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How to go to market in middle America
Deborah Eisenberg is the founder of TechStarts PR, where she helps technology companies both big and small hone their message and reach their audience.
There comes a time for many startup companies where they either realize they need to do a nationwide rollout, or they need to actively target buyers in the middle of the country. If you are a startup on either the East or the West Coasts, it’s worth thinking about how this market might present its own set of unique challenges, and how you plan to overcome them.
There are a lot of misconceptions about what some people call “flyover country,” and as a San Francisco native who spent two decades in New York, Washington DC, and Boston before moving to Pittsburgh, I can assure you they are almost all wrong. Without getting into specifics, the reality of “middle America” is that it’s the same as anywhere else.
Income, education, world view, and waistlines are all varied. It’s pretty accurate that San Francisco possesses a culture obsessed with fitness and entrepreneurship, but California isn’t necessarily all like that, and if you think it is, I encourage you to go to Bakersfield, the Central Valley, or Eureka sometime.
In addition, just because the stereotypes are wrong doesn’t mean there’s nothing different about doing business here. As you think about how to conduct your rollout, here are some things you should consider:
Table of Contents
Research
As with any market, research is key since it informs every other aspect of the rollout. Start by looking into who your competition is.
Since there are fewer VC-backed startups in middle America, and smaller companies tend to get less press, the research may be harder. However, there are some major universities that are actively putting money into their own Entrepreneurship programs and those spinoffs often do very well.
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This tiny house grows with your family
Tiny houses are all the rage, but once you put more than a few people in one you have a problem: Where can you go from there?
Nowhere. Exactly.
What you do is, if you need that extra push over the cliff, you know what you do? Talk to Brian Gaudio. Gaudio is the founder of Module Housing, an incremental-building startup from Pittsburgh. Gaudio, formerly of Walt Disney Imagineering, has an architecture background and saw firsthand the need for incremental housing in his work in Biloxi and Latin America. His idea is simple: create a little house that grows with you over time, allowing a single room to turn into a mansion with a few turns of a wrench.
“We think of the home as a recurring revenue stream — buy a starter home today, purchase additions and upgrades in the future. All our homes are designed to change over time — as a homebuyer’s family grows, income grows or needs change,” he said. “We are capital-light compared to other prefab startups in that we don’t own the manufacturing facilities where our homes are built. We leverage existing network of high-performance prefab manufacturers on the East Coast.”
The service does it all: They offer multiple-room dwellings and work with you to order the modules, find land that lets you add on over time and assemble the houses. Like the Craftsman houses of old, you have a few basic styles, but in this case you can buy a one-bedroom Nook house for $212,000 and then add on over time instead of buying a house with seven rooms and realizing you only needed two.
Additional costs include building a foundation and land preparation. It’s also dead easy to add onto your house when you’re ready, said Gaudio, thanks to work they’ve done in modularizing the houses.
“We have patents pending on a removable roof and wall system that simplifies the addition process when a customer is ready to add on,” he said.
The company has raised $1.2 million so far and they have prototype houses in Pittsburgh. They already have orders and they’ve created a Tesla-like reservation system for the folks who want to try out their product.
“I moved back to Pittsburgh to start Module with the goal of making good design accessible to everyone,” he said. “Affordable housing is one of the most critical issues our country faces today. Module is a vehicle to promote responsible, equitable development in cities. We are reimagining housing to be more sustainable, adaptable and better designed.”
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VCs say Silicon Valley isn’t the gold mine it used to be
In the days leading up to TechCrunch Disrupt SF 2018, The Economist published the cover story, ‘Why Startups Are Leaving Silicon Valley.’
The author outlined reasons why the Valley has “peaked.” Venture capital investors are deploying capital outside the Bay Area more than ever before. High-profile entrepreneurs and investors, Peter Thiel, for example, have left. Rising rents are making it impossible for new blood to make a living, let alone build businesses. And according to a recent survey, 46 percent of Bay Area residents want to get the hell out, an increase from 34 percent two years ago.
Needless to say, the future of Silicon Valley was top of mind on stage at Disrupt.
“It’s hard to make a difference in San Francisco as a single entrepreneur,” said J.D. Vance, the author of ‘Hillbilly Elegy’ and a managing partner at Revolution’s Rise of the Rest Fund, which backs seed-stage companies based outside Silicon Valley. “It’s not as a hard to make a difference as a successful entrepreneur in Columbus, Ohio.”
In conversation with Vance, Revolution CEO Steve Case said he’s noticed a “mega-trend” emerging. Founders from cities like Pittsburgh, Detroit or Portland are opting to stay in their hometowns instead of moving to U.S. innovation hubs like San Francisco.
“The sense that you have to be here or you can’t play is going to start diminishing.”
