On the move to Silicon Valley
Recently there’s been a lot of talk about the benefits of locating your start-up in an “emerging start-up ecosystem”. Andrew Gazdecki, founder and CEO of Bizness Apps, recently had an article published in TechCruch outlining the reasoning behind his decision to move his company out of the Bay Area and down to San Diego. He notes avoiding the extremely high cost of living, the benefits of being a big fish in a small pond and the decrease in running costs all as part of his rational. 500+ Startups recently published an article, “Miami’s Startup Ecosystem Just Needs A Little Gas in the Tank” by Walter Thompson that considers the budding networks in such places as Detroit, Syracuse and Denver and describes Miami’s startup scene, with its early-state investment funds, multiple angel networks and several co-working spaces, as one that was closer to blooming. So, in this context one might be interested to know why certain startup founders in these areas are still choosing to move their companies to Silicon Valley.
Peter Thomson, Co-founder and COO of ContractRoom, an enterprise negotiation and contracting software solution, reflects on his decision to move from Miami to the Bay Area just over one year ago and how this move has elevated his company.
Peter, why did you make the decision to move your startup enterprise software company, ContractRoom, to Silicon Valley?
My co-founder, Emil Stefanutti, and I, decided to move our startup from Miami to Silicon Valley in May 2015. We launched our enterprise software venture, ContractRoom, in Miami in February of 2012, and for many reasons it was a great place to start. Although I hadn’t lived there for many years, it was my hometown, and it’s where Emil had lived for many years. So, the opportunity to team up with Emil, get reconnected with my hometown network and take advantage of the lower cost of living made perfect sense at the time.
However, once our company reached a certain maturity, we felt that we really didn’t have the appropriate ecosystem to take it to the next level. That is, it would be beneficial to be closer proximity to the action in the enterprise software space - including customers, partners, investors and thought leadership mentors. In Miami, the support system for software startups is definitely making positive strides, but we just didn’t find the overall infrastructure to be at the right level yet to support our growth needs - particularly for an enterprise software venture. To point, there are 15 Fortune 500 companies in Florida; whereas, California, New York and Texas each have over 50!
How did you find the experience of moving your company to Silicon Valley? How did the move affect your company?
While we were in the process of moving, certain people expressed their disappointment that we were moving our company out of Florida and suggested we could help put the Miami startup scene on the map. Of course, this decision did not come without its fair share of hand-wringing. We really did want to help the city we loved so much, but we realized our primary obligation was to our shareholders and putting our business on the map rather than Miami. A year later, we believe our decision to move has made us much closer to achieving that goal. And as I said, at the time, “you can fail anywhere”, but your probability of success increases the closer you are to the enterprise action - quickly making connections with individuals at such companies as Oracle and Hewlett Packard.
The tempo of the Bay Area is completely different. There is a sense of urgency and speed and sheer volume of innovation that cannot be equaled anywhere else in the world. I am a big believer in the saying “a rising tide lifts all boats” and it’s hard not to feel your company is being lifted up by the energy surrounding you in Silicon Valley. We’ve also been able to connect with research analysts at such well-respected firms as Gartner, Forrester and Aragon that closely follow our space, and were recently highlighted by Aragon as an innovator in the Digital Transaction Management market.
We also heard that early adopters of innovative software solutions are typically other technology companies. True to form, since the relocation, we’ve landed several local technology companies including several fast growing software companies as well as a few Fortune 500 technology companies. Beyond that, we wanted to be the crosshairs of machine learning (and artificial intelligence) as it’ll be a critical element of our solution in the future so as to deliver what we call Predictive AgreementTM for our business clients, essentially learning from all their past negotiations to improve (and even predict) future decision-making.
A case could also be made for the ancillary benefit of just having a Silicon Valley address. Now, it goes without saying that to be truly successful, you need a truly viable, value-add solution that consumers want and will willingly pay for. With that said, we received a more positive reception when we indicated that we were based in the Bay Area. I won’t go as far to say that it’s made us more legitimate; it’s just that for some, it seemed to ease their evaluation.
Silicon Valley is an expensive place to live and run a company. With all things considered has the move been worth it and how do you handle these higher costs? What advice would you give to those people considering the move?
We definitely have achieved significant traction in the past 6 months, and have been able to make key connections since moving to the Bay Area. So, without a doubt, I believe the decision was the right one for ContractRoom. However, the extremely high cost of living and higher operating costs should not be overlooked when considering whether to set up shop in the Bay Area. This is particularly true when launching an enterprise software solution as the lead time to get meaningful traction could be several years.
Here are a few things that could factor into your decision to move:
- The quality of public education in the Bay Area is quite high and could offset the need for a private education for your kids.
- While home costs are high, you just have to make the decision to downsize your expectations for square footage, which may not be a bad thing.
- Commercial real estate can also be high, but you don’t have to be based in the high rent areas such as Palo Alto. You can find good value just 10 miles away, and also there’s the option of working remotely while you ramp. Put simply, don’t overburden your monthly spend on office rent.
- Another thing to consider is that historically startup companies in the Bay Area have received higher valuations than like companies based elsewhere in the United States.
Even if your headquarters is based in the Bay Area, you could also keep your overall operating costs down by opening satellite offices for such things as engineering, support or even sales. It is also important to consider the timing of your move. We waited until our product and vision was mature enough to thrive in the Silicon Valley scene and minimized our overall spend during the lean ramp up years.
It’s also important to note that with an enterprise software solution it was logical to be based in the Bay Area. If your solution is in fashion or FinTech, then it’s quite logical to be based in New York or for EdTech maybe DC. Also, there are a number of cities and states that are aggressively recruiting startups with grant money, which is the cheapest form of investment.
What final piece of advice would you give to founders of startup companies considering whether they should move the location of their business?
I would tell those people who are considering moving to keep in mind that just because moving to the Bay Area has been the right choice for our company that it doesn’t mean it’s the right choice for every startup. We made our decision because we believed we needed a supportive ecosystem for our product to flourish, and what can’t be argued is that sheer volume of software startups in the Bay Area dwarfs anywhere else in the world. However, when making the decision to move weigh all the costs and benefits. Do your research and work out what is best for your situation, and remember, you can fail anywhere, but some areas could improve your your chances for success. From one entrepreneur to another - good luck!
For a more detailed analysis about this refer to these articles: https://www.entrepreneur.com/article/269590
ContractRoom is a contract management software system that changes the way deals are done and decisions are made. It uses artificial intelligence and machine learning for "Predictive Agreement". To find out more about ContractRoom or book a free demo visit www.contractroom.com .