Reflections of an Australian Startup in the Midwest
In November 2013 I moved to the US — so as I write this, it’s been just over two years since I became a non-resident alien in the great state of Ohio.
The entire time I was here I envisioned writing a bunch to explain what it was like moving over here and trying to expand our tech company — a virtual server hosting service called Binary Lane — into the US market. But, reasons, and I never did, and I’ve felt guilty about it. Now 2016 has arrived I thought I’d try to put some words down.
The first thing I wanted to scribble were some notes about why an Australian tech company might want to consider destinations that are alternatives to Silicon Valley.
On Silicon Valley vs the rest
If you’re an Australian tech company/startup looking to flip up to the US or expand internationally, chances are you’re just looking at California — in particular the Bay Area around San Francisco — Silicon Valley.
This is the most popular destination for many good reasons — it has the ultimate startup ecosystem. It’s a beautiful city. Talented people are everywhere. It’s crammed with early adopters that will line up to use your product. Venture capital literally hangs from street poles, free for the taking!
I lived in San Francisco for a year when I was a kid. I’ve always had family there and spent a lot of time there in the last 30 years. The last several years I’ve visited at least once a year, mostly for conferences or small work trips to check out data centres or whatever. But I haven’t worked in SF, so I don’t claim to know what that’s like. It sure looks like fun!
But there are a bunch of negatives about setting up shop in SF. Whether or not these outweigh the positives is hard to tell — I suspect they probably do not for the “average” tech startup (if there is such a thing), but there is a fair degree of subjectivity.
Perhaps the biggest one is the cost. The popularity of the Bay Area has driven up costs like crazy. Housing costs are extreme; supply has not kept up with demand and as a result the market is super competitive. TechCrunch have a fascinating article looking into the problem of SF housing. (Petrol prices in California also seem to be a lot more. I just got back from San Francisco and paid around $2.80 a gallon — back in the midwest it’s around $1.80.)
If you’re a tech worker in the Bay Area though, the good news is you can command a huge salary. Everyone knows the cost of living is enormous, so remuneration takes this into account. But if you’re an Australian company trying to expand in the US, bootstrapped from your existing Australian business using Australian dollars, this is kind of bad news, as it’ll get expensive fast paying for stuff. (Of course you can always just pick up some of that phat VC money that is lying around.)
Obviously, none of this has affected SV’s attractiveness as a destination or its status of being The Place To Be for tech. But the US is a big country! There are a lot of other places, many of which are trying hard to build their own startup and tech ecosystems. And because none of them are Silicon Valley, they’re all trying pretty hard to be awesome places. It’s worth looking at options outside the usual high profile spots in the US.
That’s now how I ended up in the midwest — I didn’t do any sort of critical analysis and then figure that it’d be the best place to be or anything. But in retrospect, I should have. I didn’t realise it at the time, but each state is quite different and they all have their own various advantages and disadvantages for business.
On the different US States:
Perhaps the thing that caught me the most by surprise is that the United States of America is quite literally exactly that — a bunch of separate states that (mostly!) happily co-exist. There is a lot of politics and history and laws and custom behind it all, of course, with many ifs and buts and maybes, ultimately encompassed by the US Constitution. Each state in the US is fascinating in its own unique way; it’s easy to forget that the US has a bit more history than Australia and a lot of that you see exposed differently as you move around.
The casual Australian that is pondering a move to the US should bear this strongly in mind: the differences between US states are not equivalent to those between Australian states, which I’ve always felt are so small as to be basically not noticable. Each US state, however, has its own lengthy history, its own laws, its own taxes, its own requirements for how to conduct yourself — and they all compete powerfully against each other. It’s almost more like Europe than it is a single country. Except generally with worse healthcare.
Many states are trying to develop their own version of Silicon Valley-esque ecosystems, and I think here is where you see most of the competitive spirit. Even within states you’ll see different cities pushing their own unique programmes and support systems for tech startups, sometimes focusing on areas in which their region specialises (e.g., medical, agri-tech, military, etc).