“We are seeing the beginnings of a slowing of what has been a brain drain the last 20 years,” Case said. “It’s not just watching where the capital flows, it’s watching where the talent flows. And the sense that you have to be here or you can’t play is going to start diminishing.”
J.D. Vance says that most entrepreneurs don’t need to move to Silicon Valley.
Here’s why. #TCDisrupt pic.twitter.com/0mFPeTuHLe
— TechCrunch (@TechCrunch) September 6, 2018
Farewell, San Francisco
“It’s too expensive to live here,” said Aileen Lee, the founder of seed-stage VC firm Cowboy Ventures, amid a conversation with leading venture capitalists Spark Capital general partner Megan Quinn and Benchmark general partner Sarah Tavel .
“I know that there are a lot of people in the Bay Area that are trying to work on that problem and I hope that they are successful,” Lee added. “It’s an amazing place to live and we’ve made it really challenging for people to live here and not worry about making ends meet.”
One of Cowboy’s portfolio companies opted to relocate from Silicon Valley to Colorado when it came time to scale their business. That kind of move would’ve historically been seen as a failure. Today, it may be a sign of strong business acumen.
Quinn said that of all 28 of Spark’s growth-stage portfolio companies, Raleigh, North Carolina-based Pendo has the easiest time recruiting folks locally and from the Bay Area.
She advises her Bay Area-based late-stage companies to open a second office outside of the Valley where lower-cost talent is available.
“We often say go to [flySFO.com], draw a three-hour circle around San Francisco where they have direct flights, find a city that has a university and open up a second office as quickly as possible,” Quinn said.
Still, all three firms invest in a lot of companies based in San Francisco. Of Benchmark’s 10 most recent investments, for example, eight were based in SF, according to Crunchbase.
“I used to believe really strongly if you wanted to build a multi-billion dollar company you had to be based here,” Tavel said. “I’ve stopped giving that soap speech.”
Aileen Lee (Cowboy Ventures), Megan Quinn (Spark Capital), and Sarah Tavel (Benchmark Capital) on whether or not Silicon Valley is on the wane for investors #TCDisrupt pic.twitter.com/SOpn7p0eNQ
— TechCrunch (@TechCrunch) September 5, 2018
Underestimated talent
A lot of Bay Area VCs have been blind to the droves of tech talent located outside the region. Believe it or not, there are great engineers in America’s small- and medium-sized markets too.
At Disrupt, Backstage Capital founder Arlan Hamilton announced the firm would launch an accelerator to further amplify companies led by underestimated founders. The program will have cohorts based in four cities; San Francisco was noticeably absent from that list.
Instead, the firm, which invests in underrepresented founders and recently raised a $36 million fund, will work with companies in Philadelphia, Los Angeles, London and one more city, which will be determined by a public vote. Aniyia Williams, the founder of Tinsel and Black & Brown Founders, will spearhead the Philadelphia effort.
“For us, it’s about closing that wealth gap to address inequity in tech,” Williams said. “There needs to be more active participation from everyone.”
Hamilton added that for her, the tech talent in LA and London is undeniable.
“There is a lot of money and a lot of investors … it reminds me of three years ago in Silicon Valley,” Hamilton said.
Silicon Valley vs. China
Silicon Valley’s demise may not be just as a result of increased costs of living or investors overlooking talent in other geographies. It may be because of heightened competition abroad.
Doug Leone, an early- and growth-stage investor at Sequoia Capital, said at Disrupt that he’s noticed a very different work ethic in China.
Chinese entrepreneurs, he explained, are more ruthless than their American counterparts and they’re putting in a whole lot more hours.
Doug Leone of Sequoia Capital says founders in the US and China both want to change the world, but Chinese founders are a little more desperate (and you see it in the crazy work ethic they have).#TCDisrupt pic.twitter.com/dPxsRTbJoq
— TechCrunch (@TechCrunch) September 6, 2018
“I’ve had dinner in China until after 10 p.m. and people go to work after 10 p.m.,” Leone recalled.
“We don’t see that in the U.S. I’m not saying the U.S. founders oughta do that but those are the differences. They are similar in character. They are similar in dreams. They are similar in how they want to change the world. They are ultra-driven … The Chinese founders have a half other gear because I think they are a little more desperate.”
Much of this, however, has been said before and still, somehow, Silicon Valley remained the place to be for investors and startup entrepreneurs.
The reality is, those engaged in tech culture are always anxiously awaiting for the bubble to pop, the market to crash and for “peak Valley” to finally arrive.
Maybe, just maybe, Silicon Valley is forever.
Here’s more of our coverage of Disrupt 2018.
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Cleveland offered $120 million in freebies lure Amazon to the city
A Cleveland.com article detailed the lengths the small midwestern city would go to lure Amazon’s in 50,000-person HQ2. In a document obtained by reporter Mark Naymik, we learn that Cleveland was ready to give over $120 million in free services to Amazon including considerably reduced fares on Cleveland-area trains and buses.
