How to Survive in SF as a Broke Startup | Hacker News Reader

How to Survive in SF as a Broke Startup

wlimdo.com

168 pointswlimdo114 comments

If you really want to be rational about your company (no personal or business income tax), live cheaply relative to San Francisco, and yet be close to it, start your company in Reno, NV. Rents are 1/2 to 1/3rd of what they are in SF. There is a relatively large and growing tech scene (Gigafactory is being built in Reno, there are several drone startups, SNC does space/military stuff, IGT and Bally Technologies are also headquartered there). San Francisco is a 3.5 hour drive or a 45 minute flight. Even if you flew to San Francisco every week for meetings and rented a 4 bedroom house, you would save money over a 2 bedroom apartment in SF. Las Vegas (where I primarily live) is another great option, although it's further from SF and puts it out of driving range (1.5 hour direct flight to SF).

It seems irrational (and a disservice to investors) to start an Internet company that can be based anywhere in the Bay Area these days, especially if you plan on being successful. Say you personally net $10M on an exit. In Nevada you would only the 20% federal long-term capital gains tax, or $2M. In California, you pay the 20% federal tax plus 13.5% state income tax - your tax bill rises by 67.5%. That same $10M exit costs you $3.35M in taxes (not to mention the negative effects of CA's business income tax, higher payroll taxes, office rents, living expenses for employees, etc. on your valuation). Personally, I'd rather have the extra $1.35M in the bank or spend it on buying a bigger house or a few Ferraris than give it to Jerry Brown (plus I happen to like soda [1]). Mark Zuckerberg alone has paid a multi-billion dollar penalty for the mere privilege of living in California.

[1] http://www.npr.org/blogs/thesalt/2014/11/05/361793296/how-di...

This.

Great advice. I often wonder why people never associate "start-ups" with "small business". There are plenty of states who talk about having very favorable tax structures for small businesses, none of which include California.

Reno is a great example of being able to leverage favorable tax structures and still being close to "the action" so to speak. This is such an obvious win-win on so many levels, I'm not sure why more people talk about utilizing states like Nevada for these advantages.

If you look at this map, Nevada has one of the best business climates, which is right next to California, which has one of the worst:

http://taxfoundation.org/article/2015-state-business-tax-cli...

Compare the success of Nevada's businesses with those of California's. Can you think of any major Nevada success stories outside of the casinos or Zappos? (Even Zappos found success as a Cali company before it moved to Nevada.)

As it turns out, having one of the "best business climates" is usually not correlated with actual business success. States with "favorable" business climates have such climates precisely because businesses would not otherwise succeed in those states. This puts such businesses at a disadvantage when they try to expand to non-favorable states: without the tax subsidies, they simply aren't efficient enough to succeed in a cutthroat, capitalist environment.

Tax Foundation's "best business climates" ranking is based purely on tax rates. It doesn't even take into account tax incentives! If they're going to rank states based on tax policies, they should be ranking based on effective tax rates, not hypothetical maximum marginal tax rates. The other major flaw with the rankings is that they don't take into account the other factors that matter far more to a small business: such as market opportunities, customer availability, employee quality, and support services, none of which you will find in any meaningful qualities in any of the states ranked in the top 10 of the Tax Foundation rankings.

The thing is, the tax rates only matter if you are successful. Well, mostly. You mostly only pay taxes on profit. (there are exceptions, like payroll taxes, but those are mostly federal.)

I'd be happy to promise to pay a billion dollars if my company ever has more than two billion dollars on hand, if paying that billion makes it even slightly more likely that my company will become that successful in the future.

Face facts, as a friend used to say, your company will probably fail before it makes enough money to pay significant taxes.

And money on the upside? it's got diminishing marginal value. Making promises to give away some of the upside, if it gives you a better chance of getting to the point that there is a significant upside, often makes a lot of sense.

All that said, complexity matters a lot. I mean, until I start making money, I don't really care what the tax rate is - I'm not making much money, so I'm not paying much in taxes. But I'm paying my accountant, and even then, my accountant makes me think at least a little about taxes. And taxes are super complex.

When your company is small, you will spend more money figuring out how much to pay than you will spend on actual taxes. Complexity is a cost even when you are small and posting small profits.

>>> Face facts, as a friend used to say, your company will probably fail before it makes enough money to pay significant taxes.

I have a freelance business I'm working on getting off the ground. I have to pay quarterly taxes on the revenue I bring in. I just wrote a check for close to $900 on around $2500 of revenue I had taken in for two clients.

To me, that's a significant amount of money coming out of my pocket for taxes.

S-corp or llc? that sounds a lot like your income tax or equivalent (you pay something very much like income tax on profits for pass-through entities) - which is to say, if you were farming out this work to someone else, most of that tax bill would follow the money you are paying someone else to do the work.

At that much, I'd guess you are paying income tax at a rate that would indicate that you have significant other income.

Income tax/fica are the hardest to get around (and most regressive) tax you have to face, but if you wanna stay in America, there's not a lot you can do. (you can shave off something around ten percent if you want to leave California and move somewhere without a state income tax... but there's no getting around federal income and FICA tax.)

Face facts, as a friend used to say, your company will probably fail before it makes enough money to pay significant taxes.

You're correct, but that's all the more reason not to move to a crazy expensive city like SF from wherever you are in order to start your (likely to fail) company. What I was saying is that if you feel physical proximity to the Valley is necessary and you are planning to relocate anyway, then Reno is probably the ideal choice. If you are successful, the upside is dramatically higher because there are no state taxes on your success. If you fail, the downside isn't as bad because your expenses are dramatically lower. You also have a higher chance at success if you aren't burning through your startup capital on monstrous expenses associated with being in the Valley.

A longer runway is, indeed, a very good reason for doing a startup in a low cost of living area, assuming your runway is primarily limited by cost of living expenses, which it often is.

That's horrible advice. Tax decisions should never drive business decisions until the amount of tax actually becomes a material financial statement item. If you let tax effects drive your business decisions as a startup, you end up with a structure more complicated than the most efficient option, and most of the future tax "savings" disappear to lost opportunities or maintenance of your "optimized" structure.

(not to mention the negative effects of CA's business income tax, higher payroll taxes, office rents, living expenses for employees, etc. on your valuation).

