I’ve thought a lot about the tradeoffs of starting an internet company in the Chicago vs the Bay Area. Of course I love living in Chicago, but I want to have a good understanding of what, if anything, I’m missing by not being in SF to know if it could ever justify moving there.
I just heard one of the most interesting answers to date. I was listening to an interview with Scott Rafer, CEO of Feedster and MyBlogLog. Toward the end he touched on what he thinks makes the bay area unique for entrepreneurs.
I’m paraphrasing from memory:
In San Francisco, social pressure is on your side. In other cities, if you are involved with a start-up, you’re a bit of an outcast. People often think your crazy before they even hear the business idea because the very concept of starting a company is out of the norm. In the Bay Area, on the other hand, there is an immense social pressure towards start-ups. Lots of people working for big companies are made to feel that they’re “missing out.” And when it’s the norm rather than the exception, people give you the benefit of the doubt. Nearly everyone has heard some business idea that sounded crazy and ended up making it big.
I think this really gets at the essence of the culture. It’s a great explanation as to why you see a lot of what you see out there. I have experienced this “culture” every time I visit, but I had not identified it and put the words to it. It’s this “benefit of the doubt” that makes it easier to convince others to join you, raise money at early stages, convince your spouse/parents/relatives that it’s okay for you to quite your great job and give this idea a chance, etc. It’s like your swimming downstream.
One caveat, I think this social pressure is a consequence rather than a cause of all the start-up activity over the years. There is something more fundamental about the geography or the culture that originated the phenomonen in the first place.
Paul Graham has a great essay on why Silicon Valley came to be.
Personally, I’m still not sold on SF over Chicago. Notice I’m still here. The jury is still out for me, I love Chicago.
I don’t find the idea of a starting up a company out of the norm in Chicago, nor do I feel like an outcast for doing so. Maybe it’s because of the great group of people I’ve worked with in the past, or the folks I have met lately through Chicago Beta, Tech Cocktail, etc - but I don’t get that feeling at all. There is no question that the startup mojo is stronger out west, but we definitely hold our own here with a ton of successful startup companies in recent years like Orbitz, TicketsNow, Feedburner, 37Signals, skinnyCorp, etc and a lot of great new startups on the way.
Jason Fried gave a great podcast interview sometime ago about startups and he touched on the pressure that people put on themselves to move out to the bay area. He made a great point in that you have plenty of of things to worry about why starting up a company, and moving to a new city should be one less thing you have to worry about.
My 2c.
I agree, entrepreneurs are by no means an outcast in Chicago. On the scale of “outcast” to “positive social pressure” Chicago is right in the middle.
I’m not referring to what other entrepreneurs think, just to the general Chicago culture. If I tell a random Chicago person about my business, say a taxi cab driver or a coffee shop cashier, the reactions I get range from slight skepticism to a mild “that’s cool.”
If I do the equivalent in San Francisco, the reactions I receive include, “is that like Technorati?” to “My friend’s brother is working on that same idea.”
There is a different level of acceptance and expectation about start-ups. But I’m not advocating that anyone move out there. Chicago has two significant advantages: it’s easier to higher great programmers, and it’s easier to stand-out of the crowd.
It brings about an interesting question… Does the relative lack of startups (Chicago vs. San Francisco) make it easier or harder for a startup to succeed?
On one hand you have the benefits like easier hiring of programmers and easier exposure in the area for what you’re doing. On the other hand you have the downsides like lack of acceptance and less of a tech culture.
It also brings rise to interesting questions in the area of funding and early adoption. Is it easier to get a start up funded in Chicago or in the Bay Area? Sort of like do venture firms breed startups or do startups breed venture firms (chicken? egg?).
Is the relative or supposed difficulty actually an advantage as your business and idea will have to be more stable to make it in a less supportive market, i.e. the weak or ill-planned startup will fall apart and be abandoned or revamped earlier in Chicago than it would if it was buoyed by the support of the bay area. There really seems to be about an even split between costs and benefits of starting up in either place.
Keith,
While getting my MBA I took a class from one of the nation’s leading social network and social capital experts, Ron Burt. Through an extensive amount of research he had mapped out social structures in the nations largest cities including the Bay Area and Chicago. He had actually done a quantitative analysis that scored power/influence for individuals.
What he had found is that Bay Area is a very open and easy to penetrate social network. Chicago on the other hand was very closed and difficult to penetrate. In Chicago, if you knew someone ‘inside’ you could get in, otherwise it would be very challenging.
