Start Your Company Where You Want To Live – Period

image001A version of this article previously appeared on Forbes.

I am writing this article while sitting on a rooftop deck, overlooking the ocean in Baja, Mexico. The warm sea breeze and chilled beers are no doubt influencing my thinking, but sometimes it takes a change in latitude to gain a change in attitude (sorry Mr. Buffet, I couldn’t resist).

My uber-relaxed state of mind aside, I have always believed that the key to personal and professional success is to select a locale that will facilitate your lifestyle and hobbies. Thus, the “best” place for you to start your company is the community you want to live in. Period.

The days of entrepreneurs having to move to New York, LA or Silicon Valley to ensure their startup’s success are long over. Don’t believe the hype.

Sound like crazy advice? Maybe, but it’s exactly what my wife and I did over twenty years ago.

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Santa Barbara Dreaming

When my wife and I arrived in Santa Barbara in the early 1990’s, we did not know a single person. However, we knew we wanted to live in Santa Barbara and we were not willing to sacrifice our entrepreneurial dreams to live in paradise.

For the first decade, nearly every venture capitalist I met posed the same question, “Santa Barbara is a great town, but when are you going to move your company to the Valley?” My response was equally consistent, “Never.”

Dozens of successful startups later, investors no longer ask this question of Santa Barbara entrepreneurs.

Home Field Advantage

Although relocating worked out for me and my wife, if your hometown facilitates the pursuit of your life’s passions, you might be best served staying put.

There are obvious reasons to migrate your company to an established entrepreneurial community, such as Silicon Valley, New York or LA. However,  there are also significant countervailing advantages accrued when you fire up your venture outside of these startup Meccas.

1. Home Field – The most obvious benefit is the ability to leverage your professional network of potential employees, investors and partners. When you relocate to a new area, tremendous energy must be invested in establishing a new network. This time and effort is better spent building your business.

2. ROI – It is markedly less expensive to start a venture outside of the Meccas. Real estate, salaries and operating expenses tend to be cheaper in secondary markets. This allows ventures in these markets to gain a larger return on their investor’s capital, which results in less dilution and more value in the hands of the Founders and employees.

3. Loyalty – Employees in secondary markets tend to remain with their companies longer, primarily because these employment markets tend to be less tumultuous than the Meccas.

4. Cool Fish, Small Pond – One of the most impactful advantages of establishing your company in a smaller market is that it allows you to become one of the cool companies in your region. Expertcity (creator of GoToMeeting, acquired by Citrix) became one of the hippest companies to work for in Santa Barbara, primarily because of our healthy corporate culture. This cool factor attracted the most talented folks in town and facilitated recruiting executives from outside our market.

5. Flying Low – There is a distinct advantage, especially in a venture’s early days, of remaining relatively obscure. This allows companies to determine their product / market fit without negatively impacting their reputation. Once your company begins to gain traction, you can gain recognition with the same level of success as the companies in the Mecca markets, irrespective of your locale.

6. First-hand Love – Your hometown contains life-long friends and family members who can offer you and your spouse invaluable empathy and understanding. Such emotional support can certainly be delivered remotely. However, there is no substitute for in-person, heart-to-heart discussions that are not held among harried vacations or holiday celebrations. Such, intimate and nourishing conversations seldom occur when loved ones are remote.

Life Ain’t Your Hobby

With few exceptions, high tech companies can be located nearly anywhere without suffering debilitating disadvantages which would have been the death knell of companies a decade ago.

Thus, lead with your hobbies. Want to surf? Establish your startup in a beach town. If you are a competent entrepreneur you will make it work. If you are not, being located in the heart of the most ideal tech Mecca won’t matter.

Who knows? You might be able to surf in Baja and run your company from a rooftop deck, overlooking the ocean while sipping a cold, adult beverage.

Stranger things have happened…

Follow my startup-oriented Twitter feed here: @johngreathouse. I promise I will never Tweet about that killer burrito I just ate.

