Monday, 3rd of August 2009 at 12:06:38 AMWhat luck! My anniversary post coincides with a discussion about Houston’s startup culture. — Graham Randall
Seven years ago this week, I declared IT dead and moved from Silicon Valley to Houston. Of course, it didn’t happen that suddenly. I’d come to the conclusion in the months following 9/11 that Silicon Valley wasn’t producing anything worthwhile, anything of any value at all. That was, perhaps, an overly harsh assessment, but looking back at what Silicon Valley has produced in the intervening years, I don’t think I was that far off.
Mind you, what I’m really talking about here is startups and when I talk about value I mean contributing to GDP, increasing productivity, and improving the human condition. The old guard in Silicon Valley are doing plenty to create value. Apple has vastly exceeded my expectations for innovation; it’s products, especially the iPhone, contribute directly to GDP and increased productivity, and, at least for me, the iPhone has improved the human condition.
The Silicon Valley startups, however, like Facebook, Twitter, YouTube, etc., haven’t done anything of the sort. Sure they’ve attracted millions of users, and billions in investment. Facebook is even making respectable revenues off of advertising. But advertising isn’t a final good or service. It doesn’t increase productivity, and it sure as hell doesn’t improve the human condition*. Of course, not every business needs to meet these three criteria to be worthwhile, but Silicon Valley holds itself out as the idea factory for America. It has a history of fostering enormously valuable companies: Apple, Hewlett-Packard, Intel, and Fairchild Semiconductor to list a few. Of all places, Silicon Valley should know better.
Instead, one could argue that the social media trend has been nothing but a massive jobs program for Silicon Valley. In the vacuum of ideas created by the bursting of the last bubble, social media was one of the few ideas to gain any traction with consumers. This attracted investment dollars, which, in turn, spurred the creation of more companies. Like an uncontrolled positive feedback loop, everyone in Silicon Valley has a vested interest in seeing these bubbles inflate, and few ask the question, “Does this make business sense?” It’s an astounding example of groupthink on a massive scale, and it’s happening over and over again. The first dotcom bubble was borne out of a similar idea vacuum, and as the old saying goes, “once is a data point, twice is a trend.”
What does this mean for Houston?
We waste a lot of time in Houston worrying about how to become the next Silicon Valley, and I’ll argue that we need to stop focusing on imitating Silicon Valley and start working on creating value. We also need to stop trying to acquire the resources Silicon Valley has, and start taking advantage of the resources we do have. There are plenty of industries with major presences in Houston that aren’t taking full advantage of IT and need solutions that will increase revenues or decrease costs.
Healthcare is a perfect example. Although the government’s involvement in healthcare IT is making for some quirky market dynamics, I get excited about the potential of healthcare IT. Most doctors today using paper records can’t do something as simple as notify their patients when the labeling on their medication changes. And hospitals are only just now getting the capability to determine if one glue used in surgery has a higher failure rate than another. Reducing failure rates can have a huge effect on costs.
You might be surprised to learn that Houston has had some impressive successes with guys who applied IT to solve problems in the oil industry, airline industry, etc. These guys wound up millionaires, but you haven’t heard their stories because they aren’t hanging out at OpenCoffee. We need more collaborations like these between the established industries in town and the startup community. Small companies need mentorship to become big companies, and bureaucratic inertia too often inhibits big companies from innovating. Both constituencies could benefit from better cross-pollination of ideas.
Conclusion
Building an electronic medical record company or a technology that helps make energy production more efficient isn’t as sexy, cool, or fun as building the next Twitter, but sometimes you just have to be a grown up. Silicon Valley didn’t start with Twitter. It started with companies that created value, and only then lost sight of the reasons why those companies were successful. Houston can avoid that same mistake by remembering that value creation is the basis of every sustainable business model.
* If you compare the quality of relationships you had before and after social media, you will find that today you are closer to people you didn’t care enough about to keep in touch with before Facebook, and, without face-to-face interactions, your relationships with your closest friends aren’t much more intimate than your relationship with every other friend on your buddy list. In the past, we had a range of associations from close friends to acquaintances. Facebook is narrowing that distribution to the least common denominator.
