Starting a Company Outside Silicon Valley Just Saved Me $1.1M
blog.getcrossbeam.com
blog.getcrossbeam.com
A calculator seems a bit simplistic but I would generally agree that if there isn't something outright drawing you to that area, you don't have to be there and there are costs.
I worked for a really large company a while back. They bought some smaller company and discovered a support center ... that I worked at. They thought they'd try doing support at that site as they suddenly had support there.
For less than half the cost per employee we managed to do twice the workload, higher customer satisfaction, and we often were requested by customers who quickly realized we wouldn't just shut down cases on them. Almost immediately there were tensions. I'd go out and visit and oh man it was tense. There was this idea that support just had to be in the valley because straight up the managers and folks working there didn't know there were technical people... anywhere else (this was before we had other islands of tech in the US).
I even bought it for a bit thinking I was going out to meet some high performing folks and found ... way not that.
It was amazing that they had (including some management) convinced themselves that stuff only happens in the valley and if they hadn't seen it they wouldn't have believed it was possible outside (and some did not, oh the excuses).... and that was just for a maintenance type task like tech support. (granted this was some high end stuff so it did take good people, but they're everywhere)
Isn't this bigotry?
I remember watching all of these shows on PBS as a kid, where one of the major themes was how people would judge other people by class or other surface signals, and how this could obscure the truth or leave good people unappreciated on their merits. Did people learn the lesson? I guess some people did, and some people didn't.
Here's my experience coming to the Bay Area, looking up from the bottom: There's more bigotry here. People judge you more quickly and more absolutely on a more shallow basis here than anywhere else I've lived. (With the exception of the Norwood neighborhood in Cincinnati.)
I think I did a calculation a few years ago that there is only an acre or two of land on Earth for every single person. When you factor in the acreage that is currently liveable and is actually purchasable, you get a number close to 1/16th acre I imagine.
I don't think universalism necessarily applies to lot sizes. Different people are willing/able to take different trade-offs. In exchange for a large lot, in a tranquil environment, I get few job opportunities without a long commute, poor telecoms coverage, a 30-45 minute drive to big box stores, limited diversity, people complaing about all the new residents moving from where I moved, etc. I don't think most people would make these choices, which is fine -- if more people chose to live here, maybe I'd want to live somewhere else.
Having that amount of land allows one to have a ton of different hobbies and activities available that are really not possible in an urban environment. Want to go shoot guns or fireworks? No problem. Want a huge dirt trail with jumps for an ATV or dirt bike? Go ahead! Having that amount of land can also be great if you have a large family with many children as it acts as a safe-place for outdoor play. Although I didn't grow up on that much land, I grew up in a remote area with a ton of forests and being able to freely play tag or go hiking in the woods with my friends were some of greatest times in my entire life. Bow living in the city for work, I dream of the day that I can retire onto a property with a large acreage, I get the rationality.
As another poster mentioned, it's about the trade-offs. Cities have a lot of advantages that, for most, make it the ideal place to live.
I saw a friend from the Midwest was on the board of a non-profit group. The headquarters was in the DC suburbs, but did no lobbying, mostly verifying credentials and conducting training for professional organizations. The work could be done anywhere.
The other board members were from big cities and openly wondered if anyone "qualified" to run such an organization could be found in a state like Missouri, Iowa, or Nebraska. The concept that there was any skilled professional labor outside of the coasts and large metropolitan areas had to be explained to them.
[Because we're all hicks who just got indoor plumbing at the turn of the century. /s]
By relocating to the Midwest, their rent plummeted, they were able to pay people less while providing the same or better quality of life, upgrade their IT infrastructure and business processes to get away from paper documentation, hired an additional person, and still came out ahead financially.
They were a small organization with less than 10 employees, so adding an additional person was a big proportional gain in productivity.
After the fifth failure in a row I had enough. It was easier to learn how to repair my own servers and do the work in-house. I bought parts instead of support, qualified a new server provider and shifted the next six million in orders to them.
No offense against the guys in Ohio, but due to unfamiliarity with the tech, structural and leadership shortcomings etc. they were simply unable to do the job so the work shifted back to the Bay Area anyway.
I’m sure I was one customer among hundreds if not thousands who experienced this change.
So there will be tons of stories like yours that I don't doubt are true.... it's just location probabbly had less to do with it as just a general desire to cut costs at any cost...
Exactly this. In a previous role at an Enterprise software company I watched customer satisfaction take a dive after cost cutting measures and support and escalations paths and metrics were changed. The same customer support people who had really happy customers started to have unhappy customers. It had very little to do with the people or location and everything to do with what options the customer services people had to help a customer.
Their overall goal was to be as effective as they could be. The cost savings went along with operational improvements. It was also a non-profit, which has an entirely different dynamic compared to a for-profit customer relationship.
