast VC who had met the founder of a YC-funded startup a week before beat out a Boston VC who had known him for years. By the time the Boston VC grasped what was happening, the deal was already gone.

Boston investors will admit they’re more conservative. Some want to believe this comes from the city’s prudent Yankee character. But Occam’s razor suggests the truth is less flattering. Boston investors are probably more conservative than Silicon Valley investors for the same reason Chicago investors are more conservative than Boston ones. They don’t understand startups as well.

West coast investors aren’t bolder because they’re irresponsible cowboys, or because the good weather makes them optimistic. They’re bolder because they know what they’re doing. They’re the skiers who ski on the diamond slopes. Boldness is the essence of venture investing. The way you get big returns is not by trying to avoid losses, but by trying to ensure you get some of the big hits. And the big hits often look risky at first.

Like Facebook. Facebook was started in Boston. Boston VCs had the first shot at them. But they said no, so Facebook moved to Silicon Valley and raised money there. The partner who turned them down now says that “may turn out to have been a mistake.”

Empirically, boldness wins. If the aggressive ways of west coast investors are going to come back to bite them, it has been a long time coming. Silicon Valley has been pulling ahead of Boston since the 1970s. If there was going to be a comeuppance for the west coast investors, the bursting of the Bubble would have been it. But since then the west coast has just pulled further ahead.

West coast investors are confident enough of their judgement to act boldly; east coast investors, not so much; but anyone who thinks east coast investors act that way out of prudence should see the frantic reactions of an east coast VC in the process of losing a deal to a west coast one.

In addition to the concentration that comes from specialization, startup hubs are also markets. And markets are usually centralized. Even now, when traders could be anywhere, they cluster in a few cities. It’s hard to say exactly what it is about face to face contact that makes deals happen, but whatever it is, it hasn’t yet been duplicated by technology.

Walk down University Ave at the right time, and you might overhear five different people talking on the phone about deals. In fact, this is part of the reason Y Combinator is in Boston half the time: it’s hard to stand that year round. But though it can sometimes be annoying to be surrounded by people who only think about one thing, it’s the place to be if that one thing is what you’re trying to do.

I was talking recently to someone who works on search at Google. He knew a lot of people at Yahoo, so he was in a good position to compare the two companies. I asked him why Google was better at search. He said it wasn’t anything specific Google did, but simply that they understood search so much better.

And that’s why startups thrive in startup hubs like Silicon Valley. Startups are a very specialized business, as specialized as diamond cutting. And in startup hubs they understand it.

Notes

[1] The nationalistic idea is the converse: that startups should stay in a certain city because of the country it’s in. If you really have a “one world” viewpoint, deciding to move from London to Silicon Valley is no different from deciding to move from Chicago to Silicon Valley.

[2] An investor who merely seems like he will fund you, however, you can ignore. Seeming like they will fund you one day is the way investors say No.

Thanks to Sam Altman, Jessica Livingston, Harjeet Taggar, and Kulveer Taggar for reading drafts of this.

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06.12.06

Tim O'ReillyTim O’Reilly

Startup Centers

Paul Graham recently wrote a couple of thought-provoking essays on the social and economic conditions that are most conducive to the formation of startup companies, How to Be Silicon Valley and Why Startups Condense in America.

Paul had sent one version of these essays to me for comment before publication, but unfortunately, I wasn’t able to send in a response in time to be useful. However, Paul also sent me a followup question in email, for which our research group just happens to have some good answers. Paul wrote: “In your opinion, which US cities are the biggest startup centers after Silicon Valley and Boston? Fred Wilson is trying to convince me NYC is no 3, and I just can’t believe it. Surely Austin and Seattle have more startups, no?”

