The new worldwide startup

I’ve been traveling around the world studying how startups get formed. Yesterday I visited Bootup Labs in Vancouver. Last week I was at Startup Riot in Atlanta and while at the Olympics I’ve been hanging out with Saeed Amidi. He was recently profiled in Business Week and is CEO of Plug and Play, an incubator in Silicon Valley (he invests in, and rents to, more than 280 startups in Silicon Valley and now owns the building where Google and PayPal, among others, started up). I’ve been at YCombinator and Techstars events recently. I’ve visited London, and Paris in the last year to meet startups there. In April I’ll be visiting Israel again to study startups there in more detail.

There are some common trends.

1. Most everyone outside of the valley complains that they can’t get access to enough capital.
2. Most everyone outside of the valley complains that they can’t get access to enough PR.
3. Most everyone outside of the valley complains that their best startups get dragged to Silicon Valley once they get big and need more talent (Flickr, for instance, moved from Vancouver to Silicon Valley when it sold out to Yahoo — they sold in part because they needed help dealing with scaling issues, I’ve heard that story over and over from other companies and communities, too, like Atlassian who moved to the valley from Australia).
4. Most everyone outside of the valley complains that they don’t have the business infrastructure that they need to succeed. Mark Zuckerberg told me he moved Facebook to the Valley to have access to mentors, lawyers, PR people, and other people a fast-growing tech company needs.
5. Most everyone outside of the valley complains about lack of entrepreneurial culture. In Europe, for instance, failure is stigmatized. In other places there just isn’t the kind of culture that values wacky weird ideas. Go to a local coffee shop in your neighborhood, for instance, and ask people what Foursquare is. I guarantee you that in most Silicon Valley coffee shops you’ll find someone. Not so in most other places in the world.

But you already know these problems, among others. So, what’s changing? A lot.

1. The infrastructure needed to start up a tech company is now decentralized. You can use cloud servers from Rackspace, where I work, or Amazon or other companies. That infrastructure didn’t exist five years ago and before then if you wanted to start a web company you would need to build your own data center. Not every community has datacenters, but today everyone has access to the same cloud hosting services.
2. PR is being decentralized. Thanks to blogs, Skype, YouTube, Twitter and Facebook you can get onto TechCrunch no matter where in the world you are.
3. Costs are coming way down. Associated with first point. No longer do you need hundreds of thousands of dollars in servers to start up, you just need a few hundred bucks on a credit card to buy cloud servers.
4. A ton of startup accelerators/incubators have formed in past few years. I’ve listed a few on this post. They provide money, offices, mentoring, and other services you need like legal help.
5. Tech talent is growing around the world. Silicon Valley used to have a lock on geeks. That no longer is true as many universities around the world have educated tons of computer scientists and engineers.
6. Tax advantages. In Vancouver government officials told me this week that they are seeing a widening corporate tax rate gap. They expect that in 2012 their rate will be 25% while USA’s rate will be 40%. Other countries, like Ireland, have even lower rates. Plus, tons of countries want to help form tech zones. In Vancouver Bootup Labs officials told me they are working on getting some R&D subsidies from the Canadian government, (I’ve heard similar things from other countries, which can help even more businesses startup around the world).
7. Lower costs of living. In San Francisco it’s expensive to buy housing and health care needs to be purchased at sometimes great costs to families. Not so in many other communities around the world.

Even Silicon Valley folks are seeing these trends and are looking to capitalize on them. Saeed told me he’s looking to build Plug-and-play facilities in many communities in the world. I’m seeing other incubators/accelerators like YCombinator and TechStars do the same, spreading outside of their original communities to get deal flow from startups around the world.

I expect over the next few years these trends to speed up. I’m looking forward to it.

Are you noticing the same?

About Robert Scoble

As Startup Liaison for Rackspace, the Open Cloud Computing Company, I travel the world with Rocky Barbanica looking for what's happening on the bleeding edge of technology and report that here.

