Editor’s Note: This is a guest post by Mark Suster (@msuster), a 2x entrepreneur, now VC at GRP Partners. Read more about Suster at Bothsidesofthetable
I’m in Seattle this week.
People keep asking me if I’ve “seen anything interesting.” Of course I have. I’m an entrepreneur at heart so I’m always inspired when I hear stories about innovation.
I really liked BigDoor, MediaPiston, OpsCode, BuddyTV, SEOMoz and much more. Can’t list them all.
But I’m not here trolling for deals. I’m here to build long-term, stable relationships that I hope will pay off over a decade, not a week. I’m looking to turn dots into lines over time.
I’m inspired by the enthusiasm of the young, emerging startup ecosystem that is here. It has all of the components for success: a steady inflow of smart, CS graduates from UW who prefer to stay local if they could, a smattering of local VCs & angels, some “patron” companies like Microsoft and Amazon who provide new talent as well as the opportunity for company-defining partnerships and it has “elder statesmen” like Bill Gates and Jeff Bezos.
The ingredients are all here. Seattle should be the envy of any non-Silicon-Valley tech community in the country. Great lifestyle, great cost of living, motivated people and only the crap weather on the negative side. They have their successes; yet somehow all of the neurons don’t yet seem to be firing as powerfully as they need to be.
As I gear up to give a keynote at the annual Seattle 2.0 awards dinner on Thursday night I started to reflect on what it would take to “change the trajectory” for Seattle or for any regional market, really. It really wouldn’t take much to turn a great technology ecosystem into a truly electric one.
And I think about the “Seattle issue” as a metaphor for startups and business in general. I’ve always been a big believer that just a couple of key individuals make all of the difference in a company’s success. It’s why my investment philosophy is called, “the entrepreneur thesis.”
I was meeting with a first-time CEO of a very promising young startup recently and offering my advice on what his priorities should be. He listed all of the product releases that were upcoming, the customers that were in the pipeline and where he saw his competition moving. I gave him the same advice I give nearly all over-worked, control-freak, do-everything-yourself startup founders:
“Your number one priority isn’t any of these things. Your highest priority right now is hiring the 1 or 2 people that are going to join your company and make a difference. There’s you and your killer CTO co-founder. But who else is going to get out there and close your big biz dev deals with you? Who’s going to help you with improving your marketing / positioning to become a clear platform category leader like Twilio?
Are you going to do all of this? Evidence over the past year would suggest otherwise. You have too much on your plate.
A few key people really can make a huge difference.”
“I know, I know. I will start recruiting soon. But I need to get our next release out the door. I need to take some VC meetings. I just don’t have enough time to focus on it right now. It will be a bit easier when we have a little more progress to show.”
“Bullshit. It never gets easier. There are always the next 20 tasks. The reason you’re not getting to the next level is that you’re not prioritizing the precise thing that could take you to the next level. I would say recruiting at least one superstar would be your priorities 1,2 & 3.”
I don’t care if you’re a 10-person organization, a 1,000 person organization or a multinational corporation – often it is the few key players that change the dimensions. Imagine Apple without Steve Jobs. Or less obvious, imagine Facebook without Sheryl Sandberg.
So entrepreneurs need to think the same way some VCs do – because markets change, competition changes, innovation & technology cycles move so fast that only by having a few truly outstanding leaders in your company can you sustain any sort of advantage.
And that is precisely my thoughts for Seattle and what I plan to deliver on Thursday night: Which few key community leaders are going to step up and get those neurons properly firing and connected?
My recipe for Seattle or your community:
1. Community Leaders + Organizers
You need a good mixture of both.
Look at what Brad Feld has done for Boulder. I know it’s not single-handed as he has both fantastic partners at Foundry Group and many other community leaders. But he has helped put Boulder on the consciousness of so many young, aspiring entrepreneurs in search of somewhere other than the San Francisco Bay Area to work & live. It is possible and he’s showing people that.
David Cohen deserves much credit for building TechStars into an internationally recognized brand name for innovation. If you can attract people to Boulder for a session to be part of the magical mix of people at TechStars then some will naturally stay put afterward. But it did take Brad as a public spokesman, consummate networker and successful VC to help create legitimacy to let David’s ideas flourish.
It takes both to build a community. The business leaders need to do their parts. The people with the time, energy & creativity to build organizations like TechStars need to bring their ideas to fruition.
I see this emerging in Seattle and the passion of “a few key individuals” who can help shift the game. Chris Devore & Andy Sack have created Founder’s Coop with the goal of funding, incubating & launching more early-stage ventures in Seattle. If you could convince a few young “wantrepreneurs” that there is a community that can support them & a safe landing if they’re not immediately successful you might have your next Amazon in the works. It’s a very cool vibe at Founder’s Coop. These two guys are part of the recipe for Seattle’s growth.
2. Passionate Entrepreneurs & Ambassadors
Stating the obvious but you can’t will a region into success. You need to have passionate tech entrepreneurs who want to build businesses locally. They have the same trade-off decisions that you do about packing up and moving to Silicon Valley vs. staying and building locally. The answer seems obvious (to move) but it’s not. When you account for competition for talent, the difficulty of retention, the cost of living and the difficulty of rising above the noise – there are many advantages of staying put. The advantages of moving are more obvious.
