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Five common misconceptions about building a startup in New York City

It’s really difficult for me not to get into the thick of discussions about whether or not you can and/or should build a company in New York City.  I grew up here, went to school here, and have worked hard over the last 5+ years to help build up the NYC innovation community.  I’m extremely passionate about the topic and so when my city gets picked on, I tend to respond confidently and with the same (and sometimes greater) force than I perceive the complaint to have.  And sure, there’s a little bit of bull in a china shop in me—but if I didn’t have that, I wouldn’t work nearly as hard, and frankly, I wouldn’t be me.

What gets frustrating is that I tend to hear the same arguments over and over again from new entrepreneurs, and many of them are just completely unfounded.  Unfortunately, they tend to resonate really well with frustrated entrepreneurs and a lot of dust gets kicked up over them.  

Here’s my best attempt to shed some light on the most common misconceptions about building a company here in NYC:

 Misconception #1: There’s no money in NYC for startups… and the money that’s here isn’t smart or experienced money.

Response: Ask 100 entrepreneurs seeking funding whether there’s enough money here for startups, and 98 of them are going to tell you that there isn’t enough.  You know what—it’s supposed to work like that!  The simple fact of the matter is that most startups seeking angel or vc capital just don’t receive it—and that’s just anywhere.  Why?  It’s often some combination of the idea not being big enough to sustain a venture exit or the company just not being appropriate for venture financing.  Content companies, for example, should be able to amass traffic and sell advertising on a bootstrapped budget before they come close to seeking equity financing—because you can, and because that’s the market expectation and that’s what your competitors are already doing.

Other times, and look, I hate to tell anyone that their idea isn’t well thought out or well executed, but sometimes your idea/company/prototype just isn’t very good.  I was there, too.  My company was not well executed enough to achieve venture capital financing—and that wasn’t the city’s fault, it was mine.  As the CEO I take full responsibility for that, and I’m hearing a lot of entrepreneurs blame their lack of traction on everyone else but where the buck stops.  “If only VCs were smart, they’d fund me.”  Sure, it’s possible… in fact, very very possible that you have some insight that I don’t and that I’m totally wrong, but I’d rather not back someone whose first response is to blame challenges on others and stall in the face of adversity. 

In terms of who is here and what does get funded, the average entrepreneur spends way too much time doing after investors that have a shingle on their door that says angel investor or VC.  Much of the equity investment that goes on happens through people you’d never think of.  Do you have a Bose radio at home?  I know a startup that got hundreds and thousands in funding from the Bose family…and you know what, those people know how to run a pretty decent business.  They’re not “dumb Wall Street money”.  Startups need to find the most successful people in their space—the people who know those industries best, and seek financing from them.  If you have a website about food, and you can’t get any of the top restaurateurs or grocery chain entrepreneurs to write you even so much as a 10k check, then why, as a VC, should I jump in on it?  I certainly don’t know more about the food industry than they do.

New entrepreneurs need to learn how to turn over rocks better.  Just because there’s only a handful of VC bloggers in NYC doesn’t mean there aren’t 100’s… and yes, I mean 100’s of smart, experienced places to turn for investment in NYC.  If they *all* turn you down, then I strongly advocate that you either try to get revenues to prove them wrong, bootstrap user traction, spend your own cash, go with friends/family, or maybe, just maybe, take another look at your model.  Perhaps actually listening to the feedback you get from them might be helpful.  Just because Union Square Ventures, First Round Capital, and NY Angels turned you down doesn’t mean “there’s no money in NYC and investors are stupid.”  

I think the other thing people fail to understand is how important relationship building is.  People told me that it was unfair or too easy for me to raise angel capital because I was already tapped into a network of investors.  Well, that wasn’t always the case—and many of those people I knew for years and years before I started a business.  It’s the same advantage that your competitor has if they come out of your industry and they don’t.  It’s an advantage, but not an “unfair” one.  It’s also one that you can work around by actually getting to know people over time.  It might take you six months to get to know an investor well, so don’t expect a check on the first pitch.

If your first resort when you have trouble raising money is to complain about New York on a tech blog, you’re really doing yourself a disservice in the relationship building area.  It’s going to make the people who are working hard in the community—people who have the connections you need—that much less interested in helping you.

 

Misconception #2: There’s no tech talent in NYC/Wall St. sucks up all the good programmers.

Response: Wall St. often gets vilified in the pursuit of a good developer, but think about things from the perspective of your average hardcore developer ninja.   Someone offers you a secure job with lots of responsibility to build some piece of trading software that billions of dollars will run on and thousands of people will use.  Should they work on your “real time” web startup or write code that processes a million trades a minute? 

On top of that, why should someone work for you versus working at Foursquare, Square, Meetup, Tumblr, drop.io, or any one of the hundreds of other cool funded companies that have open developer positions?

Great technical talent rarely looks for work—work looks for them, and it doesn’t just look for them, it actively recruits them.  You need to build a relationship with someone over time before they’re convinced to go join your startup.  I think most new entrepreneurs severely underestimate the time it takes to recruit talent.  Even after we got funded, it took us three months to hire our first two developers at our prior companies—and I consider us pretty visible and well-networked.  That’s why recruiters make so much coin.  Even in the Valley, it will cost you over 20k to pay to recruit a developer.  If it was so easy there, do you think recruiters would make that much?  Over there, on top of everything else, you have to convince someone that it’s cooler to work for your startup than it is to work for Twitter or Facebook.  If anything, it should be *easier* to pull someone out of a bank in NYC than to pull someone out of Twitter or compete against them head to head on hiring.

