
How to Survive in SF as a Broke Startup - wlimdo
http://wlimdo.com/how-to-survive-in-sf-as-a-broke-startup
======
downandout
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...](http://www.npr.org/blogs/thesalt/2014/11/05/361793296/how-did-berkeley-
pass-a-soda-tax-bloombergs-cash-didnt-hurt)

~~~
lsc
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.

~~~
downandout
_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.

~~~
lsc
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.

------
junto
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?

~~~
downandout
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.

~~~
anon14u1209400
> 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.

~~~
downandout
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.

------
lifeformed
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.

~~~
wlimdo
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.

------
zingar
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?

~~~
zingar
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?

~~~
schoolixer
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.

~~~
sfjailbird
> 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.

~~~
schoolixer
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.

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

~~~
schoolixer
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.

------
k-mcgrady
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?

~~~
jonnathanson
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.

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

~~~
jonnathanson
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.

------
rpm33
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.

------
rtpg
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.

~~~
timr
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.

~~~
smt88
> 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.

------
freshflowers
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.

~~~
DanBC
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.

------
peter422
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.

~~~
neodude
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.

~~~
rtpg
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).

~~~
k-mcgrady
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.

------
BadassFractal
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.

------
hagope
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.

~~~
wlimdo
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.

------
abalone
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.

~~~
dusklight
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.

------
tedchs
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.

------
lordnacho
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?

------
NiftyFifty
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!

------
qwerta
Move outside SF?

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

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

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

------
bsims
Any other Sunset start-ups out there?

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

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

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

