Paul Graham on Why Boston Should Worry About Its Future as a Tech Hub—Says Region Focuses On Ideas, Not Startups

For entrepreneurs and investors alike, it was a sad day back in January, when Y Combinator founder Paul Graham announced he would stay in Silicon Valley year round and give up splitting his startup incubation activities between Mountain View and Cambridge, MA, where Y Combinator has traditionally held forth each summer. On his website, Graham explained that the change had “nothing to do with startups,” but that he had decided California was the best place to raise his about-to-be-born child. That didn’t stop him from a candid assessment of the Boston innovation scene, however. “Boston just doesn’t have the startup culture that the Valley does,” Graham wrote. “It has more startup culture than anywhere else, but the gap between number 1 and number 2 is huge.”

Since that time, I’m happy to report, Graham’s wife Jessica Livingston (a Y Combinator partner) has given birth to a healthy son, George. And Graham himself is back at work, at least to the point that he hosted an angel investor conference last week. He also took time to answer some questions I had e-mailed him earlier, asking for a more detailed view on the differences between the New England and Silicon Valley innovation cultures. As you will see, he cleverly outmaneuvered me on my last question, about raising kids to be themselves and not to constantly compare themselves with others. But far more important than that, his answers hold some hard truths for Boston area investors and students. He called Cambridge “the intellectual capital of the world,” brimming with ideas. But when it came to Internet investing, entrepreneurship, and even the mindset of students, well, that was another story.

So here are the questions, and Graham’s e-mailed answers, unedited except for clarifying questions, correcting minor typos, and the like. “Sorry if these answers are rather long,” Graham writes. “These are questions I’ve thought a lot about.”

Xconomy: You mentioned in your post that there was a vast difference between No. 1 (Silicon Valley) and No. 2 (Boston). Can you describe some of the specifics behind this observation–how so, why so?

Paul Graham: The biggest difference between Boston and Silicon Valley is the way startup culture pervades the Valley. The Valley is for startups what LA is for movies. It’s the main thing people care about here. Boston is for startups what New York is for movies. People do make some movies there, but it’s not the city’s main focus.

A lot of other things follow from this. The startup community is much larger in the Valley, large enough that it makes a qualitative difference. Among other things, this makes it much easier for us to run YC [Y Combinator] here. The 4 YC partners aren’t the only ones who advise the startups; we also bring in all kinds of experts from the community to advise them; and it is much easier for us to do this in Silicon Valley because that’s where most of the experts are. When we were in the summer in Boston we were always trying to talk people from the Valley into visiting Boston for a vacation. We managed to talk Paul Buchheit into it. And fortunately Mitch Kapor sometimes comes to Boston in the summer, so we were able to get him. But it was always a stretch.

Another difference is that because the Valley cares so much about startups, people here are always half a step ahead. All the lawyers know what the latest standard terms are for various types of deals. The investors are less frightened by new ideas, because the ideas are less new to them. The founders feel less lonely, because there are three other groups of guys in the same building starting startups.

I love Boston as a town. If I didn’t have kids I’d rather live in Cambridge than anywhere else. Cambridge is the intellectual capital of the world. Really. In fact, a large part of the reason Boston is weak in startups is probably that it’s good at other things. The focus of Boston is ideas, and it seems hard for a city to have two foci.

X: Do you think Silicon Valley’s advantage is more true for the Web-based sector you focus on? Are there areas, perhaps life sciences or medical devices, where Boston might be better for startups?

PG: Boston may well be a better place for biotech and medical startups. Or not; I have no idea. That is a completely different world from the one YC operates in. There’s no room for seed firms there, because the startups are so expensive to start.

X: Even when it comes to Internet startups, are there some things Boston investors or entrepreneurs are better at, or are strong at—maybe more conservative management, say?

PG: Honestly, nothing comes to mind. Occam’s razor says the reason Boston founders and investors are conservative is the same reason Chicago ones are. It’s not Yankee prudence. It’s just that they’re less confident.

That was certainly the case with us during Viaweb [a Graham-founded software company that was acquired by Yahoo in 1998 for approximately $49 million in stock]. We had no idea how anything to do with startups worked. I was so naive that I independently invented the concept of a price to earnings ratio. I remember thinking that for a startup it might be as high as 10.

The one advantage a Boston startup would have is the universities. If someone started a big startup in Boston, they could catch the local graduates before they thought of leaving. But how many grow to that size?

X: Do you see a difference in students or young entrepreneurs between the two areas as well, and if so, what?

PG: There is a big difference in students. Stanford students are all thinking about startups. MIT students mostly think of getting jobs at Microsoft or Google.

There’s not so much difference among entrepreneurs, because they, by definition, have already crossed the line into thinking a lot about startups. But founders in the Valley are probably more confident.

X: Finally, if you were to be a psychotherapist for the Boston investment/entrepreneurial community, what advice would you give: try to be more like Silicon Valley, or focus on your strengths and being the best you can be? Or what?

Y Combinator Demo Day Networking

Y Combinator Demo Day Networking

PG: I’d say, first of all, it’s a good sign that people who care about Boston’s future as a tech hub are worried. At least they’re not in denial.

But how many people really need to care about Boston’s future as a tech hub? I suppose the City Fathers should be worried about it. But the average person can solve the problem by moving.

For people who do decide they have to care, I think this idea of focusing on “individual strengths” is a dangerous road to follow. There aren’t really a lot of individual strengths in the startup business. The only solution is to swallow your pride, admit you’re losing, and then figure out why.

I don’t understand why people don’t spend more time trying to understand precisely why Silicon Valley has won so far. That’s the real question. I spend a lot of time thinking about that. My best guess so far is that the elaborate theories about cultural differences are wrong. I think it’s a combination of the weather and historical accidents, specifically Shockley Semiconductor. And probably also the fact that the Valley didn’t already have something else that was the big thing in town, the way LA has movies and NY has finance and Boston has ideas.

The first two imply a lot of hope for Boston. You can’t change the weather, but you can improve quality of life, which is a superset of it. And historical accidents can be arranged. Boston was only one timid VC away from being the home of Facebook. It’s the third one that might be the hardest to beat—that Boston already has something they care about more than startups.

X: I ask this because there seems to be this constant comparison to and envy of Silicon Valley here. And, for instance, you wouldn’t tell your new child to try and be more like someone else—you would try to focus him on being happy and fulfilling his potential. Maybe the two areas are so different in so many ways it is pointless to compare…

PG: There are cases where I’d tell him to be like someone else. If he wanted to learn how to ride a bike, I’d tell him to watch how other kids did it, not that he should cultivate his unique potential as a pedestrian.

Bob is Xconomy's founder and editor in chief. You can e-mail him at bbuderi@xconomy.com, call him at 617.500.5926. Follow @bbuderi

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