Silicon Valley (Photo credit: Wikipedia)
When sharing investment wisdom, people give lots of varied, often conflicting, opinions. One thing everyone can agree upon is simple: “Buy low, sell high.” If you do anything else, your money is not effectively invested. When I hear the continual stream of hype surrounding the Silicon Valley, I can’t help but think there’s a lot of hypocrisy in that investment strategy, and likewise, that entrepreneurial game plan.
Buy high, sell high.
Many people think the Valley is the best place to start a digital/tech company. While there have been no shortage of successful start-ups in Silicon Valley, I argue that many of those ventures succeeded in spite of their location. For me, this “best place” logic makes no sense. In the Bay Area, there is more competition for everything - talent, funding, office space, resources, etc. What kind of investment tip is "buy high, sell high?" As an entrepreneur, it’s difficult enough getting a company off the ground; why make your work any harder than it already is? Give yourself more leeway – pay fewer dollars for higher-grade intellect, make a splash in the media because you’re the big fish, and get the investment community to notice you and the traction you’re making. Why over-pay just to blend in? When you’re swimming in a vast ocean filled with other startups, you need herculean accomplishments to stand out any more than the next guy. Every single day. Good luck with that.
As a venture capitalist in northern California, it is unnecessarily challenging to source inbound deals, especially when searching for the cream of the crop, poised to generate that all-powerful 10x return. If your firm is one of countless others, what advantage do you provide to the most impressive startup CEOs? Why should they choose you? In today’s age of fast-paced change and innovations outdated in a nanosecond, a VC’s check is no longer enough; entrepreneurs want support, mentorship and guidance from seasoned vets in their own industries. If you haven’t “been there, done that,” and led a serious marketing push, you’re going to have a difficult time getting A+ deal flow in the Valley. With my firm, Detroit Venture Partners, our latest fund garners media attention from a wide variety of Midwestern news outlets. We’ve become a hub for VC investment in the region, prompting even more firms to open since our inception. More importantly, we’ve been able to meet with the majority of lauded startups in Southeastern Michigan -- and even the broader region – simply because we’ve planted ourselves at ground zero of a still-quiet epicenter. We put ourselves in that coveted “buy low, sell high” position simply by choosing an alternative geography.
Contrarian thinking.
Aside from classical investment advice, a more anecdotal rationale flows from the people who dare to be different: it's nearly always the contrarian that wins. Not only those with the contrarian business ideas, but also those who live a contrarian lifestyle, have been the ones to move the needle, make their mark, and drastically change the world. When Steve Blank moved to Silicon Valley, the area was barren for businesses – he forged a new path and singlehandedly changed the landscape of the community there. Brad Feld and Jason Mendelson took a page from Blank’s playbook, transforming Boulder, CO into a vibrant hub for startups through their work at Foundry Group. While it made sense for the early “Valley Pioneers” who were doing something vastly different than their norm, people currently moving to Silicon Valley and San Francisco to launch a start-up are doing the exact opposite of what a contrarian entrepreneur would do: they’re following a trend.
In similar fashion, the investors in Silicon Valley today are herd-followers. Many hide behind social proof, waiting for other investors to go out on a limb as the first to back a company. Then, the dominos begin to fall. The thought process changes from avoidance to bandwagon fury, “if others are investing, I should too.” These same investors tend to support flavor-of-the-week deals, instead of favoring real, breakthrough innovation. Equally troubling is their backing of companies that don’t really solve a true consumer need; an added techie convenience is truly a vitamin, not an aspirin, but people so immersed in their Valley bubble can’t seem to recognize that, until their companies fail to scale beyond this area.
Supportive environment that means more.
Being a part of something bigger than yourself means there’s much more at stake. In Detroit, entrepreneurs, investors and large companies use this “bigger picture” as a force of momentum, shifting them into higher gear. One company’s success doesn’t just mean a “win” for its employees and clients – it’s a “win” for the region. By the same token, a larger community of people willing to be pioneers paves the way for others to follow: more companies in a region makes for hungry workers looking for a cool lunch spot, more startups helping people in the neighborhood gives the news something positive to report, more VC checks being written gives a potential founder the courage to take the plunge herself.
When your back is against the ropes, grit and determination are the key ingredients to return to the center of the ring and continue to throw punches. The entire city of Detroit is in this scenario, giving its citizens a healthy dose of these crucial personality traits. Regardless of initial traction or financial success, the reality is that when running a startup, your back is always against the ropes – if you haven’t realized that, you’re not doing much of anything. This ability to get in the trenches and solve problems, put out fires and move on with heads held high is a mark of real entrepreneurs; for some reason, the Valley’s residents are more focused on their artisanal tofu and hand-crafted lattes, seemingly unwilling to get scrappy like we do in Detroit.
If you’re in a well-established area, like today’s Silicon Valley, there isn’t much of a higher purpose left to fight for – your company, albeit in a large community of peers – is in a silo for its success. The region isn’t staking its own success on your shoulders. When you’re in a situation like Detroit’s – do or die – your shoulders feel a lot more like those of a giant.
Now don’t those feel better inside your Zuckerberg hoodie?
For more insight on creativity and innovation, visit JoshLinkner.com.