I'm totally on-board with there being region-specific niches where it simply works better to have support in that area.
Farmers from the Midwest get pretty annoyed when Congress passes laws which cannot, in any practical/economically feasible way, be followed. The laws may be perfectly reasonable when looking at factories, but make little sense applied to farmers
The valley is much larger, but it was never the only location.
Especially if their actual product would still be a turd no matter how polished like Juicero - there is no real sophistication needed there, they just wanted to copy Keurig to get rich.
I'm sorry, but isn't that the same bigoted mindset?
Unless there's real evidence that the valley actually has "the best of the best talent". Every time I see that claim, though, it boils down to some kind of circular logic.
I would definitely agree SV folks think they're the best, but real evidence is lacking.
It’s all about playing the odds, not necessarily being absolute about statements like best of the best.
Even narrowing down to "tech" companies, there are enough outliers that I don't buy it.
Change it to "SV has the best developers searching for VC funding," and I believe it, but I'd still question the cause and effect of the situation...
Older companies like Google, Oracle and so on still contain pockets of tech excellence, but you can't buy those guys with your startup idea.
There is some evidence that they are in fact above average given repeated failures to outsource to lower cost locales. From many corporations who tend to be ruthless about cutting costs even at the risk of long term problems that stands out as /something/. There are also incompetents everywhere as demonstrated by some major and avoidable blunders.
They may in fact be overpriced and there are people with said capabilities elsewhere. Mobility isn't perfect, one would expect there to be a talent concentration there based upon wages - even if they don't stick around the feather in their cap helps with future job seeking and wages. I am also aware not all sufficent talent is capable or wishes to of head there.
However prejudicing in talent pools does no favors eithe. To take an absurd example recruiting for people who are Olympic body builder and Java developers when you really just need Java developers would pass up vast pools of talent and raise expenses for essentially no reason. That is an extreme case of pointless overspecification.
The density of investors and other founders/early employees in Silicon Valley can't be beat, and I often found myself learning inadvertently - dinner table conversations would be about how people raised their round, the friend of a friend you meet while camping turns out to be a partner at a fund you're trying to pitch. In more cases than are logical or fair, people simply invest in their friends - which means if you make friends there you're increasing the chance you'll be able to raise money easily.
That being said, the cost of living is absurd and I would never hire an engineer in Silicon Valley unless I was building something at the outer limits of frontier tech (and even then I'd scour the globe for qualified engineers elsewhere). And I don't think you need to be there forever. If you build up a solid network you can move away and still reap a lot of the benefits from afar / through occasional visits.
I would never try to build an in person team in the bay area unless you need the absolute 1% of engineers on your team.
Some people ended up in the Bay Area, many people appreciated being able to live and work elsewhere. Not least, Europe.
You're not going to get those most places. I'm not sure it's the norm in the Bay Area either though.
It is absolutely the norm in the Bay Area for salaries even adjusted for cost of living to be far better than elsewhere. Plus all the additional attractive features like a relatively more tolerant population, much more diversity, better public venues like parks, and recreation like museums and such.
In my experience, people mostly look to preserve their financial position rather than take a jump up. Just because rent's cheaper somewhere else doesn't mean I want to take a proportionate pay cut. I've watched people turn jobs down flat when offered 50% of their pay in NYC because rent is half of NYC's.
Salary history matters a lot of negotiating power in the future. Salary matters for building up a financial cushion in case this job elsewhere doesn't work out and now I'm somewhere that has a lot fewer options on offer.
I'm also in a position at the moment where I have relatively low overhead (no kids, good health) and realize that might not be the case for everyone, though I'd bet it's the case for many people who don't bother to take advantage of it.
How do you actually pay them as contractors? Do you literally just wire them USD or do you some service?
So if you leave the house and hang out in town, there's a good chance of running into a successfully exited founder!
P.S. I don't lean one way or the other about colleges, there are definitely cases where not going is a good idea. However not even seriously looking into upsides of going and closing eyes on potentially missed opportunities will devalue your argument.
Mind you, I don't even live there, because the downsides of living there in my current situation outweigh the upsides. However,I have been there many times, and if I had to start a company right now, that's where I would do it.
P.S. Try hiring engineers for a company in Philly and a company in SV. Then try to compare the quality and number of candidates knocking on your door in each scenario.
Also I've found that a lot of VCs don't want to talk to you if you aren't local, because they don't seem to believe in video conferencing and like to be able to have last minutes meetings. This seems to be changing though.
The key here is that my company is fully remote and my employees don't live here, so they get to take advantage of this purchasing power, while I get the advantages of being SV.
I don't think the whole company needs to be in SV, but it certainly helps if the founder is.
Are you in a domain where you need to hire people that are difficult to find outside of Silicon Valley? If that's the case, it makes perfect sense to found in the valley.
