We Are The 99% (Of Startups)

For the last year I’ve been running a company while building a software as a service product within the same ecosystem.

I listen to interviews on Mixergy and ThisWeekIn Startups that inspire me, educate me, and piss me off.

Why?

Because it seems that only the 1% in Silicon Valley are really going to make it big. What about the rest of us who don’t have the connections to get funded? Or live in big cities to recruit talent? Or a big exit under our belt?

Famous startups that have built strong companies in a grass root movement, without major funding, like 37Signals are the exception. Scratch that itch with your product while preparing to live and die by it.

These are the stories we all love – but are even harder to attain than the big valuation or investment startups.

It’s a double edge sword that can easily cut you.

How can we, “the working guy/gal” succeed against the 1% of startups?

ValleyWood (the 1%)

Enter ValleyWood.

Groupon? I think it’s the worst idea since the Snuggie. But guess what? It’s worth billions.

There are companies in ValleyWood (Silicon Valley if you haven’t picked that up yet) that are getting tremendous funding, valuations, scooping up copyrights and patents to become the 1%.

If you listen in on patent trolling and legal costs conversations alone, you begin wondering if this is what you signed up for.

How does a local startup compete with this? How does a small company in Dartmouth Ma with a dream and passion to succeed go against Goliath? What about some rural town in Nebraska?

Move to the Bay area? Silicon valley? New York?

Why?

It’s 2011 going on 2012. We all work remote, HD video is getting better, collaboration is at an all time high.

Does the 1% have the inherent advantage because the investors with money can scoop up the ideas before anyone else? Take that a step further, scoop up the humans behind the ideas.

Sometimes it’s like watching the movie Running Man with all the popular “startup game shows” popping up all over the place.

These entrepreneurs subjecting themselves to busting their humps and humility in order to get funding or just noticed.

Why are today’s entrepreneurs so glamored by The Social Network?

To my fellow leaders, entrepreneuers and visionaries:

Build a company you love, that will succeed for the next 100 years.

Be a true business person that not only wants to succeed in the market, but create jobs, and help your local community.

The 99%

Here’s what this economy needs: Blue Collar Technology.

Why are you signing up to Groupon that will blitzkrieg a small coffee shop with 1 time penny pinchers? Why not signup with the coupon site that your local college kid built? Why backup your data with Mozy, when you can sign up with a local integrator? Why buy a website from 99 designs when you can build one from a local studio?

The list goes on.

Next Saturday is Small Business Saturday in America. There should be the same for local tech startup.

I’m managing a startup, within a startup. A startup that is more “mom and pop” than anything.

Folks in Silicon Valley, TechCrunch and the like would never feature another web design shop. Jason Calacanis would never call me to interview me for the awesome WordPress sites Slocum Studio puts together. I’m working really hard to build a strong grassroots business to help local business on the web.

With this foundation, more importantly cash flow, we’re pressing on to build a powerful web app.

Sound familiar?

What can we do as the 99% of startups not moving to Silicon Valley? Do we form our own coalition? Here are three thoughts:

1. Start Local. Be Local.

You know what the most powerful form of Social Media is? A local meetup. A face to face chat. An invite to speak at a local college. Get out from behind the computer and GO MEET PEOPLE.

Sure it’s great to get someone with a million followers to tweet out your link. Awesome to get featured on TechCrunch. That’s all flash in the pan.

2. Stop Building For The 1%

Here’s something I think big VC and ValleyWood are blind to. The 1% is building for the 1%.

I’m the 1% of tech users. I know 99 other people out of 100 (close friends and relatives) that I could never get them to use the Oink app, Foursquare, or buy from Fab.com.

People need to build for the 99%.

3. Grassroot

Let’s go back to 37 signals. If you watched them mature over the years, you will know, it’s not all sunshine and rainbows.

Starting out as a web design shop, shifting to a radical web app startup, to a cutting edge free flowing startup, to now have more structure than ever before. We’re talking years of transformation.

The great part is Jason and David are doing it themselves, their way.

Just be honest with yourself. Do you want an exit or do you want to build a company you’re happy with every day for the rest of your life?

In The End, We Keep Pushing

Look, I’m not saying tear down the walls of Chris Sacca’s house or egg Kevin Rose when you see him Oinking. (By the way, this article has nothing to do with them – they are awesome guys.)

In the end, they worked their asses off to get where they were just like we are.

This should be more of a call to action to people looking for technology (consumer or investor), to look local. Look within your nearest major city or town even. There is talent everywhere and people doing some pretty amazing things.

For the startup out there reading this – form meetups, groups, events to promote the cause.

For God’s sake SHARE yourself and your story with competitors and other businesses. Don’t hide away like you’ve developed some secret recipe to be the next Zuckerberg. (Less you have, move to the Bay Area, hook up with @sacca, let me build your website, and get some cash money!)