Paul is right, according to Roger Magoulas, the head of O’Reilly Research. The San Francisco Bay Area (including Silicon Valley) is #1, followed by Boston at #2, Seattle/Tacoma at #3, and New York at #4. Paul’s wrong about Austin, though. It’s at #7, behind Washington D.C. and San Diego. Portland, Chicago, and Los Angeles round out the top ten. Here’s Roger’s graph showing the relative concentration of tech startups, based on online job listings.

techstartups.jpg
As noted in previous blog posts, the O’Reilly Research data mart includes over fifty-one million job postings acquired through a data sharing agreement with SimplyHired. (See MySQL and the Database Job Market for another example of analysis based on this data.) Roger and his chief analyst, Ben Lorica, took a look at online job postings from January to May 2006. We used a de-duped subset of approximately 2.1 million job listings with reliable geo data for this study.

Roger describes the methodology as follows: “Start-ups were identified using regular expressions to match variants of ‘start up’ in the job posts. The data includes a small percentage of job posting that are not start-ups, [but] key phrase analysis showed less than .4% of start-up jobs were likely misidentified. We assume errors are randomly distributed in the data. Manual review of random sample passed the ‘smell test’, i.e., the job postings were for self-defined start-ups, based on job posting content and web site lookup. The methodology will miss start-ups that don’t self-identify themselves as start-ups in their job postings.”

Roger noted a couple of caveats:

  1. “Companies posting jobs on-line are past the ‘hire all your friends’ stage; our analysis covers [only] these more established and better funded start-ups
  2. Some large metro areas appear underrepresented in the geotagged jobs data. For example, Craigslist, one of the more reliable sources of geotagged job data, has primary sites in the following citites: San Francisco Bay Area, New York City, Boston, Seattle, San Diego, Portland, Chicago, Denver, Los Angeles, Washington DC. Dallas and Houston, the #5 and #7 metro areas in the US show few jobs on CraigsList..
  3. We performed two roll-ups, one exclusively for technical positions, the other excluding roles not deemed start-up appropriate, e.g., government, education, non-profit, retail. The exclusively technical jobs subset excludes 12.5% of all start-ups in the study. The inappropriate job role subset excludes 9% of all start-ups in the study.”

Roger concluded: “One can quibble with aspects of our methodology, but I believe it fairly represents start-up hiring activity by region and that our methodology doesn’t introduce any biases not already inherent in the underlying data. Ranks and scale are mostly reliable, i.e., San Francisco and Boston have more start-up job hiring activity than Seattle or New York City; Denver and Boulder results are close enough to Austin that they are equivalent.”

Here’s the graph for the second roll-up, which includes non-technical jobs:

allstartups.jpg

To me, this graph suggests a fourth caveat. It seems to me unlikely that San Francisco has a higher rate of small business creation overall than New York, so my guess is that there is significant bias in the non-technical jobs study due to language. Far fewer companies outside of tech may refer to a new business as a “startup.” (That is, no one refers to a “start up dry cleaning business.”)

Finally, Roger and Ben also provided a graph showing what share of all jobs in each metro area were start-ups. He wrote: “Now we see that San Francisco, Boston, Austin and Seattle have the highest share of start-up on-line job postings.” So based on share of job postings, Austin makes the #3 spot. So it looks like Paul can win his bet with Fred using either Seattle or Austin after all! Here’s that final graph:

StartupShareofJobs.jpg

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Paul Martin   [06.12.06 08:42 AM]The last graph suggests an important correction to the analysis: the data should be normalized to the population of the metropolitain area. The last graph does this to some extent, and hence the distribution is quite different.

Eric   [06.12.06 09:20 AM]Austin? Hmm. You might be able to suggest statistically that Austin has start up activity, but it certainly doesn’t feel that way on the ground. Or if there is, it’s in areas this site doesn’t generally cover: unsexy hardware stuff, tedious IT plumbing, or power supply makers. There’s little community around software startups, and effectively none of the young, exciting kind that gets press on Radar.

