Serious question for other startup founders: why would you put your company in the bay area or even the state of CA?
It has never been easier to build a tech company, especially a SaaS-type business with no physical inventory. You could home your company in a cheaper, more business friendly city like Austin (disclaimer: I live in Austin). The tax savings alone would cover the costs of going to SF once a week. Quality of life is just as high (or higher, depending on your interests) in many other cities.
Edit: Seems people are missing the fact that you could literally fly to SF once a week for networking / meetings / events and it would still be cheaper to live somewhere else. You don't have to miss out on being a part of the network.
The real networking doesn't happen at networking events. It happens when you happen to be up in the city and text your friend that you worked with a couple years ago to hang out and catch up, and then he invites you to his startup's holiday party, and there you meet one of his investors or just a top engineer that thinks what you're doing is really cool, and suddenly your side project is now a hot startup. That doesn't happen when you need to get on a plane for events.
Texas is... OK, but has no real culture to speak of.
The tax relief in Texas is not as great as you might be led to believe. Great for businesses (sometimes), not for people. Texas has some of the highest property taxes in the country despite cheaper housing. Texas is hot 9 months of the year, has no real seasons, has hideous politics (even in "Let's keep it weird" Austin"), low-grade food choices, laughable night life (6th Street. Really?), immigration nightmares, cannot walk anywhere, must have a car, a largely uneducated populace, rednecks galore, the notion of brisket as real food and not dog fodder, did I mention the heat?
There are far better options for just as little money that offer culture, more fun, safer living, you name it.
Two books that discuss this are "Founders at Work" and "Gamers at Work", but in a nutshell - in this industry it's easy to grow from 1 to 50 people anywhere, but it's very hard to grow from 50 to 500, and almost impossible to grow from 500 to 5,000 employees anywhere outside the Valley. It's just the proper concentration of talent and other companies you can poach from.
The chance of great collisions and fortuitous opportunities are hogher in the area. The people who know how to build great companies are in that area. Top rngineering talent, top venture capital, and great people with ops backgrounds live in that area. Like ben horowitz says, if you conpete with a bay area company in the same space, they have a large advantage
True. I have found the farther away you go and the longer away you are, connections fade. No matter how 'connected' you felt they were. I guess it's just human nature. Friends are different.
You're right, if you want to build a lifestyle SaaS type business, you probably don't need to be here.
Folks here have bigger ambitions and want to change the world. Some do, most don't. Lot's are just delusionary.
Changing the world is nearly impossible, but that possibility is sharply increased when living in close proximity to money and talent. You only live once, why not try?
Who said anything about building a lifestyle business?
> Changing the world is nearly impossible, but that possibility is sharply increased when living in close proximity to money and talent. You only live once, why not try?
Talent is available everywhere and for far less than the bay area. Why not live somewhere else and raise funding from CA?
Disclaimer: I live in Chicago, but started my company in San Francisco. I've been in gravitational orbit around the SF Bay Area my entire working life. (For a majority of the past 6 years, I've spent 1 to 2 weeks a month in SF.)
The standard arguments for starting a company in California is:
1) You'll be closer to venture capital.
2) You'll be closer to talent.
3) You'll be closer to customers.
1) If you want or need venture capital, then it helps to play by their rules. One rule is: "Locate your company's headquarters within an hour's drive of my office." In my opinion, this is stupid and short-sighted, but from their perspective, it kinda makes sense. Giving you capital means (most likely) also sitting on your board of directors. And if those board meetings only require a short drive (instead of flying), then their life is easier. Also, if they're giving you a ton of money (many millions, perhaps), they'll sleep better at night knowing you're close by and can meet in person at any time.
2) Access to talent is closely related to access to capital. VCs will want to give you money only if you want to get big and make billions of dollars. (AKA: Are you the next Google, Facebook, or Apple?) The implication is that if you're going to scale big, you're going to need a ton of employees. If you're based in the middle of nowhere, your growth potential is limited to the size of your local talent pool. Again, I think this argument is silly and short-sited. But I've heard VCs make this argument directly to me in the past.
