I’ve often heard others talk about the downside of running a startup away from Northern California.
While there are undeniably some disadvantages to being elsewhere, there are also considerable benefits to growing a company outside the Silicon Valley bubble. Furthermore, many of the challenges that come with building a startup away from the Bay actually make a company stronger and are conducive to finding hires passionate about the mission.
How we landed on ShipBob
I came to the U.S. from India in 2007 and graduated with a B.S. in Electrical and Computer Engineering from Purdue in 2012. Then, until 2014, I worked at a Chicago-based startup. I loved every second and realized working at a startup is the life for me.
My now-cofounder Divey and I began thinking of startup ideas, one of which grew into a company called SnailMail Pics. Users would text us a photo, which we would print, frame, and ship to them.
SnailMail Pics got some traction, but it was never going to change the world. That business model, however, showed us the difficulty of nailing shipping and logistics. The process of preparing our products to ship, coordinating all the details, and then actually getting them out the door was incredibly time-consuming. We could automate every aspect of SnailMail except the logistics element, which prompted us to design the solution that would become ShipBob.
ShipBob started with a few small services (which I’ll explain below) and rapidly grew into a full-service outsourced shipping and fulfillment company. That means online businesses store their inventory in our warehouse, and we take care of shipping orders to their customers. We have 5 fulfillment centers across the US, supported by our proprietary order, inventory, and warehouse management software.
The following story shows how we grew from a much simpler idea, with the help of YC.
Learning about YC
In 2014, Chicago didn’t have a strong startup community. A friend of ours told us about Y Combinator and we were blown away. A program dedicated to growing early-stage startups, that provides funding for you to work on it full-time with the potential for future funding? We honestly didn’t know that was possible, and it almost seemed too good to be true!
To that point, we’d been tinkering on nights and weekends and didn’t have a plan to quit our jobs. When we learned about YC, we realized it was a great opportunity for us to find that community to help grow our young company. If it hadn’t been for YC, we wouldn’t have had the confidence to take the leap into going all-in on ShipBob. We realized that YC’s seed investment would allow us to build ShipBob full-time, instead of a hobby on nights and weekends outside of our regular jobs.
We worked hard on our YC application and were fortunate enough to be accepted.
Biggest lesson learned: Follow your customers
Despite the travel and other inconveniences, we decided to remain in Chicago and continue to build the company from there. The biggest reason we stayed in Chicago was quite simple: it’s where our first customers were located.
In the early stages of our journey at YC, ShipBob retrieved items from customers’ offices, which we’d package and take to the post office. Soon after, a few of our best customers said, “You’re sending this person to my location twice or three times every day. What if you stored my inventory and shipped it directly from a fulfillment center?”
That portion of the business scaled incredibly quickly. We soon shut down the pick-up model and built out the fulfillment center instead. We only found our ideal product because customers asked us to make it.
We found our first 100 customers by standing outside Chicago post offices. We would ask them whether they found shipping to be cumbersome. We’d then ship their packages in real time while they talked with another member of our team. It’s a textbook example of doing things that don’t scale.
Through this process, we had developed relationships with post offices. We even knew the Chicago postal police (because they had chased us away a few times!). When we got accepted to YC and considered a move to San Francisco, we thought about the consequence: restarting in SF would mean developing entirely new relationships. Why would we do that when we already had a strong customer base?
Doing YC remote
YC was very supportive of ShipBob remaining close to our customers, so we went through the program remotely and commuted to the Bay Area every week. We ultimately found that being remote added extra pressure and isolation, which functioned as both a positive and negative reinforcement.
How YC works
For those who aren’t familiar, YC is conducted in two “batches” every year, summer and winter. The batch lasts for 3 months and is centered around weekly Tuesday “dinners”—though the term “dinner” vastly undersells what actually happens.
There’s usually a guest speaker; someone who has grown a successful startup and shares advice or war stories.
Most importantly, you share progress with other founders from your batch. Every team has a north star metric that is reported back to the batch. How much did you grow week-over-week? What challenges did you face? Learn anything? Any questions for the group?
Every week, we flew from Chicago to San Francisco for the dinner.
Pro: Extra pressure
The trip from Chicago to San Francisco is a long, brutal one. To make the travel worthwhile, we had to demonstrate both to ourselves (and everyone at YC) that we were making great progress every week.
ShipBob’s north star was the number of packages shipped. Each Tuesday morning, our goal was for that number to be 10% higher than the previous week.
To be clear, everyone in YC feels the competitive encouragement to hit the weekly numbers. But working from a distance made us even more driven than we otherwise would have been. A standard growth rate at YC is in the 7-10% range, but we set ours at 15% because we felt the bar had to be higher. We had to justify the long trip and didn’t want to fly across the country to present a disappointing growth number!
Every week, the upcoming cross-country trip hung over us. I know that it helped Divey and I power through some long nights and overcome tough challenges. The high-pressure situation helped us to develop implicit trust between us, which has been crucial as we scaled the company.
That same advantage also had a flipside: we lived on an island all week long.
Since we weren’t surrounded by other founders, we couldn’t derive energy from the friendly peer pressure on a daily basis. Other YC founders who would meet up during the week. Being in the Bay Area provides access to an expansive network of mentors and YC partners who act as a safety net in between weekly meetings. Instead, every ounce of motivation had to come from ourselves.
The same long nights and tough challenges that made us push extra hard also made it a draining experience. I wouldn’t trade it for anything, but I’d caution founders to know what they’re getting themselves into by commuting into an accelerator.
We learned that you need to be highly self-motivated; otherwise, the isolation and lack of daily camaraderie could turn into a serious disadvantage.
Fundraising and hiring outside the Valley
We graduated from YC, raised a seed, and then started scaling ShipBob in Chicago. The two key parts then are fundraising and hiring—both of which are significantly impacted by location.