MArc   [06.12.06 10:44 AM]The last graph means one thing: a lot of wishful thinking on the part of unfunded startups (i.e. a guy with an idea sitting in front of a computer) and I bet it includes Craigslist job ads which are FREE to post for Austin. So much for nomralization. I would definitely ignore the last one. I’ve lived in Austin and I currently live in Boston. Major difference. The first and second graphs make a ton of sense.It’s common knowledge that SF has the highest concentration. But too bad the stats don’t include less researched cities like Toronto. I’ve always wondered how they compare to New York and Boston.
Marc

Phil   [06.12.06 11:55 AM]If Seattle and Tacoma are combined as well as Denver and Boulder, I have to wonder why LA and Orange County are listed separately.

Dethe   [06.12.06 02:15 PM]I’ll echo Marc and say I’d love to see the data for Toronto, Ottawa, and Vancouver added into the soup.–Dethe

Search Engines WEB   [06.12.06 03:48 PM]What is meant by NYC?Is it is referring to Manhattan (that is how New Yorkers refer to it)?

or is it referring to the Five Boroughs – which is officially accurate?

But realistically, it should refer to the New York Metropolitan area as a whole…
this includes Long Island, Westchester and north east New Jersey

The Metro Area as a whole is a Business Mecca – while the biggest concentration is in – very Pricey – Manhattan Boro

Just like the terms Bay area and Seattle and Tacome was used to denote a Business centric community

fred   [06.12.06 06:36 PM]Tim,We did a similar analysis and came to different conclusions last month when I was having my initial debate with Paul.

I just posted on this.

http://avc.blogs.com/a_vc/2006/06/ranking_startup.html

Thanks for doing this work and sharing it. This is really interesting data.

Fred

Shawn   [06.13.06 02:46 AM]I am a Chicagoan who is now in San Francisco. The difference in startup activitiy is a difference of night and day respectively. If I had my choice I would prefer to live in Chicago far and away, but as far as I can tell, I sense slim pickings for a thriving, collaborative tech community, let alone a startup center mentality. I know there are a few such as 37 Signals and, man, do I applaud them for cropping up where they did, but I just can’t wrap my head around why a great city like Chicago with nearby universities of repute and the third largest city (I think) is so behind!! If Paul’s reasoning is on the right track, I think I can nominate Chicago for being left behind in the dust as a startup center, and that’s a real shame.

Vijay   [06.14.06 01:41 AM]I have carried forward the discussion on why Silicon startups do not easily condense in India adding certain reasons that would easily explain the Indian shortcomings at my blog India-IT Pulse: http://india-it-pulse.blogspot.com/2006/06/india-not-conducive-to-silicon.html

Vijay   [06.14.06 01:45 AM]I have carried forward the discussion on why Silicon startups do not easily condense in India adding certain reasons that would easily explain the Indian shortcomings at my blog India-IT Pulse: http://india-it-pulse.blogspot.com/2006/06/india-not-conducive-to-silicon.html

Roger Magoulas   [06.14.06 06:10 PM]Dividing the metro areas we used in the study is a matter of judgement based on population size (we used SMSA – Standard Metropolitan Statistical Area – data available on the web) and geography. We divide LA and Orange because they have large populations and are large geographically. The SMSA data groups Seattle and Tacoma as one metro area and Denver and Boulder as another and we followed that guidance.A combined Los Angeles and Orange County would tie New York in relative size of start-up job postings.

Roger Magoulas   [06.14.06 06:19 PM]We should have noted that our data included a mix of paid and free job postings. While free postings do create a bias, Craigslists postings don’t cost much, and, no one likes to waste time talking to and recruiting people they can’t hire.While your experience in Austin may not compare to your experience in Boston, the results are affected by Austin’s smaller population (Austin SMSA has less than one third the population of the Boston SMSA) and less economic diversity. Anecdotally we consider Austin an area with a history and culture of start-up activity and were not surprised by the results.

We agree Canadian data would be interesting to examine, but we don’t have any data at this time. Not only would we be interested in Toronto, but others cities we perceive as having concentrations of technical folks and an entrepreneurial culture like Waterloo and Vancouver. Would also be interesting to study if differences in the social contract (e.g., national health, income distribution) and culture between the US and Canada show up when looking at start-up job posting data.