And don’t forget to HUSSLE. Watch a video by Gary Vaynerchuck every morning if you have to. If you’re not ready to conquer the world or at least beat someone up after a solid week of that – you might not have a pulse.

Just because we’re not getting swooned by Sean Parker at some after hours rave party – does not mean we can’t succeed.

21 Comments

Matt, you hit the nail on the head when you mentioned focusing on something you love. With so many talented people fighting their way through the ranks in every industry the only way you will have an edge is if you live and breath your business. Having a desire and drive for a single focus will allow success in ways you would not believe. That said start ups are fundamentally playing with odds greatly against them because they operate on a premise of discovery. Anyhow, I have to go, I like the site.

TJ  

That’s the problem… we focus on what we love without know the reality… if u realized that you only have a 1% at succeeding at the thing you love would you do it? You might love climbing but do you run off and climb Everest. In all likelyhood an unfunded climber setting off to do it without seed investors to cover expenses has a 1% chance of succeeding… your love and desire to climb quickly fades…. no?  Entrepreneurs are ignorant of the reality and a LOT has to do with the certain groups NOT wanting them to know. Its the BIG Dirty Valley Secret and the moment it gets out and people grasp that ONLY the startups the 1% are funding are succeeding the 99% will disrupt it. I’ve know for 2 years and have been working on the Open Startup framework I call O!F for that long.

Well written Matt! 

Heading a bootstrapped company, I completely agree with you, except that start-up culture is very hard to imbibe and mindset of people who are regular 9-5`ers is very difficult to change. But on the flip side if there are 10 companies that get started in a remote area and only one succeeds it has better percentage of success – than that of 100 started and only 1 succeeding in the valley: a 10:1 ratio. 

Mayukh

Actually the valley is 100:1 too and anywhere else it’s 1000:1 – again we need to define terms and I am talking pre-seed and ideas to seeded (my term for Early stage. The 3 stages of the startup are Pre-seed, seed and seeded. The problems arise is that people group them all into one thing the “startup” and this is a massive failure. 10:1 Seed startups in Valley will become Seeded. 

Tim do you have a website? You can visit foundups.org and we will have OpenStartups.org up by Jan 2012. We want 2012 to be the year of the Open Startup.  

Hey Matt, def. enjoyed reading your post on supporting and building local startups. One reason that people build for the 1% (ValleyWood) is that this 1% is the most critical and yet the most open to try new things. Try getting 200 beta users in a city where the Meetups avg 20-100… it’s hard as hell, and often not worth the effort. In thinking about the adoption curve the early adopters aren’t only in SF, they are just more of them here, in absolute numbers and % of population. People build for the 1%, because it allows learning to build for the 99%. 

Great to read and realize that there are entrepreneurs in the US beyond silicon valley who grapple with real, fundamental issues like us in places like the middle east and India

I think this post is misplaced for the following reasons:

1) Investors want to know their founders intimately. It is difficult for investors to move outside their area when they have so much opportunity around them in SF. Investing is already risky. Why would they take another risk with a remote startup? It is a calculation.
– counter point: Sequoia invests outside SF all of the time but these startups are MUCH stronger than a backed startup in the bay area. 
2) It seems that you are complaining vesus doing what you encourage startups in other posts: get out and hustle. If investors are in SF, get your butt out to SF. 
3) I question your entire analysis when you do not recognize the difficulty of working with remote teams. Evidence of this: long distance dating. Having HD video conferences does not solve the barriers of communication. Just because I can see you better does not mean work gets done. 
4) the environment in SF is far friendly to getting business done. It is easier to get intros. It is easier to form partnerships. In SF, people want startups to succeed. 
5) consumers should not look local. They should look for the best technology for them to meet their needs. If that is local, great! If it is not a local firm, consumers should move on. 
6) Blue collar technology is a misnomer. The core of tech startups is the ability of people from all different backgrounds to make it. The barriers are different for every startup. Out here, it is all of the noise of social startups. In the rest of the US, it is investment money and gaining traction. 

My experience: I was born and raised in Dallas. I moved out to SF when my startups failed to get traction. The likelihood of your startup failing is quite high, why not take out the simple risk of geographical location for investment money?I 100% there is great talent everywhere. My developer friends back in Dallas are very good. I hope someone comes along and figures out how to leverage this talent with the investment community in SF. Startups are not a zero sum game. I also 100% agree to not pay attention to TechCrunch glamor or the stupid pattern of creating celebrities. Build a company that lasts. I am in healthcare. This is not a glamorous business. It is not sexy but it is what I want to do.  

Aaron – thanks a lot for stopping by and adding this perspective! I’ll answer these questions in the order you’ve posted them – for what it’s worth. 

