The Silicon Valley Way – “No Such Thing As Failure, Only Feedback”
British tech entrepreneur Ian Gotts on what he thinks makes Silicon Valley so successful
I spent 15 years building Nimbus, a process mapping company, to a reasonable size in the UK and had a very successful exit. I now live in San Francisco where I have become an avid student of “the Silicon Valley way”. Four years after the exit, I’ve got the founders back together and we have launched a cloud process mapping app with a highly disruptive freemium pricing model targeting the Fortune 5M, not just the Fortune 500.
That last sentence encapsulates much of what makes it so different here. So what have I found are the big differences between the UK and Silicon Valley?
Clearly the USA is a significantly larger consumer base than the UK. And the idea of the “Unites States of Europe” is a non-starter due to the cultural, language and economic differences between the countries. So having 300m business and personal consumers on your doorstep, all speaking the same language and having broadly the same attitudes makes all the difference. In fact, it colors every other factor which I have considered.
To put the size of market into context:
- Cowboy hats: Take the tiny niche industry of cowboy hats. Just cowboy hats. Not spurs or boots or pistols or whips. Just the hats. Annually 2.8 million cowboy hats are sold. And Resistol, a hat maker in Texas, enjoyed the lion’s share of the market, selling 1 million of those hats. At $85 average per hat, that brought Resistol an income of $85 million that year. For hats. Just hats.
- Fitness studio booking software: A software platform for fitness studios? These are small businesses with small budgets. How could there possibly be enough demand? MindBody provides booking software for gyms, spas and yoga studios has over 250,000 practitioners who use its platform and an annual revenue run rate of over $100 million. It taps into a (very large) niche market, but one where every participant has the same problems.
In the USA there is no such thing as failure, only feedback. To create something really special means taking risk. And risk means you sometimes fail. That is acceptable in the USA. But it also is good to succeed. There is no UK “tall poppy" syndrome here, nor stigma attached to failing. That breeds a very different type of entrepreneur. One that is positive, risk taking and celebrates success.
We invested in and developed an app to help event professionals plan, coordinate and cost events. It tanked – staggeringly there was a need but no demand. When people here asked about it was going and heard we had closed it down, their response was “Bummer. So what are you doing next?” No questions about how much did we lose or are we disappointed.
Take a huge market and bet on a management team to make it big. That is the approach for funding in the US. Not that the money is given away easily – no matter how it seems from 6,000 miles away - but it is true venture capital. It is risk capital. The UK funding environment seems as risk averse as a bank, and the small UK market means the bets are small, although this is changing.
Because the potential US market is so large, VCs understand that once a level of product traction is gained, then substantial levels of funding are required to scale. A fascinating website is Crunchbase. It lists information about companies, including funding. It is a real eye-opener. Take a look at the levels of funding of some tech companies you know.
The greatest criticism I hear from UK entrepreneurs, is that the US funding approach is not realistic; that companies with no proven business model or idea of how they are going to become profitable, are funded. They say that this is not a credible approach. But then you look at the number of companies that have scaled up and then become wildly valuable and profitable or acquired before they reach profitability. Companies in both B2C and B2B markets include Salesforce.com, Amazon, LinkedIn, Twitter, Facebook, Paypal, YouTube, Opsware, Eloqua, Exact Target, Yammer, Airbnb and the list goes on and on. But the approach is made possible by a combination of the market size and the funding appetite. Fundamentally, the size of the market means that you can afford to invest long term to build market share and then turn the business model from growth to profit. Not the other way around.
There are a huge number of entrepreneurs who have been very successful who never need to work again. But they do. The achieve success after success. Perhaps because they are financially secure they are prepared to take greater risks. But also because they have proven they can do it, VCs are falling over themselves to fund them. So the entrepreneurs don’t even need to use their own money. And with every company they are teaching, coaching and mentoring their employees to be entrepreneurs. Finally they become investors either as individuals, syndicates or venture capitalists.
At an event in Las Vegas recently, I interviewed Tom Siebel, founder of Siebel Systems. He sold to Siebel Systems to Oracle and, according to Wikipedia, he is worth $1.8bn. But when we met he was all fired up about his latest venture C3Energy.com At the same event I met Scott McNealy, co-founder of Sun Microsystems which, when it was sold, made Scott a billionaire. But he was manning the exhibition stand with his brother pitching his latest venture, not out on the golf course.
Education and networking:
Again, with so many successful entrepreneurs, there is a willingness to share their knowledge and experience. Out here, advice is freely given with no expectation of some payback. What goes around comes around seems to be the approach – a form of tech karma. Venture Capitalists, lawyers and advisors are constantly running events to showcase their clients and get entrepreneurs together. It is great education and networking for entrepreneurs, but also good business for the hosts who get to spot the rising stars.
To give you some idea of the free resources available, visit SaaStr.com. It is the go to site for all SaaS companies who want to know anything about building their company; pricing models, metrics, how to hire a VP of Sales, how to negotiate with a Venture Capitalist. Started in 2012 has Q&A, blogs, video interviews with the stars and it now has 2 million views a month and an annual conference with over 5,000 delegates.
It is sunny here for a great deal of the year. It may sound stupid, but when you are waking up to clear skies and lunching outside then everyone has a happier and more positive attitude. If you spend your weekends outside, then you are healthier and return to work on Monday invigorated and recharged. And that leads to higher productivity and business optimism. How different is that attitude if you are subjected to grey and cold for over six months of the year?
Sounds too good to be true? It is fantastic, but it comes at a cost. It is brutally expensive to live here. Therefore, the salary costs and benefits packages for you and the team you hire will seem ridiculously high. But you need to pay them to get the best staff.
So what are the implications? For established companies looking to up their innovation factor, the attitude towards failure, funding and knowledge sharing can be learnt from and imported.
If you are growing a UK or European based tech company, and have global aspirations then you need to aim to establish a credible team, which means at least one of your senior team of founders based here, for at least the first three years.
To be able to get established then you have a couple of hurdles. The first is a visa for the staff moving over and the second is the cost of supporting them on the ground whilst they start to build a business. The final one is the time burnt up in the logistics of moving over and getting established.
It is totally worth it. But understand it is “Go Big or Go Home”.
If you are interested in digging deeper, then Ian Gotts has written a book about moving to Silicon Valley which is about to be published. The opening chapters which discuss the US market, why you need to be here and how UK companies get it wrong, are online at http://movetosv.wordpress.com/
Get your own glimpse into what makes San Francisco so successful this September at PEX Network's Business Excellence Summit. Tear down the status quo: unite the innovation of Silicon Valley with the scalability of the Fortune 500 to drive sustainable performance excellence. Find out more by downloading the latest event agenda.