From a practical point of view as a person just living there, there’s not a lot of actual difference on a day-to-day, living-your-life basis. I mean, sure, each state will have different sales tax. Generally this is not included on menus on price lists, so every time you pay for a hamburger or a beer you’ve got to add on some random amount (unless of course you’re in a state like New Hampshire where there’s no sales tax).
In any case, you’ve got to add on a tip, which is like, 15%? Unless you’re buying drinks in which case it’s a dollar a drink. Or if you’re ordering takeout — maybe tip, maybe don’t. Or if you’re eating a place where you order first, you can tip, or not.
What I’m saying here is menus are not really that fucking useful if you really want to know exactly what you’re going to be paying at the end of the meal. Where was I?
Now, that said, there are some important differences between the states that often even catch Americans by surprise — like the case of the lady who drove between states with a gun (perfectly legal and correctly licensed in her home state of Pennsylvania) thinking it was all cool, but then discovered it wasn’t legal in New Jersey, where she was arrested and faced several years in jail (fortunately later pardoned).
This is probably not something that’ll impact too many Australians, but I thought it was worth mentioning to highlight the sometimes extreme differences that exist between states and the fact that even something as trivial as driving between them can result in broken laws. (Something to especially bear in mind if you’re driving out of states like Colorado or Washington after taking advantage of their recreational marijuana laws.)
I mention all this stuff because if you are planning a move to the US, it’s probably worth spending a little extra time looking at the wide variety of options that are available in different parts of the country. Bear in mind that different states will have different laws with varying levels of support and suitability for you. There are amazing opportunities available outside of Silicon Valley and finding the right state for your startup you could mean you end up in an environment that could support your venture much more effectively.
On how I ended up in Ohio:
The impetus for my move to Ohio was my partner being offered an amazing post-doctorate opportunity at The Ohio State University, in Columbus. When this was first suggested as a possibility — “how would you feel about moving to Ohio?” — I confess to sniggering, as it never crossed my mind that it might become a reality.
What I knew about Ohio you could fit into a matchbox without taking out the matches first. I knew exactly two things: that it was a state in the mainland United States, and that it was a class of formidable nuclear missile submarine (I can only assume this knowledge came from Tom Clancy novels).
While the primary drive for the move was my partner, the timing was right for me personally as well — at Mammoth, we were starting to consider international expansion for our virtual server hosting business, which had been doing great in Australia.
While it would have been nice to have been in Silicon Valley, we knew from a previous foray into the US with another service (game server rentals), simply being physically present anywhere in the US would certainly be a huge step up. Further, we weren’t really looking to raise capital — since we started the company way back in 2001 everything we’ve done has been boostrapped off existing revenue, and we were loathe to break that trend for a variety of reasons — so being close to all the VC money wasn’t a big deal. And of course on top of that, as a hosting business what ultimately matters to our customers (if physicality is at all relevant) is the location of our servers.
As a result, the idea of being in a random midwestern state had more appeal than it otherwise might have for other tech companies pursuing a US expansion strategy. After some fairly cursory research however, my interest was piqued. Just Wikipedia’s page on Ohio alone was fascinating. It’s pretty easy to come up with a bunch of interesting factoids about the state:
– Ohio is the seventh biggest state in the United States. 11 million people. If you’re from Australia that is a non-trivial amount of humans, crammed into a single US state.
– It’s very central — more than half of the US and Canadian populations are within 1000km from Ohio. It is also within one day’s drive from more than 60 percent of North America’s manufacturing capacity.
– It is also the seventh largest economy in the United States. I mean it’s not California, but it’s an impressive statistic (I also like that it perfectly correlates with population). There are some massive companies based in Ohio. Fashion company Abercrombie & Fitch are just outside Columbus. Giant chain Wendy’s is headquartered just outside Columbus in Dublin. Chase bank have one of the largest office buildings in the United States and 10,000 employees (2 million-square feet, whatever that is, second to the Pentagon). Cardinal Health is a Fortune 500 healthcare company based in Dayton. It’s a good enough place for GE to build a jet engine testing facility. Also 2016 presidential candidate John Kasich is the governator of Ohio. The list goes on.
