Having Too Much Fun in the Valley?

David Heinemeier Hansson of 37signals, whose co-founder Jason Fried has been a guest on our show, counters a post by Caterina Fake, who started Flickr with her husband and sold it to Yahoo!, titled It's a bad time to start a company. (Disclaimer: I'm a happy paid user of both of their products.)

Caterina's central focus is that while entrepreneurship is in vogue as it is now, competition increases for talent, space and venture capital. This both drives up costs to start a business and increases the likelihood of competition. Ironically, while times are good, battle-hardened entrepreneurs noticed some advantages of the good old days of a bad economy. Some of our past guests including Fabrice Grinda, Joel Spolsky, Philip Kaplan and Shoba Purushothaman had a blast building businesses in what is normally referred to as an awful environment for entrepreneurs. Venture capitalist Deborah Farrington did quite well by making investments during the dot com bust, including an investment in soon-to-IPO NetSuite. Don't get me wrong, these entrepreneurs did have to bang their heads against the wall and shed a lot of blood, sweat and tears to survive, but the bad economy separated the real entrepreneurs from the faint of heart.

While it's fun to argue over timing, it's the factor that us entrepreneurs have the least control over. What we do have control over is geography, which underlies Caterina's sixth and final point in her thesis:

There's too much going on. Every night there's a Mashup get together, or a TechCrunch party, or it's Tag Tuesday, or SuperHappyDevHouse or SXSW or this conference or that conference. And this stuff is fun. It's a real community. But all of these things are great by themselves, but terrible in combination. I see some entrepreneurs in photos from *every single event*. Who's talking to the users, writing the code, tweaking and retweaking the UI? It ain't the Chief Party Officer.

Of course, these parties aren't going on in Vancouver, where Caterina started her company. It's mostly happening in Silicon Valley, where for better or worse a geek can party like it's 1999 every night. Tech entrepreneurs from other parts of the country can only enjoy the parties vicariously through Flickr photos and blogs. Here in New York we're starting to have some fun as documented in a recent article in the Fashion & Style section of The New York Times. But even so, when I meet people at most parties and tell them I'm in the podcast business, I usually have to follow up with an explanation of what podcasting is and often resort to just telling people I run a radio show they can get through the Internet. And I'd never even think of saying tagging is cool at the average New York media event for fear of people thinking I still pay the children's game of tag.

For all its advantages, is Silicon Valley too distracting from the serious business of building a business? Does it cloud an entrepreneur's judgement about what consumers need?

David argues against the Silicon Valley area that Caterina is now based in:

You don't need to live in San Francisco to make it big. Or rather, if you want to make it big, don't live in San Francisco...

Is the San Francisco Web 2.0 party too much fun? This reminds me of something Scott Rafer said on the show:

Silicon Valley and San Francisco, I hesitate to call those of us out here running companies entrepreneurs, [it's too easy to get the infrastructure].

The Valley offers entrepreneurs unparalleled resources, infrastructure and support but threatens to distract from focusing on customers and sales. The rest of the world offers focus and the school of hard knocks precisely by offering few resources meant specifically for tech entrepreneurs.

Where is the best place to open a business? Let's find out by watching what businesses thrive in the long run.