Nevada hasn't turned out so well for the many startups who have moved there. Check out re/code's entire series of the Downtown Vegas experiment. It turns out that money isn't everything, or even the most important thing. If your business couldn't succeed in California, moving to Nevada won't make a difference.

Mark Zuckerberg alone has paid a multi-billion dollar penalty for the mere privilege of living in California.

Zuckerberg chose to pay a lot of taxes for the privilege of living in California, the state which made it possible for him to earn many billions of dollars. Without Silicon Valley, nobody would remember or care about Zuckerberg today. (Even Zappos, Nevada's only success story to date, found its initial success in California.) Zuckerberg did the right thing: he paid it forward so that California could continue to be the place where people go to make it big.

Nevada hasn't turned out so well for the many startups who have moved there.

Bad companies and/or ideas will fail anywhere, and they will fail faster in high burn rate areas like the Valley. Good (internet) companies will succeed anywhere. When was the last time you refused to install an app based upon where the company behind it was based?

Tax decisions should never drive business decisions until the amount of tax actually becomes a material financial statement item.

Nonsense. You should plan for failure, but you should also plan for success.

Without Silicon Valley, nobody would remember or care about Zuckerberg today.

Also nonsense. Facebook was a great, viral product. No one cared, cares, and in the beginning, even knew, where it was based (and it didn't start in the Valley either).

> That's horrible advice. Tax decisions should never drive business decisions until the amount of tax actually becomes a material financial statement item. If you let tax effects drive your business decisions as a startup, you end up with a structure more complicated than the most efficient option, and most of the future tax "savings" disappear to lost opportunities or maintenance of your "optimized" structure.

Tax considerations should never be the sole driver of business decisions but that isn't a good justification for ignoring them. Founders, for instance, should know about 83(b) elections and Qualified Small Business Stock (QSBS). Incidentally, California is one of the few states in which the exclusion of gains from the sale of QSBS is not allowed. I would venture a guess that close to 100% of tech startup founders today have no idea what QSBS is even though it can allow them to eliminate up to 50% of their capital gains tax when they sell their company.

Your comment seems to be based on the flawed assumption that legitimate tax planning involves complicated corporate structures. There's nothing complicated or expensive about choosing to reside in Nevada (because of the lower costs, business-friendly environment, etc.) and structuring your Nevada-based business as a Nevada corporation. That is far less complicated and expensive than, for instance, choosing to reside in California and structuring your California-based business as a Delaware corporation, which is something that a ton of California startups do based on the hopeful assumption that they're going to raise capital from investors who will require Delaware incorporation.

> Nevada hasn't turned out so well for the many startups who have moved there.

California isn't a panacea for startups either. For every Facebook, there are countless ventures that never took off. Startups fail at a very high rate. Wherever they're located.

I wouldn't advocate moving to another state in a location that's 3.5 hours drive and 3 hours by plane (not 45 minutes--airport time on both the front and back end will be an hour).

However, I would recommend checking out the East Bay. Berkeley and Oakland particularly. Cheaper rents, good startup community, 30 minutes to SF by BART.

It often strikes me as ironic that the very people who build the connected applications that live in the virtual world of the internet are so obsessed about the physical location requirement of San Francisco (and Silicon Valley), in order to become successful in delivering that virtual offering.

That being said I have never worked in or worked for a company in "the valley". I've also been a remote freelancer for 15 years so maybe I just don't get it.

Do these talented people really need to be in an office in Silicon Valley, sitting opposite you, tapping away on their keybosrds with their headphones on to as productive or better than me or you?

Obviously the data suggests that the most successful companies are there, but is that not just cause and effect?

When you're in the ideation stage of a startup it's hugely valuable to be in the same room arguing over the same whiteboard. There's no higher bandwidth way of communicating, learning and building consensus. Once you've decided what to do remote can totally work, but most startups are in that first phase for quite a while.

There are lots of other reasons for being in the bay area in particular, but that's the primary reason for founders being in the same physical location.

I agree that being in the same room helps move things along, but why not do it in a city with a sane cost of living?

The virtual world is great but it doesn't replace the physical world. Location still makes a huge difference to tech startups in terms of getting talent, finding venues and events to pitch your idea, getting investor attention, and all that.

No matter how good our video streaming technology these days, it still makes a big, big difference to be with the right people in person.

If you were in middle-of-nowhere Nebraska you'd have a hard time finding co-founders, programmers, or investors within a 100-mile radius. Not to say it's a bad place, but it's really not the best place to be for a tech startup (unless you're completely set on a one-person startup, it's your parents' home and you just need a few months offline to churn out code on free rent and free food, or that place is your target market, in which case it might make some sense).

That said, I don't think the bay area is the only place. I'm working on an idea and I'm planning to stay in Boston for a while since the environment here is just starting to become awesome.

I would disagree. There are much more co-founders, programmers and investors within 10.000 miles radius :-)

And if you have a family, LA is just impossible.

If you were in the middle of nowhere, Nebraska, you could move to Omaha or Denver, and you no longer have those problems created by not being in close proximity to a metropolis. You retain the advantages of being in an environment where housing and office space are cheaper, commutes are less onerous, and taxes are more affordable. The talent pools are smaller, but they are also less competitive. The investment pools are smaller, but their funding stretches further. Pitch opportunities will be rarer, obviously, so you would need to go farther afield to find them, and mid-continental businesses are far more conservative with new ventures than coastal companies.

The only real advantage to SV is that it has more money sloshing around, desperately trying to spill out onto the next profit opportunity. By comparison, everywhere else has already tightened their belts by at least two holes, and will look on your blue-sky babbling with extreme suspicion.

But if you don't need outside investment, and you don't need to be physically close to customers, any metropolis in the U.S. (and quite a few in Canada) will do. Some are better than others, obviously, but none will be so bad that they will cause your business to fail--not even the declining Rust Belt cities, like Detroit.

The data suggests that many of the most successful companies are there, but certainly not all of them (and the ones outside are probably a lot quieter or covered less in the news). Turns out there is a lot higher concentration of people trying to build startups there than the average city, so as a consequence of that more are there.

Having built my own, raised money, and gained traction, all outside of the valley (though I do spend a fair amount of time there), I don't see myself rushing to do my next one in SV.