– It is the home of aviation. The Wright Brothers — literally the dudes that invented flying — were from Ohio. Well, Orville was. The National Museum of the US Air Force is in Dayton, Orville’s birthplace. (Having been here for two years, I suspect it is largely because it is flatter than the flattest thing you’ve ever seen, but then flattened out even more to ensure a literally astronomically (see next point) degree of flatness.)
– It is the home of a staggering number of astronauts — including Neil Armstrong. So many astronauts that it resulted in the creation of this meme:
– It is the home of The Ohio State University. If you are Australian and don’t follow American educational institutions — or college football — it’s quite possible that, like me, you’ve gone a significant chunk of your life without OSU registering in your consciousness. OSU is the third largest university campus in the United States. There are over 50,000 students across its various campuses. Oh, that’s just undergrads — there’s an additional almost 14,000 postgrads. There are over 6,000 academic staff. It’s kind of a big deal (and as a result, a premium destination for academics looking to further their career).
– What is also a big deal is The Ohio State University Buckeyes. This is the [American] football team. It is such a big deal it warrants its own paragraph. The football stadium at OSU can seat, at last count, 104,944 spectators. For Australians, this is like having a slightly bigger MCG literally sitting in the middle of your local university campus. It is hard to express how big a deal college football is in college towns; suffice to say it’s like talking to a Victorian about [their] football club. By the way, the OSU football coach takes home almost USD$6 million as salary. Yeh. College football is serious. (By the way, none of the players are paid.)
– Ohio has a vibrant and historically amazing tech scene. Columbus was the home of Compuserve — one of the first major commercial network services and one of the first major Internet Service Providers — my father and uncle both had Compuserve email addresses back in the day. Looking at my email archive, I can see my uncle used his compuserve.com email address faithfully until 2006, having had his original for around 20 years(!). Today, Columbus has a vibrant startup scene, in no small part due to the presence of OSU. There are several (“small”, so probably roughly equivalent to the entire VC scene in Australia) venture capital mobs that have set up shop here specifically to target everything going on in the midwest.
– Just vast amounts of bandwidth runs through the state and there are stacks of data centres. Winters are cold, summers are bearable, power is relatively cheap, there’s water everywhere — so if you’re a tech company looking to colocate a lot of gear, it is worth a look on pricing alone. But don’t forget it’s central location and proximity to a significant chunk of the North American population.
– Politically, it is (apparently) a frickin’ sledgehammer. This is staggeringly uninteresting to most non-Americans because of the byzantine and often depressing nature of the US political process. But it’s a Big Deal that (tldr) leads to Ohio being an interesting place politically. While we were here, Ohio won the 2016 Republican National Convention (Cleveland), and Columbus was a contender for the Democratic convention, both big deals in the race for president.
So Ohio turned out to be cram-packed with all sorts of good stuff… then I got here and discovered the beer.
Retrospective:
There are a bunch of things I could write about that explain what it was like setting up shop in Ohio, but after thinking about most of them they seem kind of boring, because in most cases it’s literally the series of steps required to deal with various government bureaucracies. Apply for a social security number. Get an employer tax identification number. Register a corporation in Delaware. Register your Delaware corporation as a foreign corporation with the Ohio Secretary of State. Open bank accounts. Apply for a Bureau of Worker’s Compensation and Unemployment benefits account. Set up a payroll service.
I mean I’m falling asleep writing just the names of these things. But of course more critically — what you need to do will differ wildly from state to state. Unless you end up in Ohio most of it will be not be useful. Suffice to say that there is plenty to write about here but it’s all fairly simple, mind-numbing paperwork that (at least in Ohio) is fairly painless.
