Back to the Garage

Silicon Valley optimists say that now is a great time to start a new business. Everything's cheap, there's surplus talent, and as the veterans will tell you, ?The tourists have all gone home.?

Greetings from Silicon Valley version 2003, where the startup dream still lives! It's just that the dotcommers of 1999 wouldn't recognize it.

This year's startups aren't hiring scores of newly minted MBAs with promises of $100,000 salaries and stock options. The war for talent has become the war of the talented, with the highly skilled unemployed competing for just a handful of compelling job opportunities. And even those great gigs aren't about working hyperintense 18-hour days, and the digs aren't funky cubicles in office parks off of Highway 101.

At the start of 2003, visiting the corporate headquarters of a new company in San Francisco's South of Market district means being invited into the founder's living room. Vacancy rates for office space in the Valley are running as high as 40%, according to one Merrill Lynch estimate.

Yes, in Silicon Valley, it's back to the garage. Except there is no garage, because, after all, who has a spare garage with Bay Area rents what they are these days?

Between the dotcom bust, the tech recession, and the overall economic malaise, some 180,000 jobs have disappeared from the Bay Area in the past two years, inspiring tens of thousands to skip town in search of the next big thing in the next new place. For the survivors, the exodus has instilled a curious pride. It's encapsulated in their new mantra: "The tourists have all gone home."

So what are the tech-savvy, highly caffeinated types who are still here doing now? They're quietly plotting their next hit, bootstrapping now to conserve their equity for later, reasoning that when the economy does pick up, they'll be positioned to move fast. These entrepreneurs will tell you that, perversely, in some ways, it's a great time to start a new venture here. (There's that old Silicon Valley optimism coming out again. It just won't die.)

Everything is cheap — from graphic-design services to programming talent. "When the venture capital goes away, you find out who your real friends are," says one San Francisco startup schemer, who confides that he secretly gets together with a handful of other would-be entrepreneurs to strategize about their nascent ventures, gathering like a support group for startup addicts.

For some of these veteran, inveterate entrepreneurs, the half-written business plan is a personal insurance policy. All of them know that the technology-industry jobs that they now hold may evaporate without notice, as so many already have.

But Silicon Valley optimism has a way of transforming that troublesome reality too. The opportunity cost of doing your own thing has gone way down, one software coder told me — especially if you're already unemployed. No, you won't be turning down a pile of stock options from Sure Thing Inc. when you decide to go out on your own. Cue Janis Joplin: "Freedom's just another word for nothing left to lose."

The one thing that doesn't come cheap now is equity, since the funding kitty has so dried up that the venture capitalists and angel investors who actually are investing can demand the most tightfisted of terms. And no one expects an "angel" to drop $100,000 into her palm anymore just because she's shared coffee at Buck's over a business plan that used the right buzzwords. Most of those angels went back to heaven when their own portfolios collapsed. The words that count in 2003 are "revenue," "customers," and "profits."

So forget venture and most angel funding as well. It's all about "creative financing." Translation: personal savings. And "friends and family" is no longer a code word for throwing a pile of insider cash to loved ones when you hit the IPO jackpot. Now friends and family are the people you shake down for capital to get started.

And the things that ambitious startup founders brag about now are at the other end of the spectrum compared with a few years ago. Today, the head of a new software company will boast about how low he's managing to keep his head count rather than about how quickly he's growing his talent. Where $1,000 ergonomic office chairs were once a necessity, now it's even cooler to do without.

The scrimping can be almost comic in its extremity. "I still have call-waiting. It doesn't even drop to voice mail," one 29-year-old Haas Business School graduate brags from his Silicon Valley headquarters — that is, living room — where he runs a profitable Internet dating site with another cofounder.

His buzzword is "honest growth" — which means growing because you're adding customers and increasing revenue, not just trying to get big so that you can "look real" and IPO. "Instead of hearing about 100 e-commerce plays," says a one-man startup band who has been supporting himself and his company with real — honest — revenue, "you've got a half-dozen companies that are doing something with actual technology."

Welcome to 2003: It's Silicon Valley with humility. Could this be for real?

Katharine Mieszkowski (km@salon.com) is a senior writer for Salon.com.

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