Most new entrepreneurs don’t even know where to look for talent or how to attract it.  They show up at the NY Tech Meetup or post a job on the nextNY board and expect the developers to just come rolling through—when most of those groups are actually filled with other entrepreneurs looking for the same thing.  You need to broaden your horizons, and again, turn over way more rocks to find good developers.  There are user groups, gaming meetups, meetups in security or agile development—lots of places entrepreneurs rarely tread.  How about doing what Gilt Groupe did?  They flew in Leah Culver and the founder of Github to come speak—and that brought in 100 developers whose names, emails, and websites they all captured through Eventbrite.  So, instead of trying to find a developer who will do something for you, why don’t you attract a few by doing something for them?  I got my first developer by literally spending a whole week on LinkedIn, e-mailing, individually, hundreds of people in my extended network.  I got my second one because it was someone who I knew already for a year and had a compelling tech challenge for her that was right in the sweet spot of what she wanted to work on—and the timing was right, too.

 

Misconception #3: New York is prohibitively expensive to build a company or live in

Response: A lot of things are expensive here, as they are in other cities.  If you want to build your startup in the middle of nowhere and optimize purely for low burn rate, then sure, I’m sure you could work more cheaply elsewhere. 

That being said, is low burn rate really what you should be optimizing for?  How about considering the following:

> If you have to bootstrap, you’ll find way more opportunities to make money here doing side projects than anywhere else—working for bigger companies, agencies, other startups. 

> As an interesting place to live for a younger person, I’ll put NYC up against any other city—unless you don’t like having seasons in your weather, than I can’t help you.  NYC helps with recruiting because it’s a place people want to come and live in.

> You don’t have to live in the West Village.  There are plenty of places within a 40 minute commute of the city that are quite reasonable and even might I say cheap (compared to other cities, not compared to Kansas).  If you lived in SF and you worked at Facebook or Google, you’d have at least a 40 minute drive ahead of you everyday, so if you’re going to compare apples to apples, don’t limit the price of housing just to Manhattan. 

> You don’t need a car here.

> Lifestyle has value.  If someone really wants to live here because of the lifestyle, they find ways of making it work.  How in the world do all my actor friends live here if you’re saying you can’t hire a developer because you have to pay them too much? 

> Are their annoying costs, like the cost to publish an LLC notice?  Yeah, totally, and that sucks… but if you consider how much you’ll save in airline tickets when you don’t have to fly to find your clients because they’re right here in the same city, I’m pretty sure it nets out.

> Office rents?  I’m still waiting to find a company who had to go under or couldn’t launch because office rent was too high.  People are always going to be your #1 expense in a startup—not that you even really need an office before you get funding.

> Life is a tradeoff.  It’s more expensive to live here, but if you could run into people who can really help your business in the local community, what’s that worth to you? 

 

Misconception #4: The media never covers startups here.

Response: Startups get covered all the time here—just not necessarily when the launch or simply because they’re a startup.  There’s more media here in NYC than anywhere and it’s up to the startup to get themselves in the thick of the conversation as a relevant player innovating in a space.  No, you don’t get extra credit and a pat on the back for being a startup here, but if you get to know the people covering your industry, they’ll tell you that they’re always looking for stories about companies doing new and innovative things. 

On top of that, tech blogs like TechCrunch, Mashable, GigaOM, and Venturebeat all cover NYC tech startups.  They’re national and they all have local people on the ground here covering companies. 

In fact, it’s probably easier to get media coverage for your company here than any place else, because you can literally run into a relevant reporter at your average tech event and go for coffee because they work down the street from you.

 

Misconception #5: NYC is only good for media startups.

Response: Some of the most successful  and visible companies in NYC—Gilt Groupe, TheLadders, Meetup.com, and Etsy aren’t media startups dependent on the advertising industry.  On top of that, some of the biggest/most popular  tech companies out there—Google, Facebook, Twitter, YouTube… are, in fact, media companies.  Hell, there are even companies like EnergyHub, Peek, Square, and Phreesia in NYC that made devices.  They’re all doing pretty well.

Just because there are a lot of startups living off of a certain ecology in a city doesn’t mean you can’t build a different kind of company in that place.  In fact, most companies need a lot of the stuff anyway—and if you’re different, perhaps that works to your advantage.  Maybe you meet a CTO who is tired of working with ad agencies.  New York City is so damn big, that if you can’t find 10 people doing interesting stuff in your space, perhaps your market isn’t big enough or you’re too early.

 

Look, New York City isn’t for everyone.  I love this city, but there are things that I can understand don’t mesh well with people’s priorities and values.  However, when someone says they can’t build a company here for any of the above reasons, I get really frustrated, because the resources are here and I already see the best and most experienced entrepreneurs taking advantage of them.  I’m not trying to say it’s better than the Valley—it’s not better, it’s different.  What I am trying to say is that anyone can build a company here—anyone.  Now, maybe this current idea of yours isn’t the right one.  Maybe you have more to learn as an entrepreneur—I certainly do.  But, I’m a firm believer that the tools are in place for a well executed company to succeed here.  Let me know if you need help finding them, but keep an open mind that perhaps you also have more work to do to get your company to a point where it’s investable or attractive to work at.

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