Roger Magoulas   [06.14.06 06:21 PM]New York City includes the five boroughs, northern NJ, western Long Island, Westchester and southwestern Connecticut (Fairfield County). As the responder suggests, the biggest concentration is in Manhattan – over 87% of all New York startups and 69% of all jobs in the study period were Manhattan based.

Roger Magoulas   [06.15.06 08:43 AM]One additional reason that start-up activity varies by region may be attitudes towards risk and failure. In the Bay Area, the entrepreneurial culture and history of booms and busts provides plenty of opportunities to learn from failure. The result, a stint at a failed start-up is perceived less as a black mark and more as a valuable, and common learning experience.Folks I know in the Bay Area tend to evaluate the career risk of joining a start-up that may fail as secondary to other professional considerations. An attitude I don’t see as common in my friends from other parts of the country. From reading, this may be even more true in Western Europe where associating with a failed venture can negatively affect one’s career.

Ben Lorica   [09.01.06 05:00 PM]Now available, 2005 statistics from today’s SF Chronicle. Looks like NY was in 10th place last year.

Eric Corl   [09.07.06 10:00 AM]I think this is a great research article. I am with jobs.gobignetwork.com and we have created the largest hub on the internet for startup company job listings. It’s free for job-seekers and charges startups to post their job opportunities. It may be a good resource to make available to your readers.

John Cass   [01.27.07 10:58 PM]Tim,I attended the Boston Social Media Club meeting a few weeks ago, and one of the attendees told me that he or she thought that Boston businesses were not adopting social media as quickly as other regions around the country. Specifically in San Francisco, (not sure if they meant silicon valley) or New York. I told the attendee I was somewhat surprised by their statement because of Boston’s 2nd place as a technology and venture capital hub. They assured me that businesses that can afford to pay for social media, maybe the brand marketers are more conservative than their colleagues in New York and SF. I was still doubtful, but started to conduct some research.

There was a recent research report on the social media usage by the Inc 500, while 19% of the Inc 500 is using blogs for instance; only 8-10% of the Fortune 500 appears to be using blogs. Looking into the figures for Boston, NY, and SF, it did appear that Boston had significantly lower social media participation in the Inc 500 compared to NY and SF. Though the sample sizes were really too small.

Okay, sorry about the long intro, but the now I get to the reason I found this excellent article you wrote. I started doing some thinking and research into the Boston technology industry. One discussion that rose from my initial research is how the number of consumer targeted web 2.0 or social media start-ups is smaller in the Boston area compared to silicon valley.

Your research team did some number crunching on the number of jobs in the different metro areas, could they do some research on web 2.0, or social media jobs in each of the metro areas? How does Boston stand in the ranking of cities then?

Oh, any suggestions on how I could measure social media amongst brands in the three different regions would be most helpful as well.

Ben   [06.08.07 05:16 PM]For those who care, this is a new site focused on Texas (Austin, Dallas, Houston) startups and high tech activity: http://www.texastechpulse.com. You can see the graph of recent venture capital fundings in the state here:
http://www.texastechpulse.com/intelligence/map

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tp://www.paulgraham.com/siliconvalley.html

How to Be Silicon ValleyMay 2006(This essay is derived from a keynote at Xtech.) Could you reproduce Silicon Valley elsewhere, or is there something unique about it?It wouldn’t be surprising if it were hard to reproduce in other countries, because you couldn’t reproduce it in most of the US either. What does it take to make a silicon valley even here?What it takes is the right people. If you could get the right ten thousand people to move from Silicon Valley to Buffalo, Buffalo would become Silicon Valley. [1]

That’s a striking departure from the past. Up till a couple decades ago, geography was destiny for cities. All great cities were located on waterways, because cities made money by trade, and water was the only economical way to ship.

Now you could make a great city anywhere, if you could get the right people to move there. So the question of how to make a silicon valley becomes: who are the right people, and how do you get them to move?