So you need Dave Schappell who is building an interesting business in Seattle called TeachStreet, a local-community initiative to connect teachers & students. Dave is ex-Amazon and is a tireless advocate for the Seattle community. He’s been steadily emailing me for the past 18 months with ideas for local entrepreneurs I “have to meet” and has been egging me on to spend more time in Seattle. He’s why I came this week.
Dave Schappell & Daryn Nakhuda rally the troops
He helped me organize a set of meetings with high-potential individuals and a dinner where we all debating how to increase entrepreneurial velocity. I re-connected with Andy Liu the founder & CEO of BuddyTV – the largest destination for social TV enthusiasts on the web. When I saw what BuddyTV is working on and how long they’ve been the market (since 2005) I realized that this has huge potential to help disrupt the television market. They haven’t launched their next gen product – watch this space. No Dave S. = no knowledge of what BuddyTV is up to for me.
Every community needs their “ambassadors” who build relationships with leaders from other communities, who convince these people to come visit the community, who help organize events with local teams to get the cross-city interactions and who create awareness for the local talent.
Dave is a potential key ingredient in the recipe for Seattle’s success.
3. Patron Companies
Seattle has something that many communities don’t have. It’s what I call “patron companies” and the local giants are Microsoft & Amazon. When you think about the success that is Silicon Valley, the unfair advantage is not just the huge amounts of available venture capital. When you start a company in the Bay Area you can often get your first biz dev deal done with Google, Facebook, Salesforce.com, eBay, Yahoo! or the countless other successful startup firms.
A key deal not only helps you raise venture capital but it can help attract employees, garner press attention, help with product focus & importantly drive customer adoption and/or revenue.
In Los Angeles we don’t have “patron technology companies” that are big enough to matter – we’re still hoping to see them emerge. But every time I talk with senior executives a the big studios or talent agencies I tell the same story,
“You know that your industry is being disrupted. What industry isn’t these days. You can be part of the creative destruction. You can help local entrepreneurs get their first deal done and the innovation ought to benefit you.
Sure, it might mean some of your employees or colleagues go to join the barbarians at the gate, but would you rather that innovation happen in your home town where you can play to your strengths or do you want your entire future industry to shift to Silicon Valley?”
This message is surprisingly well received. People do want to help. They just need a few key individuals who are willing to go out on a limb, take some actions and make things happen for them. They need somebody bending their ears. They can then direct staff, allocate budgets, talk to the press, connect you with politicians and attend events. A few key people really can make a difference.
And that is what is most disappointing about the feedback I’m getting about Seattle. It has the dual technology patrons and yet the consistent story I get is that they’re not actively out embracing the startup community, helping local successes emerge, getting comfortable with the symbiotic benefits of some employees going to startups that innovate at a different pace and then buying up local teams, talent & IP. They’re doing stuff – just not enough.
Seattle has its patrons. The neurons aren’t connecting to the startups. Somebody needs to make this happen.
4. Elder Statesmen
This is where I think the action on connecting neurons has to come from. Jeff Bezos (and executive team) have to recognize that it’s in their best interest to see the community thrive and the benefits to Amazon (not to mention Seattle) are far greater than any negatives of employee flow. Steve Ballmer, Bill Gates and other senior teams from Microsoft need to want to promote local startups. These kinds of connections seldom emerge from middle management who view the immediate threats more than the long-run benefits.
But Jeff, Bill, Steve and well as Howard Schultz, the executive team at CostCo, etc. are not likely to spearhead this movement. They’re too busy running their companies and literally changing the world. Who from Seattle has their ears? Who can get help get access to their capital? Who can get them to communicate the bigger picture message top-down to their teams to embrace the startup community and unleash local partnerships?
Without this – it’s a totally wasted patronage. Who will step up the way that Steve Case (founder of AOL) has done with Startup America to promote this initiative to politicians, business leaders and the press. Actually, who will get Steve Case to spend time in Seattle helping communicate the message to local leaders? It’s clear that America has a vested interest in promoting entrepreneurship in many regions in the country to stimulate innovation & job creation.
Who will be those key leaders who will step up and make a difference?
5. Playing to Your Advantages
Every region has its advantages and while not limiting innovation to local themes it seems to make sense to at least consider local advantages. It’s no big surprise that I spend a larger portion of my time in LA working on: disruption of television, performance-based marketing, games & mobile. We have unique skills, teams, experience and regional assets that give us a better chance of success than other regions.
In no expert in Seattle but when I look around I see: enterprise software (Microsoft), the market leader in cloud services (Amazon AWS), games (Xbox), some of the most innovative retailers in the country (CostCo, Starbucks, REI) and what is left of Boeing (HQ moved to Chicago). I’m sure there’s much more.
I’m not sure it makes too much sense to have check-in applications for restaurants here. That seems likely to be dominated by a more urban startup from NYC or from San Francisco. But who know? I’m just saying’ … what local assets do you have that load dice in your favor?
