What enables a great startup hub?

Recently Paul Kedrosky initiated an interesting discussion about the top technology startup hubs in the USA. His article  was an excellent summary of the topic. He even posits how Buffalo could make the list!

The discussion that followed included Fred Wilson  arguing that NYC should be #3 on the list, ahead of Seattle and Austin. Of course, Silicon Valley and Boston are #1 and #2 respectively.

This all culminated in this study by O’Reilly Radar  that attempts to finally truly rank these startup hubs with relevant data and synthesis. I’ve read too many articles that make claims to ranking the top US startup hubs, yet do not believe the results. My skepticism is mainly because my current hometown is Austin, TX, and it routinely ranks #3 or #4 in these articles. In living the startup scene in Austin for over 9 years now, spending a ton of time in the Bay Area, Boston, and NYC, and having many friends working in Seattle, I am absolutely sure that it is not ranked #3 or #4. Austin does a great job marketing itself, but the substance can be lacking in its marketing claims. It is a very hip town, has a major university turning out solid technical talent and major companies with R&D centers, and a large percentage of its activity is startup-oriented. Also, a lot of rich people live here. However, on a comparative basis, it is way behind Silicon Valley, Boston, Seattle, NYC, and maybe other areas.

Take Austin versus Seattle. These routinely tussle for the #3 spot in most of the startup hub articles. Austin has Dell (which by the way has little track record of people spinning out to do their own startups). Seattle has Microsoft, which has spun out a large number of entrepreneurs. Austin has Whole Foods, Seattle has Starbucks – these help create some rich people and contribute to the startup culture. The next level down makes a big difference. Seattle has Amazon, Real Networks, Blue Nile. Where are these companies in Austin? They do not exist . Silicon Labs is the lone $1B in market cap startup success that I can find. There is no $15 Billion comparable to Amazon (yes, entrepreneurs spin out of Amazon too). Seattle has also had a lot of smaller liquidity events that are not as prominent than what we see happening here.

The O’Reilly study gets to the core of some true metrics of startup activity – the jobs data. It’s one thing to say you have a lot of startup activity, it’s a totally different thing to prove that in terms of true economic value-added activity, such as jobs creation.

Austin has all of the ingredients that Paul Kedrosky outlined in his article on startup hubs, and it does a great job with PR. What it lacks is a significant group of profitable, growing startup companies. My purpose here is to highlight the gap between hype and substance here, becuase without the substance the hype eventually wears out. Every other ingredient seems to be here in Austin, we just need more startups that turn into growing profitable entities …. soon.

— bkm

PS – if you don’t believe me, read the comments on the O’Reilly and Fred Wilson pieces. You’ll see Austinites and former Austinites living in NYC or Boston making similar claims

  • I’m a late arrival to this blog, so we’ll see if anyone reads this…

    As a fellow Austinite, and startup worker, I think I share your frustration that Austin has not produced successful startups to meet the level of hype it receives. If Austin has all the ingredients of the successful startup hub and has failed to deliver, then it seems logical that something is missing from the formula. This got me thinking about the differences between Austin and the other “hubs” that are more successful — and how those differences might contribute to startup success.

    One thing that Silicon Valley, Boston, NYC, and Seattle all have that Austin doesn’t is high real estate prices. There’s an argument to be made that the real estate prices are *caused* by the success in those places (i.e., there’s more money to bid up the desirable property which is in limited supply in those places). But there’s also the underexplored possibility that the high real estate prices help with startup success. Why? In a word, comfort.

    If you’re fresh out of Stanford (youth, universities being important to startup success) working in a Silicon Valley startup, you’re probably crashing in a too small apartment with too many roommates just to make ends meet on your startup salary. If you’re a UT graduate in Austin, you can easily use your salary to live in a nice apartment alone or with roommates — or even buy a house (probably initially with roommates). In this sense, to work in a startup in Austin does not require the same amount of sacrifice as working in Silicon Valley. Thus, the people drawn to the Valley, or willing to stay there after college, are a self-selecting group who are more willing to sacrifice short-term comfort for long-term success — a quality important in the employees of a startup.

    There are two other features of the crowded apartment, that are also worth considering: the office is relatively more appealing so it encourages more time at work; and living in close quarters with like-minded people means more opportunity for conversations and more ideas worth exploring.