Screw the Valley. Timothy Sprinkle
[was so fierce].” So he and the company’s founders decided to move the bulk of the Trilogy operation from California to Austin, Texas, to take advantage of the state’s business-friendly regulatory environment and its rich talent base, courtesy of UT. It was a radical move at the time—tech in Austin was all but unheard of at that point—but in hindsight, the relocation plan looks amazingly prescient.
Now, the Texas capital has a reputation as a tech-friendly small city, complete with plentiful office space, diverse housing options, and plenty of after-work entertainment. (Austin’s official motto is the “Live Music Capital of the World,” and more than 100 local venues host live acts every night of the week.) The cost of living is reasonable, the tax structure is extremely pro–business, and the city’s well-known “laid-back cool factor,” courtesy of events like the annual Austin City Limits music festival and the South by Southwest music/film/interactive conference held every March, make it easy to recruit from out of town. To hear the locals talk about it, everyone wants to move to Austin. It’s what the Bay Area’s tech scene would look like if it was purely urban, Price says, rather than stuck out in the San Jose suburbs. (“The lights go out at nine o’clock in Silicon Valley,” he says with a laugh.)
“So here in Austin we skipped the Silicon Valley stage and now we’re just like San Francisco. Austin has tipped as an urban city. Five years ago downtown was where you partied, not where you lived. Now there are condos, lofts, literally people are moving out of the suburbs and moving downtown. It just tipped. And there are all these techies hanging around downtown and running startups.”
Price is not alone in this realization.
Jay Gierak and Nathan Labenz learned that there is tech life outside of California in 2012 when they relocated Stik, their social-based recommendation app, from San Francisco to their hometown of Detroit, Michigan.
“It was really an easy decision for us to make,” Gierak says from the company’s new office near the Detroit Lions’ home at Ford Field. “The fact is, it kind of sucks to be in Silicon Valley if you’re not well funded. It’s difficult to retain talent in that environment, and it can be really difficult to stand out from the crowd. It’s the best place in the world to be if you have $50 million in the bank, but for the rest of us it can be really tough.”
Detroit, it turned out, was the answer for them. The area is home to a surprising community of engineering and scientific talent, thanks to the thousands of workers who moved to the area over the years to work in the auto industry, and the University of Michigan and Michigan State University are nearby for more software-specific workers. The cost of living is shockingly low, so founders don’t need to pay their developers as much as they would in the Bay Area, and given the lack of overall competition in the area, staffing a startup is generally an easy prospect in Michigan. The tech community isn’t as deep as other cities, but local entrepreneurs say there is enough talent to go around and poaching generally is not a problem.
Stik operates out of the Madison building, a venture-backed coworking space located a few blocks from the Detroit River in the center of downtown, where the founders and their employees can work surrounded by more than a dozen like-minded tech companies. Urban, loftlike living is available right around the corner.
“We found that we could attract and retain better talent here than we could in Silicon Valley,” Gierak says, citing the nearby research universities and the low cost of living in what is, believe it or not, becoming a pretty nice place to live.
It is also an opportunity to be a part of something bigger than just the next hot app or the next Facebook clone.
“Downtown Detroit is developing something special around its burgeoning tech community, and we want to be part of it,” Labenz said in a statement at the time of the move. “We are excited to collaborate with other Detroit-based companies that are making a positive impact, and we are eager to grow our business with some of the best tech talent in the country.”
The fact is, bright ideas are not geographically limited, and innovation is happening every day in cities all over the country and around the world. What’s more, it is now cheaper than ever to start a technology company, thanks to plug-and-play platforms like Amazon Web Services that all but eliminate the need for expensive hardware and infrastructure. It’s becoming less risky, too, as more and more founders are following the popular lean startup model that encourages quick deployments, bare-bones testing, and “failing quickly” when an idea doesn’t find a profitable market.
The primary hurdle at this point is coming up with a good idea and finding a way to monetize it. And Silicon Valley doesn’t have a monopoly on that.
“People’s perceptions of places like the Valley are colored by the notion that they have some sort of advantage,” explains Thom Ruhe, vice president of entrepreneurship at the Ewing Marion Kauffman Foundation in Kansas City, Missouri. The Kauffman Foundation is a nonprofit dedicated to advancing entre-preneurship, among other things, and is a strong supporter of coast-to-coast startup ecosystems. “What they really have going for them [in the Bay Area] is population density, so startup [founders] feel that they have to go there to be successful. It’s like an actor going to LA to be successful. But there’s no rule that ideas are limited to the coasts. It’s not about having the ideas; it’s about having the support system around to take the ideation phase to a commercial operation.”
That’s where startup ecosystems outside of the Bay Area typically fall short. They may have access to great minds and all sorts of new ideas, but without a true support network in place—including engineers to build the product, MBAs to sell it, and venture capitalists to fund it all—it can be difficult for new entrepreneurs to get too far beyond the “thinking about it” phase to create a viable business. These are significant limitations, and the solutions aren’t yet obvious.
“In places like here in Kansas City, for example, it’s the polite Midwest,” Ruhe says. “And part of that culture is holding us back. It’s very nuanced, but it’s hugely significant. If you’re in Menlo Park and you bump into someone at a party, the first thing they’ll probably ask is what you do. Out there, if you’ve worked at four different companies in three years, that doesn’t matter, they don’t care. Your identity is what you do. I’m a CFO, or I’m an engineer. Come to Kansas City, Omaha, Minneapolis, and take the same scenario, but the question isn’t ‘what do you do?’ It’s ‘who do you work for?’ Your identity here is around who you create value for. It’s a slight difference, but the implications for our economy are significant.”
It’s a mind-set, he explains. In some areas, you have workers saying, “ I can function in various companies and organizations.” In others, it’s more along the lines of, “I’m a cog in a wheel.”
“That’s not where job growth is happening in this economy; it’s not helping us,” Ruhe says.
The good news, according to Ruhe, is that these attitudes are now changing as Silicon Valley–type support networks have begun spreading across the country as VCs, angel networks, and other investors expand their search for the next big thing in tech. Smart investors know that good ideas and low valuations are easier to find in out-of-the-way places like Miami, Portland, and Raleigh, among others, so it’s a way for them to get in on the ground floor before it enters the mainstream.
“I think that with increased social awareness and by educating people about the importance of entrepreneurship, the climate for startups nationwide is getting better,” Ruhe says. “In Kansas City, we have things like Silicon Prairie News that’s starting to increase awareness, and more and more community building is happening around this. At the risk of sounding cliché, it doesn’t take a village but it takes a region to do this. You need a continuum; you need people with ideas and vision; and you then need to have the activists, the change agents, who might not be creating the ideas but have the gumption to act on them and do something about it.”
Consider Boulder, Colorado, for example. In the last ten years, the city has emerged as one of the hotter technology cities in the country, becoming home to a blossoming startup community centered on the now-national accelerator program TechStars and venture capital firms including The Foundry Group.