Is Silicon Valley Really the Right Place to Launch Your Startup?

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If you want your startup to succeed, Silicon Valley is the place to be, right? Not necessarily... By Arianna Simpson (Account Specialist, BitGo, Inc.)

Moving a company is not easy. It’s expensive and can lead to high company turnover, as many of your employees may not be willing to relocate.

In a move to consolidate its workforce to its San Francisco office, Reddit caused a big splash a few months ago when it announced that its remote workers would have to move to the Bay Area or face termination. To avoid such painful steps, you’ll want to think carefully about where you want your company to be based from the very beginning.

Conventional wisdom says move to Silicon Valley, but depending on what kind of business you’re building, where your strongest network is located and how much capital you have available, it’s worth exploring other options. Here are a few factors to consider in the process:

Industry

The type of company you’re building should play a big part in your decision of where to locate it, from the city down to the neighborhood.

Industry Network

Consider where most of the companies in your industry are located; whatever the answer, there’s a reason for this. If you’re starting an ad tech or media company, New York is probably a better place to be than San Francisco or Denver.

If people understand your industry and why what you’re doing matters, you’ll have an easier time selling everyone, from prospective customers to future employees, on your vision.

Operations

Some companies have physical space requirements that don’t exist if you’re building a pure software business. If you’re heavy on the R&D side, you might need a large lab space. If you’re starting a subscription service and will be shipping a physical product to your customers each month, it makes sense to be near your warehouse, at least in the early stages – and you’re going to do better with that in Brooklyn than in Manhattan.

People

As the founder, ultimately you’re the person who determines whether your business succeeds or fails. Although most of the responsibility rests with you, you won’t be operating in a vacuum. The people with whom you surround yourself and who end up working for you will play a significant part in the direction your company takes.

Strong Connections

Who are the twenty people you know who have the greatest ability to help you succeed? They may be offering moral support, important introductions, or industry insight, but these people matter.

Whether they’re friends, business contacts, mentors, or investors, you’ll benefit from being in close geographic proximity to as many of them as possible. It’s also inspiring to be near people who want to see you succeed and who understand the challenges that come with starting a company. This is one of the reasons tight-knit communities like that of YCombinator provide so much value.

Talent

The good news is that there’s already an abnormally high concentration of talent, particularly technical talent, in Silicon Valley. The bad news is that there’s an even higher number of companies fighting tooth and nail to hire that limited pool of talent. It’s a very liquid market, and great employees know they have options.

In real terms, this means that even if you’re able to hire great people, there’s a real risk that they’ll leave sooner than you hope. In other areas, where people tend to stay in jobs longer, you'll likely have an easier time retaining employees.

Company Stage

Your startup’s stage will determine a few factors that play into the geography equation, namely how much you have in the bank and how much space you need. Running out of cash before achieving product market fit is one of the main reasons startups die.

Don’t discount the importance of being based in a place that will buy you more time to figure it out.

Office Rent

It shouldn’t come as a great surprise, but office and housing rental costs in the Bay Area are off the charts. If you are running a bootstrapped business, or have raised a small seed round, you need to take into account that your costs for office space will be far higher if you’re located in San Francisco or parts of the Bay Area.

In Palo Alto, for example, the average asking rent is $86 per square foot, compared to the national average of $30, yet the vacancy rate is still less than 4 percent. Depending on the number of employees you have, this expense can quickly spiral out of control.

Talent Costs

If you head to one of the major hubs, you’ll have to pay your employees considerably more to be competitive. Tech workers in the Bay Area typically have pretty high expecations in terms of salary, perks and equity. It’s also worth noting there’s not just being greedy – according to Lovely’s Q3 2014 housing report, seven of the 10 cities with the highest median rent are in the Bay Area. The citywide median rent in San Francisco last year was more than twice that of cities like Denver, Ft. Lauderdale and Seattle.

The decision you make early on in your company’s life of where to base operations isn’t necessarily the only one you'll make; as you grow, it may make sense to have regional presences in your biggest markets. That’s a good problem to have. Just be sure you make it to the hyper-growth stage – and remember that in that process, geography matters.

Where did you launch your business from and why?

Photo credit: zimmytws via Shutterstock.


About the guest blogger: Arianna Simpson has spent her career to date working in tech, previously at Facebook and currently at BitGo, the industry leader in bitcoin security. Arianna is particularly interested bitcoin and various applications of the underlying protocol, and often speaks and writes on the topic.