One thing I will make special mention of is the E3 visa, which is a class of working visa available just for Australians so they can work in the US. It makes it fairly trivial for US companies to hire Australian employees, and as a side effect, makes it pretty easy for Australian startups to get to the US. There are many many fine blog posts about the E3 visa (this one was one of my main resources). In the end I had a law firm handle my application; it’s kind of time consuming, requires a trip to Sydney, costs about $2500, but really is pretty simple. You can apparently do it yourself, and some people do, but (of course) lawyers don’t recommend this as if you screw it up it can mess up your chances of getting a visa in future (allegedly).
So I’ll skip all that stuff (if anyone is actually interested though I’d love to hear about it and I’d be happy to write on it later) and just focus on one question that I think is relevant:
Knowing what I know now, would I pick Columbus, Ohio to go to in order to expand a business in the US?
This is a tough question to answer. Part of this is because we still haven’t actually launched here — we ended up being forced to decide between expanding in Australia or expanding in the US, and the (operating, profitable, growing) Australian business took precedence.
But literally everything was done for the launch, so I feel qualified to judge the area at least in basic terms of setting up and operating a business, and aside from some learning curve stuff about being in the US it was all fine. Dealing with the various Ohio state agencies was frustratingly bureaucratic, but manageable. So on that side of things, being in Ohio certainly wasn’t a problem.
There are good support structures here for startups. There are regular Startup Weekends, run by total champions with the support of local accelerators, industry and VC. The presence of the university means and never-ending sea of bright young things looking to build awesome products — I feel like expansion and hiring here would have been pretty easy.
The university also directly supports a bunch of entrepreneurial activities. There is a Technology Commercialization Office that seems to work really effectively with both local industry and the university researchers, and it seems to actively encourage entrepreneurial behaviour amongst students in a way that doesn’t seem to happen (yet) in Brisbane. Everyone I met that was involved in the TCO was a veritable font of knowledge about all aspects of local industry.
Probably one of the most helpful startup things I encountered (which I think came out of the TCO) was the involvement of the OSU law school. One of the professors vigilantly turned up to heaps of the startup events I went to in order to ensure that new companies knew about the Entrepreneurial Law Clinic that they offered to early stage companies. Law students get real-world experience dealing with companies (under supervision of course) and startups get free legal advice. Totally awesome.
There’s a lot of people here, and a lot of businesses that range in size — as you’d expect a lot of SMBs, but ranging all the way up to some of the epic large companies I mentioned earlier. It’d be a great place to start building a customer base — and don’t forget the majority of Americans live more on the eastern side of the country.
The cost of living here is way lower than the Bay Area. Office space seems plentiful and similarly inexpensive (not that I looked at it much, working from home). There are several co-working spaces targeting tech companies and more opening up. As noted earlier, there are plenty of data centres here — I was surprised at how many were available. The pricing seems pretty competitive as well, especially compared to hosting out of California or New York, especially if you go with the smaller local DCs.
And the bandwidth. Oh, the bandwidth. I mean coming from Australia, it feels like everywhere is literally draped with fibre and cheap IP transit. Someone explained to me that a lot of the cross-country fibre backhaul actually passes through Ohio, so there are a few major network PoPs here from big carriers, which helps explain the large number of DCs. (I suspect cheaper electricty helps too — Ohio is quite a bit cheaper than California.)
There are a few local VC companies that are specifically targeting the midwest — but note that because they’re smaller than the Bay Area ones, they tend to have fairly specific portfolios (e.g., two of the bigger ones seem to prefer ad tech and healthcare). I had a few conversations with some of them to sound them out and found them pretty much completely uninterested in what we were doing (despite one of their partners having a strong background in hosting), so I suspect they have a pretty clear-cut focus.
On the wrath of banks
There are a bunch of things that are just different in the US, and banking is one of them. I’ll save general discussion of some of the weird things you should probably know about America for another post. But for now, a quick anecdote about my experience with a business bank account.
I decided to open our business bank account with Chase. I wanted to be with a larger bank that had a national presence, thinking it might help deal with any weird issues between states, but I also figured because they had such a big local presence they might be good.