3) It generally makes sense to be close to your customers, especially early on when you don't have any. If you're a software company selling to other software companies, it might make sense to be based in San Francisco, regardless of how expensive it is to operate there. (You're going to make billions, anyway, right?) If your early customer is the U.S. Government, it might make sense to be primarily based near D.C. If your customer is the media, it might make sense to be based in New York or Los Angeles. If you can argue that there isn't a central cluster city of potential customers for your business (or you can argue that it doesn't matter), then it's less likely you'll need to move to be closer to them.
This is how I plan to do my next startup given the above three arguments:
1) Don't plan on needing VC. Bootstrap and get to profitability as quickly as possible. Then I won't have to play by VC rules and move closer to them.
2) Don't plan on needing to grow big. Plan on hiring people wherever they are, and create a remote-friendly working environment.
3) Live near an airport. As long as I'm close to an airport with lots of direct flights, I can visit potential customers whenever/wherever I want. (This is why I'd rather be in Chicago near O'Hare Airport, than live in the middle of Kansas, for example.)
However, I still might move back to the Bay Area someday. But I'd only do so for personal reasons - e.g. being closer to family and access to awesome hiking trails.
Sounds great, and I hope you succeed with your new venture. I'm with you on not wanting VC money. Nothing says "I don't have control" like a company in debt or beholden to those who control the purse strings.
Until you never have to work again in your life, you'll always be beholden to someone. But I'd rather be beholden to my family, my employees, and my customers.
Last week patio11 had an interesting comment on residential rents in San Francisco compared to rents in Tokyo.[1]
"Can I throw one into the list? The median cost of a one-bedroom apartment in San Francisco gets you approximately two bedrooms in Tokyo... in a semi-luxury apartment, in the most desirable neighborhoods. . . .
"Still though, given that I have had lifelong impressions of Tokyo as being the most expensive place to live anywhere, I was pretty gobsmacked when I started doing the math."
Many people here in SF have been saying this is the direction we've been heading for quite a bit(if it hasn't happened already): SF becomes Manhattan, the surround Bay Area become the boroughs.
That's an oversimplification of the differences between San Francisco and New York. To begin with, it's a lot easier to travel between boroughs in New York than it is to travel between cities in the bay area. The coverage and availability of the public transportation system is much better in New York (the MTA runs 24 hours). In addition, the bridges are shorter and thus easier to bike or walk over. The length of the Bay Bridge is a kilometer more than the combined lengths of the Brooklyn, Manhattan & Williamsburg bridges, all of which connect Brooklyn & Manhattan. And that's without even mentioning the ease of travel between Manhattan & Queens or Manhattan & the Bronx.
And there's also the lack of new housing development in San Francisco that is a function of public policy. There is tons of new housing going up in the affluent parts of Brooklyn and the prices are rising in spite of that.
In short the bay area structurally is not fit to be as unified as New York is for citizens & commuters and San Francisco has policy changes it could make to accomodate the rising population that it has not taken.
If you were to color in the sparsely populated hills and mountains of the Bay Area as water, you would get an interesting map that makes the place look almost like a bunch of island chains. There are breaks in places like Hillsdale and San Bruno Mountain that disconnect the peninsula from SF, and that is not as obvious a gap as the bay. What you say about the bridge length is interesting because I think most people don't realize the scale of distance between these island chains.
SF wouldn't be in this situation if it was willing to become Manhattan. If even one neighborhood in SF became as dense at the Upper West Side the entire housing crisis would evaporate overnight.
Ditto on office space. If SOMA built up like Midtown - or screw Midtown, just SoHo - we wouldn't be looking at these insane office rents.
But of course, Manhattanization is a dirty word in SF, largely because rent control lets you pass the buck on macro problems in the housing market. You got yours, sucks to be the guys who need an apartment now.
NIMBY's will never let SF become Manhattan (I.e. dense commercial surrounded by dense residential surrounded by dense suburbs connected by extensive subway and rail). You'll just pay Manhattan prices for sprawling hell because nobody will let anything get built. SF's future looks more like D.C. not Manhattan.