The document, available here, focuses on the Northeast Ohio Areawide Coordinating Agency (NOACA)’s ideas regarding the key component in many of Amazon’s decisions – transportation.
Ohio has a budding but often tendentious connection to public transport. Cities like Columbus have no light rail while Cincinnati just installed a rudimentary system. Cleveland, for its part, has a solid if underused system already in place.
That the city would offer discounts is not surprising. Cities were falling over themselves to gain what many would consider – including Amazon itself – a costly incursion on the city chosen. However, given the perceived importance of having Amazon land in a small city – including growth of the startup and tech ecosystems – you can see why Cleveland would want to give away plenty of goodies.
Ultimately the American Midwest is at a crossroads. It could go either way, with small cities growing into vibrant artistic and creative hubs or those same cities falling into further decline. And the odds are stacked against them.
The biggest city, Chicago, is a transport, finance, and logistics hub and draws talent from smaller cities that orbit it. Further, “smart” cities like Pittsburgh and Ann Arbor steal the brightest students who go on to the coasts after graduation. As Richard Florida noted, the cities with a vibrant Creative Class are often the ones that succeed in this often rigged race and many cities just can’t generate any sort of creative ecosystem – cultural or otherwise – that could support a behemoth like Amazon landing in its midst.
What Cleveland did wasn’t wrong. However, it did work hard to keep the information secret, a consideration that could be dangerous. After all, as Maryland Transportation Secretary Pete K. Rahn told reporters: “Our statement for HQ2 is we’ll provide whatever is necessary to Amazon when they need it. For all practical purposes, it’s a blank check.”
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Aurora hires SpaceX’s Jinnah Hosein, opens SF and Pittsburgh offices
Self-driving technology company Aurora has made some key moves on its leadership team and overall company growth: It’s bringing on SpaceX’s now former head of software engineering, Jinnah Hosein, to lead its own software engineering team in a VP role. The autonomous software provider is also opening up two new offices, including one in San Francisco, and another in Pittsburgh, in addition to its existing HQ in Palo Alto.
Bringing on Hosein is a huge move for Aurora, which will now have some additional senior leadership taken to help direct and organize its growing engineering team, according to Aurora co-founder Chris Urmson . Hosein’s background includes his time as VP of Software Engineering at SpaceX, where he spent the past four years and oversaw projects including the recent successful Falcon Heavy launch. Before that, he was Director of Software Engineering at Google working on Google Cloud, site reliability and other software projects.
“It’s a pretty incredible set of experiences he has,” Urmson said. “We’re just excited about him bringing that leadership capability, that experience in building both cloud and incredibly reliable software to our team and working with the rest of the folks here.”
Hosein also worked for a brief time overseeing Tesla’s software operations as well as SpaceX’s when he served as acting VP of Tesla’s Autopilot Software prior to Tesla hiring Apple’s Chris Lattner for the role. Urmson says that Hosein’s proven track record launching rockets, and organizing software projects on that level of complexity is more important to Aurora than any brief time he may have spent on Autopilot, however.
Aurora is also opening two new physical offices and testing locations, as mentioned, including the San Francisco one that Urmson says will be a welcome relief to some of their employees currently commuting south to Palo Alto, as well as a way to attract more talent looking to work in the city proper. The Pittsburgh office gives them a new testbed, where they can prove their tech in inclement driving conditions and adverse winter weather, and it also puts them in close proximity to Carnegie Mellon and Pittsburgh’s robotics talent pool.
“When you combine that, between the offices we have in the South Bay, the San Francisco test areas that we’ll now have more access to and the Pittsburgh test areas, we have a pretty exciting diversity of test environments and places to operate,” Urmson added.
Aurora has already announced partnerships with Volkswagen, Hyundai, Byton and more, and recently added LinkedIn founder Reid Hoffman and Index Ventures’ Mike Volpi to its board.
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In his new book, The New Urban Crisis, author Richard Florida shows how cities can survive an uncertain future
Richard Florida is most frequently associated with the concept of the rising creative class and his books have described how these high-paid knowledge workers are slowly changing the face of our cities. In his first book he foresaw the growth of high tech hubs in places like San Francisco and Pittsburgh and in his new book, The New Urban Crisis, he describes the dangers we face when… Read More
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See you tonight at TechCrunch’s Pittsburgh micro-meetup
We’re in town for a few days and we’re excited to meet all of you at the Pittsburgh Micro-Meetup tonight. In preparation for Disrupt New York and our upcoming TC Sessions series on robotics, John Biggs and I are in Pittsburgh to talk to some startups. Come out, chat and have some food and drinks compliments of our sponsors, Duolingo and TrueFit. We will meet at The Shop on April… Read More
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