Can You Start a Technology Company Outside of Silicon Valley?

11 December, 2016

You might think the only place to set up a technology company in the United States is California.

After all, Northern California has Silicon Valley, which is home to companies like Apple and Google.

One expert on new business agrees Silicon Valley is a great place to launch a tech company. But he wonders if someone with a great idea cannot move there, does that person have a chance to be successful?

Scott Shane is a professor of economics at Case Western Reserve University in Cleveland, Ohio. He teaches classes on starting up a tech company and makes small investments in new businesses.

Shane says a place like Palo Alto, California has many desirable qualities compared to a city in another area.

First, a high-tech company in Palo Alto will have an easier time finding people experienced in writing complex computer programs. He adds that the company also will have an easy time finding investors. The most difficult decision will be deciding which investors to work with.

The scene outside LinkedIn's headquarters in Mountain View, California.
The scene outside LinkedIn's headquarters in Mountain View, California.

"The biggest pro for entrepreneurship in a place like Silicon Valley or San Francisco is the density of the activity. So if you are looking for a seed-stage investment, literally you would trip over tens of seed-stage venture capitalists on your way to get a coffee in San Francisco..."

Shane says the San Francisco area may have as many as 1,000 venture capitalists. They take money from investors and use it to help finance new businesses.

He says there may be only three or four venture capitalists in some major cities, such as Cleveland; Detroit, Michigan; Omaha, Nebraska; and Madison, Wisconsin.

But, Shane says, new companies in a place like Omaha are better at some things than businesses in California. For example, companies in Omaha spend less money for office space and on paying workers. That means a new company does not have to worry about running out of money before it perfects its product.

In California, office space can be costly, with workers demanding high pay. People interested in opening a technology business do not have a lot of time to perfect their product. Investors who want to earn a profit on their money sometimes push new companies into bringing out a product before it is ready.

In Detroit, businesses can take a little more time getting started before looking for outside investment. Shane says such companies can be good targets for investors because they have already faced some of the difficulties common to new businesses.

VOA spoke with officials at two start-up companies: CityInsight, based in Detroit; and Quo, a Cleveland business. The officials explained why they chose to launch their businesses in those cities instead of California.

Twenty-three year old Abess Makki is the founder of CityInsight. His business receives support from an organization called TechTown, which is connected with a local university.

Amit Patel and Naman Desai set up Quo with the help of LaunchHouse, an incubator that helps people turn ideas into businesses.

LaunchHouse makes money by renting office space and investing in the companies it helps to start.

Both TechTown and LaunchHouse help people who have ideas, but are not business experts, get started. For example, TechTown helps people write up business plans, decide how to offer shares of their company to investors and prepare sales talks for new clients.

"And that's I think is the biggest thing that TechTown did for me. Is actually take everything I did and help me put it together. Sort of like, I had the paint, the brush, the canvas. But, you know, they helped me make the painting, and that's a huge part."

Makki said his connection with TechTown kept him from making mistakes that caused problems for other businesses.

Ned Staebler is the chief executive officer of TechTown. He said his company goes beyond other organizations that are known as incubators.

"A lot of places that will teach you the nuts-and-bolts of opening up a retail business. We have an eight-week retail bootcamp. But after that, we'll actually help you go through the permitting process. We'll help you get your architect in and your financing done. It's not just a ‘come and take a class and then see you later.' We really act as consultants all the way through the process."

Abess Makki said TechTown helped him meet business experts who could help solve problems. That was important when he was signing an agreement to work with the city of Detroit.

CityInsight is trying to make it easier for governments and local utility companies to connect with their citizens and customers.

CityInsight has an app, or software program, which gives customers real-time information about their water usage. That way, when people are asked to pay for their water usage every three or four months, they are not surprised by the amount they owe.

"In Detroit, there's a high illiteracy rate. So we want to make sure people understand their water bill. Not just through words, but through graphics and through images. And once they understand that, we'll feel more comfortable giving the people their bills. And feeling safe that they understand where it came about."

Water is an important subject in Michigan. The city of Flint was in the news this year after studies showed its water supply contained lead.

Patel grew up near Cleveland. So he felt at ease starting his business there. His company, Quo, helps people find housing to rent. Quo works with people who are neighborhood experts. Then it connects those experts with people who are trying to find a place to live. If the expert helps someone find a home, then Quo gets paid.

Patel says Cleveland was a good place for his start-up because the city offers different kinds of housing. There are apartments in large buildings in the city, and smaller apartment buildings nearby.

But in addition to housing, Cleveland is a good place for tech businesses because many college-educated people live there.

"Cleveland, if you look at some of the universities here in the area, Case Western provides the top-notch engineers, computer science folks in the country for the Midwest region. You'll see a lot of resources, folks come out of that university along with Cleveland State, John Carroll, Akron and Kent. You'll see a lot of strong engineers that come out of there where they're craving the excitement of joining a start-up. And so finding resources in Cleveland is not an issue at all. In fact, you find smarter resources here at a lower cost given the cost of living is significantly less than Silicon Valley. You're able to find sharp people here."

People who are good at writing computer code or designing websites are moving to cities in states like Michigan, Ohio or Nebraska. They can still work remotely for Silicon Valley companies, but they are able to live more relaxed lives.

At the same time, in places like Cleveland, people are starting businesses in hopes of having more control over their careers.

Makki looked for his first job as a teenager, and did not have much luck. That period of time taught him that he should create a business instead of just finding a job, and that is what he is doing.

"When I was coming up, it was more of the recession period. And most of us around, all the guys my age, we couldn't find jobs anywhere. When I mean anywhere, anywhere. We were willing to do anything, but that was a really bad time. I cannot afford to depend on something that's not always going to be there..."

I'm Dan Friedell.

And I'm Caty Weaver.

Dan Friedell wrote this story for Learning English. George Grow was the editor.

What do you think about starting a tech business outside of Silicon Valley? We want to know. Write to us in the Comments Section or on 51VOA.COM.


Words in This Story

boast – v. to take pride in something

entrepreneur – n. a person who starts a business and is willing to risk loss in order to make money

eager – adj. very excited and interested

seed-stage – n. at the start of something

venture – n. a new activity, project, business, etc., that typically involves risk

incubator – n. an organization or place that helps in the development of new businesses

nuts-and-bolts – n. the main parts of a project

utility – n. a service (such as a supply of electricity or water) that is provided to the public — usually plural

pro – n. an argument for something : a reason to do something — usually plural

density – n. the amount of something in a particular space or area

rent – adv. money that you pay in return for being able to use property and especially to live in an apartment, house, etc., that belongs to someone else

consultant – n. a person who gives professional advice or services to companies for a fee

remotely – adv. from a distance

relaxed – adj. calm and free from stress, worry, or anxiety : not worried or tense

customer – n. someone who buys goods or services from a business