Good luck boring subways, tunnels, and right-of-ways through mountains, sand dunes, and silt! Buses are the only reasonable answer and much more modular to adjust to changing demands as years go by.
A traffic system that programmatically prioritizes for public transportation, along with traffic citations issued by camera and automation (sorry) is what we need.
BART is already built through the very same ground. MUNI already has multiple tunnels through the "mountains" in the middle of SF. BART even runs directly through artificial landfill without issue.
The seismic activity of California certainly exposes more challenges, but there's no good reason why underground transport is impossible in SF.
Bus Rapid Transit is a cheap way to look like you're doing something about transit in a growing city when in reality you're just kicking the problem down the line.
> Buses are the only reasonable answer and much more modular to adjust to changing demands as years go by
The problem with buses is bus routes are too easy to change or eliminate.
To get me to give up my car, a public transportation system needs to have good coverage of where I need to go, when I need to go, and there has to be good reason for me to believe that it will stay this way.
Buses can provide the good coverage, but it is almost impossible to provide the assurance that this will continue. If some route I depended on when I picked where to live has a ridership decline, some bean counter can cut that route, or move it a few blocks over to try to get more riders. I can't easily move my house a few blocks over to match the new route.
For buses to really work, there has to a strong commitment to stability of routes and schedules, so that people can base long term plans on them. I don't think most US cities have the political and financial stability to make that commitment.
> Many people here in SF have been saying this is the direction we've been heading for quite a bit(if it hasn't happened already): SF becomes Manhattan, the surround Bay Area become the boroughs.
That's extremely far off the mark. Rent is so high in SF precisely because it's not like Manhattan.
Even Brooklyn is denser than SF. That's ludicrous, when you consider the supply & demand of housing.
In New York, housing almost follows the free market. Yes, rent is expensive, but that's too be expected considering the consistently high demand and that apartments can't be instantaneously constructed.
SF is just as expensive, despite have an order of magnitude less demand. It's a completely supply-driven problem, and until that supply problem is fixed you're going to see rents well in excess of Manhattan (for a far shittier city, with way fewer amenities).
> SF is just as expensive, despite have an order of magnitude less demand. It's a completely supply-driven problem, and until that supply problem is fixed you're going to see rents well in excess of Manhattan (for a far shittier city, with way fewer amenities).
People who would rather live in Manhattan know where to go -- but, you know, there are people who consider higher density a negative feature that weighs against other amenities, rather than a positive or neutral feature. Not everyone has the same preferences matrix, and plenty of people see San Francisco as preferable to New York.
> In New York, housing almost follows the free market.
That New York is free or rent control, zoning laws, etc., etc., etc. is, well, news. The regulation in New York may be driven by different preferences -- and perhaps by preferences more in line with yours -- but it is no less present.
SF neighborhoods like Richmond, Sunset, etc, really bring down the density. When I think of the Manhattanization of SF, it's really just the 2x4 NE corner.
San Francisco has no right to compare itself to New York. None at all.
New York has a legitimate demand problem, seeing as it's the capital of the world.
California has an artificial demand problem due to NIMBYs who corrupt zoning boards, oppose reasonable development at every turn, and live in the past while paying lip service to "building the future".
(It also has a problem with corrupt/dirty foreign money swelling into the housing market, but that's an issue in New York as well.)
New York has solid public transportation. You don't need a car if you live there. People bitch about the MTA, but it's remarkably cheap compared to having a car anywhere in the US, and remarkably convenient considering how much access it provides.
San Francisco is a city where you need a car, but can't afford it. Parking costs are so bad that many garages post their 15 minute rates (often around $3.00).
New York is hard-core urban and owns the positives and negatives that comes from it, and New York runs itself. San Francisco companies are run from the suburbs-- specifically, from an office park called "Sand Hill Road" in a stretch of land that really ought to be reclaimed by the cows and orange trees, because the people living there are contributing nothing but additional work for the sewer system.