I commented this exact same thing on the last article about living broke in SF that made the front page. It's incredibly ironic. People often talk about talent pool and access to capital as being the main advantages of being in the Valley. These advantages exist to some degree, but are vastly overblown, and you will only be in a position to use them if you are already successful.

Further, even if you are funded and successful, moving to the Valley probably doesn't make sense in your early stages (and for most, it will never make financial sense). Most people would rather work remotely than go into your early-stage startup office in a bad part of town anyway. The tools to make scattered teams very productive and cohesive have existed for a long time. As far as access to capital, if you get funded by a major VC firm that wants you to move to the Valley, you'll have millions of dollars with which to do it properly.

There are exactly zero legitimate reasons to move to the Valley in the initial stages of a startup, and many legitimate reasons not to. In fact I would think that most investors would look at the irrationality of such a poor decision for the financial health of a company and decide against funding it. It's indicative of bad, emotional decision making. Being in the Valley doesn't make your startup any more credible or valuable than it would be anywhere else. Developing a great product that delivers value to customers is the only way to have a successful startup - regardless of where you start. Begin with that, then move wherever you want.

Once you get past the very early stage and start needing to scale in terms of staff, you're going to want to have an office in the Valley.

Plenty of companies have 1,000+ developers and zero presence in the valley. It's ridiculously overpriced and only really useful for fundraising. Which is why most successful companies mostly grow outside of the valley.

Yes, there are lots of companies outside the Bay. Yes, lots of them have lots of people.

And yet there's a disproportionate number of companies in the Bay. So perhaps it should be seriously considered that there are rational reasons for that. Ease of access to talent is one I hear a lot from founders and hiring managers.

Have you ever recruited anyone here? The unemployment rate for good engineers is negative here: you're not just competing with their current job, but with the two other startups who are wooing them, and the one they're thinking about starting.

If you're building something that doesn't require elite technical skill (like most startups), locating in silicon valley is a net negative for recruiting. You're going to have a very difficult time convincing someone to leave Google to work on your social secret photo food delivery app for dogs.

I have. I've also recruited elsewhere. The unemployment rate you cite makes engineers much more comfortable with uncertain companies, which is a tremendous stumbling block when trying to hire outside the Valley. It dramatically reduces the risk of joining a startup.

> In fact I would think that most investors would look at the irrationality of such a poor decision for the financial health of a company and decide against funding it. It's indicative of bad, emotional decision making.

The comical part of this is that YC does just this [force/strongly encourage] their tech startups to be located in one of these locations.

True, although YC is a pretty special case where they actually leverage that physical proximity extremely well. They have office hours with powerhouse investors and entrepreneurs, dinners with special guest speakers, access to a large number of angel investors with whom they can have meetings, etc. These are resources that startups living in crack motels in SF aren't going to have access to. So for those privileged few lucky enough to be accepted to YC, being in SF at least for the duration of the program certainly makes sense.

Need? No.

But Silicon Valley is where the talent is and is easiest to find. It's where growth is easier than anywhere else. The financial price is generally worth it.

Sure, but it would make sense to found somewhere else and then move once you see traction.

As I understand it, most startups are founded wherever the founders happen to be. Once you have a concentration of talent in one spot, that's going to tend to be that wherever. It's rare to move away from the Valley to found a startup so you can move back later.

>Do these talented people really need to be in an office in Silicon Valley, sitting opposite you, tapping away on their keybosrds with their headphones on to as productive or better than me or you?

It really depends on the person. I know for me? I'm vastly more productive when I'm trying to ignore the other people in the room and work.

For me? It's at least in part about immediate and constant social pressure. That, and showing off. I would be super embarrassed, say, if a co-worker noticed me reading HN during work hours. How come I haven't been able to implement something remote for this? Could you rig up webcams or telepresence bots to do the same thing? I don't know.

Working remote? oh well, I just won't put that hour on my timesheet. I mean, I'm honest about my hours, but in the last few remote situations I was in, I just didn't put in the hours.

Now, not everyone is like this. I know many people that are vastly more productive when alone, in fact the most productive individual contributor technical people I know are vastly more productive alone.

But for me, my own faults and weaknesses line up such that I need an office. I need that social pressure keeping me on track. The difference in productivity is vast; enough, at least, to justify significant rent and some commute time.

I understand this too. I prefer to rent a desk in a co-working space rather than work from home. Hence I'm still remote, but I don't work in "THE office" nor "at home".

How has the co-working space worked for you as far as social pressure goes? Being the only person from my company in a co-working space hasn't worked well for me, but I've mostly only used the hacker dojo, which is perhaps a little bit too social for what I need?

As far as I can tell, I need people that are working on the same project as I am. I need that feeling that I'm betraying or failing those people if I'm not working on the thing I'm supposed to be working on. (why don't I get this with remote work? I should. it's irrational, but those feelings seem to only "work" in person.)

On a more rational level, I can, and will say "Hey, I'm distracted. Can someone put me back on track?" and that seems to work better in person than doing the same in IRC.

I speak to people in "the office" via Skype regularly throughout the day.

I have a daily 10 minute team stand-up via conference call (our team has a good microphone in the main office).

My code check-ins are there for everyone to see. If there was a lack of them, it would be pretty obvious that I was not pulling my weight.

The people in my co-working space are heads down busy. I go for lunch with some of them, but other than that, there isn't that much chit-chat whilst we sit at our desks and work.

That's not to say that I'm never distracted or procrastinating. However, the cause of my procrastination is the same regardless of environment. Whether it is my old corporate cube environment (surrounded by by co-workers), my co-working space (surrounded by random people working), and my home office (surrounded by my cat) the root cause is that the work is uninteresting and uninspiring. A change of project is the best way to change that. A new feature rather than support another. A walk around the block and some fresh air a short term fix.

>That's not to say that I'm never distracted or procrastinating. However, the cause of my procrastination is the same regardless of environment. Whether it is my old corporate cube environment (surrounded by by co-workers), my co-working space (surrounded by random people working), and my home office (surrounded by my cat) the root cause is that the work is uninteresting and uninspiring. A change of project is the best way to change that. A new feature rather than support another. A walk around the block and some fresh air a short term fix.

