Pride, Passion, Talent on Display at Startup Weekend Seoul

I believe that Silicon Valley may soon be going the way of the floppy disk.

For the last two weeks I have been traveling around Asia with a group of tech entrepreneurs, on a trip called “Geeks on a Plane” organized by Silicon Valley investor Dave McClure. I took the same trip last year.

Why take a trip like this? The answer gets at some very real and seismic shifts taking place in the startup world that will be big news over the next few years.

Startups Cost Less

Ten years ago a successful Internet startup might require one to five million dollars in outside funding. Data centers, engineers, and software licenses were hot commodities and could easily drain a startup’s resources.

Now it is possible to get a startup to the point of testing it in the market — with real customers — for $25,000 to $50,000. This effectively removes VC’s from the equation at these early rounds and turns things over to angel investors. As angel investing becomes increasingly professionalized, success rates increase and more people become involved with it.

“Silicon Valley is a State of Mind, Not Necessarily a Real Place”

Pay attention to this one! This is a quote by Dave McClure and it captures what is happening perfectly. Everywhere you go, there are techies and entrepreneurs who follow the tech business scene, and they are all ideological peers.

Silicon Valley is all about embracing the idea that the world can be changed for the better, and that one can (ultimately) realize rewards by changing it. If you believe this, you are a part of Silicon Valley. What about that statement is related to place?

In Shanghai, Beijing, Seoul, Singapore and Tokyo I have seen first hand the buzz and excitement that comes from people who believe that they can engage with the problems of our world imaginatively and productively. And they are not moving to Silicon Valley.

3D Printer at Singapore’s hackerspace.sg

Place as a Strategic Differentiator

Not being in Silicon Valley is very helpful if you are trying to tap into developing markets like those in China, Korea, and Japan. It is also helpful if you don’t want to have to pay Valley salaries and sucked into the echo chamber there.

As an example, a skilled developer in Silicon Valley might cost you upwards of $120,000 per year; the same person in India would cost $12,000 per year and in Singapore they would cost $48,000 per year.
If you are trying to build a product to serve the Asian market, wouldn’t you rather base your company in Singapore?

Being in “a” place is more important than being in “the” place

It is widely assumed that internet technologies like Skype and email crush distance and make global distributed business possible. True, but there are exceptions.

Real creativity, trust, and ideation has to happen face to face. This is where the magic occurs. If you don’t spend time with people you can’t create.

New-technology tools can help with execution, but only after the team dynamics are in place; they are great for keeping people connected and plugged in, but suck at creating an initial connection.

Love your place. Find the other like minded souls who love your place and start companies with those people. The creativity you unleash in your own backyard is the most important competitive differentiator you have. No one else has your unique set of talents and point of view. Leverage it.

Every City is Becoming Self Aware — All at Once

I do not know of a city anywhere in the world that is not presently undergoing a tech community renaissance right now. This is a VERY big deal.

Every city in the United States along with Europe, Asia, and South America is now using the same playbook — implementing coworking, hacker spaces, incubators, angel investment groups, bar camps, meetups and other proven strategies that will have the effect of cutting off the oxygen supply to Silicon Valley.

Let me say it again: Silicon Valley is getting its global AIR SUPPLY cut.

For the last few decades, Silicon Valley has traded on the fact that people are willing to move there to start companies. The MAJORITY of valley companies are founded by foreign born entrepreneurs. What if they stop coming? What if they find the intellectual and investment capital that allows them to self-actualize in their home turf, where they already have a competitive advantage?

The fact that we have made it so hard for new immigrants to come to the valley and create startups just makes things that much worse. That is why the Startup Visa concept is so important if America – not to mention the valley – wants to keep excelling in innovation and the economy of ideas.

“Soul-crushing Suburban Sprawl” – Paul Graham

The Valley Kinda Sucks

Everybody says that the big draw to San Francisco is the weather. True, it can be pretty nice at times. But it can also be pretty miserable.

The reality is that the weather makes no f*cking difference if you are slaving away 26 hours per day on your startup; and the fact is that humans only really perceive changes in weather anyway: you’ll notice a nice day if it has been preceded by 10 rainy ones, or vice versa. Studies have demonstrated this. Look it up.

Paul Graham said it best, “Silicon Valley is soul-crushing suburban sprawl.” And he also suggested that places that can implement a bikeable, time efficient startup environment without sprawl have a significant competitive advantage over the valley.

Nearly every major city is becoming that place for its community of entrepreneurs. All at once.

So Why Travel?

It’s simple: to go to where the startups will be coming from. Investors who wait around for startups to show up in the valley are going to miss out on serious innovations and investment opportunities.

