Fallacy: Startups don't work in the Midwest

(This post is part of my blog archiving project. This post appeared on bytecodex.wordpress.com on December 04, 2007.)

(aka I’ll let you know when the Midwest stops sucking)

Well, the title of this blog post is a little misleading: take for example, 37signals, which was the shining star of Web 2.0 a year or two ago, contributed to the further web 2.0 explosion by releasing the Ruby on Rails framework free, and now has become as ubiquitous and useful as internet infrastructure with their products Basecamp, Backpack, Highrise, etc. 37signals is, of course, from Chicago, Illinois. Further, there are dozens of smaller, successful Chicago startups that have carved out niches for themselves on the web, like Threadless, another Chicago startup that crowd-sources its products (successfully, I might add).

But the problem I’ve always had is hearing visionaries like Paul Graham or Joel Spolsky saying you can only make startups work in big cities that are “startup hubs,” like San Francisco (Silicon Valley) or New York City (where finance lives). They’re saying that the Midwest sucks too much to create successful startups. Add Chicago as a “big tech city where startups work” to the list, and you eliminate everyone in paragraph 1. Chicago is, after all, a vastly different place than the majority of the Midwest, both in attitude and population density.

The basic argument has become that some kid from a podunk town in Wisconsin or Iowa can’t start the next big thing. That’s complete and utter BS. Pardon the expression, but it’s worth repeating: It’s BS.

Clever heading about why it can work:

The internet is, by design, decentralized. Judging by the number of web-workers, co-workers, and freelancers out there today, one doesn’t need to be in the corporate headquarters to get the job done. The same goes for startups. You can get broadband pretty much anywhere, and that’s the only requirement for the startup these days. Everything else (hosting, support, infrastructure) is all distributed over the web, can happen anywhere, and is available to customers all over the world. You could work out of your cabana in the Caribbean as long as you have broadband, and no one would be the wiser. In connection with this is our next point:

Technology is cheap and readily available, too: laptops and servers (or even virtual hosting) is all the technology you really need. The cost of startups in this area has dropped to basically nothing. If you’re really cash-strapped, your hackers probably already have the desktop or laptop they’ll need to code, anyways. Virtual hosting is probably the killer app here for startup hosting, with services like Amazon’s AWS (Elastic Cloud 2 and S3) leading the pack. (not necessarily in terms of processing power, though.) You no longer have to spec out several $10K servers and more expensive colo space when you need to scale your web app these days, you just add more server instances for a higher monthly fee. (And btw, yes, Milwaukee and Chicago both have Apple stores to get your hackers their Macbooks.)\

As a corollary, all the software your startup needs (programming languages, frameworks, databases, & editors) is available online as free, open source projects. If you’re an expert in the technology, and it lets you adapt quicker and innovate more than a big corporation could pull off, you’ve can create a better product no matter where you are geographically. As for your actual web app, you should probably write it yourself, not outsource it or hire a contractor.

You don’t need a big team. Have a good idea and a friend to help you? Good, you’ve got your team. You’re filling all the roles of developer, graphic designer, systems administrator, management, and tester. No need for giant developer teams or marketing department. You’ll hire a lawyer and accountant as needed, but otherwise you’re set. It’s also possible to outsource all your support in 4-Hour Workweekfashion, or otherwise, a FAQ on your site probably does an even better job.

Our cost of living is lower. If you’re familiar with Paul Graham’s essay on The Future of Web Startups, you’ll know that he’s already made the argument that all you need to create a startup is a shared space for hackers to hack in, and web hosting. He doesn’t emphasize having a fancy office, but instead starting in an apartment or house where bedrooms become offices and everyone lives together, working day and night towards a common goal of success. The problem of paying for expensive offices is then lowered. The difference is that in California (or New York City), the cost of rent is ridiculous. When success for your startup means just hanging on long enough, usually only a few more months to get profitable or sell out, your cost of living is important. So why pay for crazy-expensive living arrangements in a big Victorian or Brownstone or San Francisco’s apartment prices? (think $1800/month studio apartments) A team, in say Wisconsin, working from their cheap apartment can probably crank out the same kind of work as these startups, for a fraction of the cost. Also, everything else is cheaper out here, including food, so you can eat pretty decent if you’re willing to cook and still stay cheap. Then again, you can still eat only ramen and Redbull if you want to.

