A tale of two cities: Where is the best place to build a tech startup? Silicon Roundabout (UK) or Silicon Valley (US)

Wednesday, 6 November 2013, 11:36 | Category : General
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Ian-gotts

I spent 15 years building a tech company to a reasonable size and a successful exit in the UK, and now I now live in San Francisco where I have become an avid student of  “the Silicon Valley way”.  Not that it is set in stone, as it is constantly changing and morphing.  For example, Silicon Valley now includes the City of San Francisco, which has become a hotbed for tech startups and incubators. So much so that the VCs are moving out of Sand Hill Road and opening up offices in the City.

But I have been struck by how different the experiences are.

These comments are empirical and not backed up with hard data. So it is gut feel. But many recognize that the most valuable but under-used resource for senior executives is being able to listen to their gut or intuition. Here is a fascinating discussion on TED.com http://www.ted.com/conversations/12133/is_the_gut_instinct_real.html

 

Stark differences

So here are my observations on how stark differences really are.

 

Market size:

Clearly the USA is a significantly larger consumer base than the UK. And the idea of the “Unites States of Europe” is a non-starter due to the cultural, language and economic differences between the countries. So having 300m consumers on your doorstep, all speaking the same language and having broadly the same attitudes makes all the difference. In fact, it colours every other factor which I have considered.

To put the size of market into context, Lululemon Athletica sold just yoga clothes and mats in North America through their own stores and online. Nothing else.  Two years ago their annual revenue was $700 million.  They have now expanded into workout clothes and their revenue has doubled.

Attitude: 

In the USA there is no such thing as failure, only feedback. To create something really special means taking risk. And risk means you sometimes fail. That is acceptable in the USA. But also it is good to succeed. There is no UK “tall poppy syndrome here”, nor the stigma of failing.  That breeds a very different type of entrepreneur. One that is positive, risk taking and celebrates success.

Funding:

Take a huge market and bet on a management team to make it big. That is the approach for funding in the US. Not that the money is thrown around, but it is true venture capital. It is risk capital. The UK funding environment seems as risk averse as a bank, and the small UK market means the bets are small.  As the potential US market is large, then VCs understand that once a level of product traction is gained, then substantial levels of funding are required to scale.  But the first priority is not necessarily a clear business model or profitability. Which leads me to my next point.

A great website is Crunchbase. It lists information about companies, including funding.  It is a real eye-opener.  Did you realize that Box, Dropbox and Sugarsync have each had over $150 million invested to date? And both Airbnb and Uber have taken more than $300 million in investment?

Proven model:

The greatest criticism I hear from UK entrepreneurs, is that the US funding approach is not realistic; that companies with no proven business model or idea of how they are going to be come profitable, are funded. They say that this is not a credible approach.  But then you look at the number of companies that have scaled up and then become wildly valuable and profitable or acquired before they reach profitability. Companies in both B2C and B2B that include LinkedIn, Twitter, Facebook, Paypal, YouTube, Groupon, Opsware, Eloqua, Exact Target, Yammer, Airbnb and the list goes on and on. But the approach is made possible by a combination of the market size, the attitudes and the funding appetite.

Serial entrepreneurs:

With some many entrepreneurs, there are a huge number of people who have been very successful, many of who never need work again. But they do. The achieve success after success.  Perhaps because they are financially secure they are prepared to take greater risks. But also because they have proven they can do it, VCs are falling over themselves to fund them. So the entrepreneurs don’t even need to use their own money. And with every company they are teaching, coaching and mentoring their employees to be entrepreneurs, And finally they become investors either as individuals, syndicates or VCs.

In fact at an event in Las Vegas last year, I interviewed Tom Siebel, founder of Siebel Systems, for a video case study. He sold to Siebel Systems to Oracle and according to wikipedia he is worth $1.8bn.  But when we met he was all fired up about his latest venture C3Energy.com   At the same event I met Scott McNealy, co-founder of Sun Microsystems which when it was sold made Scott a billionaire.  But he was manning the exhibition stand with his brother pitching his latest venture, not out on the golf course.

Support:

In the UK, as success and riches are in short supply, people seem unwilling to give support and advice for free. They want a little piece of the action. This desire to get something for everything they do I have coined “Mr 1%”.  Out here, advice is freely given with no expectation of some payback. What goes around comes around seems to be the approach – a form of tech karma.  However, not everything is a free ride. When you need solid advice there is a strong ecosystem of advisory firms who know how to bill you!!

Education and networking:

Again with so many successful entrepreneurs, there is a willingness to share their knowledge and experience. So VCs, lawyers and advisors are constantly running events to showcase their clients and get entrepreneurs together. It is great education and networking for entrepreneurs, but also good business for the hosts who get to spot the rising stars.

Weather:

Finally, it is sunny here for a great deal of the year. It may sound stupid, but when you are waking up to clear skies and lunching outside then everyone has a happier and more positive attitude. If you spend your weekends outside, then you are healthier and return to work on Monday invigorated and recharged. And that leads to higher productivity and business optimism. How different is that attitude if you are subjected to grey and cold for over six months of the year?

There are clear links between happy people and productivity. http://iangotts.wordpress.com/2012/10/22/happy-staff-i-run-a-business-not-a-bloody-holiday-camp/  Is it no wonder that Sweden, which is completely dark for most of the winter months has the highest suicide rate of any European country?

 

Implications:

So what are the implications?  It is not realistic for every entrepreneur to up sticks and come to Silicon Valley.  But, if you are growing a UK or European based tech company, and have global aspirations then you need to aim to establish a credible team, which means at least one of your senior team of founders based here, within the first three years.

To be able to get established then you have a couple of hurdles. The first is a visa for the staff moving over and the second is the cost of supporting them on the ground whilst they start to build a business. The final one is the time burnt up in the logistics of moving over and getting established.

Having now moved my family to Silicon Valley twice in the last three years, my wife and I have some experience of how to avoid many of the pitfalls.  We are currently writing a book called “Thinking of moving to Silicon Valley – Ask the Smart Questions” which should be published in the Spring.  Do let us know if you want to see an early draft. 

Ian Gotts is a regular guest blogger for The PR Network and is a VP at TIBCO software, a non-exec director, author of over seven books and an entertaining speaker.

 

 

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