He argued that the open and agile structure of the Bay Area was a huge advantage to entrepreneurs and investors as the flow of ideas and people facilitated much more innovation. Chicago’s social structure, he suggested, was a detriment to idea flow, innovation, and entrepreneurism.
Bryan,
It’s an interesting idea to study social structure like that. For example, Malcom Gladwell has some amazing insight on the flow of ideas through groups. But what your guy is saying doesn’t fit with my experience at all. In both places, I’ve met people who have been more than willing to help, and I’ve run into the occasional person who shuts you out.
This may just be your wording, and not his, but I’m always skeptical when I hear terms like “social structure.” All you really have is a bunch of people, and each person has the free will to make their own choices. When it comes down to it, most people are good.
I’ve struggled with this issue myself. I think of it somewhat like how too many people in a team can slow the development of a product. If I were living in SF, I’ll be too busy networking with other entrepreneurs, selling my ideas to VCs, and going to launch parties, that I won’t get any of my own ideas off the ground. Having less of the startup culture in Chicago gives you more time to get stuff done. To some people though, the support system of SF may be good for motivation.
Keith,
To your point, I think that his research was (as I understood it) more focused on a corporate/board of director setting and less focused on entrepreneurism and the circles that you and I may run in. But, it’s a good point and I wish that I had asked him that while in his class.
Bryan
Love the poignancy of swimming upstream. Some random thoughts:
In Chicago: entreprenurial failure is a stigma; in the Bay area it is a badge of honor.
Chicago has been and is all about clout. Think this town has moved beyond that? You might be either oblivious or naive, especially if you are not from here. Chicago is all about being the big fish in the little pond. You know what I mean.
To generalize, the Bay area and NYC seem to me to be all about results. Business people are more open to good ideas first and foremost - not the source. Seems like so many Chicago businesses get acquired by companies on the coasts - they are not the acquirers.
All told, success in Chicago tech encourages the halo-effect. This means that unqualified but connected people are sure to be employed indefinitely unless they do something really stupid because they were associated with company X. The assumption is that they “must know what they’re doing.” This effect is even more pronounced if you are an NU or UC alum (deserved or not).
Fare thee well,
BL
I’ve lived in the Bay Area since ‘05 and lived in Chicago for 10 years before moving here.
The allure of startups, VCs, etc. is what brought me here.
Here are my observations:
* Bay Area & Chicago are very very different in every way
* The ecosystem here revolves around startups - there are tons of events to go to in the hottest industry sectors, enough & more networking opportunities, access to mentors, not to mention a street full of VCs
* Startup mentality is in the psyche of the folks here
* Staff attrition is a major issue for startups. Employee loyalty just doesn’t exist. You better be doing something out of the ordinary & have deep pockets to retain your staff
* Cost of doing business is significantly higher compared to Chicago
* CA laws, regulations, etc. are some of the strictest in the country. Bureaucracy here will kill you at times. Labor laws & health care issues especially
* Overall cost of living is high, especially real estate
* Availability of tech labor is really high
* Competition is cut throat. You will have competition set up shop across the street by the time you have your website up
* And then there is the obvious - weather, hiking, skiing(for the outdoorsy type) is incredible
Aside from the startup & business angle to your move, I’d recommend that you take a closer look at your personal priorities as well.
Cheers
Bala
PS: I will be moving back to Chicago later this year
Bala’s comments are right-on for the most part. Real estate costs reflect pay so to me that is a wash…just a ruse to discourage people.
In Chicago the investors are old money (and not too confident in how they made it or if they can make more)…and the new money…well, Google-enriched Costolo invests his money in Twitter…what Chicago start-ups is he into, if any?
http://twitter.com/blog/2007/07/taking-bite-out-of-big-apple.html
In the Bay area, the angels and VCs actually walk up to YOU, give YOU their business cards and some even ask for you to send them your business plan. No veneer of “get an introduction” or faux-pomp of “we’re really busy people.” Other entrepreneurs are really into collaborating NOT getting drunk in a bar.
If you are an Internet entrepreneur in Chicago, unless you are graced with money + connections, you’re WAY better off in the Bay area probably California in general. The cost of failure is far lower.
Interesting discussion. I’m a chicago native living in SF the last 12 years planning on moving back to Chicago. Been working for start-ups since I moved here and really enjoy it and want to continue working at them. I like their energy and chaos. Sounds like there are no start-ups in Chicago, which I find amazing for the 3rd largest city in the nation. There has to be something there. Should I just stay in SF? I dread the thought and can’t afford this place anymore.