Two Types

I think you only need two kinds of people to create a technology hub: rich people and nerds. They’re the limiting reagents in the reaction that produces startups, because they’re the only ones present when startups get started. Everyone else will move.

Observation bears this out: within the US, towns have become startup hubs if and only if they have both rich people and nerds. Few startups happen in Miami, for example, because although it’s full of rich people, it has few nerds. It’s not the kind of place nerds like.

Whereas Pittsburgh has the opposite problem: plenty of nerds, but no rich people. The top US Computer Science departments are said to be MIT, Stanford, Berkeley, and Carnegie-Mellon. MIT yielded Route 128. Stanford and Berkeley yielded Silicon Valley. But Carnegie-Mellon? The record skips at that point. Lower down the list, the University of Washington yielded a high-tech community in Seattle, and the University of Texas at Austin yielded one in Austin. But what happened in Pittsburgh? And in Ithaca, home of Cornell, which is also high on the list?

I grew up in Pittsburgh and went to college at Cornell, so I can answer for both. The weather is terrible, particularly in winter, and there’s no interesting old city to make up for it, as there is in Boston. Rich people don’t want to live in Pittsburgh or Ithaca. So while there are plenty of hackers who could start startups, there’s no one to invest in them.

Not Bureaucrats

Do you really need the rich people? Wouldn’t it work to have the government invest in the nerds? No, it would not. Startup investors are a distinct type of rich people. They tend to have a lot of experience themselves in the technology business. This (a) helps them pick the right startups, and (b) means they can supply advice and connections as well as money. And the fact that they have a personal stake in the outcome makes them really pay attention.

Bureaucrats by their nature are the exact opposite sort of people from startup investors. The idea of them making startup investments is comic. It would be like mathematicians running Vogue— or perhaps more accurately, Vogue editors running a math journal. [2]

Though indeed, most things bureaucrats do, they do badly. We just don’t notice usually, because they only have to compete against other bureaucrats. But as startup investors they’d have to compete against pros with a great deal more experience and motivation.

Even corporations that have in-house VC groups generally forbid them to make their own investment decisions. Most are only allowed to invest in deals where some reputable private VC firm is willing to act as lead investor.

Not Buildings

If you go to see Silicon Valley, what you’ll see are buildings. But it’s the people that make it Silicon Valley, not the buildings. I read occasionally about attempts to set up “technology parks” in other places, as if the active ingredient of Silicon Valley were the office space. An article about Sophia Antipolis bragged that companies there included Cisco, Compaq, IBM, NCR, and Nortel. Don’t the French realize these aren’t startups?

Building office buildings for technology companies won’t get you a silicon valley, because the key stage in the life of a startup happens before they want that kind of space. The key stage is when they’re three guys operating out of an apartment. Wherever the startup is when it gets funded, it will stay. The defining quality of Silicon Valley is not that Intel or Apple or Google have offices there, but that they were started there.

So if you want to reproduce Silicon Valley, what you need to reproduce is those two or three founders sitting around a kitchen table deciding to start a company. And to reproduce that you need those people.

Universities

The exciting thing is, all you need are the people. If you could attract a critical mass of nerds and investors to live somewhere, you could reproduce Silicon Valley. And both groups are highly mobile. They’ll go where life is good. So what makes a place good to them?

What nerds like is other nerds. Smart people will go wherever other smart people are. And in particular, to great universities. In theory there could be other ways to attract them, but so far universities seem to be indispensable. Within the US, there are no technology hubs without first-rate universities– or at least, first-rate computer science departments.

So if you want to make a silicon valley, you not only need a university, but one of the top handful in the world. It has to be good enough to act as a magnet, drawing the best people from thousands of miles away. And that means it has to stand up to existing magnets like MIT and Stanford.

