Why do tech startups group together in “hubs” such as Silicon Valley, LA, and Seattle?

Do they? “tech” isn’t an industry and doesn’t mean anything. And “startup” is just a stage of new business development.

For innovation to exist in any industry, that industry has to have experience, jobs, partners, and capital reasonably accessible to entrepreneurs, so that they can access that and offset the massive personal risk involved in starting up.

You’re exploring the question in the wrong way.

What’s in Seattle that results in startups and innovation in that sector?

What’s in Austin (where I am) that has made it a hub? It’s not just “tech” and startups only emerge when supported.

Does, for example, Austin have startups in FinTech? In fact, no, not really. We have a couple of things, sure, but so can anywhere. An exception can emerge. But Austin isn’t a hub of banking or finance. Starting a FinTech venture here would mean learning from and partnering with a lot of local things that don’t really get it; and then those founders would likely spend a ton of time in New York or some such… at their expense. Why not just be there??

Silicon Valley is one such hub and many not there erroneously presume it’s all “tech” and thus ideal to startups. Neither presumption is remotely true either. Consider of there, eCommerce, for example. eBay. The exception. Otherwise Amazon, Shopify, Magento, BigCommerce… not there. Why not? The Bay Area has never been a hub of retail… there is no relevant industry there that would really enable that innovation to thrive, there.

By the way, affordability actually has little to do with it. In fact, it’s almost counter intuitive but more expensive regions tend to foster startups more effectively. Why? Perception bias.

What is perception bias??

Startups require passion and commitment. Not desire and hope. “I’d like to start a business” vs. “we will succeed.” Expensive ecosystems weed out the wantreprenuers. And that’s important because those people who want to, rather than will, create waste and inefficiency. Perception bias…. It’s inexpensive *here* so shouldn’t there be more?? No, because it’s easier to make a living in a job there than take the risk of everything to maybe be successful in a community where everyone else can just as easily call it quits and get a job.

When its expensive, entrepreneurs must be determined to getting their hands on the money that it takes. When its expensive, they can’t try, they must be willing and able. When its expensive, more startups are likely to be started by people with means to do so… because people can’t afford to try otherwise. That means usually means work experience and a network that comes of age… that contributes to the likelihood of success.

Besides, startups need to be capable of competing globally. The cost of doing that is the cost of there, not here. Philosophically. So again, perception bias… “we only need to pay people X and so we can get by on a $250k seed round.” But that same venture in New York is raising a $1MM seed round because that’s what it really takes… which of the two is a more appealing idea? I’d go take my risk with the founders that raised a million bucks. Even if you have a better shot at it actually working out, perception bias… the more expensive ecosystem tends to result in founders with more accurate appreciation of what it takes; and even if they’re wrong, what they accomplish seems more substantial.

Last additional thought, and this is a big one that surprisingly most founders blissfully disregard…. Media matters. A lot.

The stories of why you’re doing what you’re doing, what it is, for whom… if no one knows, no one cares. And if it’s only known locally, no one else cares. Rather in fact, the competitors where media is sophisticated tend to know and appreciate the importance of marketing. They’re probably keeping tabs on their market, more effectively. So when they see your startup in the local little paper, they’re now keeping tabs on you, learning from you, and getting their story in the New York Times. That competitive advantage means everything.

Where are those startup hubs to which you refer? Where media gets national or even global attention.

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