Where Your Start-Up Has It’s Office, Matters
Earlier this week I had a chat with a fantastic new start-up Ethical Community. They’re building a shopping destination for eco and ethically sound products.
It’s started well for them with over 400 merchants selling from their site. Currently they’re based in Leeds and have been struggling to find Angels to invest, or more specifically, Angels who understand the space and some of the unique needs of a technology businesses and start-up.
When being asked whether they should move my gut wanted to say “Yes, no question. Move to London or San Francisco” ..but of course that is only half the story.
There are other reasons to stay up North (or indeed elsewhere in Europe) such as government subsidies, lower operating and living costs and a less competitive labour market.
I’d argue the latter is a red herring though. I reckon the skillsets and experience of candidates in London probably outweighs the advantages of having less competition to fight for those developers. Living costs are of course higher in London but the right knowledge and connections (we all need a leg up sometimes) cannot be accurately costed.
Cutting to the chase, on balance I’d say the balance of being part of a cluster for your industry easily outweighs the negatives. This is for many reasons:
- Shared experience and knowledge
- Many companies you think are competitors, actually turn out not to be
- Financiers levitate toward the barrel with the most fish
- Press and media coverage is easier to achieve as part of a “phenomenon” like the evolving Silicon Roundabout, or SOMA in San Francisco or Silicon Valley.
- The best workers also levitate toward the biggest cluster of the industry they want to work in
- Being an entrepreneur (especially if a sole Founder) is really f***ing lonely. You need friends around who understand and moreover, can help.
- There is also an intangible around being “taken seriously” and from own experience people are more engaged and more interested when you’re based in the heart of what is going on. (I know this from moving from Cambridge to London, despite Cambridge supposedly being a technical centre of excellence. That is of course true, but it’s not a centre of excellence or a cluster for internet and web companies)
“The other day I was in a soup restaurant below my office and – I kid you not – I was thinking, ‘I ought to talk to Robin about that’ and I got a tap on my shoulder, it was him. I then walked upstairs and Mike Butcher pulled me into an impromptu panel. The great initiative by the Songkick guys (Silicon MilkRoundAbout) was a smash hit on Sunday for the most important resource advantage we have over the Valley (in mid-tier, anyway) which is availability of developers. Just from where I sit, Seedcamp is in my wifi SSID range as are Skimlinks and EDITD, Index has an Eastern End outpost, Passion Capital is not far either. Also the social element is accelerating, making it more fun too and aiding networking, which helps to get people to leave cushy mainstream jobs.”
Exceptions to the Rule
There is always a downside to clusters and there are always exceptions.
Some businesses are best nearer their customers. I know Huddle did well from being in London first and still has it’s HQ here; but any big exit will surely come from US growth and Huddle Co-Founder Andy MacGlouclin is now very much entrenched in the Valley.
“For me it can come down to where your clients are, how easy it is to get to them and since Sports New Media has moved to Soho/Covent Garden our business has excellerated” said Nick Thain, Founder of a fast growing social media management company for sports companies, celebrities, and agencies. “We’re a Media / Tech business so most of our money comes in from media agencies and brands, if I was more of a pure tech company going east would have happened by now.” But then he said “..but even with the benefit of Soho, I’m still seriously considering going East”.
The CTO of my last start-up came from Cambridge (but I’m not sure the cluster of technical skills in Cambridge is replicated in other cities) and I’m sure readers can list a raft of companies which have done well outside the Shoreditch tech cluster; but Lucian Tarnowski, Founder of Brave New Talent perhaps summed my feeling up best saying “I think something phenomenal is happening East right now. Mike Butcher calls it Serendipity.
I think it is more about setting a winning culture. We are in a race with Valley companies that now have way more cash than us. This means we [all] need to out compete on every level. I think it is important to have every member of the team (not just the founders) to be part of a winning community …”
We must not forget also there are burgeoning start-up clusters in Berlin, Amsterdam and elsewhere – all with their own territorial advantages and differences. Arguably however, none have the pace which Silicon Roundabout is gathering.
The Echo Chamber Effect
When 90% of your customers are probably not the Tweeting, Social Media addicted techies that you and your colleagues all are, the echo chamber can be dangerous when you’re supposed to be building a product for a mass market.
I’d argue this problem is far more pronounced in the Valley than in East London. European cynicism and the embryonic size of the East London cluster, help ensure European start-ups stay grounded. In fact, so much so if you have a straight D2C play with no immediate revenue, go West not East and move to San Francisco.
I think being near the grit and commercial reality of the City of London and the many other industries our capital supports, combined with the allergy most European VC’s have toward early stage consumer plays, also helps dilute any echo chamber effect.
Drinking Your Own Cool-Aid
Having just suggested the echo chamber is bad, I’m now going to say it is also good.
You have to be slightly delusional to try and change the world, or to believe you’re going to build the next Google. It’s so incredibly hard and you’re surrounded naysayers, non-believers and investors who –depending on who you get– will help make or break your business; very often the latter.
My recommendation is firmly in the camp of surround yourself by those experienced enough, with the network, the access to capital and the advice and support, that you’re going to need to make it in the 95% failure-rate-in-the-first-year which is starting a small business or start-up. You need all the help you can get.