Yeah, for me? that usually doesn't work. I mean, I switch tasks and goals often, but that doesn't help me focus, usually, at least not long enough to accomplish something. Work is one of those things that is less immediately satisfying than, say, hacker news, games, or a billion other distractions, but work is vastly more satisfying when I accomplish something. For me? it takes a lot of effort and tricks to get myself to focus long enough to finish something, but when I do? it's incredibly rewarding. Maybe I need to break up my tasks into smaller chunks? But a lot of my work is support-type work, where it's already in smallish chunks.

But... yeah. I suppose other people are better able to focus on that further-out reward than I am. Maybe it's just me? Maybe it's that I'm coming down off of a long period of being less than productive?

Either way, I think that personally, I'm way better off showing up.

Well SV is one of the only places where they have these wheelbarrows full of millions of dollars to throw at tech companies, so I would think that location is pretty important if you're interested in VC funding.

Why not just move somewhere else? To me, the best part of an internet company is that you can work from anywhere. Also, the money you make is usually made online, meaning it doesn't scale to your cost of living. If you make $1000/mo in ad revenue from your website, it doesn't matter if you live in SF or Portland. It's not like a wage, which changes drastically on your location.

Why not move to an awesome, affordable city, live the lifestyle you want, and still make the same product? With the money you save, you could fly monthly to SF to have whatever important meetings are critical to do in SF. Is living in SF that critical? Maybe it is, I honestly don't know.

Agreed. Whether it's Portland, or even somewhere like Myrtle Beach, SC - I'm working remotely for a Boston company, and my money goes so much further.

We're building a startup community at Startup.SC trying to do just what you're proposing: leverage the Internet to make higher income in a lower cost of living location. Agree also on flights into cities: we just had a demo-day pitch last night, and now I'm headed to Boston for TechStars Demo Day, Angel Bootcamp, etc. To make connections with our entrepreneurs.

I think the allure of SF is its network of entrepreneurs and the natural tech ecosystem. Entrepreneurs can certainly work anywhere in the US, but you've got to admit that SF's place as a tech hub (and its proximity to SV--think investors, mentors, tech-strong univ like Stanford and Berkeley) is hard to beat.

> Why not move to an awesome, affordable city, live the lifestyle you want, and still make the same product?

I agree completely... Now for my plug:

For people that like small towns, good beer and outdoor lifestyle, I recommend Bozeman, MT. If you don't mind snow, it simply cannot be beat.

Interesting. To live here in South Africa on those numbers you'd have to make similar sacrifices, in an economy which I normally regard as 10x cheaper than (what I've heard of) SF. Some questions:

1. When I hear people on this site talking about "low" startup engineer wages in SF, the numbers I see are 60k - 80k / year. But this article makes that number look like glorious riches by comparison. Living in the dining room sounds pretty extreme, what are the sacrifices made for living on 60k? Presumably nowhere near as onerous?

2. It's fascinating to me that an Asian-American neighbourhood is cheaper than elsewhere. As a foreigner with only stereotypes to work from, Asian-Americans sound like the perfect neighbours... quiet, industrious, and likely to have kids with similar values whom I'd be glad to have my own hypothetical kids meet. So why then would this neighbourhood be unpopular? Are my stereotypes wrong? Is there something else in particular about this neighbourhood that I'm missing? Or perhaps USAians like to interact with their neighbours more than I do?

Maybe I'm misunderstanding how this site works (had this account for years but only commented a few times). It looks like my comment was downvoted, can someone explain why? Is thinking about stereotypes offensive? Or it was deemed irrelevant?

sometimes people downvote for no reason.

the reason you're not getting replies is likely because the US are asleep though.

I think it's a valid question-

although it's probably more about causation; Asian-Americans are less snobbish when it comes to areas to live, my assumption is that they live in area's that Americans wouldn't want to live anyway.

Are ‘Asian-Americans’ not ‘Americans’ in the first place?

You seem to be saying that race shouldn't matter. But how can we discuss this paragraph (about a neighbourhood that is different where the only reason given for that is race) without exploring what race means in that context?

(personally, I don't agree in any context, race matters in pretty much every context in the world because discrimination based on race is present in every context, and to ignore it only allows that discrimination to continue)

I read him as saying that in a conversation about race, why is it ok to pretend that one race is "normal people".

Actually, it was purely a semantic objection: if race is important then why not ‘European-Americans’?

Well the whole "race" idea in humans is basically flawed, there are no biological races in our species [0].

Also, by saying Asian-American what do we mean? is it people with Chinese ancestors, or is it Japanese, or Indian, what about Russian?

[0] - http://en.wikipedia.org/wiki/Race_%28human_classification%29

stop misdirecting, you know damn well he implied that asians aren't really american.

race matters, but not for nationality. nationality means the country that you are a citizen of

you can't run these stupid verbal tricks on HN and expect to get away with them.

for example, i know white people of south african nationality who would take great offense if you considered them to be american, or european in any context other than a simple mistake.

No, I didn't know anything of the sort. I only noticed "Asian-Americans" and "Americans" in the same sentence once you pointed it out. I understand the offense that this could cause but to be honest I'd find it odd if he was using "less snobbish" as a negative term. If anything I thought he was being negative towards the "Americans".

Also I sense we both believe that discrimination is wrong, you've taken this fairly strongly. But we approach this matter differently.

Your point about how I would react being described as anything other than South African is dead on. But the truth is that apartheid and colonialism has meant that not all South Africans were born with the same opportunities. So nationality may exist in some abstract sense apart form race but it is not a great equaliser. A whole lot of what I know about the US leads me to believe that this is something our countries have in common.

This is not a verbal trick: I firmly believe that the only way to deal with discrimination is to recognise it even where nobody is using the words. If anything the "trick" is pretending that a stamp on a form wipes out the tremendous advantages or disadvantages of skin colour.

Just want to respond to this because it is a pet peeve of mine. There's a cultural habit of using Asian along with our other labels (black, latino or hispanic, white, native, desi), but Asian is a word not like the others, as it refers to a continent and makes you think maybe the person or their parents is really from that continent. I wish we had another word or another set of words, as there are plenty of folks in California whose Asian-American families have been in the area for a century and a half. Oh well.

not to a lot of people, no.

it isn't good to say in polite company, but sometimes it slips out because it's kind of hard to disguise an entire racial worldview (i.e., only white people are real americans)

i'm an american and my race is asian, i hear little subtle things like this all the time, everywhere. it's gone down in the past 10 years but it's still there.

