According to the popular world-is-flat meme, made popular by author Thomas L. Friedman, location is irrelevant in business because you can start your company anywhere and reach employees and customers at any time via email, text, voice and video. However, my interviews with more than 50 entrepreneurs and venture investors suggest that choosing your location matters tremendously. It can influence whether your startup succeeds or fails.
That’s because people who provide startups with vital resources—revenues, talent, capital and advice—are more than producers of digital blips. They live in houses or apartments and commute to offices. They attend meetings and bump into each other randomly at coffee shops and in hallways.
If you want to build, develop and sustain vital trust relationships among you and your startup’s customers, suppliers, employees, mentors and investors, you must meet with people in-person, repeatedly.
Think of these locations as Startup Commons. In medieval England, farmers brought their animals to graze in a field at the center of their village. If the farmers’ animals overate, the Commons would wither and the community would scatter. But if farmers limited their animals’ consumption and added fertilizer and seed, the Commons and the surrounding town would survive.
Much in the world has changed since those days of yore, but the energy going into a Startup Commons—in cash, talent and mentoring—must still equal the energy its members consume. Otherwise, startup CEOs will move to Commons that supply the resources they require.
To see how much of a difference location makes for your startup, consider two companies in the database-as-a-service market—one, Boston’s Cloudant, is thriving while the other, Xeround, based mostly near Tel Aviv, shuttered its operations on May 15.
Though Xeround was officially headquartered in Silicon Valley, its executives and staff were from the Tel Aviv Startup Commons. And Xeround’s failure flows from its inability to collaborate with customers in product development.
As Cedar Ventures partner Motti Vaknin explained, “Israelis have intellectual curiosity but they believe they know more than most.” Thus Israeli entrepreneurs often tell customers the product features that they ought to buy.
As serial Israeli entrepreneur Amir Eldad said, “For Israeli startups to succeed at customer development—Steve Blank’s term for engineers collaborating with potential customers—the engineering team must be physically closer to the customers. That is better led by U.S. executives.”
Xeround’s last CEO, Razi Sharir suddenly shifted Xeround’s focus from big companies to midsize ones. He could not persuade enough companies to buy Xeround’s cloud-services in the face of competitors that offered a better service.
By contrast, the Boston Startup Commons has nurtured Cloudant. According to CEO Derek Schoettle, “Cloudant benefited from Boston-area pillar companies Vertica and Akamai. Local university graduates, including MIT, Harvard and BU, are also on Cloudant’s staff.”
Moreover, Boston’s values and mentors have helped Cloudant succeed.
“Unlike Silicon Valley’s built-to-flip mentality, Boston asks, ‘Where can we be 30 years from now?’ Moreover, Cloudant has excellent local mentors on its board,” continued Schoettle.
The lesson is clear: Make sure you’re located in a Startup Commons that makes it easiest to get the resources your startup needs to win.