92 thoughts on “The new worldwide startup

  1. Thanks for your post, Robert, as I mentioned above, our startup favit.com( started and still developing in Bulgaria, entirely from Bulgarians) – is pure example how the things you are talking about are working. Bulgaria is far away from any traditions in the venture capitalism and entrepreneuralship. But – the traditions aren't what they were :) We started one year ago, with our own innovative idea and funded entirely from local investment fund. We use Rackspace cloud, we interact with important communities via the web and rarely travel abroad, mostly for events like Innovate100. Currently we are selected as one of the TOP 100 most innovative startups and we are thankful to all the technologies, letting us walk your way and feel part of the big world tech family.

  2. I could confirm what Mike says – in Bulgaria, which is in East Europe, we didn't even have OpenCoffee events before three years. Despite Bulgaria is only 8 millions, we have always had good IT's and mathematicians(always among the top in the world competitions), but – ZERO entrepreneurial culture. How quick the changes started and gave results here? The startup/networking/seeding activities started actively maybe before 3 years. Now we have few startups, which are seriously accredited from the world community for their innovative ideas.

    One of them is the startup I'm working for – Favit.com, which was recently listed as one of the TOP 100 most innovative startups in the world you could meet us on the Innovate 100 event in Tel Aviv, 12. April 2010: http://blog.favit.com/en/innovate100

  3. or as I call it – 'the intellectual infrastructure' :) I'm from Bulgaria, quite far from the US and because our project(favit.com) is a startup, I really enjoy the fact how the digital medias, blogs, live streams of events, twitter streams around evens and so on are contributing all this human-to-human know-how '' to spread all over the world

  4. I agree to what you are saying, Robert. However, I was wondering if you have heard of NYU-Poly incubator. It's NYC's attempt to nuture start-ups in New York. The next time you come to NYC you should visit.

  5. I think you just have to work a little harder to find them. Technology is increasingly decentralizing small businesses. I can easily tap legal, accounting, technical and other advise via email, web sites and web-based meetings. In most larger cities, you can find Meet-up or similar groups catering to your specific needs.

  6. The statutory corporate tax rate in the U.S. is 35%, and not headed up any time soon, so 40% is ludicrous. The effective corporate tax rate is around 17%. Whatever you want to say, the idea that U.S. corporations are somehow overtaxed is simply nonfactual.

  7. Hi Robert–interesting how you talked about PR trends in your post. As a Denver PR young professional, I had to admit I was a little thrown off with your first list mentioning how start-ups outside of Silicon Valley weren't getting enough PR (even though there are plenty of PR practitioners outside of Silicon Valley). I'm curious if you can expand on your reasoning? You used TechCrunch as an example, was your point that with the rise in social media, the PR field has changed because we're able to build more meaningful relationships through Twitter and blogs as opposed to the traditional email/phone call?

  8. Robert,

    Nice post thank you! I still think the major barrier for distribution of IT – one of the points you made that makes it easier to start a company is still reliable bandwidth. I think unless you are doing an online service its easier for startups to live with some of these issues.

    I just wrote a quick article about how Cloud vendors will continue to struggle in the market until the big B issue is solved. Any thoughts on how Rackspace or others are moving in that direction or thinking about bandwidth differently?

    My post about cloud vendors – http://howtorunit.blogspot.com/2010/03/why-clou

    -Kris

  9. Right one Robert. The trend is toward smaller startups. It's amazing at what just one person can accomplish alone these days. I've done everything for RunPee.com all by myself – minus paying someone to build the iPhone app. Just think of what 2-3 people on a project can accomplish. If you have one talented developer, a designer and someone to manage the backend then you have all the pieces to get started.

    And location is becoming more and more irrelevant. I work from an RV. There are myriad ways for people to connect virtually. Yes it helps to be located in one single space – like San Jose. But that comes at a cost of time spent in traffic, cost of living, etc.