This sounds hard. Actually it might be easy. My professor friends, when they’re deciding where they’d like to work, consider one thing above all: the quality of the other faculty. What attracts professors is good colleagues. So if you managed to recruit, en masse, a significant number of the best young researchers, you could create a first-rate university from nothing overnight. And you could do that for surprisingly little. If you paid 200 people hiring bonuses of $3 million apiece, you could put together a faculty that would bear comparison with any in the world. And from that point the chain reaction would be self-sustaining. So whatever it costs to establish a mediocre university, for an additional half billion or so you could have a great one. [3]

Personality

However, merely creating a new university would not be enough to start a silicon valley. The university is just the seed. It has to be planted in the right soil, or it won’t germinate. Plant it in the wrong place, and you just create Carnegie-Mellon.

To spawn startups, your university has to be in a town that has attractions other than the university. It has to be a place where investors want to live, and students want to stay after they graduate.

The two like much the same things, because most startup investors are nerds themselves. So what do nerds look for in a town? Their tastes aren’t completely different from other people’s, because a lot of the towns they like most in the US are also big tourist destinations: San Francisco, Boston, Seattle. But their tastes can’t be quite mainstream either, because they dislike other big tourist destinations, like New York, Los Angeles, and Las Vegas.

There has been a lot written lately about the “creative class.” The thesis seems to be that as wealth derives increasingly from ideas, cities will prosper only if they attract those who have them. That is certainly true; in fact it was the basis of Amsterdam’s prosperity 400 years ago.

A lot of nerd tastes they share with the creative class in general. For example, they like well-preserved old neighborhoods instead of cookie-cutter suburbs, and locally-owned shops and restaurants instead of national chains. Like the rest of the creative class, they want to live somewhere with personality.

What exactly is personality? I think it’s the feeling that each building is the work of a distinct group of people. A town with personality is one that doesn’t feel mass-produced. So if you want to make a startup hub– or any town to attract the “creative class”– you probably have to ban large development projects. When a large tract has been developed by a single organization, you can always tell. [4]

Most towns with personality are old, but they don’t have to be. Old towns have two advantages: they’re denser, because they were laid out before cars, and they’re more varied, because they were built one building at a time. You could have both now. Just have building codes that ensure density, and ban large scale developments.

A corollary is that you have to keep out the biggest developer of all: the government. A government that asks “How can we build a silicon valley?” has probably ensured failure by the way they framed the question. You don’t build a silicon valley; you let one grow.

Nerds

If you want to attract nerds, you need more than a town with personality. You need a town with the right personality. Nerds are a distinct subset of the creative class, with different tastes from the rest. You can see this most clearly in New York, which attracts a lot of creative people, but few nerds. [5]

What nerds like is the kind of town where people walk around smiling. This excludes LA, where no one walks at all, and also New York, where people walk, but not smiling. When I was in grad school in Boston, a friend came to visit from New York. On the subway back from the airport she asked “Why is everyone smiling?” I looked and they weren’t smiling. They just looked like they were compared to the facial expressions she was used to.

If you’ve lived in New York, you know where these facial expressions come from. It’s the kind of place where your mind may be excited, but your body knows it’s having a bad time. People don’t so much enjoy living there as endure it for the sake of the excitement. And if you like certain kinds of excitement, New York is incomparable. It’s a hub of glamour, a magnet for all the shorter half-life isotopes of style and fame.

Nerds don’t care about glamour, so to them the appeal of New York is a mystery. People who like New York will pay a fortune for a small, dark, noisy apartment in order to live in a town where the cool people are really cool. A nerd looks at that deal and sees only: pay a fortune for a small, dark, noisy apartment.

Nerds will pay a premium to live in a town where the smart people are really smart, but you don’t have to pay as much for that. It’s supply and demand: glamour is popular, so you have to pay a lot for it.

Most nerds like quieter pleasures. They like cafes instead of clubs; used bookshops instead of fashionable clothing shops; hiking instead of dancing; sunlight instead of tall buildings. A nerd’s idea of paradise is Berkeley or Boulder.

Youth

It’s the young nerds who start startups, so it’s those specifically the city has to appeal to. The startup hubs in the US are all young-feeling towns. This doesn’t mean they have to be new. Cambridge has the oldest town plan in America, but it feels young because it’s full of students.

