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Why I’m Not Moving My Startup To San Francisco

The risk for entrepreneurs isn’t just that the competition gets steeper in Silicon Valley, it’s the awareness that it does.

Why I’m Not Moving My Startup To San Francisco
[Photo: Flickr user Michele Ursino]

When new companies start to gain traction–especially tech companies–it’s hard for their founders not to ponder relocating to San Francisco. Digital communication tools have shrunk the world considerably, but physical location still matters.

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I, for one, have certainly entertained the idea of taking my Sydney-based startup to the Bay Area over the past few years, and I know there would be some serious upsides to doing so. San Francisco has more resources, more like-minded people, more tech talent on the hunt for a new challenge, more capital, and quite frankly, more prestige than cities like Sydney–whose tech ecosystem is so much smaller.

But after giving it lots of thought, I’ve decided to stay put, and here’s why.

Big Fish In Small Ponds

Early in his book David and Goliath, Malcolm Gladwell introduces Caroline Sacks, a brilliant, straight-A high-school graduate with a penchant for science and biology. When we meet her, Caroline is on a whirlwind tour of universities across the U.S.

She has her sights set on Brown University, and her second choice is the University of Maryland. In due course, Caroline is accepted to both and chooses Brown. Most of us will agree that she’s made the right decision. After all, Brown has more resources, a student body chosen through a more selective application process, and more prestige than the University of Maryland. We assume that such an environment will offer Caroline better career prospects.

But there’s a catch. By choosing Brown, Caroline was much more likely to experience what’s commonly known as being a “small fish in a big pond”–the notion that it’s much harder to distinguish yourself against a greater number of better-matched competitors.

“Relative deprivation” is defined by social scientists as the dissatisfaction that can set in when you’re denied something you feel entitled to. When we compare our own situations with those of others we believe to be our peers, it’s easy to feel like we’ve been shortchanged–even though we’d feel much differently in other contexts.

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A fellow entrepreneur and friend of mine named Matt started an online recruitment company here in Sydney. His first year was tough. He’d quit his job, sold his car, moved to a smaller apartment—away from the eastern beaches—and worked harder than ever to get his startup up and running.

It was the following year that he had his big break. A hot shot in the recruitment world took an interest in what Matt was working on. Using his network and influence, Matt’s newfound mentor helped him raise $1 million from local venture capital firms—a hefty sum for an Australian startup. Things were looking up.

Matt had become a local success story. He was invited to talk at every possible startup event in Australia. He received praise from local tech publications, and his company was regularly referenced by local entrepreneurs who wanted to make it big themselves. In other words, Matt had become a big fish in a small pond.

Up until this point, Matt’s company catered exclusively to the Australian market, but to keep his momentum going, he decided it was time to expand. Like Caroline, Matt had plenty of options, and he chose the one that, on the face of it, seemed to offer the most: He packed his bags and moved to San Francisco.

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Relative Deprivation In The Tech World

As Gladwell relates, the trouble for Caroline Sacks began in the spring of her freshman year at Brown. She was struggling to keep up with the rest of the students in her class, and not for lack of trying. “I had a lot of trouble even talking with people from those classes,” she tells Gladwell. “They didn’t want to share their study habits with me. They didn’t want to talk about ways to better understand the stuff that we were learning because it might give me a leg up.”

The tragedy is that Caroline was in fact a brilliant student, but by comparing herself to the smartest students in one of the top universities in the U.S., she didn’t feel like one–which caused her performance to sink, and confirmed that feeling. “The big pond takes really bright students and demoralizes them,” Gladwell writes. Yet evaluating ourselves based on others is far from an irrational impulse, Gladwell explains–it’s what humans being do.

It’s also what Matt did. After a few months in San Francisco, Matt started to feel discontent with his company’s progress. Raising $1 million in Australia didn’t feel like such a big accomplishment next to the Stanford grads who’d scooped up $3.5 million in seed rounds and counted their users in the millions.

“San Fran is about big ideas,” he told me. “It’s not about making some money, it’s about changing the world, and I don’t feel like I’m doing it right anymore.” Matt was no longer in the spotlight, he didn’t get news coverage, investors weren’t impressed, and his company’s growth curve had flattened out.

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What might have happened had Caroline enrolled in the University of Maryland? “I’d still be in science,” she tells Gladwell. And Matt? “I believe we’d still be growing in Australia,” he says. It’s not just that Caroline’s and Matt’s impressions of their own performance were just in their heads. The competition really did get steeper when they stepped into new environments. But it was realizing that fact that compounded it.

There’s no denying that starting a tech company someplace like San Francisco has major advantages, but the question for every entrepreneur considering it is whether they’re outweighed by those of being a big fish in a relatively smaller pond.

For now, anyway, I’m staying put.

Shlomi Nissan is the founder and CEO of 1Byte Beta. Visit his blog and follow him on Twitter @shlominissan for more on startups and product design.

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