Scaling in Lower Cost Locations | Hacker News Reader

Scaling in Lower Cost Locations

avc.com

45 pointsmcenedella26 comments

The easiest public data on this is now levels.fyi. For example, https://www.levels.fyi/salary/Google/SE/L5/ shows the locations and pay for L5 engineers at Google, which is not new grads, but also not "only the most senior engineers". The data reproduces the "engineers don't get paid well in London" story.

Fwiw, I have always found that startup pay (particularly equity) is incredibly slanted against employees. I'm curious if the higher "risk-free rate" from the various FAANG companies will mean that startups instead learn to push back against the VC status quo of small equity grants. It sounds sort of bizarre to me to instead attempt to match on salary / nearly-guaranteed compensation, instead you must meet the "not having to deplete savings" bar and then the rest are lottery tickets. Historically, with "1% of equity" (or so) those lotto tickets don't sound so attractive.

I have not been in the software industry as long as other people on this site, but I think this is a pretty worrying trend, and eventually, founders are going to have to yield more equity to employees. If your startup involves technically challenging work that requires good engineers, how are you going to compete with companies that can compensate employees 2x what you can in fully liquid comp? The only way is through more equity. Of course cash-rich late stage startups can do that, and they can also convince people that there is a very good chance that equity will actually be worth something to employers. But early stage startups can't do that so easily.

Right now, it seems like working for an earlyish startup as an employee is just a bad value proposition across the board. Even if the startup will be successful, people are getting pitiful amounts of equity. I'm not sure that's very good for the industry, but maybe it's always been like this

> how are you going to compete with companies that can compensate employees 2x what you can in fully liquid comp?

In addition to lottery tickets, I would argue that for some people the answer is easier: purpose, people, and autonomy.

At all of the bigger companies with the great, guaranteed pay, you are also one of many, quite likely a cog in a giant machine. By offering someone a real, visible impact on direction, outcomes, and even a purpose beyond steady (high) income, you can get some folks to join. Others will join just to be part of a small, hopefully excellent team or having autonomy. In a company of 5000, only 500 are in the top 10%, and you might work with very few. It's much easier for everyone to be good when you're a small team (I like the pg rowing analogy here).

The idea of having more purpose at startups sounds nice but really doesn’t add up to me.

If you’re talking about the first employee at the company, even the first ~5 engineers, then yeah I buy it. The work is very different and there’s a lot of purpose while you are still pre product/market fit.

But the problem is, if the startup is succeeding the work becomes similar to bigger tech companies pretty quickly - the PMs and designers are dictating exactly what to build, and as an engineer you show up and build that. If you were to leave, someone else could probably take over for you pretty easily. Even by like 5 or 10 engineers, the average engineer at a startup is already becoming a cog in the machine. But the startup is still a long way from being able to compete with FAANG on comp.

Is it really worth sacrificing hundreds of thousands of dollars a year just to be a slightly different type of cog?

That's not accurate -- at least in startups that are on track to becoming successful. If you join a startup just to become a cog, do not join that startup. It does take about 6-9 months for an engineer to become impactful from a business sense. If you can wait out that time period, you should join and expect to have impact. If your ideas aren't valued and you're not getting the opportunity of ownership, then maybe you should leave to join another startup or go back to FAANG :)

Hmm, for me, unless I had an outsized position to gain from lots of autonomy, I would see that as a negative. Sounds like a lot of pressure to perform well without enough gain for it. Might as well just start my own company so I can have more upside.

How much equity is enough to make sense though? Why is the current status quo not enough but 2x of it is? Ata series B startup, 2xing grants might mean typical equity compensation is worth $50k over 4 years instead of $25k (at the companies current valuation based on their last funding round, which seems like the only way you can really value it).

The same engineer might be able to get a grant of $400k or more over 4 years at a FAANG company. It’s just hard to compete period, and there’s really just not enough equity to go around at a level that would be competitive.

So I guess I come to a different conclusion than you, more equity to employees would be great and cover some of the gap but I think the only real solution is Bay Area startups need to start raising bigger rounds so they can pay market rate for the area, which is now set by the big companies and is insanely high as a result of the housing crisis.

Or, don’t start a startup in the insanity that is California (or if you do, hire remote only).

> so they can pay market rate for the area, which is now set by the big companies and is insanely high as a result of the housing crisis.

Are you saying that the scarcity of housing is the cause of big companies' high compensations?

Yes, it definitely is.

There are obviously a lot of factors, and scarcity of engineering talent is a big one that makes it all possible. But the reason these numbers are so astronomically high, as in significantly higher than these same companies would pay the same engineer in another city, is because of housing prices due to the shortage.

Is it the VC status quo that is resulting in small equity grants? From what I've observed, it's mostly founders who skimp on equity grants, not so much VCs.

AFAIK A bunch of things founders would like to do often gets heavy push back from investors, which the founder giving the offer doesn't tell employees about.

I believe so. First-time founders look to their investors for advice. For example, many VC firms have guidance on salary and equity ranges for hires based on where the company is (Series A, B, C, etc.). All the numbers are quite low.