And all seemed great right from the start! I connected with a nearby Chase banker who was just super helpful getting everything set up. The whole process was surprisingly painless; there were a slight delay at the start as there was some paperwork I needed to get done: registration of a foreign business in the state of Ohio. (Note that this isn’t foreign in the sense that we were an Australian company — it was because our corporation was registered in Delaware.) In any case, the account was all set up and created in a matter of days.
Nine months passed of pretty light but normal business activity. Paying various bills. Processing payroll for our one employee (me). Receiving wire transfers from Australia to fund the activities. Then one day — when I happened to be back in Australia — I got notice from the payroll company that they were unable to debit our bank account to process the payroll.
This was weird. After investigating I found it was because the bank account had been rendered inoperable. I called Chase and was told that the account had been suspended. I could get no other information at all over the phone — I was constantly told I’d be called back by someone in their “Operations and Loss Control Department”. This didn’t happen. I called back every day for several days, just getting the same information.
I got back to the US thinking it’d make it a bit easier to get information. Turns out it didn’t. The banker who was so helpful at first basically didn’t want to know me any more; the problem was well out of his sphere of responsibility. Eventually after basically refusing to get off the phone until I could talk to someone, I finally was able to get somewhere. I was told that the reason the account suspension was because our account had been “flagged” as operated by an international business. I was told “Chase no longer offers business banking to businesses owned by foreign companies”, and that our suspended account was going to be terminated, and that I’d receive a check [sic] in the mail with the balance of the account.
Needless to say, this was a massive surprise and just a giant hassle. Nine months of flawless operation, account closed with no warning. Oh wait — it turned out there was actually a warning: they’d mailed me a letter. Which didn’t arrive until well after the problem had already screwed everything up. That is the kind of half-assed token effort that was made before they silently disabled the bank account.
I can only be thankful that we weren’t fully operational when this happened and that I was the only personal really affected. If we’d had staff or customers at this point it would have completely disrupted our operations at a really critical junction.
tldr: if you’re any sort of international company coming to the US to set up operations I cannot recommend Chase as a financial institution.
I ended up switching over to Huntington, a local Ohio bank, which has been good - so far.
On a midwest lifestyle:
As a place to live, Columbus is pretty great. I found myself drawing comparisons to Brisbane all the time (not in winter though) — it’s about the same size, and has a similar “feel” in a lot of ways. I’ve always felt about Brisbane that it’s a great place to actually live but perhaps not a great place to visit as a tourist (just compared to the alternatives if your time is limited, I mean) — something which I think is also true of Columbus. Awesome people, bars, restaurants. Always things going on. Lots of sport (there is even cricket, rugby and an Aussie Rules club), music, art — your standard fare. If you are at all interested in college football, this is the place to be — the dedication of the people of Columbus to the OSU Buckeyes is truly something to behold.
We had some great trips around Ohio and nearby states, which is beautiful in a variety of different ways. We had a lot of fun on some hiking trips and hanging out at the many lakes and dams. Lake life is different to beach life but it’s awesome in its own ways. The Smoky Mountains are within driving distance and simply spectacular. Cleveland and Cincinnati both have a lot to offer. There are a lot of fun things to do here, is where I’m going with this.
There were three things that I found bugged me about being in Columbus:
1) The sheer incredible flatness of the entire state. Really, the entire region. There’s basically not a lot in the way of hills. This is not something that I ever would have imagined being a problem, but basically at street level all you ever see is the buildings that are right around you. If you’re in a park or whatever you can see to the edges where the tree line begins, then maybe some taller trees, and that’s it. If you’re in a corn field, you can see corn around you, and — you get the idea. Even though there’s plenty of snow, don’t expect to be doing much skiing.
The silver lining is there are some incredible sunsets and visual effects with the sun dropping all the way to the horizon, which was a novelty for me. It’s also great for bike riding. But every time I went anywhere (especially back home to Brisbane), I marvelled at the difference a few hills make. I have developed this fascination for just standing around looking at streets curving up and around, or looking down from the top of a rise and seeing rooftops.