    As you alluded to: the increased use of social apps like Twitter/Facebook make it easier to bring your product/service to market. If you think you need to spend a hunk of money on PR then you might want to consider that you have a crappy idea.

  10. Adding my voice to the “great post” and “important” trend. Should a song “Silicon Valley is a state of mind”. Now if you had a cool vid of all those entrepreneurs around the world singing that song while doing their demos you would keep both of your audience types happy.

  11. We are betting big to cater to this global movement http://ow.ly/1daaJ – the new “Silicon Valley” will not be a physical location, it's as simple as that and that's what the smart people in SV have already seen and are now taking action… If anyone need more convincing take a look at this YouTube video: http://ow.ly/1dac4 <- that's a perfect world for entrepreneurs!

  12. In Bangalore, you can start up a company in one week’s time. Everything is relatively inexpensive. Some of the best talent in the world, infrastructure, Connectivity…

    Jay, Bangalore

  13. I noticed one problem with your blog

    “We reply to the comments in a weekly batch. So, please wait a couple of days for our reply to your comment. Thanks for your understanding.”

    Uhh, this is the internet dude. Doesn't seem like you get it at all

  14. After reading through the comments, I notice the repeated use of the word “ecosystem.”

    That reminds me of what Michael Porter has talked about defending one's competitive advantage.
    He says the sustainable advantage is like a mosaic carpet. Copying a strand here and a strand there won't make a similar carpet. Sum being more than the parts, a competitor has to copy the whole system intact, which he notes is very difficult.

    PR, Venture capital, even employment laws, immigration laws … the Vally has a lot of things going right for it. We can just envy!!!

    We envy the ecosystem, the whole package. But not your software innovation, at least I don't.

    george
    http://ethicminds.blogspot.com/

  15. I like this idea of doing a regional version of XYZ-Crunch thing. But will it have influence in other parts of the world?

    Cheers!

  16. “2. Most everyone outside of the valley complains that they can’t get access to enough PR.”
    A valid complaint.
    Even your so- called “decentralized” PR calls for muscles and savvy.

    My first 2 web apps go like what Jack Ma says in his biography: “casting suggestive glances in a pitch black night” No ones seem to take notice.

    Even my blog, the best for effectiveness, is a long way to take off. And this has nothing to do with
    its intrinsic quality.

    george
    http://ethicminds.blogspot.com/

  17. “2. Most everyone outside of the valley complains that they can’t get access to enough PR.”

    This is a valid complaint. PR may be decentralized as you say. But what about mass and savvy?

    I have done 2 web apps. They go like what Jack Ma says in his biography: “making suggestive glances in a pitch black night”. No one knows them. I accept they are not world class. Still they should generate some interest and response.

    Now, we have to follow P&G’s Tremor example. We will have to master PR first. We will promote not only our stuff but also non-rival stuffs as well, like Tremor does.

    Even my blog needs marketing/PR muscles.
    http://ethicminds.blogspot.com/

    It is the world best because I design it after observing all that is available on the Web. We need PR.

  18. Correction: Atlassian has a sales office in SF, the development and founders still live in Sydney.

    The Silicon Beach community in Australia (which I created and represents 800 Aussie tech entrepreneurs) complain largely about the weak investors (we don't have many super-angels which is what tech startups need now; and the VC's are too late stage). But it's more than that. We wrote a paper to the Australian government analysing the exact problem – and how to fix it: http://www.siliconbeachaustralia.org/lifeguard/

    NY has money and talent – but entrepreneur's there tell me it's the worst place for a startup due to the fact talent is sucked by the media and banking industries, and capital returns can be less risky on more traditional investments.

    I personally believe what's magic about the Valley is culture. It's the reason I uprooted my fairly comfortable life in Sydney and moved here seven months ago. Culture can't be copied, but it can be cultivated. And it's why I am doing crazy events like http://thestartupbus.com/ which is bringing entrepreneurs from three continents to learn, build and pitch to people in the know.

