Startups don’t need to rely on physical hubs

Charlotte Nicol
Published on 16th April 2013
5 min read
The arguments for and againstbusinesszone

As part of the launch of its new headquarters in Reading, HR software firm Sage People staged a debate about the future of tech businesses in the UK. It posed the question: ‘The next generation of UK tech businesses need not rely on physical hubs like Silicon Valley or London’s Tech City to thrive’ to two debaters from the English Speaking Union.

The argument against : Tech businesses do not need physical hubs to thrive

Hubs are not necessarily a guarantee to success
You can create a hub anywhere in the world but this does not necessarily guarantee success. Each hub is very different and linked to the broader culture of the country in which it is based. A Silicon Valley entrepreneur would look very different from someone who works in London or Reading.

Each hub differs in the way they approach technology and deal with start-ups. Silicon Valley entrepreneurs are much more likely to invest in things like infrastructure, games, social networks; whereas people in London look more towards things like project management or finance applications. So whether or not a hub is going to be successful is a function of a broader culture and depends on the demand in the wider market.

Whilst having access to talent is a must, it is no longer necessary to be in close proximity to educational institutions or talent pools. Instead tech companies should focus on global talent pools, global markets, collaborations with companies from all over the world, looking at where they can get the best software developers or the best coders. Companies can draw graduates from all around the world using the new avenues technology has opened to us. Graduates from universities in Japan or Korea or the US can still work for a company that is based in Reading, both in a physical capacity or remotely using teleconferencing and email.

Silicon Valley competency trap
We hear numerous announcements from government saying they are going to create the next Silicon Valley. But The Valley itself is caught in a competency trap. We all like to believe that a bunch of entrepreneurs went out there with nothing but their ideas and intellectual capacity, and created this vast oasis of technical ingenuity. Actually The Valley has a very specific way of doing things and while that was successful when things were getting going, this is not necessarily what’s creating value now.

What they are creating in Silicon Valley and the Old Street Roundabout is thin value. We are no longer seeing the next frontier of tech coming from these hubs but rather the development of existing ideas with incremental changes. We see more innovation coming out of areas that do not have hubs, like Sweden which produced Linux or Estonia which produced Skype, creating things that are of real value and changing the way people interact with technology and each other.

Physical hubs offer limited access and potential for growth
Hubs are grounded in physical space, therefore if they are successful local property prices rise and office space becomes expensive. This can price out small start-up companies and workers who cannot afford spiralling living expenses.

Moreover there are actual physical limitations to how many people can fit in these hubs; if you have walked around the Old Street Roundabout you will see there is limited potential for new office space in the area. This limits who’s going to be there and what exchange of ideas can happen, is ultimately proving bad for innovation.

The question then comes down to what is best for spurring growth and competitiveness in the global marketplace. The benefits you accrue by having workers based where it’s most convenient for them means you can leverage their intelligence, their resources, and what they can bring to your company without necessarily having to deal with things like relocation packages.

Working behaviours are changing; Generation Y and the generations which have followed them are much more fluent in using tools like the internet to communicate with each other. Many have been doing this with their friends since the advent of AOL Messenger, now they are using Google chat and soon they will have moved into the next wave of messaging technology. This next generation of workers is going to be very capable of doing all of their work over Google chat because it’s the most comfortable mode of communication for them.

Hub alternatives and why these can prove more lucrative
So what are the alternatives? Well firstly there is telecommuting which has seen a 60% rise since 2005. Studies show people are more productive if they have conference calls in a set period of time and are then able to go about their tasks for the rest of the day and actually accomplish what they need to do without distraction. Many will point to the example of Yahoo! with CEO Marissa Mayer saying she wants to cut down on telecommuting but this is linked more with the unhealthy corporate culture which had developed at Yahoo!. Employees weren’t clocking in sufficient hours even in the office and workers just weren’t inspired to be part of the company.

In a company that has a strong corporate culture, one where employees are motivated, where CEOs are good leaders who are able to inspire them, then telecommuting can work because workers know what they are working towards and can see the benefits.  As the next generation of employees comes up, with people who are much more fluent in things like Google chat and teleconferencing it will be very easy for them to share ideas and get over the initial ‘hub obstacle’.

Of course for some professions, people will need to be located in a physical space. A foreign correspondent cannot cover a war if they are not on the battlefield. This is not true of the tech industry. You can have people working in Bangalore, in Sweden, in any part of the world, who still are able to create value and a part of a productive supply chain. Moreover, putting people in proximity to each other doesn’t necessarily mean they will work together. Sometimes if workers have only a limited form of interaction like a morning conference call, they will not leave issues unaddressed and will be keen to progress tasks faster.

The argument for : Tech businesses need physical hubs to thrive

Cutting edge telecommunications and infrastructure
In order for tech companies like Sage People to expand globally certain things are necessary and this includes cutting edge communication, infrastructure and technology.

Hubs offer brilliant transport infrastructure. Take Reading as an example, it offers excellent access by rail, by road, and even by air, it is close to the M4, M40, M25 and has access to Gatwick and Heathrow. London offers even better transport links and rapid connections to other hubs in Manchester, Birmingham and Liverpool.

Thanks to the high concentration of companies in a single area, hubs are equipped with excellent communication resources. Many of those working from offices or homes in remote locations will struggle to get above a 2mb internet connection, limiting productivity and access to online tools. We have all experienced the spinning wheel symbol on Skype and know the frustrations a poor connection or a time delay on a call can cause.

Access to a local talent pool
Hubs act as magnets for talent, pulling in the best and brightest talent on both a national and global scale. This gives companies located in these areas the unique opportunity to pick and choose from the best fresh and existing talent – far from having to offer relocation packages, potential employees will make the move in an attempt to profit from the large job market in the area.

A company like Sage People, which is located on the campus of Reading University, has direct access to over 200 technical graduates and which can offer a fresh approach and innovative ideas for fast-growing companies.

Whilst the argument can be made that graduates can work remotely from anywhere in the world, it is particularly important for those starting out in a new career to experience the corporate ethos of an office environment in order to develop a professional workplace attitude.

Impact on productivity
Productivity is fuelled by competition and if employees are not with colleagues or surrounded by fast growing companies on a daily basis, having a chat over coffee or during a lunch break, then workers are not going to be fuelled by what they are doing, by their enthusiasm and their achievements. Therefore they are not going to be inspired to take their own achievements forward in the same way.

Whilst remote workers may have a moment of productivity during conference calls beyond that they are going to be less motivated, with nobody else around working hard or watching over their shoulder. Other people motivate us and help us to be motivated. It is much easier for managers to monitor staff activity and productivity from a central location.

Workers are also likely to suffer from a stagnation of ideas when working alone; unable to bounce ideas off colleagues or get excited by their enthusiasm.

Hub lifestyle
Key to growth is creating a community in which people want to work and live. Hubs are often located in areas which can offer employees all the amenities they need to live a good life – access to housing, schools, healthcare, and shopping. Companies need to consider the full package they are offering potential staff and by being part of a hub they can guarantee a quality lifestyle.

The debate provoked much discussion with the audience and many raised some interesting points. A poll of the audience came out in favour of creating hubs – though it was a very close vote.

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