17 ms·

Starting a Company Outside Silicon Valley Just Saved Me $1.1M

193 points by robertjmoore 8y ago

geverett 8y ago
As someone who started a company outside SV, then moved there for 3 years to grow the company, and has now moved away again - I would say it's well worth it to spend at least some time in the Valley to build a network and understand how deals get done in person. The density of investors and other founders/early employees in Silicon Valley can't be beat, and I often found myself learning inadvertently - dinner table conversations would be about how people raised their round, the friend of a friend you meet while camping turns out to be a partner at a fund you're trying to pitch. In more cases than are logical or fair, people simply invest in their friends - which means if you make friends there you're increasing the chance you'll be able to raise money easily. That being said, the cost of living is absurd and I would never hire an engineer in Silicon Valley unless I was building something at the outer limits of frontier tech (and even then I'd scour the globe for qualified engineers elsewhere). And I don't think you need to be there forever. If you build up a solid network you can move away and still reap a lot of the benefits from afar / through occasional visits.
- everdev 8y ago
  I did web design sales from Silicon Valley but used a remote team (US-based) to develop the projects. Everyone was happy. Clients got a great project, I had great margins and the team got paid at or above going rates in their local area. I would never try to build an in person team in the bay area unless you need the absolute 1% of engineers on your team.
  - jen20 8y ago
    If you need the “absolute 1%” of engineers on your team, you go to them where they are, by having a remote-first team and hiring remotely.
    - everdev 8y ago
      IMO, most are already working in the Bay Area at the big companies or unicorns. If you know how to find that ultra top tier talent remotely I'd love to hear what's worked for you.
      - jen20 8y ago
        Frankly just being remote is sufficient - HashiCorp (for example) was almost entirely remote for engineering for a long time (and may still be, I haven't kept track). Some people ended up in the Bay Area, many people appreciated being able to live and work elsewhere. Not least, Europe.
- true_tuna 8y ago
  Where did you move? I’d guess 50% of the people in this thread are open to leaving the Bay Area if we find a location with comparable opportunity.
  - ghaff 8y ago
    The thing is that "comparable opportunities" equates to (perceived) Bay Area salaries which are more or less equated to higher-end FAANG salaries and the (perceived) ability for a random engineer to drop a few emails and be starting in a new well-compensated position the following Monday. You're not going to get those most places. I'm not sure it's the norm in the Bay Area either though.
    - sidlls 8y ago
      I don't work at FAANG. My "all in" is about 65% what I'd earn at FAANG at the same level (EM, L5/6). It's about 150%, or more, of what I'd earn just about anywhere else in the US. Not to mention the opportunity cost: most anywhere else the software job market is not nearly as well developed. It is absolutely the norm in the Bay Area for salaries even adjusted for cost of living to be far better than elsewhere. Plus all the additional attractive features like a relatively more tolerant population, much more diversity, better public venues like parks, and recreation like museums and such.
    - Kalium 8y ago
      > The thing is that "comparable opportunities" equates to (perceived) Bay Area salaries which are more or less equated to higher-end FAANG salaries In my experience, people mostly look to preserve their financial position rather than take a jump up. Just because rent's cheaper somewhere else doesn't mean I want to take a proportionate pay cut. I've watched people turn jobs down flat when offered 50% of their pay in NYC because rent is half of NYC's. Salary history matters a lot of negotiating power in the future. Salary matters for building up a financial cushion in case this job elsewhere doesn't work out and now I'm somewhere that has a lot fewer options on offer.
  - geverett 8y ago
    I'm in the process of trying to figure out where I'm going to be based next, leaning towards Puerto Rico (love the climate, friendly local population, easy/cheap/fast hop to family in New York, incredible tax incentives for people running businesses, sense of excitement/opportunity as the state rebuilds). 'Comparable opportunity' is relative - while an engineer here isn't as likely to earn a Bay Area salary, as a founder I think it's likely I could raise a decent round while based here (likely sourcing a lot of capital from Silicon Valley) while enjoying a comparably low cost of living and doing business. If I were trying to build the next Instagram I wouldn't do it here but there are so many businesses that need to be built here. I'm a firm believer you can find opportunity anywhere if you get creative. It's more fun to be a statistical outlier :) I'm also in a position at the moment where I have relatively low overhead (no kids, good health) and realize that might not be the case for everyone, though I'd bet it's the case for many people who don't bother to take advantage of it.
filoleg 8y ago
What about the opportunity cost that he potentially lost by starting his company outside of Silicon Valley? I am not saying that he definitely did, but the fact that OP doesn't mention it at all makes his whole post feel a bit disingenuous. In fact, it reminds me a lot of people who talk about how much money they saved by not going to college and how it is the way to go for everyone, despite studies [of US colleges] showing otherwise. P.S. I don't lean one way or the other about colleges, there are definitely cases where not going is a good idea. However not even seriously looking into upsides of going and closing eyes on potentially missed opportunities will devalue your argument.