San Francisco is about 40% Asian -- they live everywhere!

> Asian-Americans are...

> my assumption is that they live in area's that Americans wouldn't want to live anyway.

yeah, real americans wouldn't want to live there, amirite? trustworthy, dependable, high standards having white americans, not like those filthy asian americans who are only pretending to be citizens.

after all we all know where they're really from wink wink nudge nudge

i've got news for you, pal. "Americans" (i.e. "white people") have been moving into black and latino neighborhoods in SF for decades, pushing them out systematically (see soma, mission) the asians are the only ones with enough money to resist it.

in fact, asians as a demographic have the highest income in the entire country, so that might explain a few things that your shitty conclusions don't cover, like why white people don't seem to be able to displace them.

I'm not american, so I was merely speculating.

in the UK we consider white people to be indiginous (even if there are british citizens who are from different descents who are equal to me in every way).

regardless, there is a certain set of areas where white people simply do not live, and they are almost entirely inhabited by Indians or British with indian descent.

(fun fact: on forms they have a "British Indian" check-box)

race doesn't matter, but they're culturally different and I was suggesting that it might explain why they'd be willing to accept lower standards of living for some money saved (which is the case in the UK)

Please stop implying I'm racist because I used the colloquial term "Americans" to mean "white people" who have out-bred and/or killed the native populace.

In short, it s because you seem to assume that the description of the neighborhood given was also the reason why it is cheaper. (It isn't, the reason is because its way the away from the center of town with almost nothing but residential areas).

Generally stereotypes as a concept are considered inherently pejorative in the USA.

Secondly, your inference that people are avoiding the neighborhood is because of the local population. People aren't avoiding the area, the neighborhood is mostly staying the same. Large numbers of people moving into a neighborhood is the exception to the norm. Particularly in San Francisco where there are protections on existing residents such as rent control.

Thirdly, in the USA we would view asian-american as a cultural description, or nationality description, rather than as a racial description. When someone says 'asian grocery store' they don't typically mean 'because asian people shop there,' but a place where foods sold in asia are more available. This point of view would be particularly so in the bay area worldview. In the USA, it is generally considered offensive/patronizing to compliment people based on their race for any reason. People want to be recognized for their abilities on an individual level, or because of some meritocratic reason.

I could go on, but the other reasons are more or less permutations of the above.

> you seem to assume that the description of the neighborhood given was also the reason why it is cheaper

The OP wrote: "Sure, it’s 80% Chinese American, but [it's cheaper]". That made me wonder too why the ethnicity would be a drawback.

All he is saying is that the demographics are heavily skewed, which is typically considered unusual. The ideal being an area that is representative of the population at large.

"typically considered unusual" - In SF specifically? Certainly not unusual elsewhere eg London where there is clear cultural clustering.

Yes, 80% is considered a bit extreme. We have cultural clustering in the US but you won't find people advocating for it or describing this scenario as ideal. The initial poster was asking why he was getting downvoted.

An example of how this plays out is demonstrated in the article itself. The author says '80% asian-american' rather than 'asian neighborhood.'

From a political correctness perspective, people in the US don't want to be seen perpetuating anything that could be considered a form of segregation. Simultaneously it is considered negative to be seen as 'gentrifying' a neighborhood, i.e. disrupting the traditional demographics of a neighborhood.

I can't reply to your reply, so replying here. What about Little Italys and Chinatowns?

Ok fair enough. My assumption was that real estate everywhere in SF was in crazy demand and that if there wasn't demand that meant there was something wrong with the place. There was also OP's comment about being "alone" in the neighbourhood, but maybe I misunderstood.

I do think separating culture from race is dodging half the conversation, but I can't argue with your observation that this is the reality of how most people in the area think. Thanks for the feedback.

Thank you for writing this thoughtful reply. It does a good job of explaining how the American conversation around race/culture works.

Don't worry. This always happens to me.

It's not so much about it being Asian, but the Outer Sunset is about as far away you can get from "the action" and still be in San Francisco. Also, it's colder and foggier than points east.

https://www.google.com/maps/place/Outer+Sunset,+San+Francisc...

Super uninformed question, but is there access to beaches or the ocean at all over there?

Yes, there is. It's a nice beach for walks, but the water is pretty chilly, year round.

https://www.google.com/maps/place/Sunset+District,+San+Franc...

Yes absolutely the beach is right down the street, you can see it on the map. :)

Outer Sunset is right next to Ocean Beach [1]. It isn't that bad if you can tolerate the fog, and daytime temperatures in May-Sept will frequently be in the 12-16 C range. And it's only 20-30 min from the downtown hotspots, and maybe 60 mins drive to Sandhill Road (traffic permitting).

The real saving the author is getting is on rent, the Asian food shops, etc, are not that much cheaper than Walmart, but much more tasty.

[1] https://en.wikipedia.org/wiki/Ocean_Beach,_San_Francisco

[2] https://en.wikipedia.org/wiki/Sand_Hill_Road

I know that it wasn't the point of your post, but I think the 10x comparison is a bit off (I'm also in SA).

On paper SA is supposed to have a purchasing power parity of around -50 to -60% [1] (so, things are on average that much cheaper here than in the USA). Of course, SF is significantly more expensive than other places in the USA (although typically not more than a factor of say, 1.5 to 2x). If we add all this up, we've still only got to (at the outer edge) a factor of say 2 to 4x more expensive, not 10x. One website puts this number at around 2.6x for an SF to Johannesburg comparison [2].

The other issue is that SA has an extremely bifuricated economy (see our GINI index score), and local prices definitely also reflect this. I'm not sure to what degree the PPP measurements reflect this - I believe the PPP number is a national average, and the average prices in SA are aimed at people living close to or below the poverty line. These prices are typically not available (geographically) to your average software developer, who in SA easily falls into the (upper?) middle class category for the country. Their costs are drawn from that environment, too. Even if you choose to be frugal, the shops you find in the suburbs here are much more expensive than what the national average may be. On a similar note, appliances and high-tech goods typically tend to be along the lines of "find the item on the 'net, convert from USD to ZAR, add 10 to 20%", so we're definitely not seeing PPP-level savings there. There are also some other factors which are relatively unique to SA, such as the need for additional security (monthly payments to armed response companies, etc), growing trend (or need?) to send children to private schools, etc.

