Does Austin Need to Think Bigger?

Scott Francis
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A recent round of criticism has made the rounds among Austin tech circles, coming from Bob Metcalfe and Brett Hurt, among others.  The ATC CEO Summit summary in Silicon Hills News reports:

No one disputes that Austin has become a major technology hub.
But some say that Austin tech entrepreneurs don’t think big enough when it comes to launching startups.
“Too many Austin companies are lifestyle companies not betting on world domination like Silicon Valley,” said Bob Metcalfe, professor of innovation at the University of Texas at Austin. Austin tech entrepreneurs need to focus on innovation and changing the world at scale, Metcalfe said. That’s what he did when he co-founded 3Com in 1979. They wanted to connect the world and that resulted in new jobs, but it wasn’t the focus, Metcalfe said.
“Our goal was innovation at scale,” he said.

I think this view of Austin sells us a little short.  Austin isn’t that big.  About 8.2% of the workforce is in tech.  That’s only about 50,000 jobs. Out of that relatively small pool of high tech jobs we have seen:

  • Dell
  • National Instruments (lots of people forget about this great Austin company, despite its being here for a long long time)
  • Indeed
  • Trilogy
  • Solarwinds
  • Bazaarvoice
  • HomeAway

All of whom tried to make it big, and either employed or employ an awful lot of people.  And then there’s the up-and-comers – RetailMeNot, Spredfast, Uship, Vast, Adlucent, Mutual Mobile, etc.  I don’t think there’s a lack of thinking big around here.  If you think beyond tech, there’s also Whole Foods.  You might have heard of them. They’re kind of big.  And if you don’t think they’re a tech company, you don’t know enough about Whole Foods yet.

I don’t think Austinites nor Austin entrepreneurs lack for skills or ambition or vision.  But most entrepreneurs start with smaller dreams – Brett’s story about Larry and Sergei trying to sell their search engine for $1M is a great proof point – it was only after the small success was denied that they endeavored to build what became a much larger success.  Many of our greatest companies are born because someone else wouldn’t buy – or wouldn’t pay a high enough price.  And so the entrepreneurs go it alone and build their own world-changing firm around their ideas.

There are also examples of companies that probably didn’t sell soon enough in some sense – Vignette, Callidus, Motive… two of which eventually sold to other companies after going public, but not at the peak by any means.  I think sometimes we forget that achieving the next phase of success is far from assured-  in fact, it is just as risky as the last phase in most cases.

Bob Metcalfe had another interesting comment:

“I see a lot of product pitches, a lot of them, and too many of them have a slide about the exit,” Metcalfe said. “Someone is teaching our entrepreneurs to put an exit slide in their six minute pitches and it breaks my heart. Cause the company doesn’t even exist yet and they’re already talking about exiting. What’s the entrance?”

First, I couldn’t agree more that it is crazy to worry about the exit before you’ve even started.  But as a founder of a company, I’ve experienced this in reverse.  Every time I tell someone about our firm, if they don’t know me well enough, they ask what the exit strategy is.  There’s no exit strategy.  We’re not expecting anyone to make an offer that will pull us away from doing what we love doing.  And as Bob explained in the summit, an IPO is not an exit, it is just a liquidity event – you still need to run the company!

Turning the page, the comment stream on Brett Hurt’s post on the subject is kind of amazing.  It is both super informative and, in some cases, a bit depressing.  For example, on the down-side:

Maybe Austin needs to stop thinking about economic success alone and a little more about the bigger, wider problems we can all put our talents to?

To me, it is amazing that someone could have such an inaccurate view of the Austin culture, even within startups.  The comparison was Austin with respect to Silicon Valley, and I think there are *very* few people who would say that Austin cares more about economic success than Silicon Valley does.  Same commenter, about their time in San Francisco and Silicon Valley:

Behind my back, my friends thought I was being dumb for not working on a startup and my industry peers respected me less for being a mere “service provider” while they were “changing the world” with their social network for dogs or whatever bullshit they were doing at the time. […]

No one cared that I was in my mid-twenties and earning over $30k/month, the next guy with 300,000 engaged users and crazy K-loop metrics was the more successful and respected entrepreneur even though he was living on ramen noodles with 2 roommates in a 1BR apartment

I think this just comes down to how you value yourself – based on what others think of you or based on your own internal compass or scale.  If you’re worried about what other startup people think of you, then starting a services firm may be a bad idea.  Starting any kind of company outside of Silicon Valley would be a bad idea for you because anywhere outside that area, there will be a set of people who think you’re nuts.  Only in the Valley would you actually be considered nuts for not starting a company from scratch with VC money.

But also, an interesting thing happened on the way to building products… All the product companies became services companies.  Big software companies like Oracle and IBM and SAP make a ton of money from services.  And SaaS companies might be more scalable than T&M firms, but they’re all about services.  WPEngine, Bazaarvoice, and every other SaaS company is basing their future success on:  customer service, support, and doing a good job for paying customers  who can quit at any time.  In a very real way, software has become a lot more like professional services.

Thinktiv has a pretty interesting blog post about the lack of technical differentiation these days.  In the experience differentiation economy, service matters more than ever.  That’s likely a big driver behind the fact that so many of these software companies feel like services firms to me (and to the people who work there).

There is also a lesson for pure services firms, though:  to really think about how you can innovate in your business or your segment.  It doesn’t mean you have to be 37signals to think of yourself as successful.  But services firms can improve their performance over time by innovating.  Innovate your model, your personnel development, your software tooling.  Innovate in terms of how you acquire and retain customers.  Whatever business you choose, look for the tweaks to your model that will make you more efficient, or more sustainable.

Back to Austin and ambition in startups.  Don’t worry about what everyone else thinks you ought to do with your business.  Do what you think is right for your business and your team.  Ignore the noise from outside.  And that’s exactly where Austin’s sweet spot is.  Here’s the spirit I really like in Brett’s post:

Rather, I think about us embracing what is unique in – and cool about – Austin. Austin is a city where people can be themselves – can be authentic, as Bijoy Goswami, founder of Bootstrap Austin, and I recently discussed over lunch. But I do think about providing the capital and the knowhow to those entrepreneurs that want to transition to a second-stage frame of mind. And, in my opinion after hundreds of meetings over the past five months, the future for Austin’s tech entrepreneurship scene has never been brighter. Forget about the comparison to Silicon Valley. If we compare Austin today to the Austin of the past, Austin is doing much better in tech entrepreneurship than ever before.