Benjamin Kuo’s Blog

One of the common complaints I hear (whether valid or not) from Silicon Valley folks talking about Southern California startups, is that they aren’t as visionary, are more focused on making money, and not nearly as revolutionary as the latest hot-company-of-the-week in Palo Alto. I don’t agree (not being that close to the water cooler and Kool-Aid helps a bit actually in being different), but nevertheless it’s one of those things you hear.

So, I read, with great amusement, this article by Sarah Lacy on TechCrunch about how the crop of companies at TechCrunch50 this year weren’t trying to change the world, weren’t swinging for the fences, and weren’t ambitious enough–with the exception of CitySourced. CitySourced is actually a Los Angeles company, founded by Jason Kiesel and Kurt Daradics. From Sarah’s article:

… Tony Hsieh just said it blatantly: “I didn’t see anything that was trying to change the world.”

One big exception was CitySourced—a company that excited Kevin Rose precisely because it was trying to build something that doesn’t really exist today and would make a huge difference in people’s lives. It was the most excited I saw an expert about anything over the two-day event.

There was an interesting post from 37Signals yesterday, complaining how the business press perpetuates the idea of “success” in terms of things like impressions, users, followers, etc. instead of hard numbers like profits and revenues–and in particular, on forecasted success rather than actual, current numbers. The post was inspired by a New York Times article, Using ‘Free’ to Turn a Profit, which used the example of a freemium company–currently losing money–to show how you can turn a profit on the Internet.

Aside from the rant about “the media” being the root of the problem, it does point to the problem in the private world of using proxy numbers — pageviews, followers, users, etc.–for financial success, revenues, and profits. We’ve been down this path before (anyone remember the Internet bubble?), and by now you’d think that most of the observers of the technology world would know that Internet metrics, like all statistics, can be manipulated to suit any viewpoint and company, as needed.  The 37Signals post concludes, saying:

(Entrepreneurs) are seeing business success defined as “the projections say we’ll profitable later”. They’re constantly being exposed to excuses. They’re being taught that profits are these things that only happen one day far away. That’s just wrong.

Now, what does this have to do with Southern California’s high tech community? My observation: perhaps because we’re outside the Silicon Valley “echo chamber”, the blind reliance on Internet metrics being used to define success — isn’t happening here. Sure, there are a few companies who point at their user numbers now and then, there’s many an early entrepreneur trying to impress VCs with their uniques, but all of the investors I see here, and the vast majority of entrepreneurs here know that revenues and–most importantly–profits are the key to building long term, sustainable businesses. Especially in this economy, where “build it and flip” doesn’t work, nearly every entrepreneur I talk to understands that the key to a successful company–and even, a successful exit–is how to structure a business to make money. In part, this might be because we’ve got more serious “business folks” running companies here, whose interest is in crafting the right formula for a business which is inherently profitable; it might be because there are many, multimillion dollar companies who have self-financed their growth; it might be because many of the industries here–most notably the many folks in Internet advertising and lead generation—understand inherently how each of those pageviews needs to be profitable in its own right; or it might just be an entire generation of entrepreneurs here who lived through the dot com bust. In any case, it’s good to see–for once–where Southern California’s high tech companies have gone their own way, and haven’t stumbled into this particular Silicon Valley trap.

Last week, one of those never-ending topics of discussion came up at Twiistup on a panel about whether or not Southern California was a good place to put your startup. On one side, you had Mark Suster of GRP Partners and Mike Jones of MySpace who were saying “yes”, and on the other side, you had Jamie Montgomery of Montgomery and Co., and David Sacks of Geni/Yammer, who were saying “maybe/no”. It was, at least for me, somewhat of a downer way to lead into the last day of Twiistup.

The issue, highlighted by Sacks’ announcement that he was moving Yammer to Silicon Valley, was the perception that Southern California firms don’t get the attention and lavish praises, particularly from the press/Silicon Valley blogs/etc., and that there’s not as close of a community here as in Silicon Valley, and that there’s not enough executive talent available.