1. I don’t have any exposure, other than research online, about going for Angel or VC funding. I’ve had minimal experience pitching for seed funding. I totally agree, if I were an investor in this market, I guess I would look no further than the bay area because of what is out there.

2. Where the article might have the undertone of a complaint (more like a rant) I am hustling in my own area. I’m not after big money to get injected in my startup, so that’s not my goal (at this point.) 

3. I disagree with you. My primary business is WordPress development. 80% of the work that is done is remote. I know the difficulties very well.

4. I’m sure this is accurate and this is what I try and promote locally. This is the kind of initiative I’m pushing for in my area. People around here (northeast) need to be more social with other business and stop “hiding” from each other in fear of competition. 

5. Again, I agree to a point. The market will decide. “Buy Fresh, Buy Local”

6. By blue collar, I’m referring to a startup like me or others that are posting here. Guys/gals that are working hard to produce something out of the comfort zone of SV/Bay Area Maybe I’m not recruiting computer engineers from MIT or Harvard but stat colleges and even community colleges. Self taught passionate individuals. 

And based on your last paragraph, it seems like we are in agreement on some of the core concepts. 

I wrote this rant thinking about the startups that immediately get the nod because they have an in with veteran investors or big media. Further, I wouldn’t be against relocating – there’s something to be said to be in any big metro area. However, I think there should be a platform to find startups outside of SV to get attention. 

I really appreciate you stopping by with your insight and I wish you well in your startup field! Especially with Google and Microsoft dropping out of that race, hopefully you can capitalize.

I definitely relate with your post.

I was a little harsh in my comments so I apologize. I want to support any startup as much as possible

I started http://www.techfraternity.com to create a national fraternity of founders with meetups etc. It worked well in Dallas but since I moved, it fell apart

This post is a great example of someone who doesn’t know what a startup is. Let me show you what I mean… take “Sequoia invests outside SF all of the time but these startups are MUCH stronger than a backed startup in the bay area.” Sequoia ONLY invests in Seeded Startups. Seeded startups are what is commonly referred to as Early Stage Startups. They have in excess of $2m in net revenue or in Seed investments.  Sequoia does not invest in pre-seed startups.  

Let me clarify what is meant by 1% make it… less than 1% of pre-seed startups and startup ideas FAIL to become Seeded startups. A pre-seed startup and startup ideas are ones that have less than 100K in net revenue or  seed investments by accredited investors.

 “It is difficult for investors to move outside their area when they have so much opportunity around them in SF.” This is rubbish. Accredited investors are fickle and are as much as sheep as the rest of the humanity. Angel’s follow the same bell curve and among the Angels are early few adapters that decide where the majority will invest. This is where the FBI is investigating what is referred to as angelgate. Here is a list of angelgate.co investors. Also, the new CF Bill HR 2930 has SF insiders basically admitting to angelgate insider network as I discuss on my blog mtrout.com. 

The real issue is funding and how to disrupt it. We have a solution. It’s the Open Startup and it’s Open Corp. http://j.mp/ocorps

again the issue is terms… $40m is not a seed investment. Angels make seed investments of up to $2m as super angels. What this is an institutional investment. 

Also, look at who was involved in Color as Angels… if you look at the top 1000 startups that VCs invest in you will probably see a pattern of angels bringing them the deals. It would be nice if some outside entity could really look at investments in the last 100 billion dollar companies and I am positive you would see the angelgate pattern blaring out at you.

Why did IBM give gates the licence for software? Why did both HP and Atari think Jobs PC for everyone a silly idea? Why did no VC invest in Wikipedia and as a consequence they missed a billion dollar investment.  Why did it take 300 years for the steam engine to come to market?  Why did the Nicola Tesla Board of his company boot him for what they thought was the dumbest of ideas… the alternating current. You see Arron  according to the Law of Diffusion of Innovation only 2.5% of the population are innovators. These are individuals like myself that see new paradigm. The Axiom of Paradigm Diffusion states you can only see the paradigm you are in. I have spent 2 years developing the Open Startup paradigm and I have Open Sourced it and put it into creative commons. http://j.mp/openstartups – check it out and you can demo the soft proto.

Less than 1 in 1,000 pre-seed startups become seeded. Being an entrepreneur is just a pipe dream unless you have access to capital. This is a 5,000 you old paradigm and it hold true ALL over the world except Silicon Valley where success = access to talent network.

FOUNDUPS® has been aware of this reality and over the last 2 years been developing and testing a framework for the 99% – it’s called the Open Startup. A startup n1 can join. A foundup® is an open startup that uses our framework. Open Startups become Open Corps that one of the key features of Open Corps is that they invest 20-80% into FOUNDUP Open Startups making them hightly scaleable.  

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