I want to comment directly on both Marc’s post and Aziz’s followup. Aziz claims that Houston needs more engineers in research universities coming up with great ideas. Marc claims that Houston needs more managers to lead our startups to successful exits. I respectfully disagree with both of them.
To Mark’s argument, I’ll counter that we’re the 4th largest city in the U.S. and we’ve got more Fortune 500 companies headquartered here than anyplace but New York. We’ve got managers coming out the wazoo. What we need to be doing is helping these guys find jobs in startups. Now’s a perfect time to be picking up experienced managers who’ve found their positions eliminated.
To Aziz’s argument, I’ll counter that these ideas engineers have don’t appear out of thin air. They’re answers to problems. So what we need are problems, and I think if we look hard enough in our local industries we’ll find plenty of them. Then we can tackle their solutions, and we don’t need a massive research university to find these solutions. Only a fraction of successful IT startups actually originate in the lab. That said, I am 100% in favor of making UH a Tier 1 institution, but the benefits of such an investment won’t be measurable for decades.
Graham,
This is a very insightful post and I think that I can speak for the entire city when I say that we’re glad you and your lovely and talented wife Angela (who is launching her own startup any minute now) decided to move to Houston after your stint in Silicon Valley.
Silicon Valley has essentially ‘won’ the IT race, but it certainly has not cornered the market in innovation or attracted every viable entrepreneur with a good idea. Houston is well positioned to capitalize on this echo boom because of our sheer size of population, our density of not just corporate headquarters, but customers as well and not to mention our voracious appetite for entrepreneurship.
I’m not so sure that Silicon Valley has become a giant echo chamber for ideas and a work program for Valley residents. I would argue that bubbles leave residue – in the case of the first dotcom boom and bust, we got a sustainable IT and broadband infrastructure. In this current bubble we’re going to get a higher velocity of marketing, sales and social commerce – the very promise of the last bubble.
Your rebuttal to my original statement that Houston needs managers (which was in turn a response to Aziz’s treaty on engineering research), you agreed with every word I said, so I want to synthesize what you said and what I said:
Houston needs *startup* managers
Great article Graham!
You couldn’t be more right on driving value by fixing local problems. The world has lots of intelligent engineers and middle managers, but what we really need are people who can create both technology and value simultaneously (i.e. engineer/salesperson hybrids). As a recent Houston transplant after spending nearly 10 years living and working in the San Jose area, I can concur that it seems a waste to see all those intelligent technologists working on solving problems like advertising. It’s like having NASA drop the Apollo program to go work on more effective ads for CBS in 1967. But don’t assume everybody out in the Valley thinks that way. Right now there are more startups than you can count toiling in obscurity, ready to break through with real technology. They just happen to be the silent majority. And as soon as the new VC funds startup over the next 2 years you’ll see a big shift from social-{networks,media,etc} to true technological innovation. Real engineers can’t stand working on problems like advertising for too long because it just isn’t challenging, just temporarily lucrative. But you through a real challenge in front of them and watch out.
On the topic of managers as a requirement for Houston startup success, I don’t think it’s that vital. If you take the average executive out of a massive organization, that person will most likely fail in a true startup environment. Why? Because starting and running a successful startup has more in common with running a tchotchke cart in the mall than with running a Fortune 500 company. It means hustle, finding every last drop of money that you can find by sniffing out and solving *localized problems*. And some executive that has spent the last 20 years in comfort and style just isn’t that hungry and won’t take the risks. It’s up to the entrepreneurs themselves to *become* the managers and salespeople in the earliest stages of their companies. If you can’t sell the fantabulous widget you invented, then you need a salesperson, not an executive. Once you hit $5-10MM/yr in sales, then you need adult supervision. Until then, your capital use and deal flow will be case-by-case. And that takes more than managerial training, it takes an adventurers’ spirit.
If you look at the most successful technology companies in recent history, *almost none* of them were driven by seasoned managers from Global Mega Corp. They were started by hungry entrepreneurs who were willing to fight for every last dollar. Apple didn’t start out changing the world, they started out selling Apple 1 boards to hobbyists. Microsoft sold compilers to hobbyists. Oracle built a database for the CIA on contract. No adult supervision was required for these startups to build a better mousetrap and earn their first revenue. It just took guts, talent and luck, and a problem close at hand that they could solve.
