Should Your Startup Stay Or Should It Go?

Should your startup launch close to home, or head for a Silicon Valley or Alley? Data from a recent study suggests staying put, but location is only part of the story. Here's what else you need to consider.

Entrepreneurs starting companies in a place they have lived for at least six years had a nine percent lower failure rate and earned roughly $8,000 more per year than relative newcomers, according to a study of more than 10,000 startups conducted by Professors Olav Sorenson of the Yale School of Management and Michael Dahl of Aalborg University. 

Is launching closer to home more important than being in one of the traditional startup hotspots? The data from Sorenson and Dahl is interesting, but I think it only tells part of the story. If you’re looking for a location where your startup can thrive, you’re going to need a lot more than family and friends. 

What’s the first thing Mark Zuckerberg did when he wanted to take “The Facebook” to the next level? Like thousands of entrepreneurs who came before him, he decides to move his fledgling startup to the West Coast. 

When you’re launching a startup (especially a tech startup), it’s easy to fixate on location. After all, you want to be where “the action” is, don’t you? You also want to be a part of the startup scene--a chance to cut your teeth in Silicon Valley, New York, or (insert name of) major metropolitan areas around the country. 

However, small towns do have their advantages. For starters, you’re almost certainly looking at a lower cost of doing business. And, as Sorenson and Dahl’s study suggests, you’re also much more likely to have a community to rally around both you and your startup.  

Money: Without it, startups can’t survive--at least not for long. One of the biggest draws to areas like Silicon Valley, access to capital is obviously critically important. Sure your mom and dad might be able to float you a few thousand dollars until you get your business of the ground, but if you’re going to make it big, you’re going to need investors, bank loans, credit cards, and other forms of capital. 

On the flip side, when you flock to any of the usual suspects of startup hotbeds, that also means you’re going to have more head-to-head competition for the same pool of money, creating a potential capital catch-22. 

And then there's coaching. Having an idea is one thing, having the knowledge to actually bring that idea to market is something entirely different. Unless you’re a serial entrepreneur with years of first-hand experience under your belt, the process of launching a startup can be incredibly overwhelming. You need to come up with a name, a logo, hire the right team, create a website and online presence, and develop a compelling pitch that you can use to raise money to fund that idea. 

As startup communities continue to sprout up in areas such as Durham, N.C. and Pittsburgh, Pa., organizations like American Underground and AlphaLab are there to help innovative technology companies launch quickly and successfully. By providing work space, mentoring, seed capital, and other resources for aspiring entrepreneurs, they make it possible to focus on launches instead of leases. 

Should your startup stay or should it go? 

Before your pack your bags and head to the big city, think about the location that will give you the best access to capital, coaching, coworking space, and community. If that happens to be all the way on the West Coast, great! If that happens to be a few blocks from your house, even better. Of course, being close to friends and family doesn’t hurt either.  

Shawn Graham is a marketing and brand strategist for startups and small businesses. 

[Image: Flickr user Jamison Wieser]

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7 Comments

  • Luke Panza

    Dunno that the initial stats on staying put are convincing.  I agree with the reasons: live somewhere for a while and you have a network to rely on.  But 8% higher rate of success doesn't scream that this is a winning strategy.  

    Working in a tech firm in Pittsburgh, it's interesting to consider the dynamic presented.  From one side, yes, it's far cheaper to live and work in Pittsburgh than Silicon Valley or NYC.  Quality of life is also very different (not arguing better); Pittsburgh is more affordable, less loud and crazy, and has far more green space and quick access to outdoor activities.  I'm biased towards these things, so prefer it, but let's still say that quality of life is different.  

    But Pittsburgh has less to offer to startups in many ways.  When it comes to founding a company, you need access to VC money and talent, and there's simply far more of that in NYC and Silicon Valley.  

    If I had to choose a side, I'd argue for making the move.  Far better to be a little fish in a big pond: there's simply more opportunity.  But if you can stay in your small town, life may be better.  An important thing to do would be to 'grow tentacles' to major metro areas in the country to garner investment and talent.  It seems more and more businesses are developing this model, which tech teams in regional areas but sales / management teams on the coasts.  

  • Shawn Graham

    Thanks, Luke. There are definitely pros and cons to both sides. As you point out, access to VC money and talent and the chance to live and work in an area that is more "startup" friendly can make a huge difference.  

  • Refresh Kittanning

    We'll stay an added benefit of a small town, is community support, as sometimes it's good to a big fish in a small pond. Better access to politicians and even local media can also be perks, however cost of doing business is the major advantage especially in an ever growing digital world.

  • Shawn Graham

    Refresh Kittanning - That sounds very similar to the benefits of working at a startup vs. a big company. You have a chance to get more local exposure early on. From there, it's up to you to see if you can make the jump to the national or global stage.

  • Wahab Owolabi

    Great post Shawn, personally I think you have to understand your market/business model. For us at CollegeZen.com our goal is to connect students to colleges. With that goal in mind Pittsburgh is the perfect place because of the density of institutions of higher education in the region as well as the support of Alphalab. Our situation allows us to focus less on our location and more on our product, moving would be more a discussion started by potential investors who would prefer companies they back to be closer to where they do business. 

  • Eric Gaydos

    Really interesting stat on earnings and success when staying local. With more and more of the things we use or buy coming from the cloud, good ideas get to sprout no matter where they come from!

  • Shawn Graham

    Thanks, Eric. Technology and infrastructure have made it possible to launch a startup without necessarily having to relocate and that's great news for cities trying to reinvent themselves OR put themselves on the innovation and entrepreneurship map.