  19. I love the rise of the “incubators”. Paul Graham perfected it and TechStars is probably doing the best job of scaling it. Before Paul, everyone thought “incubators” would never work.

    We've built a couple products to attack your first point: “1. Most everyone outside of the valley complains that they can’t get access to enough capital.”

    1. AngelList is a curated list of early-stage investors and how to get in touch with them: http://venturehacks.com/angellist

    2. StartupList is a new way to get intros to these angels: fill in a firm and, if the pitch is good, we'll introduce you to the angels: http://venturehacks.com/startuplist

  20. I don't think other areas of the world lack what the Valley offers. I think you just have to work a little harder to find them. Technology is increasingly decentralizing small businesses. I can easily tap legal, accounting, technical and other advise via email, web sites and web-based meetings. In most larger cities, you can find Meet-up or similar groups catering to your specific needs. So while you may not be able to walk into a local coffee shop and find the next Zuckerberg , you can certainly find communities to address your needs.

  21. Yep, hanging in for year 2. Actually, we've got a great game plan for this year and I'm psyched about the team that is participating. Should be opening applications up soon…

  22. Robert, startup accelerators/incubators maybe give some folks the boost and/or support they need out of the gate, but they can also be stifling (or at least that is how the last wave of them in the 90s seemed to me). I like to think that in Seattle, that kind of support is being de-centralized and distributed, and that an ethos is building and information-exchange is really open — replacing, or substituting, some of the “incubator” support without taxing the entrepreneur. Examples of this would be Seattle 2.0, the seattletechstartups list, a revitalized NWEN, the TechFlash blog, Seattle Lunch 2.0, the MITEF Venture Lab, just to name a few that come to mind.

  23. Yes there may be many advantages of the Valley, however there are some big disadvantages. If your company has the funds to hire great people, you can find very good talent, but if you are on a lower budget it’s difficult to get good people here.

    I personally tried to hire a CTO working from home in the bay area and didn’t get very far at all. Ended up with a couple of unreliable, and fairly average people. That’s probably because I had no reputation, I’m not a Google, and was not willing to pay massive salaries.

    Now I have a few guys in Russia for a fraction of the cost and I think just as good in many respects. Just the fact that my whole team of 50 people costs the same as about 2 or 3 people in the bay area (I’m not joking), shows you that the cost disadvantage is very significant.

    I think the valley is better for: Funding, business partnerships, and executive level talent.

  24. Yes, competent PR representation is now available outside the Valley. Truthfully, it always was.

    What’s changed in PR is not so much about decentralization as it is about fundamental changes in the industry brought on by social networks achieving parity with (or, in some cases, supplanting altogether) the role of traditional media. Beware any PR practitioner who claims to be an expert in this space. False prophets abound, and the Valley is not immune to them.

    The transformation from the lexicon of “messages“ and “audiences” to “conversation” and “communities” is one that some PR practitioners have actively engaged. Most, however, struggle against it to one degree or another while claiming to embrace it. A big factor in this is that many clients don’t fully appreciate what these changes mean. For PR practitioners, making payroll and paying the office lease mean winning work, and it’s far easier to sell your client exactly what he’s asking for than it is to show him why another course is more powerful.

    What’s not changed is that PR is still about the sociology and psychology of perception formation and management. Startups with Bay-Area VC partners might want to look first for PR practitioners who understand how the industry has changed, and how it has not. You can find them in the Valley… and elsewhere.

  25. Let’s summarize: London, Paris, Chicago, Seattle, = the world? Weird! Think about it… — oh wait… I forgot Israel.

  26. There are lots of great startups and successful moneymaking companies,
    where the whole team is spread all over the world, communicating via skype etc.
    All people working from home or the cafe next door. As an entrepreneur you find the best talent for each task, all over the world. And they don't have to move to some headquarter in silicon valley. I successfully did so already for http://www.sunclipies.com and http://www.pearlreader.com and other ventures.

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