Cheers,
Mike
“…social media trend has been nothing but a massive jobs program for Silicon Valley.”
Huh? Boy, sure would be great if Social Media had a ton of job opportunities–sure would help our unemployment numbers LOL.
Most people here in the Silicon Valley do NOT work in social media. Twitter only employs less than a handful of people. Most people I know do not work for Facebook or Twitter.
Graham:
I don’t know you yet but I would like to meet you one day. You are spot on with your assessment of the startup community in Houston, at least from my experience as a former CIO at a bio-tech and now as a Houston based entrepreneur. Here in Houston we have tons of resources, VC money isn’t as prevalent around here but there is a lot of money in the Houston area that can be found.
I think we could improve our startup scene in Houston, similar to what Israel has done with Tel Aviv and this really needs to be pushed by both local government and the private sector in Houston that is flush with cash.
There are so many social media sites out there that are just trying to collect users and not really add value back into the community. There are only so many sites out there that can just sell ad space before the cost of ads approaches zero. Many entrepreneurs can get jaded, because they also think they need to collect users to get VC funding and later they will figure out how to monetize those users. History has proved time and again that companies that add value are the ones that stay. We can just look at what happened with the dotcom bubble of 1999 & 2000. The companies that did not add value crumbled.
I have had a few people that are connected in the Venture Capital space in Houston, highlight some rather bad startups to me, but they got all excited mentioning them to me because those startups just got funding, but it was a bad idea and added no value to humanity. Needless to say all those startups closed shop about 1 year ago. Everyone is interested in who wants money and who just got money, because they want to be popular by associating themselves with those companies and hope to jump on the gravy train as a future employee or become a 10x bagger.
If we would all just keep our heads down and work towards creating real value to humanity (just like the Texas Medical Center does for Healthcare or the many Energy firms do for billions of people around the world), then the Houston startup scene could turn heads like nowhere else. My friend Rajen and I started Cachinko because we wanted to help job seekers find jobs thru their friends and we wanted to automate Employee Referral Programs (where 70% of jobs are found). We think that helping a person find a better job and helping companies find great talent through their employees adds real value to humanity.
-Felipe
Marc:
RE: Houston needs *startup* managers
I think you are right we need startup managers, but then that means we need more seasoned entrepreneurs. It’s like the chicken before the egg.
To be a “startup manager” you need to have a burning passion within and you can’t train someone to have this personal quality, it almost must be inherent within you.
I know a few Silicon Valley & Seattle startups (now controlled by VC firms) that have been thru 2-3 CEOs within the last 24 months because the people they thought were “startup managers†were just good managers out of ivy league universities but not able to cut it in a startup where it’s a physical and mental roller coaster ride. To lead a startup, you need to BE passionate, obsessive, and relentless (no 8am-5pm peeps). Serial entrepreneurs continue TRYING to build great companies. Other entrepreneurs that received good exits, just take a break for a long time because they know getting back into building another startup is a grueling task and some are just exhausted. Also, just because an entrepreneur built a great company once does not mean they can do it over and over again.
I think in order to find great “startup managers,†we need to foster an environment that promotes entrepreneurs and this is no easy task but countries like Israel (with only 6-7 million people) are doing this because they either foster creativity to spur the Service Revolution or they face the obvious. Imagine if we had this type of motivation (or necessity for survival) in Houston.
-Felipe
P.S. If Silicon Valley had all the answers, then there would not be so much abandoned commercial space and one bubble after the next.
I stumped on this article. Living in SV for many years, I’d like to give an example to illustrate the culture here.
A few weeks ago a former Chief Scientist of Cisco came to our company (a respectable company of 5000) to do a talk to a fully packed audience. He wore a shirt that seemed never being ironed before, and open at the neck, revealing a well-worn undershirt. His baggy pants were comparable to those of homeless people. And he talked and walked bare-footed, no socks.
I think this is the kind of easy-going culture that nourishes creativity and innovations. It’s not just about money or management or engineering talent.