David Sacks–whose network and prior successes have been with the “in” Silicon Valley crowd, as a co-founder of PayPal, and only happened to surface here in Southern California after a stint in the film business–would naturally have lots more contacts in Silicon Valley in technology, and given his past successes would clearly have more to benefit from continuing cultivating that network. Jamie Montgomery–whose business relies on IPOs and M/A–and who already moved his operations mostly out of Santa Monica to San Francisco several years ago, and arguably that market is a larger one for the kind of work he does as an investment banker (though he admits the last few deals he’s done have been neither in Silicon Valley nor Southern California). I’d argue that there’s more executive talent flying north to Silicon Valley every day (between the BUR/SJC, LAX/SJC, SNA/SJC, BUR/SFO, LAX/SFO, SNA/SFO etc. flights) than there are open slots of executives at local startups in Southern California.

In any case, whether you want to argue the merits of either argument, I’d agree with what venture investor Brad Feld said earlier in the conference: Get over it. There’s enough examples of very successful Southern California startups, and there are going to reasons to locate your business here or Silicon Valley depending on what industry you’re in, who you are, what your existing professional network looks like, and what your startup is working on. A pointer to Boulder, where Brad Feld is located–no one wonders if it’s a good environment to start up a company: Feld has successfully cultivated Boulder as a great place to start a company, even if it had very few high profile tech startups in the past — but enough raw material in the form of technology companies, a university, and a professional workforce that between TechStars and other efforts he and others like David Cohen have done to attract startup founders to the area, that no one asks “Silicon Valley or Boulder”?

My personal feeling — backed by now years of observing high tech startups in Southern California — is you can be as successful, or more successful here in Southern California than you can in Silicon Valley. Or, more likely, you’d be successful no matter what you are if you have the right products, people, and market. It’s like the question of if a Ivy League college makes you more successful, or the fact that you got into an Ivy League college in the first place which indicates you’d be successful no matter where you are. Do the folks who graduated from Stanford do better than people who were admitted to Stanford but went elsewhere instead? There’s plenty of both successes and failures in Silicon Valley and Southern California, and I’d argue a company that is going to fail in Southern California is going to fail even if they were in Palo Alto. The reverse is true as well with success.

There’s a well developed ecosystem here in Southern California to support high tech startups, and plenty of prior successes, knowledgeable entrepreneurs, and executives. Stop getting “Silicon Valley Envy” and just start making your startup a success.

ps. The most amusing line of the conference: Jason Nazar of Docstoc, asking “Couldn’t anyone find a local investor to put on this panel?” that he was moderating at the conference.

I’m sure everyone’s seen Intel’s big advertising push “Our rock stars aren’t your rock stars“–comparing the firm’s technologists to celebrity rock stars.

I was thinking about this recently in respect to Southern California–land of Michael Jackson—and its technology industry, and I find it interesting how Silicon Valley’s own list of “technology celebrities” compares to Southern California’s own set of “technology celebrities.”

In Silicon Valley, it’s Apple/Facebook/Twitter, Doerr/Jobs/Arrington/Scoble/Moritz/Zuckerberg/Calacanis/Ron Conway/etc. day in and day out in adoring (or scathing) press coverage.

Here’s it seems like–despite of, or perhaps because of our proximity to the celebrity center of Hollywood–the people I hear most as idols in the high tech industry are way more subdued and under the radar. In fact, even though most folks in high tech here (given the carpet bombing coverage of Silicon Valley companies) know the tech celebrities of Silicon Valley, only the “in-the-know” folks seem to be aware of the huge successes here.

