Twitter. Dropbox. Zynga. These name brand startups are part of the revitalization of previously underdeveloped and “affordable” neighborhoods in San Francisco.
However, if you are not one of the aforementioned startups, you probably can’t afford to blow through hundreds or even tens of thousands of dollars on annual rent (especially after hiring your developer and engineering teams). While the experts debate if we are in the midst of another tech bubble, it’s never a bad idea to take a more organic approach to growth and to analyze how efficiently you are managing your cash burn rate.
As it stands now, if you want to find a place to launch and grow your startup, moving to San Francisco has tremendous perks: the best and brightest engineering talent, plenty of free-flowing venture capital, and direct access to one of the most amazing startup ecosystems in the entire world.
Just one (not so small) problem.
Between the cost of living, the competition for talent, the bro culture and inflated valuations, the odds are stacked against the early-stage startup. And in the long term, given trends in global wages and the fact that software isn’t a winner-take-all industry, you might not need the geographical proximity at all.
As an entrepreneur, you can indeed successfully launch and run a company in the heart of the San Francisco tech boom. Here are four ways to do it:
1. Keep key players in Silicon Valley, but establish offices elsewhere
San Francisco is not an easy place to establish yourself during a boom, and that’s what we’re in right now. The problem with the Bay Area during a boom is that all of your expenses will go into overhead. A one-bedroom apartment starts about $3,000 per month. Before you even get your company started, you’re facing $36,000 a year in rent. That’s just to have a place to stay, never mind the $30/day you shell out for meals, laundry, and transportation.
If a worker doesn’t need physical proximity to the ecosystem here, there’s little point in forcing them to live here. Our development team abroad, for example, provides us with quality talent (many have PhDs in computer science) without the need to relocate. In fact, sometimes it’s easier to find talent abroad. We’ve had great success keeping our sales, marketing, and operations executives local, as well as myself, and keeping the rest of the team where they prefer to live. In fact, we think that’s one reason our turnover has been so low.
2. Note the value in other tech ecosystems
Any city with the vision and the motivation to build a tech-friendly ecosystem can become a member of the Silicon club. The Atlantic’s Richard Florida, who studies what drives startups and venture capital into cities, reported a predictable pattern. Startups are usually founded by college-grad knowledge workers who live in highly populated, diverse urban areas with a nearby university. This may explain why Boulder, Colo. has a higher startup density than San Jose.
Rather than classifying the Bay Area as the only place to find talent or establish offices, think about where others in your particular niche have successfully expanded. Think also about which lifestyle and culture you want to support within your company as it grows. Finally, think about which talent lives where. All of these considerations will inform your ultimate choice of destination and places to recruit.
3. Know that eventually, we all face ‘Silicon Obsolescence’
The ongoing “Silicon city” wars are indicative of a longer-term trend. Software, unlike oil or big-box retail, isn’t a winner-take-all market. It’s decentralized enough that we can have any number of different tech hubs.
Cities now are hungry to bring talent, company headquarters, and revenue into their borders, but eventually, which city you end up in won’t matter at all.
In the long run, as competition becomes more globalized and compensation edges closer to a global mean, the need for geographical tech centers will decrease. In the future, tech won’t be a matter of physical location at all, as systems such as AngelList generate global transparency everywhere from funding to recruitment to going public. You’ll be able to access the same information everywhere, whether you’re in Silicon Valley or on a farm in China.
4. Locate based on your individual needs
Eventually, you won’t have to worry about being “Silicon” anywhere. While you should definitely factor in keeping your core team in the Bay Area, the argument for basing your entire team here is thinner than it used to be. When you start your company in the Bay Area, you’re vulnerable to an unappealing snowball effect: Start in the red, take on funding before establishing a revenue stream, lose control of the company, become a statistic.
Depending on the unique needs of your own startup and industry, establishing the majority of your team elsewhere, while keeping only the workers here who need to be here, might just be the safer and more practical option.
Marius Moscovici is the founder & CEO of Metric Insights. Follow him on Twitter: @MetricInsights.
VB's research team is studying web-personalization... Chime in here, and we’ll share the results.