6. Marketing Muscle
It’s great to see an initiative like Seattle 2.0 because every community needs its local tech press to report on companies and run conference. Consider just how much exposure the Austin community gets every year due to SXSW. It’s awesome.
I’ve often talked about the NY advantage of having the NY Times, WSJ, Silicon Alley Insider, New York Magazine and even the editor of TechCrunch based there. Not to mention every major agency, many PR firms, etc. There is no question NY startups get disproportionate press. That’s natural. Not to mention they have the highest profile VC / blogger Fred Wilson of AVC.
It was great to hear that in Seattle John Cook and company are solving this at GeekWire. Every region needs its local media & events. In LA we have SoCalTech, for which I am grateful. It’s an awesome source of regional news. I’d LOVE to see it become more of a national vehicle. How do we make that happen?
I’m now getting about 400,000 views / month at BothSidesoftheTable. I don’t write about LA but I write from LA. It’s important. A few key people can really make a huge difference.
7. Local Angel Community / Recycled Capital
Fred Wilson wrote an eloquent piece on his blog about “recycling capital,” which every regional community should read. The magic that is Silicon Valley is that every tech entrepreneur who has made a bit of money chooses to “recycle” it by investing back into the startup community. There is a long tradition of these and it’s what formed the original angel network groups.
As I look at LA I see a lot of this reinvestment going on. There are great entrepreneurs like Evan Rifkin, Tom McInerney, Paige Craig, Diego Berdakin, Brett Brewer, Kamran Pourzanjani, Jarl Mohn and many, many more who have done several local Los Angeles tech investments. There are several “club deals” where you see the same sets of people “passing the hat” around on deals.
I know from all of my private conversation that they aren’t seeing this as a “get rich quick scheme” – they’re giving back to the community. And the truth is that they know $25-50k from them on a deal that they can help influence returns on is a lot better than handing it over to a money manager who is parking your cash in a vehicle you don’t understand.
I have done the same. I had the good fortune of doing one small deal that returned 6x in a year. So it was newfound capital I wasn’t expecting. I plowed it back into 9 deals. I prefer not to do any angel investments because I focus on my VC funds but it was gratifying to write some small checks to support local teams.
I know there’s tons of money in Seattle. Perhaps somebody needs to organize it a bit better to go into more angel deals. I know that Founder’s Coop has a fund as does TechStars Seattle. That’s one model. Perhaps some experienced tech entrepreneurs could formalize more of the Amazon / Microsoft money into a higher velocity of angel deals.
8. Venture Capital
And of course you need a mature venture capital industry. There are several local firms in Seattle like Madrona, Maveron, Ignition and others. But the consistent message I heard was “there’s not enough.” That’s why more VCs ought to be spending time in Seattle. It’s similar to LA in that there are a highly motivated cadre of tech savvy entrepreneurs wanting to create companies and a lack of funding. I’d bet if one is disciplined about investing here you’d see significantly better pricing than chasing deals in the overly competitive Bay Area corridors.
It’s not an either / or but both / and. But as I look at the GRP Partners returns we’ve made a lot of money investing in companies in New York, Chicago, Baltimore, Las Vegas, Arizona and Seattle. We won’t rush into the market but we’re very open to finding teams with the ambition to build big businesses. We know it can be done.
9. Foreign Direct Investment (FDI)
The other message I delivered to the room of entrepreneurs & investors at dinner the other night was that you need to think about equity from outside the region the same way that countries think about foreign direct investment. The inflow of capital can be transformative.
But what is often not talked about is that those investments lead to 8-10 board meetings every year of which it would be hoped that the “outside the region” VC would attend 6-8 of them in person. I think a series of brand ambassadors should find out when these VCs will be in town and organize evening events for them the night before so they don’t do a fly-in, fly-out visit.
Imagine if the ambassadors from Seattle organized a dinner with 8 entrepreneurs, the CTO of Amazon, the head of Xbox and the head of marketing for Starbucks. You mean to tell me that the VC wouldn’t fly in early for that?
With VC FDI the community gets more than money. They get time, commitment & attention. One deal begets more deals. If you’re already on a plane to Seattle 8 times a year picking up a second investment there is trivial. Get them over that first hurdle.
And finally, it’s clear that to really build a regional community you need time. LA and Seattle are in the second (or third) major wave of technology innovation. We have all of the 2nd-time entrepreneurs from Overture, CitySearch, MySpace, etc. on to their next companies and that produced Demand Media, a public company who even with a slight recent reduction in share price is still trading at $1.3 billion.
Over the past 15 years Seattle has built one of the most interesting technology companies in the world. I’m still amazed at how forward thinking Amazon has been in cloud services – years ahead of Google, Salesforce.com, IBM, HP, Oracle or the countless other companies that should have been strong in this space.
It’s a shame that hasn’t translated into more local break-out successes, but if a few key people really wanted to put in the effort to make it happen I’m confident that Seattle could be a major force in the decade to come. That will be “the decade of the cloud” where it really starts to become a truly connect resource that continues to accelerate innovation.