Is your business capital-intensive, and funding will be a long-term concern? Maybe SV or NYC makes more sense.
Are you entering a domain where most of your key customers will be located in specific metro area, and being located there lends you credibility? Found there.
It may also be smart to found where you have lots of local connections, letting you staff up with vetted local talent and leveraging local connections to get introductions to potential customers.
And finally, founding close to family/friends can help keep your mental health in check and help you stay focused.
My main beef with OP is that his whole post has zero nuance and doesn't even look at upsides/downsides. It just preaches his single opinion as the only right way. Just to illustrate how bad it is in my opinion, I got way more useful info on topic out of your single comment than from the whole OP.
For an established serial entrepreneur with a proven track record, it can absolutely make sense to stay in an area you know. But I think that math really changes if you're going to be cold calling VC's, trying to wrangle meetings from 3 time zones away, get meetings bunched up to consolidate travel, etc. The overhead of redeye travel is relegated to a joke at the end, where's the "measurement" on that?
I've started and sold a handful of successful tech companies, but have never taken a dollar of VC money.
You're talking about a situation wholly removed from the article, why?
If you can bootstrap it yourself or find VC outside of SV, it's typically better to do so.
If your goal is to get as wealthy as possible as quickly as possible, then you need to be where the VC money is. That isn't my goal, however, so I have no such need.
For my purposes, there is usually plenty of high-grade engineering talent in the area. If I can't fill a need locally, then it's fairly easy to get someone remote that can handle it. Likewise, there is no problem with sales and distribution (I produce software -- if I produced hardware, that might change the equation). I rarely need financing -- I prefer to bootstrap that stuff rather than sell equity positions or take on debt -- but if I do, there are lots of options for that as well.
If you are happy with where you live, then the only reason to consider moving elsewhere for business purposes is if you can't meet a business need otherwise.
If you aren't happy with where you live, then choose a new place based on what would make you happy. Then analyze if it would work for you business-wise.
I do have another observation, if you're the sort who doesn't want to start your own business but just wants to do interesting engineering work: look outside of the computer industry itself. Pretty much every industry needs engineers, and most have difficulty finding exceptional ones. If you're a solid engineer, you can often write your own ticket if you avoid the obvious employers.
Well, that is the goal of most start-ups, so it sounds like, by your own admission, they're right to found in Silicon Valley.
Some of it probably depends on the company and the founders, but in general, I would look for signals like good universities, positive inflow of people moving there, and decent cost of living. I like Raleigh, Durham and Charlotte for those things, but I'm from that area am a bit biased because I have a network there and know it's a environment and culture I can operate in. Raising capital is a real issue in those places, but I know tons of talented people around there who feel underutilized working at satellite offices for the big corps (IBM, Cisco, NetApp, etc) and do seek out places with a more startupy culture. Raleigh and Durham are more tech centric (companies founded include RedHat, Ansible, SAS ) while Charlotte is more financially-oriented, but both are growing like crazy and still very affordable. I'd say they're at least worth a visit if you're giving other locations serious consideration.
The huge companies are already starting to branch out (Amazon in NYC/DC, Apple in Austin, FB/Google in NYC) and ecosystems will be built around these hubs.
Not only that but there are a variety of other hubs in the nation that are in close proximity to elite technology schools (Pittsburgh, Boston). The talent is definitely there, the VC infrastructure may be lacking but you're telling me Marc Andressen won't hop in his private jet to meet with a promising founder?
Everyone seems to agree successful companies have started in SV and outside of SV, and that there’s a lopsided distribution. No one has spent much time on whether the location is the cause of or just correlated with success. I get that this is hard to determine, but maybe people should speak in less absolutes? The article is one persons decision making process, explained for the benefit of others. I don’t think it’s claiming to be The One Truth.
Disclaimer: I worked for the author in Philly previously.
It should read: "Starting a Company Outside Silicon Valley Saved Me Just $1.1M"
If I can do Philly for $3.3m or SV for $4.5m, that's an easy choice. The valuation boost you'll get for being in SV instead of Philly will cover that several times over. The network and talent available in SV is worth suffering that gap all by itself. The only way that difference is a meaningful deterrent to choosing SV, is if you're not going to raise serious VC and will mostly bootstrap the business or otherwise raise smaller amounts of investment. In that case saving that money can make a big difference.
From what I've seen, there sure are a lot of not so great developers working in the valley. At least judging from the copycat designs, the clumsy UIs, chronic UX issues, etc. from typical startups I don't think that the grass is greener over there in any meaningful way. So, I think it is a myth that you get better than average people or products in SFO. Sure there are geniuses but the success/failure rates are not significantly different. There's simply more of both around. However, the failures are five times more expensive (ballpark, give or take, lets assume that for the sake of this argument).
