Why You Should Start a Company in… Seattle

It used to be, if you were serious about starting a tech company, you went to Silicon Valley. But emerging entrepreneurial hubs around the country are giving startup aspirants options.

Laura Rich, from Fast Company, has been doing a virtual road trip of sorts to the nation’s technology hubs, asking people in those communities to explain what makes the places tick.

Seattle
In her article about Seattle she describes a number of reasons why this city is no longer only the backyard of Microsoft, but a location that has an “ecosystem churning with energy” – access to capital, talent, frontier spirit, and a great community that benefits from the presence and investments of Microsoft, Amazon, Starbucks, Clearwire, Expedia, Nintendo US, now the biotech and many new technology startups….

PS if they tell you that it always rains in Seattle, it is definitely not that bad; but then… no surprises Seattle has a big role in the Cloud Computing!

Cloud economics

If you still debate if the “Cloud” is coming, or if it makes economic sense for you, you may look at the new whitepaper that Microsoft has published with its own results:

imageOur analysis uncovers economies of scale for cloud that are much greater than commonly thought.  We believe that large clouds could one day deliver computing power at up to 80% lower cost than small clouds.  This is due to the combined effects of three factors: supply-side economies of scale which allow large clouds to purchase and operate infrastructure cheaper; demand-side economies of scale which allow large clouds to run that infrastructure more efficiently by pooling users; and multi-tenancy which allows users to share an application, splitting the cost of managing that application.

interesting data, even if you could imagine some of them already, interesting analysis model and data sets

.

All nice ways to say NO – but there is hope in every rejection

I found a very educational,and CONSTRUCTIVE article from Matt Shapiro – where the funny part is the list of the many ways, nice and not so much, that you can use to say NO to startups looking for capital (well, I believe the list can  be extended…).

The good part of the article is where he elaborates on what to do in order to learn from each experience (“to walk out of the room in a better position than you were when you came”) and he points that… there is always hope in any rejection!!

I definitely recommend reading it before planning your pitches and presentations.

US: the crossroad nation

Yes, the 20th century went by with the great expansion of the US as an economic and political super power. What are the perspectives for the 21st century, what its role as we see China and India drive growth?  The US still have an incredible opportunity, and I believe David Brooks picks well when it describes its foundation as “a crossroad” – for growth, for business development, for innovation – specifically in the IT space.

It is the combination of education, venture capital, and the availability of “hubs” that define the US dominance in IT; all these factors do in fact accelerate all that is already positive, in a way that other geographies have not been able to do. 

This is even more true if you do the analysis in micro-segments (e.g. see how biotech, gaming, mobile are growing faster in Seattle), and see how locations determine the success of specific industries; Boston, Silicon Valley, Seattle will be the center of gravity for IT for a much longer time….

Smart IT companies pay very low taxes…. a location-based competitive advantage

“Two thousand U.S. companies paid a median effective cash rate of 28.3 percent in federal, state and foreign income taxes in a 2005 study by academics at the University of Michigan and the University of North Carolina. The combined national-local statutory rate is 34.4 percent in France, 30.2 percent in Germany and 39.5 percent in Japan, according to the Paris-based Organization for Economic Cooperation and Development. “

Within this picture, that shows how IT companies have very different treatment depending on where they are based, there are noteworthy exceptions – the text above is taken from a Bloomberg article where the big news is that Google paid taxes at a rate of (only!) 2.4%, by leveraging the “Double Irish” and “ Double Dutch” strategies.

Nothing new there, Microsoft and IBM have been doing some of the same for a while.
The scandal, if anything, is that this time we’re talking about the largest amount of tax avoidance ever, thanks to the very high contribution margin that Google enjoys in high tax countries.

Now, I am not advocating that software companies do all the same, but it is inevitable to note that it is only big corporations that can afford the costs to implement these strategies.

What are then the options for smaller companies, trying to be smart as they can afford to? How can you be smart in order to finance your growth plans?

Given the growing opportunities that the cloud, online, telework offer, here my grain of salt: at least improve your current tax baseline, and assess the opportunities of opening an office, a subsidiary in a country that has lower taxes.
Look also for specific incentives, tax breaks that may be available for IT investments.
Consider this together with other possible advantages connected to locations
Understand the cost and availability of capital in these countries, how the financial community is looking at IT now;
Evaluate the opportunity of running your global operations or online services from this location, while development, sales and other teams can still be elsewhere;
Understand the richness of the local ecosystem, how easy is to find and hire skilled people in your segment, how vibrant is the tech culture;
Look at the growth dynamics of each country IT spending.

Hope this makes sense – but please check it also with some tax specialist!
Now, whatever you do you will not avoid to pay some taxes, but it will help you challenge the fact that you have to be in a high tax situation, and limit your growth because of this. Yup, location becomes a competitive advantage.

As per all this, I believe Seattle and Washington are a great destination in the US, both because of current taxes and incentives, and because of the other opportunities – specifically in games, mobile, biotech, cloud computing….

Should European companies look West?

You know, east and west are only relative terms (my west is your east), but these days companies should really look at the new opportunities that technology and an economic crisis is offering them…
And it is very true that many Euro companies should challenge their localization, and see where growth awaits them.

TechCrunch discusses how many UK companies are now moving west (to the US, to the Valley). And yes, it hits home when they discuss how many companies do have a gut feeling that now is the moment they may look at this, and consider alternative opportunities.

West is always were everybody has been going (!) and the last stop is on the Pacific – California, the Valley and I suggest and promote Seattle and the Pacific North West.
Alternatively you may think east (China, the big opportunity…) but you may argue that the Pacific is well balanced in view of the Chinese market, and less scary.

What are the options these days?
I believe companies need to understand first how dependent they are of a specific market, and how the new cloud platforms represent the opportunity to de-localize from low growth markets….

[More to follow]

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