Apart from the above price factors making the PPP number unrealistic, most people here also seem to have high expectations of standards of living, e.g. expecting to buy property quite early on, driving shiny new cars, having houses which are usually > 200 m2, come with swimming pools, have large gardens which need gardeners to be hired, cleaners to be hired, etc (this is all a bit strange to me, coming from an eastern European background where we have a far lesser sense of entitlement).

So really, all I'm trying to say is, we're definitely not ~10x cheaper here, especially if you consider typical suburb shopping prices and some of our more unusual, frequently ignored costs. The high standards of living can be considered things we do to ourselves voluntarily (and as you say, sacrifices can be made there).

[1] http://en.wikipedia.org/wiki/Purchasing_power_parity

[2] http://www.numbeo.com/cost-of-living/compare_cities.jsp?coun...

Thanks. I'm in Cape Town and I was thinking of rent numbers - having heard that a room in a shared house might rent for 2000$/mo in SF vs. say R2000 on the cheap end here.

That rent number isn't based on fancy accoms but since I've been in the southern suburbs all my life some would say that I'm living an entitled lifestyle (CT Southern Suburbs =~ JHB Northern Suburbs). You could obviously halve your rent in some areas but then you'd be living (at least in CT) in places with serious infrastructure issues, cable theft etc.

But I'm interested... from your background and expectations of standard of living, do you think you could make do with R5000 - R6000 /mo in SA? The same restrictions probably apply, share a room, no dependents, cheapest Net access and forget about buying new equipment on that budget.

Rent prices are specifically incredibly high in SF (check the 2nd link I provided for the line-by-line breakdown), hence it being an obvious target for saving money.

For SA, R2000 per month for rent seems very cheap to me; was that including water & electricity? I'm in the Pretoria area, which is supposed to be slightly cheaper than JHB, but then it varies greatly by area. A few years back, friends were paying around R6000 to share a 3 bedroom duplex with a tiny garden (including water & elec). A 4 bedroom house in my neighbourhood is for rent at R10000, but I'm not sure if that even includes municipality fees. In my experience, municipality costs come to around R1500-2500 per month for a house that size, with winter months spiking to ~R4000 if you don't want to freeze.

To answer the R5000 / 6000 question, I can't really imagine doing that without both major cuts in standard of living AND cutting major corners with things like (health | life | disability | car | home) insurance, retirement, etc. I've already chosen to be frugal on some of these, e.g. opting for a hospitalisation plan instead of full cover (still ~R1100 p.m. for 1 person, although I'm not getting any special discounts there), choosing 3rd party for my car over (R200 p.m. vs R1200 p.m., but then you have to have paid off your car), but even then these costs add up very quickly. ADSL line rental + cheapest package is still going to be ~R200 per month. A visit to a doctor + medication is often around R500 to R1000. Even if you only budget R20 per meal (water + pap maybe?), that still comes to almost R2000, and we're already over the budget. Most of the software developers I know seem to have expenses in the R20000 to R30000 range. Some of the things which were optional in my 20s are non optional in my 30s, and this also changes the picture.

So yeah, it's perhaps feasible if you forgo almost all safety nets and luxuries, and do not put away anything for the future. Personally, I would (and have) taken a different approach involving part-time contracting work. At the cost of reducing your spare time (I'm assuming we're talking about creating startups here, not just basic survival), it can completely change the risks involved. Again, it varies greatly, but e.g. a R200+ per hour rate is achievable relatively quickly if you're productive, and would give a R16000 per month baseline at 80 hours, or half-employment.

"cars, having houses which are usually > 200 m2, come with swimming pools, have large gardens"

It's a sunny country with a tendency to be outdoors, a lot of space, limited public transport, and a colonial history (another conversation). If you're from a cold ex-soviet country then there is no comparison - Australia far better.

People rarely make apples to apples comparisons.

A nice 4 bedroom house on 2 acres is easily 10 to 20+x as much in the Valley vs most of the US. Generally, when running the numbers people adjust for this and look at the housing people actually buy vs trying to do direct comparisons.

Cars on the other hand tend to be close to the same price anywhere you live. But, insurance vary's a fair bit.

So, while directly living a 35k lifestyle in India might cost 500k in the valley, most people are willing to make reasonable sacrifices. And thare are advantages to living in a major city.

(Before anything, let's be clear, the premise of the OP is completely wrong. Secondly, the cheapness of Sunset has nothing to do with whatever Asian-American community lives there, and by extension the whole analysis of 'wanting to live near Asians' is off base and is not only misguided but also disturbing. I digress. )

As an SF native, I'm not so enamored with being "in the city" like a lot of people who move here from other places; it's laughable how irrational some people (and businesses) are about being in SF. Frankly, there are only really a handful of 'nice' places to live and be in the city -- but the niceness is quickly lost by the huge inconveniences of monstrous traffic, overcrowding, parking tickets, relentless fog, gentrifying hipsters, and various other things.

In fact, there are a number of locations in the Bay that are much more cost effective, convenient, and in good earshot of anyplace you need to get investor/talent attention. San Jose comes to mind, but it can skew a little rough and has a 'mini Los Angeles' feel to it not to mention warmer. You can also take the light rail from SJ to Mountain View, which in terms of start-up connectedness is probably more well-connected than even San Francisco. MOST tech companies are still in the Valley; you get a lot of them clustered in Redwood City (Oracle, Facebook, EA), Palo Alto/Menlo Park, and Mountain View (Google, Microsoft). More high-tech companies are in Santa Clara (Intel), Sunnyvale (Yahoo) and San Jose (Cisco). Which is why southbound traffic out of the city is always worse than inbound traffic -- everyone wants to live in the city but a large majority of people work in the Peninsula/South Bay. Why not live closer to work? Well because there are so many 'hip' bars, restaurants, and events in SF -- urban living!

All things considered, I wanted to chime in on the Sunset thing. You're under the impression that the Sunset is some super Chinese/Asian neighborhood -- which first and foremost is more likely an exaggeration or a skewed cultural bias on the author's part.