Manhattan is what it is, take it or leave it. (And there's nothing wrong with leaving it.) California is fundamentally dishonest and hypocritical, because it's full of people who pretend to be liberal but are, in many ways, worse than the Manhattan old board when it comes to elitism.
New York isn't perfect. There's a lot that's badly designed or unpleasant about it, but if you compare it to the cataclysmic mismanagement of California at all levels, it's a breath of fresh air.
> San Francisco is a city where you need a car, but can't afford it.
Maybe for some people, or for some definition of "need." I've been in SF over three years with no car, although I rent a car for a day maybe once every couple of months.
You realize that California is a much larger place than just SF right? It's the most populous state, the 3 largest in mileage, and if it was a country it'd have the 8th largest GDP.
It's astounding that you simply can't imagine that there exists cities that function differently than "the capital of the world" as you put it.
I have always loathed California. It all seems so fake and far reaching, while NYC, as you say, is brutally honest in what it presents: lead, follow, or get out of the way.
New York is a place that forces you to accept that human life is mindlessly, ludicrously, and inexcusably unfair. It's not there in the abstract ("lifestyle" shows about rich losers, poverty on other continents) but quite visible, every day. It's in front of you, and it's not easy to accept, but after a while you learn from it and tune out the idiocy, while keeping the insights that make you a better person.
In the suburbs (and the mentality that is now dominant in San Francisco is suburban, because the locals have been priced out by fratty douchebags and basic bitches) people have enough distance from what's going on that they don't have to acknowledge the facts of social injustice. They can persist in the delusional belief that "the rich" are more successful versions of themselves, and not preselected winners who've had social connections and resources delivered to them since before birth.
I don't loathe "California", insofar as many people I like live there and it's a big state with some beautiful national parks. I'm just disgusted by what it has become, and especially by the utter defeat of the technology/engineer culture in Silicon Valley at the hands of MBA C-students and people flushed out of McKinsey.
Again, well said. I agree with you. I, too, have some good friends who live out there (cannot fathom why).
I like the raw energy of NYC, something no place in CA has, not even LA, and I lived out there for almost 4 years. NYC trumps any large US city for pure energy and things to do. I can be in Europe in a few hours, Canada in no time, the food is second to none, the weather is decent, as you tend to get four seasons instead of warm and cooler.
I've lived in Europe, Asia, and 7 US states. NYC is by far my favourite place in the US to visit, and perhaps one day, live. NYC is walkable, something few US cities can boast. Not even Chicago comes close to NYC in amenities -- and Chicago cannot seem to get a grip on their gun violence problem, something NYC has all but stamped out.
Let's not even mention the plethora of museums, restaurants, theatre choices, educational institutions, and more that NYC has going for it. No other US city can compare.
"San Francisco has no right to compare itself to New York. None at all."
Who exactly is the arbiter of this right? San Francisco (and for that matter Paris, Tokyo, Beijing, London, hell even Turlock) are free to compare themselves to whatever other city they like.
Also, you don't need a car in SF if you're not lazy or just coming back from buying a couch, I prefer the weather in SF, and different cities have different good and bad things about them.
As far as capital of the world? Eh... I guess, but London seems the more natural choice for that in many regards.
London is the financial capital, not the cultural capital. London long ago lost its lustre as a place of fun and sanity. You get taxed driving into the city centre, not so NYC, the cost of living in NYC is far less than London. A year-long NYC subway pass is dirt cheap compared to the 7,000 pound a year British Rail pass.
I like London and have a great time there when I visit, but I guess I'm weird. Brewdog, Euston tap, the skaters at South Bank, etc. are all good attractions. I also strongly support the congestion charge. Land is expensive, and letting automobiles drive all over it subsidizes drivers at the expense of the pedestrian (or cyclist). Ideally it would be so expensive to drive in the city center we could take a lane or two away from cars and give them to other road users, but I guess this is a pipe dream. Remember, at one point streets were for people (and carts, horses, early cycles, and yes, even very slow-moving automobiles), but cars stole that, and with it an important civic space, from us.