There's a straightforward argument: both founders and the investors really want the founders to have as much equity as possible to keep them engaged / dedicated / whatever. The founders out of personal interest ("I own 30% of this!") and the investors because it's perceived (perhaps correctly) that the moment the founder(s) pull back, the company is doomed.

There's definitely a non-trivial premium that founders deserve, both for the increased work / pressure and reputational risk. But is it 10x greater? 100x? Many new hires get .25% in equity even early on, while a founder is unlikely to have less than 25% even post-Series-A financing unless there are several co-founders.

When my father goes to Detroit for business trips is always astonished by the amount of money his collegues get paid. He works on engineering processes and tooling in a robotics company and makes about 30K €/year here in Italy, while his american collegues make 120K $/year. I think there is a great chance for businesses to save a lot of money by hiring personnel outside of the U.S.

And is he equally astonished by the cost of living / housing? Maybe not Detroit but certainly other major metro areas. The “profit” from employee perspective is probably similar

You are always better off (economically speaking) in a higher cost-of-living area with proportionally higher salary.

There are other externalities to this. Tax incentives are better if you can buy vs rent, which is harder in high COL. Also from personal experience, you get to live in more vibrant and diverse neighborhoods as opposed to more homogenous ones that price out others. If you have children that go into non-lucrative fields (ex: teaching), they will not be able to live by you without your financial support.

Are you talking about high vs. low COL area in US? It sounds like you are (because none of what you said seems to be true where I live), but I wanted to point it out since this whole subthread started with the mention of Italy.

On the other hand, if your kids go into fields where the pay is unequal across the country, they are less likely to stay in your small town of 100k and move to somewhere else with more economic or artistic opportunity. And by being in small town, it's a lot more time and money for them to fly to see you, so they will see you less.

Ex: I can fly across the ocean for the same price it is to fly 2 hours direct equivalent / 4 hours connecting to see my family in their relatively small town.

> the ability to spin up and then successfully operate remote engineering locations is a skill that technology companies need to develop earlier

+1. As someone who puts (expensive) food on the table in a metro area, this is scary to me, because it makes me more replaceable.

But the old arguments (we need people on-site, we need people to understand the context, remote teams have lower quality) sound thin now, especially given that on-site has its own efficiency problems in the open-office era.

Commuting & telecommuting tech may get better, project management tools may get better, reputation management will transform marketplaces like fiverr, something better than slack may come onto the scene, but even without these improvements, the talent bubble will force managers to hire away from the center.

I've worked at small cos where the engineering budget is the main blocker to growth / the business model working.

It always kind of amazes me when I work for a company that has national customers and is getting into multinational and they still only know how to run one server room.

I've often thought that on my next startup, I should just start it in Cabo San Lucas. Package on-site interviews with a weekend trip. Pay middle-America salaries. Work hard, beach often.

Not enough folks will join you.

People need other (personal) employment options when your company fails or they get bored.

Their partners need an employment option.

If they have, or want, children, they need schooling options.

All this said, maybe a bunch of 20-somethings who enjoy beaches would go for this! In many software things, the likelihood of success is much more on getting ten awesome people, than it is being able to hire 500 people.

Good idea, but probably the wrong location. For Mexico, I would go for larger cities like Merida, etc. I have been in Cabo six or seven times for a day off of a cruise ship and once staying for a week and there really is not much going on there.

We see this in the Denver metro area. Lots of growing Bay area companies moving in (Slack, Strava, Checkr), while the bigger companies (Microsoft, Google, Oracle) have long had a presence (often through acquisition).

Not that Denver is cheap compared to many places in the USA, but compared to NYC/SF, it certainly is.

I think it's great for everyone. I also think the future of work is totally remote, as I outlined here: http://www.mooreds.com/wordpress/archives/2919

In my experience.

The brain mostly follow the money and that inflates the salary for everyone in that area.

The very talented individuals who stay "home" get pretty much the same pay the individual Whould in an inflated area, but the individuals peers don't.

I think the inflation which happens in pretty much every large city with a thriving tech/startup environment, is largely due to the fact that lage groups of highly skilled and talented people gather and then that super salary becomes "normal" and then the rest wants an even salary. Lowering the tops pay is a no go as that salary they can get literally in any geographic location. Then the only thing left is base pay has to go up.

Just my guess.

>The very talented individuals who stay "home" get pretty much the same pay the individual Whould in an inflated area, but the individuals peers don't.

Depends on where the home is. Short of starting your own company in your hometown, in a lot of places there just aren't comparable jobs.

Also even if you are working somewhere with an inflated cost of living, the key thing is that you can save a lot more money in absolute terms, and then later in life you can move back to a lower COL area. Your crappy $1.2m house in the Peninsula can be traded for a mansion in other parts of the country, and if you are putting ~30% of your inflated salary in stocks vs. 30% of your non-inflated salary, you will have a lot more stocks when you leave the inflated area.

Reply on news.ycombinator.com