Considering the makeup of other neighborhoods, and despite there being a handful of asian-y shops on Judah and Taraval streets (main commerce areas in the Sunset) it's not as "Asian" as Japantown, Chinatown or even Daly City. The Sunset is full of older "white people", Persians, Mexicans, Russians, Indians and a number of SFSU and UCSF medical students (especially being that UCSF is right on what you might consider the edge of the Sunset).

In reality, you see a mix of people walking around the street and nothing to really give you a sense that 'oh! this is a Chinese neighborhood'... IT'S NOT! The author, as I mentioned, grossly exaggerated from his own perspective bias.

No, the REAL reason why the Sunset is "undesirable" (cheaper) vs other parts of the city -- and to be clear that statement is very thin -- has more to do with its geography than anything else. Sunset is super suburban and not nearly as "hip" as downtown with its sea of rolling houses. There isn't as much to do and it generally takes at least 30-45 minutes to get downtown on public transportation. (This by its very nature goes against the whole point of being in the hip-urban-center-of-the-universe that is SF, this part of SF doesn't feel very sexy)

If you want to drive there's usually too much traffic on the main streets in and out and when you do make it out the only immediately interesting things to do get old very fast and are still hard-ish to get to.

Finally, throw in the fact that it's easily the coldest area in SF to live (see Microclimates http://www.sfgate.com/bayarea/article/Weather-as-varied-as-t...). There is fog almost all day long, all year long, and temps occasionally get above 60F but are closer to sub 60F even in the summer! The beach is usually too cold to deeply enjoy, and the water is consistently icy. (Ironically, I often ask myself why it's even called the Sunset without it ever having very much sun... we should rename it to the Fogset.)

So, there is no solid draw to the Sunset. It's mostly Blah! That's a good way to put it: blah! July in the Sunset often feels like it does in January.

While the Sunset is not the most desirable place to live it isn't one of the worst either. No, The Richmond District, Tenderloin, Silver, Crocker-Amazon, and Hunter's Point easily snatch that crown away from Sunset faster than you can blink. They have much deeper problems -- mostly crime, inaccessibility, and general remoteness. Living in these areas is much cheaper than living in the Sunset, so if you are all about living in SF on a dime consider those rougher neighborhoods.

Despite the inconveniences of Sunset it is still mostly safe and suburbia-quiet. It is probably a better 'value' in terms of what you get for your money.

But I'm all down for moving somewhere else, starting-up and living better. I'll be back for the next down; this up is killer.

Sidenote: I can't think of ANY place that I have ever been to where people avoid a neighborhood because of the culture there. The nice thing about California is that it really is a diverse place, moreso than you'll se in a lot of other parts of the country. While not all cultures mesh well together, it is generally inacceptable to avoid cultures. It's usually things like crime, blight, weather and inaccessibility that make neighborhoods undesirable.

Living in one room with your founders and working in that same room (essentially staying in one place with no privacy 24/7) sounds horrible. I understand that there are benefits to being in SF but surely they can't be worth enough to make you want to live that way. It sounds like the artist who thinks he won't be good unless he starves first. There are other ways and for most people it's unnecessary. How about living 2-3 hours away so that you can still travel in for investor meetings - probably the biggest benefit of being in SF? Or doing some freelance work on the side?

Psychologically, I think it's a lot easier for the very young. If you're 21 or 22, fresh out of college, this living situation wouldn't be dramatically different from the setup you've dealt with for the last four years of your life. I imagine it would be much harder to tolerate if you were a bit older, and you'd had a taste or two of life in your own place.

Very true but should you tolerate it? If it's unnecessary it seems like 'suffering' just to say you did.

Well, if we're getting into the realm of should and shouldn't, that's a different story. :) No, I don't think anyone should have to put up with that sort of living arrangement. At the same time, I don't begrudge people that choice if they want to make it. While I wouldn't make the same choice, I respect it.

I would never advocate miserliness without necessity. There's no reason to torture oneself, just for the sake of living hard. But I respect the decision to live as frugally as possible, especially while bootstrapping a company. If that means living in one place with three buddies, then so long as all four people are cool with the living arrangement, so be it. It's far from ideal, but it's a legitimate choice.

There are plenty of alternatives to crashing with a bunch of people in one tiny place in SF. But if you've done the cost/benefit analysis, and you truly believe you need to be in SF, then, well, SF is expensive. Deal with that as best you are able. If you are willing to make some significant sacrifices, that's great. You shouldn't have to, but there's a difference between the world of "shouldn't" and the world as it is.

Case in point: I know of two co-founders who moved out to SF, couldn't afford an apartment, and instead, lived on a boat in the marina for half a year. Would I have the grit to do that? Not at my age, at any rate. But I respect it. We shouldn't glamorize it, but we shouldn't rush to cast aspersions on it.

If you are a student, don't try to do this. Instead, stay at college as much as possible to leverage the network. If you've dropped out of college, try to crash on a friend's couch till he/she gets annoyed and kicks you out. For everyone else, unless your gut is wrenching from a feeling that the solar system will stop expanding without you, go find a job, save some money, get some advice and then try to stumble upon a startup idea along the way. This op-ed makes sense if your idea has been validated and you are struggling to bootstrap/raise angel investment. The time value of money is clearly neglected here, the amount of time you spend trying to live frugally can instead be spent in raising money.

Does anyone have an update on the utility of building a startup in SF? Except maybe for the (certainly large) class of "interacting with real world" or "local" startups (like Uber or Grubhub) I feel like you could gain so much more by even being outside of LA or something instead.

The access to people you have here (for advices, fundraising, selling your company, etc.) can't be found anywhere else. That doesn't mean you can't do it anywhere else, but here it's just much easier.

So I guess everywhere around SF is also the same sort of price range? I mean I don't think Steve McClure cares too much if you had to drive 90 minutes to see him right?

I'm just surprised at what people go to to be really in downtown SF. That money could arguably be better spent making sure that the founders/employees eat more than cup noodles for the first 6 months, if it means driving 90 minutes to go to meetings or events.

There's a whole budding movement of people doing the bootstrapped thing... patio11 of course, also people like Rob Walling, Amy Hoy and lots of others.

They tend to be in lots of different places, most of which are not expensive places to live.

Where I am in my life, I actually find that much more appealing than the typical bay area startup, although I don't feel the need to be 'against' VC fueled startups either - they're capable of doing some things that bootstrapped companies can't.

