With this very post, I don’t only mean to please Vincent who wants me to write techie stuff about everything I see/do/think, but I should try to make my point about financial centers: unless you target clients that concentrate there, financial centers are bad cities for local software start ups. In other words, software start ups can’t take off well in financial centers like Tokyo, Shanghaï, London, etc.

As some of you may have read, I was in London recently. And there aren’t many software start ups in London. Fortunately or not, I didn’t have to bother too long wondering why. Through meeting my fellows living there, it became quite obvious that one overwhelming industry sucks all talents: finance.

Why is that? Well, for some people finance is a passion, and for the rest and bulk of them, it’s all about the paycheck (a very honourable and objective criterion in my opinion). Finance pays well, which makes competing industries like the software industry struggle to hire top-tier talents – especially software developers.

On top of this, financial institutions may provide some very interesting IT assignments (eg rapid developers: software developers who sit on a trading desk and hack code to meet immediate market demands) as information management truly is their core business. The IT department in any bank is a key competitive driver, with massive budgets (eg JP Morgan spends US$ 7bn per year in IT R&D, an amount equivalent to the one of the leading technology company worldwide, namely Microsoft) enabling many creative options to be explored and performers to be retained in these (relatively) exciting projects.

However, the job will never be as fun as in a software start up. Although financial institutions regard IT as strategic, IT is and will remain a cost center in their economics. Those who are and will be treated best in all banks are bankers and direct P&L contributors.

Conversely, in software, techies contribute with their work to improving the very core competencies of their company.

Well enough blabla. My whole point is that financial centers like Tokyo, Shanghai, London and New York don’t offer a proper environments to software start ups developing fast. Software start ups actually find it too hard to recruit cheap, a necessary step to lower the cash burn rate before the breakeven point is reached.

Not convinced, uh? Then, why is Bangalore thriving compared to Mumbai (software wise)? Why isn’t there even one international software player from Japan? Why is Paris so well vs. London since the Eurostar was born? Why are Boston (MA), Austin (TX), Vancouver – Seattle (WA) and the Silicon Valley (CA) outperforming New York New York in the United States (still software wise)? Why is Beijing (see MS Lab in Beijing) catching up in software vs. Shanghaï?

I went to check further, in the Truffle 100 2006 league table, which ranks independent software vendors in Europe on a yearly basis, and out of the 15 leading software companies in Europe, 7 are located in the UK, and only a single 1, Misys, is located in London! Guess what by the way, Misys sells software for the financial industry – so being in London appears pretty wise as this is where their customer basis stands.

These 7 leading UK software companies are:

• Sage (business operations software, HQs located in Newcastle)
• Misys (located in London, but since Misys does software for the banking and securities trading…)
• Isoft (software for the healthcare industry, located in Banbury, Oxfordshire)
• Northgate (located in Herts, software for organizational efficiency)
• Dicom (founded in the Canton of Zug, Switzerland; electronic document management software)
• Torex Retail (headquartered in Banbury, Oxfordshire)
• Anite (founded in Slough, Berkshire)

In comparison, 3 out of the 4 biggest French software vendors (BO, Dassault Systems, GL Trade) were founded in Paris or its outskirts, and one (CEGID) is headquartered in Lyon, a French city where the software industry has been growing at a 2-digit rate for a decade. Another comparison: why New York is so bad in software? Isn’t New York a city where many top people converge, where one may find all sorts of talents?

So, to repeat myself, unless you target clients that concentrate there, financial centers are bad cities for local software start ups.

Can anyone think of a counter example (I can, but so far, shh)? What are in your opinion the key competitive drivers for a geographic area to be a good place for software start ups to grow?

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