2) Travelling elsewhere in the US is an expensive chore. There are few direct flights to many destinations and they’re often expensive. Indirect flights mean going anywhere takes way longer than you feel they should — and they’re long flights anyway (it’s a big country). There isn’t really much of a train network in Ohio, or anywhere in the US for that matter, and what exists is slow and painful.
We ended up doing way less travel around the country than we hoped to as a result. We did a few long road trips - which were actually quite fun- but I hate driving and couldn’t have managed too many more of these. But it is kind of cool being able to just drive to Canada.
3) No ocean. I really miss being within driving range of a beach. Or even a reasonably large body of water like the Brisbane River. It’s just the lakes and dams. Florida is actually not too far away and there are a few direct flights, but it just feels weird to have to get on a plane to get into the surf.
The weather deserves a special mention. The first winter I was here featured the POLAR VORTEX, meaning temperatures in the minus 20 degree Celsius range, with wind chill taking it down to -35. But spring kicked in and it was beautiful, the summer was hot with really long days, and autumn (fall) was stunning with the changes in colour. Brisbane basically has two seasons - summer and cooler summer - and I’ve developed a new appreciation for the changing of the seasons.
I’ve actually really come to like cooler weather, which is something I never thought I’d say — as a Brisbane boy I’d normally be reaching for my winter clothes if the temperature drops below 23C. I’ve discovered that with the right gear it’s possible to be outside even in sub-zero temperatures. I’m playing soccer with the locals in the snow when it’s (literally) freezing outside - and loving it.
There are, of course, a whole different series of things that I like/dislike about being in the US in general. That’s a topic for another post.
There are a lot of amazing cities here to end up in. Los Angeles is the world capital of the entertainment industry and has great weather and decent beaches. Seattle is home to Microsoft, Amazon and Boeing and is close to Canada and great skiing. New York is, well, New York. Chicago is a bustling city right on the lakes.
But there are gems outside of the big cities you’ve heard of as well. I’m not trying to convince you that Columbus is the best place for you, or that Silicon Valley is not — I’m just trying to highlight the fact that this is a huge country and it’s possible that you can find a home that suits you more perfectly, both matching you better as a person and matching your business commercially.
To conclude, I’ve had a great time in Columbus. I feel like I completely lucked out ending up here — out of all the places in the world my partner could have ended up in, this one turned out to be a pleasure to live and work in. I can’t tell you whether or not it’s perfect for your company — or you — and I’m certainly not trying to convince you to come here and set up shop. But hopefully there are enough words here to at least make you think about looking at the other many regions that the US has to offer to see if there is a place that suits you even more perfectly than Silicon Valley.
So long & thanks!
A huge thanks to everyone in Columbus that helped make this place our home for two years! We’re off to London soon to continue our adventures.
I’d especially like to thank the Columbus startup scene for being so awesome and working so hard and doing such a great job build the entrepreneurial ecosystem here. The tireless efforts and energy of people like Jay Clouse (@jayclouse) and Suzy Bureau (@SuzyBureau) in organising Startup Weekends and Startup Week. Thanks to Dan Rockwell (@floozyspeak) for just being awesome and entertaining and inspirational. Thanks to Charles Thomason of the Entrepreneurial Business Law Clinic and the team behind the excellent Wakeup Startup events, and the crew at the Rev1 Ventures for hosting so many great events.
Thanks to Steve Gruetter of Expedient for being super helpful with data centre stuff (and showing me around the original Compuserve building!). Thanks to the OSU Open Source Club for putting up with a random Australian on IRC and hosting some great events. Huge thanks to Ryan from Upsourced Accounting for being so helpful and patient with a clueless Australian trying to navigate the US tax system.
A final thanks to Brandon Seibert (@brandonseibert) of Seibert Digital. I was fortunate to meet Brandon at a Startup Weekend very soon after arriving in Columbus, and we spent many fun evenings discussing tech and startups and trading ideas over beers. It has been a blast!
Looking forward to 2016 in the United Kingdom!