- sontek 8y ago
  What would the opportunity cost? What does silicon valley have that philly doesn't?
  - filoleg 8y ago
    Talent, VCs, good weather. OP has managed to save $1mil by basing his company in Philly, but could have potentially missed out on multiples of that amount from VCs. Mind you, I don't even live there, because the downsides of living there in my current situation outweigh the upsides. However,I have been there many times, and if I had to start a company right now, that's where I would do it. P.S. Try hiring engineers for a company in Philly and a company in SV. Then try to compare the quality and number of candidates knocking on your door in each scenario.
    - donaldknuth123 8y ago
      Yeah all those UPenn grads are trash compared to Uber drivers in SV. /s
  - eanzenberg 8y ago
    He may lose out tons if/when he gets acquired / acquihired.
  - true_tuna 8y ago
unignorant 8y ago
Similar things can be said about starting a company with a fully remote team. I’d estimate we saved much more than $1M for our thirty-person company. An additional benefit is that you can recruit the best talent from anywhere, so long as they have experience working remotely (it’s a bit of a risk to experiement with someone who hasn’t done remote work before). With this setup, I’ve been blown away how easy it is for us to recruit amazing people. It would be much harder recruiting for local engineers wherever you are based, whether that’s SV or Philadelphia.
- sontek 8y ago
  I started my company fully remote but doing payroll in multiple countries is a pain. Have you solved this? I'm limiting my employees to the areas I've already registered with the proper authorities and not hiring in any other locations.
  - bitL 8y ago
    Hire them as contractors with equity. Pay them their accounting costs + health insurance amount + voluntary pension plan if you want to emulate their countries' typical deductions.
  - nostrademons 8y ago
    Most of the entrepreneurs I know avoid this problem by not hiring employees - they use contract labor sourced from Upwork, which handles the paperwork of dealing with different countries & currencies. There are some challenges around communication, management, finding good people, etc, but once you find someone you can get a very loyal worker for a low price. A Cambodian programmer making $15/hour can live like a king - that's 12x the median income for their country, or the equivalent of an American making about $720K/year, so they have a strong incentive to work hard and not fuck it up.
  - unignorant 8y ago
    In US we do payroll. For other countries the employees are legally contractors, though still with equity and not treated any differently from anyone else on the team
duxup 8y ago
I always assumed the valley focus was because, yeah VC money there, and VCs wanted people close by to help (well if they help), and just generally there are a lot of good people there. By no means are those bad reasons, but not everyone will have those reasons. A calculator seems a bit simplistic but I would generally agree that if there isn't something outright drawing you to that area, you don't have to be there and there are costs. I worked for a really large company a while back. They bought some smaller company and discovered a support center ... that I worked at. They thought they'd try doing support at that site as they suddenly had support there. For less than half the cost per employee we managed to do twice the workload, higher customer satisfaction, and we often were requested by customers who quickly realized we wouldn't just shut down cases on them. Almost immediately there were tensions. I'd go out and visit and oh man it was tense. There was this idea that support just had to be in the valley because straight up the managers and folks working there didn't know there were technical people... anywhere else (this was before we had other islands of tech in the US). I even bought it for a bit thinking I was going out to meet some high performing folks and found ... way not that. It was amazing that they had (including some management) convinced themselves that stuff only happens in the valley and if they hadn't seen it they wouldn't have believed it was possible outside (and some did not, oh the excuses).... and that was just for a maintenance type task like tech support. (granted this was some high end stuff so it did take good people, but they're everywhere)
- stcredzero 8y ago
  convinced themselves that stuff only happens in the valley and if they hadn't seen it they wouldn't have believed it was possible outside (and some did not, oh the excuses).... Isn't this bigotry? I remember watching all of these shows on PBS as a kid, where one of the major themes was how people would judge other people by class or other surface signals, and how this could obscure the truth or leave good people unappreciated on their merits. Did people learn the lesson? I guess some people did, and some people didn't. Here's my experience coming to the Bay Area, looking up from the bottom: There's more bigotry here. People judge you more quickly and more absolutely on a more shallow basis here than anywhere else I've lived. (With the exception of the Norwood neighborhood in Cincinnati.)
avallark 8y ago
penny wise, pound foolish
- deleted 8y ago
  [deleted]
- kgwgk 8y ago
  Million wise, billion foolish?
jacquesm 8y ago
You could save a ton of money starting a restaurant on the North Pole! Free real estate, low bill to light the place during half the year, what's not to like. As much as I hate the draw of SV if I were to start a company that needs that kind of funding I would do everything I could do to do it there. Why hamper yourself on purpose, the $1.1M saved might easily translate into a couple of missed connections worth a very large multiple of that amount.