LA is the cultural capital. As depressing as it may be, world culture is now Hollywood culture; Los Angeles has far more impact on the culture of far-away places than either San Francisco, New York, or London.
LA makes pop culture but London is by far and away the aspiration city for those on the make. NYC doesn't enter into it. All over the world everybody aspires to be an English gentleman. Rich New Yorkers essentially try to emulate a rich Englishman but never manage. A Savile Row suit is still the gold standard and London sets all the high end fashion trends.
When I look at what real, successful people actually wear, it usually consists of ripped jeans and faded T-shirts. Occasionally pajamas or assless chaps. My perspective may be warped by the Bay Area though. (Which is kind of my point - who defines who "real, successful people" are? The folks I see rollerblading here have billions of dollars more than even high society folks in London or Paris.)
Exactly. That's the whole problem with the sweeping statements here. It's good we have different cities with different styles and sensibilities. And it's usually silly to say one is "best."
Very rich people in the bay area are not successful by popular standards. At the end of the day they are still fat nerds with lame interests and nobody cares, no matter how much money they make. This is what the world aspires to: http://cdn.ltstatic.com/2012/June/GJ406062_942long.jpg
There is absolutely no such thing as a "demand problem", ever.
This is a demand problem in the same way that a bakery might make some really popular cookies, and the customers would buy all those cookies. Then more customers would come in and be told, "sorry, we're out". This is not a "demand problem", this is a stupidity problem. "Demand problem" in a free-market capitalist economy? Please.
Bake some more cookies, look how popular they are.
> "At the heart of high-tech’s growth is strong demand for products and services from consumers," Los Angeles-based CBRE said in its report. "As long as high-tech companies align themselves with this demand, the unrealistic growth and valuation expectations that defined the dot-com bubble should be avoided."
"Demand" must be the new "eyeballs."
There's no question that there is strong demand from consumers for high-tech products and services. The question is how many startups are capable of offering those products and services profitably.
Right now, much of the rent money in the Bay Area is coming from investors, not cash flow.
> Right now, much of the rent money in the Bay Area is coming from investors, not cash flow.
Do you know what the ratio is? Was in 2000? Is in NYC or elsewhere?
How to calculate? Investment divided by revenue of startups, or divided by city or metro gross product? Investment in current period, or cumulative with some decay factor?
Is there an index that gets at this that I don't know about?
I think I've written about this a lot. Prop M from 1986 capped the amount of office space that could be added per year. The city has only run into the hard cap a couple of times in its history.
It's not really surprising given the growth of tech and the lack of growth in finance. That plus the sheer volume of office space available in NYC compared to SF (NYC has about 4x the total office space of SF).
Of course, NYC's overall infrastructure for tech companies is horrible compared to SF.
NYC is actually seeing an uptick in companies abandoning the insanity of Silicon Valley and the West coast and moving to NYC and places east. And, what with NY state's recent incentives to start a company there, I would rather be based in NYC than SF Bay. IMO, NYC has a much better overall culture than SF and proximity. There is also the echo chamber of the SF tech area, which I abhor.
I have, over the years, toyed with -- and still do -- the notion of moving to Brooklyn or perhaps further out into Long Island. Love the place. Home of the best pizza outside of Naples to be sure.
I've lived in NYC for years and am investigating a move to SF now. NYC has always been a pretty bad place for anything tech except financial services companies. The incentives and initiatives are always around everything except software. And most of the VCs I've spoke with here are more geared toward physical businesses, financial services companies, biotech, etc... not pure software plays.
Well, as an NYC based startup I can speak to a at least one thing; TWC Business/Commercial internet is garbage. Plain and simple. We're lucky enough to have FIOS in our building and that has been pretty decent, it still goes out quite a bit.
As soon as you move past the low end of cable / FIOS Internet speeds NY has awesome commercial network bandwidth. Think OC 192 and beyond. You can often make a deal with another company in your building to add bandwidth or redundancy.
