For Startups, Is Friction Always Bad?
There’s probably nary a Web entrepreneur who hasn’t had a forehead-slapping “Why didn’t I build Groupon?” moment at some point in 2010. Well, I had an experience like that this week, reading Devin Friedman’s superb article “The Viral Me” in the December issue of GQ. It’s all about the Y Combinator venture incubator in Mountain View, CA, and the peculiar species of brash, young, hyper-optimistic entrepreneurs who build companies there. Given that I know most of the startup founders Friedman talked with—heck, I’ve profiled a bunch of their companies—I’d like to think I could have written a piece that good.
I urge you to read it for yourself. But it’s even longer than most of my articles, so I’ll summarize the point that I thought was most perceptive. It was about friction. The entrepreneurs Friedman hung out with, such as DailyBooth CEO Brian Pokorny, talked about how they strive to build Web services that are frictionless—that is, very easy to join and use—or that even have a kind of negative friction, so that it becomes harder to not use them than to just give in (e.g. Facebook).
Friedman dutifully lists the merits of frictionlessness, but toward the end of the piece he cleverly turns the idea around. He suggests that most young Silicon Valley entrepreneurs seem so happy about what they’re doing precisely because of friction: they’ve been given the resources to build stuff, “and the act of creation is maybe the most frictive thing going.” From this point of view, you need a certain amount of difficulty to keep life interesting; otherwise, nothing would be a challenge.
(As a quick side point, there may actually be a benefit to preserving friction on the Web, too. Andres Glusman, vice president of strategy at New York-based Meetup, told me recently that his company actually saw an increase in usage after it added a checkbox to its group creation page saying “I pledge to create real, face-to-face community.” The added step seemed to cause users to slow down and think about why they really wanted to use Meetup in the first place.)
Now, what happens if you take this idea of friction up one level, from the things technology entrepreneurs build to the environments they’re building in? I’ve asserted in this column before that the geography isn’t such a big issue anymore for startups, since cash, talent, and the other resources fueling innovation are increasingly liquid. And I still think that’s the direction things are going. But by my argument, you’d be able to build a tech startup in Fargo, ND, just as easily as you can in Mountain View—which clearly isn’t yet the case.
From Friedman’s point of view, the only way to make Fargo as attractive as Mountain View—the only way to massively scale up Silicon Valley, in other words—would be to remove all friction from entrepreneurship. But not only is this impossible, it would defeat the whole point of being an entrepreneur. You need some friction to keep things interesting, and to weed out the bad ideas. The question is how much.
And that’s the point I want to riff on today. Because Xconomy observes key innovation hubs so closely, we’ve got a fair amount of data, at least of an anecdotal sort, about what’s working for technology entrepreneurs and what isn’t. My own sense is that in New England, where Xconomy was born, startup founders encounter too much friction. In Silicon Valley, by contrast, they probably encounter too little.
Let me expand on both points. I spent three years covering the innovation scene in Boston before moving to San Francisco last summer. So I know there’s an ongoing discussion among entrepreneurs, investors, and government officials about how to strengthen the ecosystem supporting Massachusetts technology startups and how to keep young entrepreneurs from fleeing to Silicon Valley. There have been positive developments—for example, the MassChallenge startup competition, the opening of Kendall Square’s Venture Cafe as a community hub, and the Boston Regional Entrepreneurship Week effort (which actually spread across most of October). But these changes haven’t plugged the startup leak.
The latest case is RelayRides, a car-sharing service that was born earlier this year in Cambridge, MA, and won the $50,000 grand prize in the MassChallenge competition in October. The startup revealed this week that it’s moving to San Francisco, having secured an undisclosed amount of venture funding from August Capital in Menlo Park, CA, and Google Ventures in Mountain View. (Google Ventures is known for putting Google’s resources at the disposal of its portfolio companies, which is a pretty strong inducement to move closer to the Googleplex.) Other recent self-exiles from Boston to the Bay Area include e-mail reminder service Baydin, crowdsourced errand-running service TaskRabbit, and children’s clothing swap site thredUp.