JohnFen 8y ago
Personally, I wouldn't start a company in silicon valley. On the whole, it looks to me like the downside of doing that far outweighs the upside.
- maxk42 8y ago
  Elitists from silicon valley will downvote this simply because they don't like having their life choices called into question but you're right: The costs (cost to lease space, cost of labor, business costs, commute, quality of life you can afford for your dollar, crime rate, etc.) far outweigh the benefits (access to talent and VC). If you can bootstrap it yourself or find VC outside of SV, it's typically better to do so.
  - joejerryronnie 8y ago
    This outlook is just as baseless as the opposite view that all startups have to be in SV.
    - JohnFen 8y ago
      All cost/benefit calculations are context-dependent. You're right, it's not possible to accurately make a blanket statement such as "everyone should/should not start their business in silicon valley". All anybody can say is how that calculation works for themselves.
  - erikpukinskis 8y ago
    People might also downvote it because they didn’t say anything at all.
- true_tuna 8y ago
  Where would you go? Asking as a Silicon Valley person looking for a place that’s a step less Silicon Valley, but not quite middle America.
  - JohnFen 8y ago
inputcoffee 8y ago
I think there is an error in the title. It should read: "Starting a Company Outside Silicon Valley Saved Me Just $1.1M"
- desireco42 8y ago
  Ha ha, I totally dont' agree with you, but I appreciate your point :).
- adventured 8y ago
  I agree. I was surprised that the gap was so narrow. Only costing 25% less is not a favorable outcome for Philadelphia given how expensive Silicon Valley is. If I can do Philly for $3.3m or SV for $4.5m, that's an easy choice. The valuation boost you'll get for being in SV instead of Philly will cover that several times over. The network and talent available in SV is worth suffering that gap all by itself. The only way that difference is a meaningful deterrent to choosing SV, is if you're not going to raise serious VC and will mostly bootstrap the business or otherwise raise smaller amounts of investment. In that case saving that money can make a big difference.
  - jryan49 8y ago
    So 25% more runway has no value?
jawnv6 8y ago
50% of VC funding lands in CA. 50% of that is on Sand Hill. So ~25% of all VC funding happens in offices in Palo Alto, the sheer efficiency of chasing a funding round can't be beat. For an established serial entrepreneur with a proven track record, it can absolutely make sense to stay in an area you know. But I think that math really changes if you're going to be cold calling VC's, trying to wrangle meetings from 3 time zones away, get meetings bunched up to consolidate travel, etc. The overhead of redeye travel is relegated to a joke at the end, where's the "measurement" on that?
- JohnFen 8y ago
  But that only matters if you're chasing VC money. That's the norm in silicon valley, but (depending on your goals) it's not necessary in order to start a profitable business. I've started and sold a handful of successful tech companies, but have never taken a dollar of VC money.
  - jawnv6 8y ago
    Right, the article is chasing VC money. They have a calculator to see how far a VC dollar will take you called "VC Arbitrage". The author takes flights to SF specifically for VC meetings. You're talking about a situation wholly removed from the article, why?
    - JohnFen 8y ago
      Because I was engaging in a broader discussion. I'm sorry for offending you.
- bluGill 8y ago
  You only need the VC who funds you though. Chasing after one elsewhere might be better odds because everyone else is looking to CA.
  - jawnv6 8y ago
    "the" VC? lol
kokokokoko 8y ago
Philadelphia is less than two hours from New York. There are plenty of well known and successful startups from New York. This is more like "Starting a Company in Daly City". Definite clickbait hustle story to drive traffic and sell his product. I wouldn't waste your time on the article.
40acres 8y ago
Why do you need to start a company in the Valley when two mega-corps (Amazon, Microsoft) have already shown that you can succeed outside of the valley? The huge companies are already starting to branch out (Amazon in NYC/DC, Apple in Austin, FB/Google in NYC) and ecosystems will be built around these hubs. Not only that but there are a variety of other hubs in the nation that are in close proximity to elite technology schools (Pittsburgh, Boston). The talent is definitely there, the VC infrastructure may be lacking but you're telling me Marc Andressen won't hop in his private jet to meet with a promising founder?
- ghaff 8y ago
  It's also somewhat of a bias that tech = "whatever Silicon Valley does." While there is a fair amount of that tech in e.g. Boston/Cambridge as well, you also have way more biotech/pharma than exists in SV.
znpy 8y ago
tl;dr: the silicon valley is unreasonably expensive.
- isostatic 8y ago
  Pope is Catholic. Bears shit in woods.