FiOS isn't available in many areas of the city (I can't get it at home where I do most of my work). TWC is incredibly unreliable (daily outtages of a few minutes, monthly/bimonthly outtages of a full day or so). I have no other alternative other than slow/unreliable DSL or exceedingly overpriced (per GB) mobile hotspots.
FiOS is actually "available" in most parts of the city - i.e., there's a Verizon FiOS line running right in the street in front of your apartment.
The main problem are buildings and landlords. Many landlords and supers receive kickbacks from TWC to prevent Verizon from accessing the building and delivering the last-100-feet service.
The best way to improve the state of internet in NYC is for the city to start busting landlord heads.
It's not available where I am. Not on my block. Or the next one. Or the next one. Verizon has no ETA on when it will be and hasn't been installing any new fiber in my neighborhood in a long time. It has nothing to do with my building owner. The owner-occupied single and two family properties on my block (or the next one, or the next one, etc) can't get it either.
Absolutely no offence indented, but this is the type of thing you work out before signing a long term lease. Not that that in any way helps you, but FIOS is available in much of NYC so if your looking to move to that area it's an option.
In your case, bonding with wireless or DSL in case of outages is probably worth it. The difference between slow internet and no internet is huge. Other options include wireless internet cards for PC's / laptops, it can get vary expensive but for a small staff that occasionally does off site demo's it's also vary useful for that.
Unfortunately, wireless is hugely expensive... as in $10 per GB expensive. As posted in another comment, I have a Verizon hotspot that I use as a backup for the unreliable Time Warner Cable connection.
DSL isn't an option as, like most (possibly all) of NYC, I only have a Verizon or someone that resells it. I tried it once years ago and was out of service for 7 days of my 1 month trial because a Verizon tech randomly unplugged something at the local box.
My only real choice is to move to another neighborhood. But I've begun looking into moving to San Francisco anyway, since it's a much better environment for tech companies (unless you're in finance technology, which I used to do).
As bigdubs said, Time Warner Cable is pretty awful and is often the only option in many buildings. I run my business mostly from home. My only options are TWC and DSL. No other cable providers serve me. FiOS isn't available. I tried DSL once and it was out for 7 days of my 31 day trial because Verizon accidentally unplugged a connection in my neighborhood box.
I have TWC at home but need to have a (very expensive per GB) Verizon hotspot as a backup. TWC goes down a few minutes every day (which will disrupt any long term stuff you need) and goes down for about a full day every month or two. Each time it goes down TWC will claim its something with your internal equipment. Even though the truck is down the street fixing the connection. Multiple TWC level 3 techs have confirmed that our neighborhood, like most, is oversold and they have fairly regular outages.
On particularly bad days, TWC will go down and then Verizon's 4G network will go down right after, leaving me stuck at 3G speeds or without a connection and losing a few hours of work.
It's been this bad for the 18 years I've lived here and is unlikely to change. Even large office buildings often have exclusive agreements with poor providers. Heck, when I worked in the WTC 15 years ago, you had to use Verizon exclusively and the network was overloaded and severely overpriced compared to any other building.
I think it's funny how the same NIMBY policies that all the techno-libertarians hate so much, are the same policies that made San Francisco a more desirable place to live for said techno-libertarians than San Jose and the East Bay.
This only makes sense. The amount of multi-million dollar seed rounds has increased and people want the best office space to attract employees. The more competition in the market for the best office space, the more people can charge and then boom you get what you have now : hyper inflation in costs. I actually wonder how long until people start looking at the north bay like San Rafael for office space just to save on cash. I know people are already targeting Oakland.
It has never been easier to build a tech company, especially a SaaS-type business with no physical inventory. You could home your company in a cheaper, more business friendly city like Austin (disclaimer: I live in Austin). The tax savings alone would cover the costs of going to SF once a week. Quality of life is just as high (or higher, depending on your interests) in many other cities.
Edit: Seems people are missing the fact that you could literally fly to SF once a week for networking / meetings / events and it would still be cheaper to live somewhere else. You don't have to miss out on being a part of the network.