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The question that got me to leave Seattle for greener startup pastures

Seattle is a great tech city
Since I was 5 years old until 4 years after college, I called Seattle my home, and technology was intertwined with my childhood. As a kid, I found lots of avenues to my formative years in computing, including access to gopher and telnet via Seattle Community Network, the pre-web BBS scene, and a 5th grade classroom filled with Macs. As a college student, I got to work at various tech startups and ended up at a VC firm after I graduated. There’s not a lot of cities that have the ecosystem to have given me opportunities like that – maybe half a dozen at the most, and Seattle is certainly high up on the list.

Ultimately though, I left after 2006 – it took a lot of soul searching but ultimately one question got me over the edge. Let me explain what that was.

The question that got me to leave Seattle
As I pondered staying or leaving Seattle, I did a lot of thinking about the city from a startup context and what was working and not. Obviously it’s great to have companies like Microsoft, Amazon, Real, and others there – it produced a wonderful tech ecosystem that is thriving and growing every day.

But in late-2006, the social networking world had caught fire, and I wondered:

Post-bubble, when was the last time Seattle produced a world-changing consumer internet company?

And try as I might, I couldn’t shake the idea that while the rest of the tech world in California was producing YouTube, MySpace, Facebook, Google, and others, Seattle had Amazon and sort of stopped.

I wasn’t sure that I would be able to answer WHY, but I packed my bags and figured I’d figure out a theory at some point. A few years later, thinking about the question now, I think it has a lot to do with the kinds of companies being built in Seattle.

Different kinds of companies – Commerce versus Community
My current hypothesis is that Seattle has a strong history in retail and commerce, which has influenced the kinds of companies that are started there. Obviously you have Amazon, but you also have Eddie Bauer, Blue Nile, Nordstrom, Costco, Starbucks, and numerous other online/offline retail businesses there. There are also lots of transaction-focused startups based in real estate (like Redfin) or travel (Expedia).

These retail and transactionally-focused businesses are great money-makers, but because they target in-market buyers for a particular good or service, it means that you’re not really building a huge audience. You end up with the <10% of the general population that is in-market for buying a diamond or plane tickets or a house, not a viral and sticky UGC site you visit every day.

The classic way to build a huge audience is to focus on ad-driven businesses in the world of communication or content publishing, and there just aren’t that many of them in Seattle. (Though congrats to the Ben Huh for marching his horde of cats in this direction – the Cheezburger sites have the #1 traffic slot in Seattle right now) If you look at categories like social networking or YouTube or Twitter, these are more like everyday tools that hundreds of millions of people might use every day to communicate or find the content they want. Those are mass audience driven businesses and end up being high-variance outcomes – you end up with huge hits and also big failures because you need more money-losing years to build up the audience necessary to monetize at the rates you want. (just look at Imeem’s recent firesale even as they had amassed tens of millions of active users)

Different types of expertise – SEO versus viral/social
Similarly, the above influence also drives the skillset involved for one of the key startup goals: Driving traffic. My working hypothesis for Seattle is that it’s a very strong SEO-oriented community, and you have many of the top experts living and working there. The reason, of course, is that retail and transactional sites are mostly found via Google, and it makes sense to develop a skillset around getting that traffic for free rather than paying the search engine for it.

That’s great, but that also closes the door for the all-important knowledge of the viral loop that companies in social gaming are learning now, and what social networks companies learned before them.

For that reason, much of the social gaming and social network action happens down in the Bay Area.

In short, years later I think I’ve mostly answered my own question – my hypothesis is that Seattle hasn’t produced mass audience consumer products mainly because it’s focused on down-to-earth charge-users-for-a-product types of businesses that are more transactional than community. I don’t think that’s a good or bad thing – just as you’ll get more biotech in Boston, there’s a specialization in Seattle around commerce/retail. But if you’re doing a social UGC thing, the Bay area is the best place to be.

Seattle folks (or otherwise): Do you agree or disagree with the above? Let me know in the comments – would enjoy hearing your thoughts.

UPDATE: For all the people who think I’m being a Seattle-hater, here’s a similar analysis for the Bay Area: Does Silicon Valley noise detract from long term value creation? It’s a related piece and discusses some of what I’ve noted since being down in SF.

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