What is the San Francisco Fallacy?

The following is an excerpt from The San Francisco Tech Fallacy by Jonathan Siegel, founder of RightCart, RightSignature, and RightScale:

I’ve lived and worked in San Francisco. It’s a beautiful city and a great place to party. But it’s a lousy city to build a startup.

Yet San Francisco is seen as the global epicenter of startup culture. Would-be founders flock there from all over the United States — and the world.

Why? Because they think:

“If everybody else is doing it, then it must be the thing to do.”

That’s the San Francisco Fallacy.

Techies are a funny bunch. As much as we like our outsider image, we like our Facebook sofas and juice bars better. All startup founders like to think of themselves as pioneers out on the range, even as they sit with their MacBooks and pour overs in a downtown coffee shop.

It feels good to be among our peers. It’s reassuring. And it’s exciting to be part of a “thing.” It’s only human.

But it’s bad business.

Tech companies — particularly startups — are allowing their herd instincts to blunt their business sense.

The same groupthink and herd mentality that drives tech people to San Francisco in waves leads to other mistakes.

The “San Francisco Fallacy” is emblematic of a bubble mentality in the tech world. The truth is, even though as a group we like to think of ourselves as outliers, we are just as susceptible to conformist thinking as the mainstream.

I know I am.

I launched my first tech startup at 14 years old.

Since that time, I have had enough successes (including multiple 8-figure exits) that I can now see my failures for what they were. I can see how they had their roots in deeper fallacies.

My most successful startup was not based in San Francisco. I wasn’t the founder or CEO — I was only loosely related to the company.

We didn’t take outside investments. We grew the company in a space where there were already competitors.

We didn’t invest heavily in the technology.

We didn’t consult the “experts.”

We didn’t ask the existing market whether they wanted what we had.

In retrospect, everything that we did “wrong” was critical to our success.

That is a lesson that took many years and decades for me to absorb. But it had its seed way back in my childhood.

My father was a specialist in nuclear safety.

He was a very smart man. He got a PhD in nuclear physics and then an additional master’s degree in nuclear engineering.

He was inspired by a bigger goal, which was to make nuclear reactors safe.

My father got a job in Oak Ridge, Tennessee, with a nuclear contractor. My parents bought a home. It was a good life.

But then, on March 28, 1979, reactor number 2 of the Three Mile Island nuclear power station in Pennsylvania failed, leading to a partial nuclear meltdown.

The nuclear power industry found itself stalled; the Chernobyl disaster, just six years later, would send the industry into apparently irreversible retreat.

The Chernobyl Disaster

In the meantime, my father’s contractor in Oak Ridge lost its contract, and my father lost his job.

Then the local savings and loan association collapsed. My parents lost their savings. In the resulting property crash, they lost all of the equity they had in their home.

We left Oak Ridge and crisscrossed the country, following my father in search of work. He picked up short contracts. In between, we went on food stamps.

We had mason jars on the counter in the kitchen with labels taped to them saying, “Rent,” “Groceries,” “Movies,” “Restaurant.”

When he got a paycheck, my father would cash it and divide the money between the jars. My siblings and I watched him, hoping the “Movies” jar would fill quicker.

Eventually, he got a job at the local Burger King. His former pupils found out. They used to come by to see their former teacher flipping burgers.

And to laugh.

As a child, it’s hard to understand why your intelligent father can’t get a job.

I was never ashamed of our relative poverty. I learned a lot about myself and my country by moving and having to change schools every year or two.

In particular, there were very basic things I learned from my father’s experience that are at the core of what I do now.

I learned the value of money. I learned to respect it, to spend it carefully, and to value it as a means to other ends. Being able to work and make money from that work became a very appealing scenario for me.

Even as a child, I was drawn to activities and opportunities that would generate revenue. And as I moved into the technology field, I was driven to create tech that was both useful and monetizable.

But I also learned from my father’s experience that, although there was virtue in working hard, being willing to do so was no guarantee of having work.

Above all, I learned that you can’t rely on the system.

My father dedicated his life to critical thinking. He was a scientist, a trained skeptic. Yet he didn’t apply that training to the norms of American society.

Things that my father took to be true turned out to be fallacies. Believing them badly retarded his own career.

He had grown up during the baby boom years on the popular understanding that a good education would get you a good job, and a good job would be a job for life.

This was probably still true when he started college. It was no longer true by the time he was an early-stage career scientist with a young family to feed.

He continued to look for opportunities in the space of nuclear safety, but the jobs had all dried up.

It seemed to me, as a boy, that he had been badly failed by the system to which he had devoted his adult life. He had been led to believe that all his studying and hard work in his early career would entitle him to a basic degree of security and fulfillment.

Instead, he got food stamps.

It’s not just people who make mistakes.

Two decades in tech startup culture has taught me that there are fallacies that are particular to this world — though many of them will recur in other business environments.

The San Francisco Tech Fallacy is my bid to identify those that dog startup culture.

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