I think the inexpensiveness of our various locales may actually be causational. A quick survey of the people I'd consider bootstrapping peers is a wheres-where of "Places You Wouldn't Expect To See A Tech Company." Almost all of them are relatively low cost-of-living.

In my own experience in Gifu, the fact that ~$3k a month not only supported me but paid roughly market wages was enormously helpful. Had I started in SF or NYC or Tokyo, the need to have $120k a year in profit to have the same standard of living would have probably kept me tied to a desk at AmaGooBookSoft forever. (I can afford to live here in Tokyo these days, but man, $3k in rent is an awful lot of bingo cards.)

Oakland and East Bay are generally cheaper. The peninsula down to Palo Alto and Mountain View is just as expensive as the city.

It's a huge disadvantage unless you're doing something that depends on access to a large number of high-quality (but expensive) engineers and/or rich people.

Building a tool for programmers? The valley might be your place. Building a fashion startup? Go where people are fashionable.

Building a search engine? There are a lot of search people here. Building a service startup that requires warehouses, inventory and/or logistics expertise? Go to the places where logistics people are running warehouses.

Building a streaming video site? Many of the best network engineers in the world live in the valley. Building a two-sided marketplace for used children's clothing? You might want to go somewhere that people can afford to have children.

Building yet another on-demand, Uber-for-X service where the value proposition is weak/nonexistent for people who aren't workaholic techno-utopians? Yeah, OK. You could probably only do that sort of thing here. San Francisco is the world capital for people who have more disposable income than incredulity.

This the premise of a good chunk of Reid Hoffman's Startup Class lecture.

http://startupclass.samaltman.com/courses/lec13/

Yep. He's (sadly) one of the few people here who is saying that stuff aloud, though.

> access to a large number of ... rich people

That's kind of the heart of it for a lot of people. Say you're a young engineer with a great idea. Now what? You don't have the experience or connections to build your company, so you absolutely need to raise money. That kind of money may exist elsewhere, but only as a fraction of the SF money. "Silicon Alley" talks a big game, but their numbers aren't even close (especially when you talk about exits).

I personally strongly support living in an affordable city that gives you great access to your customers. Bootstrap something that has the potential for early revenue. Fail fast or succeed, and then, when you're post-exit someday, do your Next Big Thing in SF.

It's interesting how some people react negatively to this.

This is what young people who want to "make it big in the city" have done it for ages all over the planet. Just the city and the industry varies, but the story remains the same. Nothing about it is particular to SF or tech startups.

Sure, you may be able to achieve the same goals from a more comfortable place, but for many people that's missing out on 50% of the adventure. When it all comes down to it, these are the experiences that last, regardless of whatever failure or success follows.

But those people are usually seen as deluded fools and we've tried to protect them from the exploitation that they may face when they get to whatever big city.

I think you'd see the same negative reaction if this was a blog post telling would-be actors how to live cheap as waiters in Hollywood.

You can start a failed company in a lot of cities. Congrats on living in sf on the cheap but it really isn't useful information to help aspiring startup founders.

You could pull something like this off in Vegas and live a lot more luxuriously. Yeah, you're stuck in the middle of the desert, but some folks in the startup community really seem to dig it out there.

Running out of money is the most common way for a startup to die, so successfully living in SF on the cheap certainly mitigates that.

i would say that running out of money is the only way for a startup to die. I haven't heard of a company earning loads of money closing down (except when being bought out or something).

There's a lot of room between running out of money and earning loads. Say I was earning $15,000 per year from my startup. Costs were low and I could take most of that home but revenue wasn't growing. The business hasn't run out of money but it's not making enough to support me and I have to shut it down. Unless there is significant growth opportunity that I'm missing it's also unlikely to get bought.

Very impressive. I'd say that your age group and your relationship status have a very dramatic impact on your ability to pull something like this off.

Imho if you've already "done your time" somewhere else, this option becomes a lot less palatable.

The thought of starting a company in San Fran makes me cringe a little with prices the way they are...but what you are doing seems very resourceful, kudos to you and good luck.

True, prices are absurd. If you can make it here despite the ridiculous COL, props to you. There are also livable gems south of SF (San Bruno, Millbrae, etc.) that make living in the Bay Area more palatable.

Tradeoff: Living with your cofounders in the dining room of your office might possibly, you know, increase stress and strain among the group.

Also that's a lot of time spent making meals. I doubt he's including researching recipes, shopping & cleaning up for 3 meals a day in his 1 hr/day estimate.

If you're living with your cofounders one person can cook for everyone.

Also note with this particular arrangement the commuting time is significantly reduced.

If living together is sufficient to create enough stress that the group can no longer function, you were never going to make it anyway.

Good points. I'd only suggest living with co-founders if you know them well enough and can jive on a regular schedule. I mean, if you get sick of your co-founder, maybe he/she wasn't a match in the first place?

As for the time preparing the meal (from researching recipes to cleaning up), I'd say it can take less than 1.5 hrs per day total. Imagine buying in bulk, cooking a large, delicious stew that can last a couple days (just warm up the meals in a microwave), and voila. Time and money saved.

No thanks. This is how the stereotypical "starving artist", but it also sounds like a great way to burn out quickly. I'd rather work at an actual job for ~2 years and stockpile 20-30k in cash, then live like a normal (but still frugal) person during the initial startup build.

If networking is the main benefit, why not live really far out and drive in for events? I have no idea what "far out" would mean, but I'm supposing you don't have to be networking every single day?

This is generally how I survived 4 years of college _and_ worked in tech myself in the Buffalo area. It's hell of a lot cheaper than even that. This is absolutely brilliant though, but beware ... pride might get in the way for that sushi role desire. :) ty for sharing!

Move outside SF?

You might as well open a small restaurant. It looks like the presentation of your food is attracting enough. Not sure about the taste.

Here's another idea: Do like 2 days a month of consulting and move to a more desirable zip code.

...and what exactly do you get out of a more "desirable zip code" if you're living the penniless startup life?

Any other Sunset start-ups out there?

This is an interesting link. but what do you get living in SF? what does the startup get in SF?

hey that's cool tricks to spare money! I hope we'll see your product at the top of HN one of these days :)

Glad to hear you found this somewhat useful. Keep me and HN in the loop if/when you're building something, too--looking forward.

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