You only need an angel investor or two to start, or maybe no funding at all. While VCs (Vulture Capitalists) will probably be unlikely to fly out to see you in farmsville, you don’t need them to start out. As mentioned, startups are really cheap right now. So the amount you’d need from an initial angel investor is very low. And believe it or not, these potential angel investors are all over the place. They don’t all live in fancy mansions in Washington state or whatever. Even if you can’t find one, there’s a good chance you can bootstrap your startup yourself, and then get funding when you’ve already implemented your million dollar idea and can demo to potential investors, or direct interested parties to the working web app by handing them a card with the URL.

With the net, knowledge is hardly geographical. There’s no secret tricks known only to a few elite in Silicon Valley. You can have world class hackers living anywhere and collaborating online as experts in that knowledge domain. The Midwest can compete in expertise with anywhere else. We do have smart and extremely talented hackers living here.

You don’t have to take big risks, like moving across the country for something that might fail. While people just out of college, the typical startup founders, are capable of taking big risks like that, not everyone wants to. Further, it becomes very costly personally if you do end up failing and have to move back to Wisconsin with your tail between your legs. Why not just stay in Wisconsin, see your family on the weekends, and code just as hard as those guys in Silicon Valley?

The Problems:

Obviously, you miss out on the tech community if you’re trying to do a startup in the middle of nowhere. I’m often struck by how close and efficient the “web 2.0” crowd is out in San Fran. For example, watching Leah Culver (of Pownce) give a presentation on OAuth at the Justin.tv office (despite the fact that we already have two startups collaborating in this sentence) last week, I realized that planning for OAuth that didn’t happen over mailing lists or by some big regulatory committee (cough, ICANN/W3C), but by going out to lunch together, stopping by offices, and generally sharing the problems they had and figuring out ways to solve them. You just can’t get that kind of concentrated knowledge and talent out here in Wisconsin, as awesome as our tech community is, there’s just not enough of us to make it work. The community out there is evident when you hear some startup founder twittering about dropping by another startup’s offices to see what they’re doing, or everyone is at the same party / conference / barcamp and the next week they’ve all created something new collectively.

Wisconsin educations are not geared towards creating hackers or entrepreneurs. A common argument for startup hubs is that the colleges there are pumping out lots of very talented kids that are eager to break into the startup scene. The inverse of this is that, in my experience, Computer Science students in Wisconsin are getting the exact same kind of courses, with probably the same level of quality (most likely better, as you’re unlikely to be getting taught by a TA at the smaller UW & private schools). But, I get the feeling when I talk to my CSCI classmates is that maybe they are smart and know “about computers,” but they’re mostly just gamers or whatever that are in CSCI because they wouldn’t mind being tech support at a random company, or wouldn’t mind working on a cube farm for some corporation doing “computer stuff.” They’re not in it because they’re necessarily passionate about programming or math or open source or changing the world. They just want the stable, healthy paycheck from those kinds of jobs. They’re the other 80% of programmers, if they end up programming at all after college. To make a PG-ish generalization: Serious hackers seem to value their time, and in Thoreau-ish fashion aren’t willing to trade it for a paycheck if the work isn’t interesting or fulfilling enough. I should stress that this is my perception the majority of CSCI students I know here in Wisconsin, but I know a few that are shining examples of Midwest geek hackerdom. Until we teach the same sort of attitude and expectations that create Sergey Brins and Joel Spolskys, we’re just making more miserable Office Space drones who are in it for the paycheck and not for passion.

Public transportation sucks (aka, distances increase and people are too spread out).When you’ve got to drive hours to cross state lines to get to a BarCamp or ride the train from Milwaukee into Chicago to catch the Reddit or Google party, you’re less likely to go. So the tech community is less likely to concentrate in one area for any period of time, even an evening. Just as a personal example, Milwaukee has a great professional group for web designers and developers, and their meetings are less than an hour away if I were to drive, but so far I haven’t been able to make it to any of their meetings. I’m even closer to downtown Chicago, but it’s not practical to drive and the train schedule is lousy at best. Even though San Francisco is a big sprawling region, their public transportation, neighborhoods concentrating the tech community, and constant tech events/conferences trumps what we can pull off in the midwest any day.

Time to prove them wrong.

Go out there and make the next big thing. It won’t cost you much, it’s not risky, and you’ll see your friends and the tech community every day on Twitter anyways. Work out of your apartment or on your free time on the weekends. Get cheap entry-level virtual hosting, and see if there’s interest in your idea.

This is sort of my plan, as I find moving out to California currently infeasible. It’s uncertain whether any idea will turn out to be the Next Great American Startup, but on the flip side, you’re just as likely to fail as your counterparts burning through cash in Silicon Valley.