Can You Build A Startup Anywhere? Why I Moved Backupify To Boston
Posted on October 20, 2010
Filed Under Business, Entrepreneurship | 9 Comments
Backupify was started in November 2008 in Louisville, KY. In April of 2010, we decided to move the company to Boston, and we officially opened our Boston headquarters in September. There are really only 3 large startup hubs in the United States: Boston, New York City, and Silicon Valley. This post is about my experience starting a company in the MidWest, and why I chose to move Backupify to Boston.
There are great entrepreneurs everywhere, even in places like Louisville. The problem is that successful startups require more than a great entrepreneur. They require an ecosystem of capital and investors, competent employees, and services and service providers that make startups easier. One common question I get is whether or not you can build a successful startup in the Midwest. Or more importantly, can you build one outside of a major startup hub?
My answer is absolutely. In many cases it won’t be as easy as building one in The Valley, but it does happen all the time. Sometimes, companies are even better off being outside the valley because they aren’t subject to the groupthink and hype that inevitably occur in startup hubs. But I qualify this answer with one key point - there are certain types of companies that are much more difficult to build in a non-startup hub.
People tend to think about startup location in the wrong way. Most people think about where they want to live and argue about why that is a great place to do a startup. The truth is, what really matters is the type of startup you do, how it gets financed, and what markets you play in. If you are playing in markets where you customer is the average American, and you need little capital, or can grow slow, or can use customer capital, then you can build a company anywhere you want to be. But building companies that need a lot of capital, grow extremely quickly (and thus need a lot of employees) or are very high tech is extremely difficult outside of major or minor startup hubs. (Minor startup hubs are places like Seattle, Austin, Boulder, etc… where it’s not as good as the major hubs, but at least you can find startup people)
Backupify was not a good fit for the Midwest because we had a difficult time finding the right technical talent, and we had a difficult time finding funding. When I first started raising money, we were able to round up about $150K on a $1M pre-money in Louisville. That was just enough money to make sure we accomplished nothing significant, so that was the initial impetus for looking outside the city. Once I did that, it quickly became apparent that we could raise a lot more money in Boston, NYC, and The Valley, and at a much higher valuation.
I look at it like playing in the NBA. Some cities don’t have a team, so if your goal is to play at that level, you just can’t do it anywhere. You have to play where there is a team.
Once I decided that Backupify could go this route, I looked at Boston, NYC, and the Valley. California is too expensive, and too far from home. I would love to do a startup there because there is so much energy and so many great people, but maybe next time.
New York City just isn’t my cup of tea. I love to visit, but can’t imagine living there with a family (although I realize lots of people do it). The startup scene is great, but the city just didn’t fit my lifestyle.
So that left Boston. Coming from a place like Louisville, Boston is the most similar. We have good talent pools to pull from because of companies like EMC, Iron Mountain, and Carbonite. There is also MIT and all the other universities that crank out engineers. The startup community here is fantastic, although smaller than the Valley. But overall, I think it was a good move for us. Boston has plenty of great investors, a great startup talent pull, and for the kind of technical expertise we needed, is on par with the Valley.
People like to argue about whether you can or can’t build startups in various cities. As someone who spent a lot of the last 6 months thinking about it, I would say it just depends on your goals and the market opportunity. Anything is possible, but some paths are easier than others.
Think Big: Startups and Self-Fulfilling Prophecies
Posted on October 14, 2010
Filed Under Entrepreneurship | 4 Comments
In January of 2009, Backupify was a consumer SaaS backup company. The vision was small, yet I still found myself presenting to First Round Capital’s Philly office. When I was done, Josh Kopelman asked me a simple question.
Rob, if I invest in your company, and someone wants to buy it at the end of this year, what would you say is a good price?
Looking at a $2M post money valuation, I answered quickly with “$6 million dollars Josh.”
He frowned and said “$6 million? Rob, do you understand how venture capital works?” It was embarrassing. Josh took a couple of minutes to explain how most early stage companies go out of business and thus, to return anything to their investors, First Round needs big wins from the companies that make it. 3x doesn’t cut it.
I flew back to Louisville and met with one of my angel investors to explain how I blew a potential investment. He just laughed. “Rookie mistake,” he said. Then came the most important piece of advice I’ve been given throughout my entire startup life.
“Rob, you should write down on a piece of paper that this is going to be a $100 million dollar company, and make all your decisions as if that is true. It will become a self fulfilling prophecy.”
It sounds crazy to think of building something from scratch to $100M. But that day, everything changed for me. The vision got bigger, because a consumer SaaS backup company isn’t a $100M idea. The path got clearer, because I knew what we had to do to reach that kind of eventual valuation. And most importantly, the decisions got easier, because for the first time, I had a clear goal in mind. I threw out the ideas of early exits and decided to shoot for a homerun come hell or high water.
So if you find yourself in a similar situation… unsure what your company can be and thinking small… step back and make yourself think big for a change. The first step in building a big company is that the founder needs to have a big vision, so set out a big goal and go after it hard. It may become a self fulfilling prophecy.
Three Big Mistakes New Entrepreneurs Make
Posted on October 9, 2010
Filed Under Entrepreneurship | 2 Comments
Backupify has now raised a total of $5.6M. My fundraising success has led to many entrepreneurs reaching out to ask for advice. I see a common set of mistakes that people make when they think about raising money, based on my conversations with other entrepreneurs. Below are the three key things you need to think about to be successful.
1. It’s never the right time. Talk to investors now.
There is a common pattern where people reach out and ask me questions and, when I like their business idea I offer to introduce them to some investors who may like it. “We aren’t ready for that,” they always say. This is mistake number one. You should always be building relationships with investors.
I know what most of these entrepreneurs are thinking. They are thinking that if they go to talk to somebody once they have a kick ass product and a bunch of users, the investors will be impressed and cut them a check. And maybe that will happen. But business isn’t about magic milestones, it’s about grinding it out through the good days and bad. So if you talk to an investor in the early early days, when they won’t fund you, and they see you make progress as you keep checking in every few months, that is so much more impressive.
Reach out to investors early and often. Tell them what you are going to do, then do it. That is the best way to get funded.
2. Ask for money.
I see way too many entrepreneurs dancing with investors waiting for the investors to make an offer. Don’t wait. If you think you are at a point where you need or want funding, ask directly. Don’t keep pitching without asking. If you don’t force investors to make a decision now, it is in their best interest to wait, so that is what they will do. I realize it’s scary because when you start asking you will get a bunch of NOs. But I guarantee you that almost every VC backed entrepreneur in the world has gotten way more NOs than YESs. Dozens of people have passed on Backupify. But what do I care? I found a few believers. That’s all that matters. If you are uncomfortable asking for money and being told NO, you are probably in the wrong business.
3. Don’t get hung up on valuation..
I see too many entrepreneurs who are concerned about their ownership percentage. Don’t be. Instead, be concerned about being easy to work with and providing a good return to your investors, and then you are backable again. Get a big win under your belt, and trust me, you can negotiate a much better premoney valuation next time around. For now, just get it done and get a win. Too many good ideas never make it because the entrepreneurs get offended by what they believe are lousy funding terms.
It’s never easy to raise money. It requires gumption, persistence, and hard work. Each time you get told NO, don’t look at it as a failure - look at it as a learning experience that puts you that much closer to a YES.
« go back — keep looking »