The Next Startup to Become a Billion-Dollar Company Probably Isn’t in Silicon Valley by Entrepreneur

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I recently participated in a panel with some big-name Bay Area VCs. When a participant asked whether San Francisco still set the pace for tech startups, panelists agreed that the pendulum has already swung elsewhere. San Francisco remains a great startup destination, but many entrepreneurs — even those with unicorn aspirations — now have better options.

In Tokyo, for example, Liquid Group Inc. hit a $1 billion valuation ahead of its initial public offering. Not many unicorns have come from Japan in recent years, especially not compared to China and the U.S., but Liquid Group’s ascent is another piece in a mounting pile of evidence that a Bay Area presence is not a prerequisite for success.

This trend may be recent, but the winds of change have been blowing for years. Revolution’s Rise of the Rest in 2014 provided an omen of things to come. Y-Combinator hasn’t been coy about Silicon Valley’s potential demise, and the mainstream press has been discussing it at length.

If the future of startups exists somewhere beyond Silicon Valley, where will the unicorns of tomorrow begin?

Related: 3 Emerging Markets Entrepreneurs Should Be Watching and How to Approach Them

Diversification of location matters

Companies don’t exist in cities; people exist in cities. The more we venture into the future of distributed work, the less it matters whether talented people operate together under the same roof.

I have the privilege of visiting dozens of cities across the world. Every time I visit a new market, I want to know three things: Where does the talent come from? Where does the money come from? Finally, where do the ideas come from?

In Boston, many great universities pump out business and tech graduates. Bolstered by the rest of New England, Boston startups have plenty of access to talent. Boston’s startup scene is not as big as it could be because some of its talent (and most of its potential investors) do business in New York. Despite this shortcoming, Boston is home to companies like HubSpot and TripAdvisor and has one of the world’s strongest healthcare markets.

Much farther south, Miami offers its own advantages. Talent is less abundant than in San Francisco or Boston, but that’s fine — Miami knows how to import talent with the best of them. Add in its role as a unique Latin American gateway and a massive center of private wealth, and Miami begins to look more appealing for would-be unicorns. Founders in Miami can think globally from day one and gain access to enough capital to do something about it.

Proximity to other continents also plays a big role. We see far more European founders in Boston and New York, and we see more immigrants near Seattle and Vancouver. Less competition for talent may attract founders and investors to areas outside Silicon Valley. Not only do they have fewer startups battling for talent, but they also don’t have to compete with big shots like Google and Amazon on their home turf.

Every region has its own advantages and complexities. Silicon Valley gained clout for good reason, but cities like Boston and Miami have their unique perks. As more great cities find their own avenues to success, more investors, founders and talented workers will see opportunities outside the Bay Area.

Find your sweet spot

Anyone starting a company should consider these factors before setting up headquarters:

1. Follow the fervor.

A founder in Boston recently shared with me that he was struggling to find customers and partners for his music app. Boston, unfortunately, lacks enthusiasm for the entertainment industry in comparison to other cities. Startups need all the champions they can get, so look for a place that has an appetite for your specialty.

Texas, for instance, welcomes startups that court government contracts. Groups like AFWERX, an Air Force innovations team, are setting up leading incubator hubs in the Lone Star State. Follow this example and look for locations where your solution would conjure the most excitement. Determine where most graduates in your industry settle or what demographics your startup best serves — and find a place where most of those people reside.

By going where enthusiasm is greatest, your startup stands the best chance of gaining traction and setting down roots.

Related: The Best Location for Your Startup Is Where Your Customers Are

2. Think globally (and virtually).

The internet has enough content on remote workforces to last multiple lifetimes. As the modern workforce continues to reinvent itself and talent shortages persist, remote options increasingly make sense. First-time and bootstrapped founders should be especially keen to accept applications from around the world.

When working with a remote team, get everyone together face-to-face at least twice per year. Avoid a half-distributed team model in which remote workers who don’t operate at the main location feel like outcasts. Zapier actually gave its employees $10,000 each to leave the San Francisco headquarters and accelerate its move to a fully remote workforce.

Look at remote work as an extension of your in-person workforce. Embrace virtual employees to make your startup an attractive stop for all employees.

Related: 3 Questions to Ask Before Picking a Location for Headquarters

3. Build your own blueprint.

I’ve seen cities all over the world flush with grit, pragmatism, collaboration and success. Silicon Valley is not the only place where startups can thrive, nor should cities outside the Bay Area follow its model. Find an authentic playbook, leverage the uniqueness of the ecosystem and build a company that makes sense in its environment.

For instance, cities like New York, Hong Kong and London are more conducive to fintech startups. In areas with major stock exchanges and financial industries, startups can evolve in ways that would be alien to San Francisco but succeed all the same.

Size up what your area does best, tailoring your business model to that location’s strength. Determine how your startup can seamlessly fit into the local competitive landscape, finding any gaps it can fill. Building a blueprint that fits into its surroundings allows startups to naturally scale with their chosen locations.

Silicon Valley isn’t losing its title as the only place to be in the startup scene — that title is already gone. Founders in cities across the world should look to their own environments, play to the strengths of their communities and create companies that couldn’t exist elsewhere.

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July 3, 2019 at 08:14AM
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