What you can’t have, if you want to create a silicon valley, is a large, existing population of stodgy people. It would be a waste of time to try to reverse the fortunes of a declining industrial town like Detroit or Philadelphia by trying to encourage startups. Those places have too much momentum in the wrong direction. You’re better off starting with a blank slate in the form of a small town. Or better still, if there’s a town young people already flock to, that one.

The Bay Area was a magnet for the young and optimistic for decades before it was associated with technology. It was a place people went in search of something new. And so it became synonymous with California nuttiness. There’s still a lot of that there. If you wanted to start a new fad– a new way to focus one’s “energy,” for example, or a new category of things not to eat– the Bay Area would be the place to do it. But a place that tolerates oddness in the search for the new is exactly what you want in a startup hub, because economically that’s what startups are. Most good startup ideas seem a little crazy; if they were obviously good ideas, someone would have done them already.

(How many people are going to want computers in their houses? What, another search engine?)

That’s the connection between technology and liberalism. Without exception the high-tech cities in the US are also the most liberal. But it’s not because liberals are smarter that this is so. It’s because liberal cities tolerate odd ideas, and smart people by definition have odd ideas.

Conversely, a town that gets praised for being “solid” or representing “traditional values” may be a fine place to live, but it’s never going to succeed as a startup hub. The 2004 presidential election, though a disaster in other respects, conveniently supplied us with a county-by-county map of such places. [6]

To attract the young, a town must have an intact center. In most American cities the center has been abandoned, and the growth, if any, is in the suburbs. Most American cities have been turned inside out. But none of the startup hubs has: not San Francisco, or Boston, or Seattle. They all have intact centers. [7] My guess is that no city with a dead center could be turned into a startup hub. Young people don’t want to live in the suburbs.

Within the US, the two cities I think could most easily be turned into new silicon valleys are Boulder and Portland. Both have the kind of effervescent feel that attracts the young. They’re each only a great university short of becoming a silicon valley, if they wanted to.

Time

A great university near an attractive town. Is that all it takes? That was all it took to make the original Silicon Valley. Silicon Valley traces its origins to William Shockley, one of the inventors of the transistor. He did the research that won him the Nobel Prize at Bell Labs, but when he started his own company in 1956 he moved to Palo Alto to do it. At the time that was an odd thing to do. Why did he? Because he had grown up there and remembered how nice it was. Now Palo Alto is suburbia, but then it was a charming college town– a charming college town with perfect weather and San Francisco only an hour away.

The companies that rule Silicon Valley now are all descended in various ways from Shockley Semiconductor. Shockley was a difficult man, and in 1957 his top people– “the traitorous eight”– left to start a new company, Fairchild Semiconductor. Among them were Gordon Moore and Robert Noyce, who went on to found Intel, and Eugene Kleiner, who founded the VC firm Kleiner Perkins. Forty-two years later, Kleiner Perkins funded Google, and the partner responsible for the deal was John Doerr, who came to Silicon Valley in 1974 to work for Intel.

So although a lot of the newest companies in Silicon Valley don’t make anything out of silicon, there always seem to be multiple links back to Shockley. There’s a lesson here: startups beget startups. People who work for startups start their own. People who get rich from startups fund new ones. I suspect this kind of organic growth is the only way to produce a startup hub, because it’s the only way to grow the expertise you need.

That has two important implications. The first is that you need time to grow a silicon valley. The university you could create in a couple years, but the startup community around it has to grow organically. The cycle time is limited by the time it takes a company to succeed, which probably averages about five years.

The other implication of the organic growth hypothesis is that you can’t be somewhat of a startup hub. You either have a self-sustaining chain reaction, or not. Observation confirms this too: cities either have a startup scene, or they don’t. There is no middle ground. Chicago has the third largest metropolitan area in America. As source of startups it’s negligible compared to Seattle, number 15.

The good news is that the initial seed can be quite small. Shockley Semiconductor, though itself not very successful, was big enough. It brought a critical mass of experts in an important new technology together in a place they liked enough to stay.