Most of the startup hiring and fundraising advice out there is predicated on the assumption of being located in the Bay Area. While some of the same principles apply outside Silicon Valley, you have to operate with a different strategy and set of expectations.
Fundraising for a startup outside of Silicon Valley
Thanks to YC’s demo day, our seed round came quickly—and almost exclusively from Silicon Valley investors. If we hadn’t completed YC, however, being based in Chicago would have made seed fundraising extremely difficult.
When we started looking for a Series A, raising money from Silicon Valley took longer than anticipated. Since we were based thousands of miles away, we hadn’t formed the requisite relationships. There aren’t many VC firms outside of the coasts, however, which can make fundraising more difficult. Ultimately, our Series A was led by Hyde Park Ventures, a local Chicago VC firm.
This worked out well because local proximity to our lead investor has proven to be helpful. Board meetings are easy to coordinate, and off-schedule meetings or check-ins can be done in person. Most importantly, it’s nice to have that local support network for big decisions or tough challenges.
Having a presence near VCs is critical to fundraising because they need to know your story. If investors aren’t familiar with your story, they won’t feel comfortable writing you a check.
My fundraising advice to other non-coastal founders would be:
- Look for local VC firms in the city where you’re based.
- If you’re trying to raise money from funds away from your homebase, start forming relationships long before you actually want to go out and raise money.
Hiring for a startup outside of Silicon Valley
In Chicago, you’re competing with large companies that pay better than your startup. Also, the concept of stocks and options isn’t well-known, so it can be hard to articulate the value of compensating with equity to make up for the pay difference.
In the Valley, equity is a primary driver of company selection for employees. We weren’t drawing on the same expectations with our hiring pool, so hiring was more difficult in Chicago than it would have been in San Francisco.
On the positive side, however, this pay difference meant our early hires self-selected as mission-driven. In 2014 Chicago startups weren’t a common path. Our early team joined because they were passionate about our industry. In areas like Silicon Valley, where tech drives the economy, employees can hop from startup to startup based on the company’s cycle. In Chicago, however, our original team has stuck with us through thick and thin.
The advantages of being outside Silicon Valley
San Francisco is home to the world’s strongest, most vibrant startup community. Without the support of that community and YC, we wouldn’t be where we are today.
But there’s an undeniable counterpoint: that community also creates an insulated cultural bubble that skews towards short-term goals. While considerations such as hiring and fundraising are practical, I think the biggest differentiator for growing a company away from the Valley is the symbolic and psychological significance of being outside that culture bubble—and the traps you can then steer clear from.
1. Avoid being corrupted by short-term focus
It’s easy to get caught up in the startup game. Many Silicon Valley startups, for example, subsidize user growth to artificially inflate numbers so they can raise more money at a higher valuation. While this may help your numbers, it encourages a short-term focus that doesn’t help you build a long-lasting company.
In Chicago, we were far enough from the startup noise that we didn’t get caught up in what everyone else was doing. We didn’t optimize for short-term decisions around the next 6 months of fundraising or the next single hire. From day one, our goal was to build a long-term, sustainable business. We were always thinking about the big picture, not just next month’s reports.
2. Appreciate solid growth
San Francisco is a hyper-competitive environment where it’s easy to compare yourself to your peers. Your company could be growing at 15% month-over-month, but you think it’s a severe disappointment because some of your peers are boasting 20%.
In any non-San Francisco environment, 10% or 15% compounded monthly growth makes you a huge company. In the Silicon Valley bubble, it can be hard to notice that progress.
3. Focus on what customers want and avoid the hype
In San Francisco, you’re surrounded by other startups and media interest. It can be easier to fall in love with your solution instead of listening to customers and adapting to their needs.
Being in Chicago, our customers are all we have. We were in a situation where we had to make the right change for our business or die. With less industry noise, it’s easier to listen to what customers are saying. After falling in love with the market (not the solution) we just listened to their needs, which told us where to go.
We were not product missionaries convinced about our particular solution. Instead, we were more focused on the market, and the market dictated how we needed to adapt. If you’re too ingrained with your first solution, you’ll never be able to listen to your market and change accordingly. That was a good learning for us: always talk to your customers and listen to your market—over the latest growth trend.
Where should you put your company?
What does ShipBob’s experience mean for you? To pick the right location for your company, ask yourself these three questions:
1. Does your customers’ location matter?
Customers are your life-blood. You need to decide whether their location should inform where you’re based by asking the following questions:
- Are they location-specific or easily replaceable?
- Will they stick with you when you move, or will your new location lower the quality of your product?
- Does your location not matter to them, so you can choose a headquarters for other reasons?
These questions alone can rule out a move to San Francisco if you start your business elsewhere. Many Bay Area startups are building products for other startups, so remaining in the Valley is a necessity.
2. What local advantages can you capitalize on?
Being in Chicago placed ShipBob near the center of the country so we could ship to either coast for almost the same price. It was definitely an advantage in the logistics space. Can a specific location provide your company unique advantages in your chosen industry?
3. What’s your end goal?
We originally stayed in Chicago to be near our customers. Over time, however, the city became part of our identity. Potential hires and VCs often ask: “What’s your eventual goal?” Our response has always been: “Build a massive public company based in Chicago.”
If part of your goal is tied to a certain region, or if living in San Francisco doesn’t align with your intentions, listen to your intuition. Build a company, not an image.
At the end of the day, companies solve customer problems. Your location, investors, and team should all revolve around serving customers.
It can be easy to fall into the trap of thinking every startup needs to be in San Francisco. Don’t get me wrong—there are huge advantages to being in the startup capital of the world. But every “pro” comes with a “con,” and many businesses do themselves a disservice by assuming they must be in Silicon Valley.