I’m thinking of folks like Mike Jones (Userplane/AOL/now MySpace), Matt Coffin (LowerMyBills), Sky Dayton (Earthlink etc.), Irwin Jacobs (Qualcomm), Kamran Pourzanjani (Pricegrabber), Michael Robertson (MP3.com, etc.),  Jake Weinbaum (Business.com, eCompanies), Scott Blum (Buy.com), all the folks from Applied Semantics (now Google), Overture (now Yahoo), and so on. Sure, there are some who have achieved some level of tech fame (or, notoriety, in the case of Broadcom’s Henry Nicholas III), but in most cases these names are not at all well known. Probably the most “Silicon Valley celebrity” here is Jason Calacanis, who is better known in Silicon Valley than in Southern California. The “connectors” in Silicon Valley are pretty easy to find, but not as easy here. For example — Peter Pham, formerly of Photobucket/Fox Interactive Media–despite running a company now in Silicon Valley–is a huge connector in Southern California and beyond, is known to every startup CEO, entrepreneur, and VC in SoCal, doesn’t show up on the “tech celebrity” radar. Neither does Jason Nazar, who is a huge connector, particularly with his Startups Uncensored events. There’s immensely successful folks like Gil Elbaz (hiding out on the XPrize board of trustees with the likes of Elon Musk, Arriana Huffington, Larry Page, J. Craig Venter, Dean Kamen, and Ray Kurzweil)–who I suspect only a tiny, tiny number of people in SoCal know about. There’s also a slew of “behind the company” folks–too many to mention, but people like John Morris of GKM/Tech Coast Angels, Randy Churchill at PricewaterhouseCoopers–who are key to connecting the technology industry here who only insiders might know. There’s lots and lots more I don’t mention who are equally as successful, prominent, and important here.

Is this good or bad? It seems some level of interest in local, successful and/or ambitious entrepreneurs, venture capitalists, and others (beyond what we provide, of course) would be helpful in better connecting the community together. But then again, it also shows the–probably good–tendency of local startups to care about results, revenues, and success over celebrity and flashiness.

Great post by VC Fred Wilson on Startup Hotbed Inferiority Complex this morning.

Fred was on a panel in Seattle last night, when the topic of “does it matter where your startup is located” — and a number of the panelists  implied you will not be as successful as a company that is located in Silicon Valley. Fred Wilson spoke up with the opposite view. He says:

But the point is this. Not every great tech company comes out of Silicon Valley and you don’t have to be there to be a successful entrepreneur. For all the benefits of Silicon Valley, like density of great engineers and VCs, you have negatives like hypercompetition for talent and the creative cost of living in an echo chamber.

I’d agree with Fred, adding that there are many, many very successful companies in Southern California (and elsewhere) who have thrived without being located in Silicon Valley — and would have thrived anywhere. If you’ve got the right mix of entrepeneurs, access to capital, employees, support structure, and access to customers, you can be successful anywhere.

Howard Anderson, a venture capitalist at Battery Ventures and a professor at MIT, has an interesting post on GigaOM about 5 Reasons To Move Your Startup Out of Silicon Valley.

Anderson doesn’t mention Southern California–maybe because we keep beating New England in venture funding, or because his first point–that cities where the weather sucks are good for keeping people at work–doesn’t apply. But, he does make a good point:

All tech startups need just a few ingredients to germinate: sophisticated money; first-rate technology universities; and a few template successes (a Google or a Facebook, and so on) to encourage founders to get off their duffs.

Here’s in Southern California, that first-rate sophisticated money includes both a good pool of venture investors (not to mention lots of transitory money from Sand Hill Road); lots of technology universities (Caltech, UCLA, USC, UC Santa Barbara, UC Irvine, UC San Diego, Harvey Mudd, etc. etc.); and lots of “template successes” over the years (Qualcomm, Broadcom, MySpace, Overture, LowermyBills, Pricegrabber, JAMDAT, Proflowers, and literally hundreds of others).

Message to new SoCal entrepreneurs: get over your Silicon Valley envy.

I’ve run into quite a few entrepreneurs lately who have what I like to call Silicon Valley Envy. It’s the–somewhat defeating–attitude that everything in Silicon Valley is better, that in order to validate your startup you need to have approval from the “in” folks in Silicon Valley. This is usually manifested to me by startups who gush that they had so-and-so Silicon Valley media mogul or so-and-so angel investor or VC talk about  their company.