Competing

Of course, a would-be silicon valley faces an obstacle the original one didn’t: it has to compete with Silicon Valley. Can that be done? Probably.

One of Silicon Valley’s biggest advantages is its venture capital firms. This was not a factor in Shockley’s day, because VC funds didn’t exist. In fact, Shockley Semiconductor and Fairchild Semiconductor were not startups at all in our sense. They were subsidiaries– of Beckman Instruments and Fairchild Camera and Instrument respectively. Those companies were apparently willing to establish subsidiaries wherever the experts wanted to live.

Venture investors, however, prefer to fund startups within an hour’s drive. For one, they’re more likely to notice startups nearby. But when they do notice startups in other towns they prefer them to move. They don’t want to have to travel to attend board meetings, and in any case the odds of succeeding are higher in a startup hub.

The centralizing effect of venture firms is a double one: they cause startups to form around them, and those draw in more startups through acquisitions. And although the first may be weakening because it’s now so cheap to start some startups, the second seems as strong as ever. Three of the most admired “Web 2.0” companies were started outside the usual startup hubs, but two of them have already been reeled in through acquisitions.

Such centralizing forces make it harder for new silicon valleys to get started. But by no means impossible. Ultimately power rests with the founders. A startup with the best people will beat one with funding from famous VCs, and a startup that was sufficiently successful would never have to move. So a town that could exert enough pull over the right people could resist and perhaps even surpass Silicon Valley.

For all its power, Silicon Valley has a great weakness: the paradise Shockley found in 1956 is now one giant parking lot. San Francisco and Berkeley are great, but they’re forty miles away. Silicon Valley proper is soul-crushing suburban sprawl. It has fabulous weather, which makes it significantly better than the soul-crushing sprawl of most other American cities. But a competitor that managed to avoid sprawl would have real leverage. All a city needs is to be the kind of place the next traitorous eight look at and say “I want to stay here,” and that would be enough to get the chain reaction started.

Notes

[1] It’s interesting to consider how low this number could be made. I suspect five hundred would be enough, even if they could bring no assets with them. Probably just thirty, if I could pick them, would be enough to turn Buffalo into a significant startup hub.

[2] Bureaucrats manage to allocate research funding moderately well, but only because (like an in-house VC fund) they outsource most of the work of selection. A professor at a famous university who is highly regarded by his peers will get funding, pretty much regardless of the proposal. That wouldn’t work for startups, whose founders aren’t sponsored by organizations, and are often unknowns.

[3] You’d have to do it all at once, or at least a whole department at a time, because people would be more likely to come if they knew their friends were. And you should probably start from scratch, rather than trying to upgrade an existing university, or much energy would be lost in friction.

[4] Hypothesis: Any plan in which multiple independent buildings are gutted or demolished to be “redeveloped” as a single project is a net loss of personality for the city, with the exception of the conversion of buildings not previously public, like warehouses.

[5] A few startups get started in New York, but less than a tenth as many per capita as in Boston, and mostly in less nerdy fields like finance and media.

[6] Some blue counties are false positives (reflecting the remaining power of Democractic party machines), but there are no false negatives. You can safely write off all the red counties.

[7] Some “urban renewal” experts took a shot at destroying Boston’s in the 1960s, leaving the area around city hall a bleak wasteland, but most neighborhoods successfully resisted them.

Thanks to Chris Anderson, Trevor Blackwell, Marc Hedlund, Jessica Livingston, Robert Morris, Greg Mcadoo, Fred Wilson, and Stephen Wolfram for reading drafts of this, and to Ed Dumbill for inviting me to speak.

(The second part of this talk became Why Startups Condense in America.)

Comment on this essay.

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Dan DeMaggio

Hacker / Linux Guru

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Paul Graham has the definitive essay on Silicon Valley.

Silicon Valley can’t become virtual: Startups require multiple people who know/trust each other, and that’s hard/impossible to do over the Internet.

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