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Does Silicon Valley noise detract from long-term value creation?

Encountering the Silicon Valley echochamber

I grew up in Seattle and worked there for many years, and finally moved to the Bay Area in 2007 because I wanted to be at the epicenter of the startup scene. When I was in Seattle, I always lamented the fact that there wasn’t a “scene” the way that the Bay Area has one. I used to talk about it as one of the big negatives of the region, since you didn’t have the density of events, bloggers, and general activity in Seattle as in the Bay.

Now that I’ve been here for a few years, it’s clear to me that the Silicon Valley echochamber has its clear negatives as well. Being out of touch with the average American consumer is one obvious negative. Chasing down technological rabbit holes is another.

But I believe one especially strong issue is the constant peer reinforcement from fellow entrepreneurs to be working on stuff that everyone deems “hot” or easily relatable. And how easy it feels to be left behind when there’s a “hot new trend” in a particular direction, even when there’s obviously many good markets to be explored at any given time. I would argue that this strong peer reinforcement from fellow entrepreneurs makes it easy to focus on very short-term successes, and ignore long-term contrarian bets.

Peer reinforcement from fellow entrepreneurs
One of the most common conversations you’ll overhear at any startup event is one entrepreneur giving another entrepreneur their elevator pitch. Or, you’ll overhear an entrepreneur giving their pitch to a prospective startup engineer. In fact, I would argue that many startups spend more time talking to other people “in the know,” than they do potential customers, whether those startup savvy people are investors, job candidates, fellow entrepreneurs, advisors.

And just as similarly, a common conversation you’ll overhear is the equivalent of the “hot tip” on a stock – but instead, the conversation will be about a particular market or company. Oh, did you hear that company so-and-so is doing X million in revenue? Oh, the Y space is blowing up.

All of these conversations, as insular, belly-gazing discussions establishing the social pecking order at any given time, provide quick feedback about the entire startup ecosystem. It’s what guides the decisions of many employees or investors to dive deeply into the “hot” markets. In many ways, this is one of the deep strengths of Silicon Valley, that the information is so efficient, and new markets can be quickly identified and exploited by dozens of companies simultaneously.

Copy cats galore
At the same time, these conversations can easily reinforce the feeling for many entrepreneurs that “You’re missing out!” It causes many people to look at the sectors that seem to be immediately doing well, and jump into them as copycats, because it looks like easy money. There’s nothing like the feel of a gold rush to make everyone go nuts.

Interestingly enough, many of these copycats are only in it to exploit the short-term advantages of the market, and some are self-admittedly not passionate about the area they go into. In particular with this economy, a long-time mentor described it as “Silicon Valley’s version of quitting your idealistic startup and going back to work at Microsoft” – meaning potentially soulless activities that generate revenue, regardless of actual passion or long-term belief in the projects as viable businesses.

Focusing on the long-term
As an entrepreneur, I can’t help but look at the short-term choices that get made in an environment like this without some degree of disappointment. There are many brilliant people who could be trying to make the world for the better and really create long-term value, but instead they are engaged in a zero-sum game to extract as much value as possible from the world. Now perhaps as a market, these startups will collectively make the world a better place – such is the wonder of markets – but at the same time, it disturbs my sense of idealism about entrepreneurship.

More importantly, building a startup takes years no matter what the economic environment – maybe 5, maybe more. And if you’re going to be stuck doing something for 5 years or more, then you might as well pick something you’re really excited about. Taking a long-term view, I think, means accepting that many of these new markets will significantly change over time, possibly merge with other markets, or possibly turn out to be too small.

It’s worth thinking about what kind of company you want to be in 5 or more years, rather than just grabbing onto whatever trend seems to be floating by at the moment.

Staying focused on the long-term
So how do you stay focused on the long-term, when there’s so much noise? Here are a couple thoughts for you:

Stop reading blogs so damn much
Every once in a while, I’m busy enough that I don’t read any blogs for a week or so at a time, and you know what? The world doesn’t end ;-) Obviously it’s useful to keep up with how the rest of the tech industry is moving, and where the markets are developing, but clearly there’s a diminishing returns to the minutiae around the startup word.

Have a strong vision that’s flexible yet specific
Another issue is how easily small companies are swayed when the vision is not clearly defined and understood. It’s easy, when internal values and vision haven’t been set, to follow the customer to wherever they would like to go. Or to fast-follow whatever is the darling startup at the moment, or to be swayed by competitor moves. So you need something that’s specific enough to figure out how much external data to incorporate, but also be flexible enough that if you hit contrary data, your entire startup’s core thesis doesn’t fall apart. The tension of the two is what makes this a challenge!

Ignore the competition
For most startups, the market is not clearly defined enough to also have clearly defined competition. In most cases, you’re better off focusing on your customer and learning from them both quantitatively and qualitatively, rather than emulating what your competitors are doing. And in particular, if you are extracting a ton of interesting knowledge about your customer, you may end up with a unique set of insights that would beat whatever you’d get from copying anyway.

Don’t go to startup events
Another common environment where you’re compelled to pitch your startup over and over is startup events. Skip these, and you’ll find yourself thinking more independently from other entrepreneurs.

Forgo short-term opportunities if they are clearly short-term
One very difficult challenge is that along the road to success, there will be many tempting rabbit holes to go down. Many ideas are hard to scale into larger businesses, but make a ton of sense at a smaller scale. Many ideas are also unsustainable, as a hole closes in the market, or because customers don’t get enough long-term value. Of course, sorting out long-term from short-term is the difficult part here.

Move down to the Peninsula, not the city
One of the small geographical differences that exist between the city and the peninsula is that there are far more media-oriented, hipster entrepreneurial engineers in San Francisco compared to Palo Alto, Mountain View, etc. As a result, the city is a fun place to get your company started, as there’s ample idea exchange between all your fellow entrepreneurs. On the other hand, once you get going with your startup, the sheer number of parties, get-togethers, and coffee meetings can get overwhelming.

Be skeptical of opportunities that are both hot, and easy
The most interesting opportunities I hear are ones that appear to be easy revenue, and I hear about them from multiple sources. Many of these opportunities are the equivalent of windows of arbitrage that appear in the stock market – they’ll quickly be closed, and never appear again.

Remember that you only need one big success
The final point I’ll make is that at least as far as startups go, you really only need to find one awesome line of attack on a market, and that’s it. Maybe that takes a month to find, or maybe it takes years. But ultimately, if you are making forward progress on your business and you reach a huge market eventually, it doesn’t matter much what happens between now and then. In this way, having a great deal of patience is very useful if you can systematically discover high-quality, long-term opportunities. This may be harder than the short-term stuff, but it also creates the ability to become a category-defining company.

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UPDATE: Thanks to Marc for reminding me about startup events and peninsula living also!

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