That is only offset by the occasional unicorn; which due to the enormous amount of startups happens more often there as well. IMHO this is the main benefit the valley has. There are lots of unicorns creating lots of wealth which quite often gets reinvested locally. There's a lot of money flowing around there. Most of it gets wasted on the same BS that VCs are funding elsewhere. But then you get the occasional unicorn making up for that and the practice of those companies acquiring the expensive failures to funnel some of that back to investors.
Is a valley based team five times more expensive than a Eastern European team five times as good? I don't think so. I'd say it's quite easy to find people and teams elsewhere that are arguably just as good. Also, job hopping is a thing in the valley. Despite the insane salaries, the average tenure is quite short, especially at the bigger unicorns.
So, there's a bang for buck problem in the Valley and the smart VC money there is already encouraging startups there to work remotely or consider having remote developer teams. Relocating to the valley after you get funded stopped being a thing here in Europe. VCs are no longer asking or expecting that; that was a standard question a few years ago. What would be the point? Quintupling the burnrate is not a goal; you need a good excuse than vague beliefs/hopes. You basically pay five times what you pay in e.g. Eastern Europe and most of that goes directly to real-estate owners, the state of California (taxes are actually very high there, even compared to Europe), and all the other overpriced stuff that the Valley has to offer.
This is not the fault of "not so great developers", this is the fault of "agile development".
Whereas a decade ago you could go into a store and buy an AAA game, you could expect that it was free from major bugs and generally playable from start to 100% on decent hardware. Today? Gonna be happy if the patches on first run are not consuming more space than the original game itself and you don't have the feeling that the game you shelled out 50$ for is not just a green banana that ripens at the customer.
The same is valid for general software and especially web apps. Time-to-market is everything, who needs a QA department (it can all be done by developers in their spare time / overtime, no need to hire persons who know how to write proper testcases), who needs a proper ops department (the people who actually know about how Linux operates, what security is and what ACID means, compared to full-stack devops developers who cost a tenth of the money a good DBA or system architect can command) and if it works in a half baked A/B test (cheaper than running user studies or, heaven forbid, actually inviting power users from your target market to fly to you and show you how they use your product) then it gets rolled out indiscriminately to all your users. And when the pile of layers of shoddy bugfixes and other general crap (e.g. foundational architectural issues) finally collapses after a couple of years, the original creators have long since jumped ship and cashed out. It's definitely not sustainable.
Plenty of industry defining tech companies started outside of the valley too. Microsoft up in Redmond, Commodore in West Chester Penn, AOL in Reston VA, and so on.
The point I never see talked about with conversations like this is, should you? You can find plenty of data points that say you can and you absolutely can. It's the, does your idea and execution path make sense for the location you're setting up at.
Some of the worlds top talent for tech are located in SV and that's why so many companies are here fighting for them. We're told, we need the best of the best to stay competitive and execute. If your product doesn't need a concentration of world class product managers, designers and engineers, then don't waste your time here competing for that talent. You'll have a much easier time finding talent elsewhere and for less money.
For me, an engineer, I chose SV because I didn't want to be the best person on my team. I wanted to be surrounded by people who are 10x smarter than I am and learn from them.
If you're a software engineer and want to make an amazing salary by most people's standards, move to the Bay Area and get a job with Google/Facebook/LinkedIn/Etc.
You can literally make a 500K+ a year.
Although most engineers make half what you listed. And what’s the median home price in Mountain View, San Francisco, Palo Alto, Los Altos? None of the above are less than a million. By contrast an engineer making 150k but buying a 500k house might have a better deal.
People need to stop repeating this nonsense as if everyone makes that much. A very small percentage makes that.
My experience is the complete opposite of Tim Ferris Wisdoms TM. If you are where the money is at, you have vastly more opportunity to participate on the receiving end of money flows as well as information flows. So if you are a keen developer in SF you will not live on $60k for long, but rather quickly bargain your pay up the food chain to $120k or $150k. And then check out how well you can live on $120k in Thailand, you know?
There are two exceptions to this rule of following the money, though.
Exception 1: When you hit the ceiling. It might be much higher than you initially thought, but there is one. And when you hit it, it might be more reasonable to try to stabilize on that level and find a more peaceful and cheap environment to live in.
Exception 2: When the current location is over hyped. Bay Area might still be in that phase where prices really are too ridiculously high. If you spend more than $60k/year on rent alone then maybe it's not wise to go there for $120k. But it might still be worth an internship or finding customers there.
The problem with arbitrage is that everyone wants to capture it, since it’s basically free money. Not in SV? You only need 1/4 the funding.
3.35 / 4.5 = 74.4%. 3/4 the funding not 1/4.
This is more like "Starting a Company in Daly City". Definite clickbait hustle story to drive traffic and sell his product. I wouldn't waste your time on the article.
Congratulations.