If you talk to the entrepreneurs inside these companies, they’ll all tell you the same story: when it came time to raise money and seek business-development help, the barriers were simply lower in the Bay Area. Just this week I met in San Francisco with another Cambridge, MA-based Web startup, Traackr, that’s likely California-bound. CEO Pierre-Loïc Assayag said he was here in town to meet with potential investors and to scout for office space for the company, which analyzes social-media streams and provides information to marketers about the most influential online voices around specific topics or markets.
Being based in Cambridge—halfway between Harvard and MIT, in fact—has been great for Traackr up to now, Assayag says, since it has meant that “we can snatch any kid off the street and they can code.” But after bootstrapping the company for four years, it’s time for Traackr to really fuel up, and “this is where we have felt the shortfalls of being in Boston,” Assayag says.
It isn’t that Traackr couldn’t raise the money it needs from Boston-based venture firms, he says. It’s that it’s too much trouble. “The approach seems to be very analytical,” Assayag says. “The investors we talk to on the East Coast have all been asking us for tons of paperwork and due diligence. It takes a tremendous amount of time just to entertain the relationship.” Assayag says that when he did the math—calculating how much time he’d have to spend building spreadsheets to satisfy the East Coast venture firms and how much equity he’d have to give up to get their capital—it turned out to be safer and cheaper simply to pour the same resources into sales and new business development.
But of course, there’s another option: going west. The Bay Area investors Assayag is meeting with this month “are really looking at the handful of things that make or break a business,” he says. “They know that everything else can be fixed. It doesn’t matter if your five-year financial plan is not great. It can be changed. The conversations we’ve had here so far are about, ‘Show me the product, introduce me to your team, show me a client.’ That’s it. That gives them enough information to gauge whether or not this business has legs.”
Traackr hasn’t won funding yet, and its move to the Bay Area isn’t a done deal. I quote Assayag because he’s willing to go on the record with his comparative findings, and because he’s got an outsider’s perspective—he’s a Frenchman who studied philosophy at the Sorbonne and ran IT projects for Peugeot-Citroen. When he first moved to the U.S., Assayag says, he was impressed by how easy it is to start a business here. “Your social security number is also your employer identification number, by default!” he marvels. But San Francisco operates at another level entirely, he says. “Every person is his own startup; everyone is working on something on the side. It’s sad [for Boston], but it’s like going to LA if you’re a script writer or an actor. No matter what you say, that is where the ecosystem is.”
Now, the comparison to LA is an interesting one. It’s safe to say that if California enacted full-employment legislation for all of the actors currently waiting tables in Los Angeles, a lot more lousy movies and TV shows would get made. (New Jersey must have done something like this; can there be any other explanation for Jersey Shore?) Similarly, there’s something hallucinatory, even hazardous, about a city where everyone is walking around with their own startup idea. The danger is that when a bubble mentality takes over—which seems to happen here every decade or two—a lot of these ideas will start to look like they have legs. Pretty soon, investors will start handing over small fortunes to overconfident founders who, most often, will turn them into smaller fortunes.
When there are more funded entrepreneurs in circulation than good ideas, you start to hear some weirdly self-reinforcing logic, such as the idea that almost every startup will have to abandon its original product at least once before it finds a market, and that the best entrepreneurs are those who can “pivot” gracefully from one idea to the next. This thinking is enabled, in part, by the Bay Area’s sheer abundance—if your company needs a little more capital to test its second or third product idea, or if you decide your website should probably run on Ruby instead of Python or HTML5 instead of Flash, the money and talent will probably be there. It’s also fueled by the mythology that has grown up around foundational Silicon Valley companies like PayPal, which changed course twice before finding a market as eBay’s default payment processing system. But to my ears, “pivot” is often just a euphemism for “trying something else before we have to ask for more money.”
You can probably define a bubble as a shortage of friction. If the spreadsheet-obsessed venture partners in New England had been in charge of screening all Internet investments between 1995 and 2001, there probably wouldn’t have been a dot-com bust. But then, there wouldn’t have been a boom, either.
My point is just that zero friction isn’t really the goal to shoot for. Investors have to impose a moderate amount of it. If they set the level too high, entrepreneurs will probably go elsewhere—and that’s what seems to be happening in Boston. If they set it too low, things get out of hand, which may be what’s happening in the Bay Area. But perhaps it’s all good in the end. Maybe there’s just a big geographical sorting algorithm at work—with entrepreneurs and investors heading to the places that best suit their personalities.