John Greathouse

John Greathouse is a Partner at Rincon Venture Partners, a venture capital firm investing in early stage, web-based businesses. Previously, John co-founded RevUpNet, a performance-based online marketing agency sold to Coull. During the prior twenty years, he held senior executive positions with several successful startups, spearheading transactions that generated more than $350 million of shareholder value, including an IPO and a multi-hundred-million-dollar acquisition.

John is a CPA and holds an M.B.A. from the Wharton School. He is a member of the University of California at Santa Barbara’s Faculty where he teaches several entrepreneurial courses.

Note: All of my advice in this blog is that of a layman. I am not a lawyer and I never played one on TV. You should always assess the veracity of any third-party advice that might have far-reaching implications (be it legal, accounting, personnel, tax or otherwise) with your trusted professional of choice.

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  • Really interesting – yes and no…

    As I write, I can see the snow above the Lauberhorn, (World cup downhill circuit), am 50 meters from the lake where I swim (in Summer) and my wife is working in the garden unaware that I am reading about what drew you to your personal paradise.

    We are a startup. Last week we took meetings with companies in Germany, Holland, UK, tomorrow we are explore issues with a potential client in Belgium, and this morning I have been preparing a proposal for an American company, who serves a particular client of interest in some 78 countries in six continents, who we they believe we can support in terms of productivity.

    It appears our clients do not give a fig for where we live and most will never know. They want benefits that we can offer – so that’s our criteria #1 – client benefit.

    Our founder team of five people is spread across three countries, and we meet every few months. Each is talented, hand-picked, lives where they want and works when they want. We are mutually responsible. None is more than three hours from the others.

    We cherish the heterogeneity of cultural diversity. Our languages and contacts with king-pins in industries in several key markets – could not be made or established from the homogenous waters of the bay or the valley or even from the (an) apple. In diverse markets, it is easier to focus and segment, refer for some great discussion of the advanatges of startups having focussed beachheads into large markets.

    So yes I agree – but !

    If you need to find funding fast, you may need to go to where it settles in abundance.

    But be aware that like water, cash flows and so finds its own level (the low common denominator).

    Smart money vs dumb money, has started looking for differentiation rather than cookie cutter conformity.

    If startups want to be treated as commodities, they should go to the experts, where they can be factory-farmed efficiently (incubators) and where doubtless some may survive.

    If not, tread your own path to somewhere you know where the pickings are rich.

  • Well stated James – I hope you can find some time to blog, as you are clearly a great writer.

    I agree that customers only care about one thing – having their problems economically solved. They don’t care what school(s) you attended, how many past startup successes you have had or where you reside. We are in the bottom of the first inning of a true ‘world’ economy.

    Best of luck to you.

  • VoltNow

    Completely agree. In fact, geographic flexibility is one of the critical requirements for me and my family in any start-up venture. I have family in Taiwan and always seek to incorporate some element of the business with Taiwan. Ideally, I would be able to work from anywhere in the world and perhaps spend summers in Taiwan with my entire family. With my new start-up, I have an engineer in Taiwan and work with a couple factories in China and Taiwan. This is the start of a R&D/Product Development hub while US focuses on Marketing and Distribution.

    To me, what is even more important than being able to start a business from any hometown is the ability to run the business from anywhere in the world. Our time in Santa Barbara was well spent but we are determined to create a successful business venture in our current home state of Florida.

    Another aspect that this article somewhat touches on and James commented on is the increasingly global nature of business. Historically, when helping others build consumer e-commerce sites, it was very US-centric. Now, I think you would be foolish to not think global. This requires a significant amount of work on things like translation/localization, currency, fulfillment and marketing.

  • John – kind words indeed. As to your first

    Google+1’s etc greatfully accepted 🙂

    To your second >>We are in the bottom of the first inning of a true ‘world’ economy.<<

    I agree with you totally – but this from Rincon, strays somewhat from that concept: "early stage web-based businesses that are located in Southern California…"

    The "true world economy" outside Southern California offers efficient diversification (rather than "follow" investment strategies which tend to increase transaction cost and ensure that "normal" and "mediocre" returns are synonymous).