One thing Southern California has been very good at, is going our own way. That means, we’ve create our own startups — kept our companies here even though Silicon Valley venture investors may have pressured companies to move to Palo Alto — developed companies which made business sense or which serve a market need — rather than just followed the latest “trendy” startup idea. This independent spirit set the stage for the last round of successful companies here in Southern California. The big successes here in SoCal — the Overtures, Pricegrabbers, MySpaces, Jamdats, LowermyBills, etc. in the world — didn’t have competitors and weren’t following the lead of the hot Silicon Valley startup of the day/hour.

I’ve always felt, personally, that bucking the trend, finding a different angle on the market, having somewhat of a renegade attitude has been one of the most valuable traits that an entrepreneur can have. About the last thing you want to see in an entrepreneur that is being unoriginal and just trying to “follow the crowd.” Following what “Silicon Valley” thinks isn’t going to get your startup — or Southern California — ahead.

I was chatting with a well regarded venture capitalists here in the area last week, and he was telling me how he looks for companies which aren’t trying to follow Silicon Valley’s “group think” — companies which are different, and which won’t have to compete in the intense pressure zone that is Silicon Valley’s “hot next thing.”

It’s one thing to take the lessons and successes of companies in Silicon Valley, and use that to your advantage to create the next big Southern California sucess — it’s another thing to latch onto the idea that you can’t consider yourself “made” until you get that pat on the head from the Silicon Valley “in” crowd. My advice to you: get over it, and start focusing on if you’re creating a sustainable, worthwhile business and less about becoming a Silicon Valley darling.

I’ve gotten a lot of response from my interview earlier this week with Richard Wolpert, about his new venture fund — which is backed by William Morris, Accel Partners, Venrock, and AT&T. It turns out, Richard also has his own blog — albeit mostly personal observations rather than info for entrepreneurs and others — althought a good one is his look at the difference between Hollywood and Silicon Valley: Valet Parking.

I was greeted this morning by an email from a Silicon Valley group, promoting a event in Los Angeles, and was disappointed to read that they were looking to bring “Silicon Valley to the land of silicone.” It was most likely in jest, but I’ve recently been running into entrepreneurs, venture capitalists, and others from Silicon Valley who think the only thing happening in Southern California is Hollywood content startups.

We’re not just new media startups (which, in reality, are but a fraction of the companies started in this area). We’re Internet advertising; semiconductors; biotechnology, pharmaceuticals, and medical devices; Web 2.0 and SaaS; hardware and electronics; storage and communications; wireless; computer gaming; cleantech and energy; consumer Internet; ecommerce; and a hundred other kinds of companies. That’s part of the strength and the future of Southern California’s technology industry, the diversity of companies here.

Content is a natural strength, of course, because of Hollywood. But it’s far from a dominant part of the technology industry here.  Part of the reason you’re seeing some attention in Silicon Valley to Southern California nowadays is they are enamored with digital media and Hollywood; what they’re missing is there’s a lot more depth to the industry and the folks here.

Glenn Kelman, CEO of Redfin — based in Seattle — recently posted a piece on the difference between Silicon Valley and Seattle’s high tech industries. In what looks like the begining of an old-fashioned flame war, TechCrunch’s Mike Arrington says Kelman has a flawed view of Silicon Valley.

It’s always fascinating to see these kinds of posts — awhile back there was one by Paul Graham (of Y Incubator) on how locating in Houston will kill your startup; and just this week a complaint by Fred Wilson, a New York VC on Silicon Valley arrogance. It seems like what there is a lot of in Silicon Valley–aside from venture capital and startups–is ego.

My personal opinion (having worked in Silicon Valley) is that although there are some advantages to Silicon Valley, there are a number of other high tech centers (Southern California of course being one of the more important ones) where there is a critical mass of high technology companies, venture capital, and service providers that make them robust places for startups. Particular areas outside of Southern California and New England (which have been fairly well established for awhile) worth watching include not only Seattle, but also New York City; Austin, Texas; and Boulder, Colorado; not to mention Tel Aviv and Mumbai.