Making Lemonade out of Lemons: Software startups outside of Silicon Valley

Silicon Valley enjoys many advantages which has made it the juggernaut for software startup activity around the world.  Among the significant advantages include:

• Access to Talent:  Silicon Valley is a magnet for talent. This starts with the world-class universities such as Stanford or Berkeley which attract talent from around the world. In addition, Silicon Valley benefits from "immigration" not only from overseas, but more significantly from other parts of the United States.  
• Access to Capital: Over the years, Silicon Valley has developed a broad/deep institutional venture capital community. However, just as importantly, there is a broad and deep community of angel investors. For most software startups, a small angel round is often the crucial starting point.
• Access to Customers and Partners:  Silicon Valley is a large population center, so there is easy access to a large local consumer market. In addition, for any software startup looking for partners or commercial customers, Silicon Valley offers convenient access to decision makers from nearly every interesting technology company in the world.  

All of these advantages combined with a true culture of entrepreneurship makes for a formidable combination.  

How can one build a software startup outside Silicon Valley?

Our work in central Florida has shown that there are some interesting and subtle advantages to building software companies outside of Silicon Valley.  These include:

• Disproportionate access to ideas: In Silicon Valley, a ready population of seasoned entrepreneurs compete for the best ideas. In central Florida, three universities (University of Florida, University of Central Florida, and University of South Florida) engage in over $1Billion of research, yet the population of seasoned entrepreneurs which can commercialize this research is tiny in comparison. For a seasoned entrepreneur, the area offers disproportionate access to the best ideas from this research.   
• Disproportionate access to talent: In Silicon Valley, the competition for talent is very intense. Large companies such as Facebook/Google compete for talent not only against each other, but also against startups. For the central Florida area, we have found many talented engineers who would like to stay in the region because of family or lifestyle, and the relative lack of opportunities allows a startup to be quite competitive.
• Disproportionate access to local markets:  In general, innovative companies have been developed in places such as Silicon Valley and over time build distribution to reach external markets. As an example, Florida offers mega-markets in areas such as tourism and healthcare where a startup can offer solutions and has access to local markets.
• Outside the Bubble: Much like New York for finance, Silicon Valley operates in an internal bubble with an intense level of herd-like behavior. Areas of investment come in/out of favor quickly. Similar to outside investors such as Warren Buffett in the finance industry, software startup companies outside the valley can focus on fundamentals and be shielded from the churn generated within the Silicon Valley bubble.
• Super Lean Startup:  Because of all of its advantages, Silicon Valley is a very expensive place to operate a business.  While it is possible to run a lean startup model in Silicon Valley, the magnitude of the money required is non-trivial. Comparing Silicon Valley to central Florida, we estimate a 3X advantage in cost. That is, one can make investment capital last 2-3X longer in central Florida vs Silicon Valley for software companies. Ultimately, this leads the most important advantage for a startup... time.

We have successfully demonstrated this model with an IP startup (WiPower) which survived through the 2008 financial crisis in the area of wireless power, and had a very successful exit in 2010. We are now running this same model with our current startup (Ocoos) in the area of internet marketing for the small and medium sized businesses (SMB). We have taken full advantage of this outside Silicon Valley model for Ocoos by:

• Licensing leading edge technology from University of Florida
• Attracting A-level players from local universities into the company
• Focusing on the SMB market (Florida has a large percentage of SMB businesses from the tourism/healthcare/real estate industries)
• Running with a burn-rate impossible in Silicon Valley

Having said all of the above, our last startup (WiPower) was acquired by a Silicon Valley based company.