    I see some VC waking up to this and suggest that VC fund structures will rapidly evolve to accommodate new realities or suffer the consequence.

    Furthermore, I suspect that a swing back from the lean "app based" startup (where truly the startup model is radically new but now rapidly commoditised) in favour of a B2B startup that is borne by and born out of experience and market understanding of enterprise needs will take place – So B2B must again "enjoy its day in the sun".

    It is easier to disrupt a dominant enterprise solution with a consumer app (think microsoft office vs google office apps) – but it is when the BYOD market penetrates the enterprise that real money is made.

    I suspect a new truth is to be written about enterprise productivity software, it will be the individuals who demand convenience, rather than the formal enterprise purchasing functions, that will open the doors.

    SaaS payment solutions (eg by square and others) are set to open floodgates to corporate enterprise buying in Europe by individuals, and the central buying departments will be unable to enforce compliance, just as IT depts cannot regulate apps use. This effect is magnitudes more significant in EU than US (many EU corporates do not even have credit card based purchasing functionality at departmental levels)

    In my (probably not so humble – but I hope well-informed) view, this factor will crater geographically diverse VC (planet not further down the beach) fund returns even more rapidly than exported startup eco-systems might (welcome though they certainly are).

    Watch out for US VCs partnering up in Europe in the next 5 years and it actually working for once !

  • Neoganda

    Deena, the CEO of Wanelo, had a lot of trouble raising money for her company when she was based in LA. It wasn’t long after she moved the office and her life to SV that she received the capital she needed. Wanelo is doing quite well now. Jim was actually a judge at TwistUp8 where she pitched so there’s a little irony there. Ultimately lifestyle is important but, dang it, you may be trading some important advantages.

  • Paul

    Determination and personal happiness are related factors that many overlook when trying to build a “successful” business. As a first time founder and former litigator, happiness can often be overlooked as an ingredient for success. For me (and from this post, I gather for you as well), location helps increase happiness. It is no accident that Contract Cloud’s first test users are in Santa Barbara, while the company is based in LA.

    We missed you at last week’s Friday surf meeting (invite was via twitter) – will continue to keep you updated on Contract Cloud’s progress. In the mean time, enjoy Baja!

    Paul Vacquier

  • John Greathouse

    Agreed that there is a high concentration of capital in SV. As I am not a fan of No Cal, I would argue that the capital comes at a high life-style cost. However, that is one man’s opinion. I have a number of friends who love the Bay Area and do not feel that living there is a compromise.

    Thus, the ‘right’ location is a personal choice. My argument is that the road to happiness involves more than adequately capitalizing your startup. 😉

  • John Greathouse

    Thanks Paul. I got back to you via Twitter – hopefully you got my msg. I was out of town from Friday PM through Sunday.

    Glad you enjoyed your time in SB. Location can absolutely increase / decrease one’s happiness. At the end of the day, what do you really have if you are not happy?

    Best of luck to you.

  • John Greathouse

    All of the trends you cite are entrepreneur friendly and thus, I will be happy to see them transpire. Anything that is good for entrepreneurs is good for entrepreneur-friendly investors.

    Regarding Rincon’s geographic focus, it makes sense for our (relatively) small, early-stage fund to invest in companies in which we can jump in the car and visit. However, I would never suggest that someone relocate their business to So Cal so they can fit our investment criteria.

    Rather, entrepreneurs should identify Rincon-type funds in their region and/or attract capital from funds who are not geographic focused.

  • Great objective response , will be following your blog – and if I lived in So Cal, I would also be door-stepping your company – Good luck !

  • Paul

    Thank you, John. I completely agree!

  • Cortis Loukes

    Good inspiration. Thanks

  • Thanks Cortis – best of luck with your venture.

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