The solution I have come up with, something we intend to adopt in Zoho, 
  is to abandon major cities, and move to much, much smaller towns.

This definitely is a good move especially for a company like Zoho that has an excellent training & skill building program.

I personally would like to do the same once my startup gets going and of course assuming other things fall in place. Probably, that's an advantage for a bootstrapped company rather than a funded one, where one might be forced to stick to such bigger cities with moral suffering.