This means leaving the Lamborghini parked on Sand Hill Road and cabbing it to a gritty hackerspace in the Arab section of Singapore to meet the innovators who are building the future. And this is something that most investors think they are too good and too important to go do.

Fortunately there are scrappy, forward-thinking folks like McClure who are willing to go out there and embrace the future and begin the creative destruction the next wave of innovation will bring to valley culture.

Our challenges are too great to demand that innovation happen one way, in one place, with one set of people. Innovation needs to be systematized and distributed, and this is the opening act.

The Future of Entrepreneurship

I had a great conversation with Dr. Meng Weng Wong today, founder of Joyful Frog Incubator in Singapore. We pondered questions:

• In the future, will companies form teams and then try to get funding, or will entrepreneurs just gather, form ideas and try things?
• How do bands form? And are incubated startups just boy bands?
• Are we not always just betting on individual ability to execute?
• Doesn’t team (and execution) always trump idea?
• Is entrepreneurship a cycle? Shouldn’t exited entrepreneurs come hang out with first time entrepreneurs and try ideas together?

These are important questions in their own right, but the most important thing is that we are asking them. And so are people around the world. And it has nothing to do with Silicon Valley, the place.

Want in on the ground floor of this next wave of innovation? Understand the change that is coming and leverage it in your own backyard. Get involved.

Because I guarantee that in five years the Valley will be a very different place and that we will see thriving startup communities bearing real fruit in every major city.

Why go to the Valley? Good question.

A couple of acknowledgements: Shervin Pishevar pointed out that he and Dave McClure have been talking up the “Silicon Valley is a state of mind” concept for some time; he deserves proper attribution. Hats off, Shervin — the idea certainly resonates with me and I applaud both you and Dave for recognizing and acting on its power.

Thanks to everyone for engaging in this conversation!

Technology investment bubbles have given many entrepreneurs the impression that success in tech is all about coming up with a “cool idea,” pitching it to a VC, getting funding, building up the business, and then exiting in high style.

First, this is a fairy tale, second, this will not happen to you, and third, what you’re observing is the product of a highly evolved network of peers, of which you are likely not a part.

What Happens in Palo Alto Stays in Palo Alto

What you see taking place in Silicon Valley is the result not of people betting on “cool ideas,” but of people betting on teams and connections. Before every VC deal, there is an exit strategy in mind. Every VC-backed valley startup is an outsourced R&D play.

Ever notice that many large tech firms grow primarily by acquisition? Most have comparatively lean R&D operations; this keeps experimenting off of their balance sheet, thus improving profits and lifting stock prices. Those stock prices are what give them the fuel to make good sized acquisitions, which in turn is the incentive for startups to grow and for VC’s to fund them.

This is the capitalist cycle in its most fully evolved form. Sometimes those acquisitions work out, sometimes they don’t, but the process feeds the machine and it becomes self-perpetuating. This process is literally the grist for the innovation mill that is Silicon Valley.

Why You Should Forget About VC’s — For Now

If you’re not already plugged into this world (meaning you have a lot of contacts there and have a specific idea of a strategy to get funding and an exit before you start), you probably have no place talking about VC’s at all. So ban it from your vocabulary. They’re not interested in you and won’t be. Yet.

Instead, think about how you’re going to build value outside of that network. It is totally possible, but don’t get distracted thinking about VC’s when you should be thinking about bootstrapping and investment from friends, family, and angels.

The good news? Most software startups can be launched for $50K or less these days. Build the minimum viable product, ship it, and then follow lean startup methodologies to iterate towards something that is valuable to the market. Once you have done that, established a revenue stream and can demonstrate some reason why venture capital investment will help you grow fast and capture a market position that you couldn’t capture otherwise, you may be ready to talk to a venture capitalist.

But more likely, investors will come to talk to you! If your startup shows real promise, VC’s will likely seek you out. If you work with some angel investors, they will likely have networks that can help you secure a next round of investment. It will happen naturally. Stop thinking about VC’s. They will find you. Worry instead about building value.

Think Investors, Not VC’s

Yesterday I wrote a post that suggested that entrepreneurs should always think like investors, and always consider what an investor would think of the company. I stand by this, but I am absolutely not talking about VC’s in the early stage. You are not ready for VC’s in the early stage, especially if you are not “plugged in” to the valley culture.

So, think like an investor. Your investors are: you, your family, angels, and possibly local government business development funds. Forget about VC’s for now. If you build value for your yourself, your customers, and your first round of investors, VC’s will come knocking if they think they can help.