  - znpy 8y ago
    software is broken. computers were a mistake.
oarabbus_ 8y ago
Is it just me or is the headline a good reason to start a company _inside_ Silicon Valley? I can't be the only one who thought "all you saved was $1.1 million? I'd rather spend that and be in a location which is drowning in tech talent"
rc_kas 8y ago
Good on you that you had access to $1.1M. Congratulations.
tschellenbach 8y ago
Traditionally the valley has clearly been the best place to start companies. Many VCs still believe its the best place today. Hard to say if that's true, you won't really know till companies that are started today end up growing and succeeding. That takes about 10 years to play out, so in 2029 we'll have a good idea of where the succesful startups came from. I'm going to go ahead and guess that a larger percentage of them will come from outside of the valley. There is more VC funding outside the valley than before, great startup knowledge is available via books, classes, techstars outside of the valley. Due to cost of living talent has moved outside of the valley. So yeah definitely expect to see more startups succeed outside than has been the case historically.
jillesvangurp 8y ago
There is talent outside the valley and you can get it at a discount. I live in Berlin but I've worked with lots of Polish, Rumanian, Belarusian, Russian, etc. colleagues spread all over Europe. Good hard working people, with solid academic degrees, plenty of experience, up to date skill sets, etc. You can hire an entire team of them for the kind of money valley based teams spend on a single person. It doesn't even have to be a good one. From what I've seen, there sure are a lot of not so great developers working in the valley. At least judging from the copycat designs, the clumsy UIs, chronic UX issues, etc. from typical startups I don't think that the grass is greener over there in any meaningful way. So, I think it is a myth that you get better than average people or products in SFO. Sure there are geniuses but the success/failure rates are not significantly different. There's simply more of both around. However, the failures are five times more expensive (ballpark, give or take, lets assume that for the sake of this argument). That is only offset by the occasional unicorn; which due to the enormous amount of startups happens more often there as well. IMHO this is the main benefit the valley has. There are lots of unicorns creating lots of wealth which quite often gets reinvested locally. There's a lot of money flowing around there. Most of it gets wasted on the same BS that VCs are funding elsewhere. But then you get the occasional unicorn making up for that and the practice of those companies acquiring the expensive failures to funnel some of that back to investors. Is a valley based team five times more expensive than a Eastern European team five times as good? I don't think so. I'd say it's quite easy to find people and teams elsewhere that are arguably just as good. Also, job hopping is a thing in the valley. Despite the insane salaries, the average tenure is quite short, especially at the bigger unicorns. So, there's a bang for buck problem in the Valley and the smart VC money there is already encouraging startups there to work remotely or consider having remote developer teams. Relocating to the valley after you get funded stopped being a thing here in Europe. VCs are no longer asking or expecting that; that was a standard question a few years ago. What would be the point? Quintupling the burnrate is not a goal; you need a good excuse than vague beliefs/hopes. You basically pay five times what you pay in e.g. Eastern Europe and most of that goes directly to real-estate owners, the state of California (taxes are actually very high there, even compared to Europe), and all the other overpriced stuff that the Valley has to offer.
- mschuster91 8y ago
aantix 8y ago
Sadly, if you're an engineer, those savings aren't passed on to you (obviously). If you're a software engineer and want to make an amazing salary by most people's standards, move to the Bay Area and get a job with Google/Facebook/LinkedIn/Etc. You can literally make a 500K+ a year.
- true_tuna 8y ago
  Add Netflix to the list. They pay extraordinarily well. Although most engineers make half what you listed. And what’s the median home price in Mountain View, San Francisco, Palo Alto, Los Altos? None of the above are less than a million. By contrast an engineer making 150k but buying a 500k house might have a better deal.
- driverdan 8y ago
  > You can literally make a 500K+ a year. People need to stop repeating this nonsense as if everyone makes that much. A very small percentage makes that.
erikb 8y ago
Which is not much, if you could've gotten $500M more in investments. My experience is the complete opposite of Tim Ferris Wisdoms TM. If you are where the money is at, you have vastly more opportunity to participate on the receiving end of money flows as well as information flows. So if you are a keen developer in SF you will not live on $60k for long, but rather quickly bargain your pay up the food chain to $120k or $150k. And then check out how well you can live on $120k in Thailand, you know? There are two exceptions to this rule of following the money, though. Exception 1: When you hit the ceiling. It might be much higher than you initially thought, but there is one. And when you hit it, it might be more reasonable to try to stabilize on that level and find a more peaceful and cheap environment to live in. Exception 2: When the current location is over hyped. Bay Area might still be in that phase where prices really are too ridiculously high. If you spend more than $60k/year on rent alone then maybe it's not wise to go there for $120k. But it might still be worth an internship or finding customers there.
ojbyrne 8y ago
“It’s VC arbitrage.” The problem with arbitrage is that everyone wants to capture it, since it’s basically free money. Not in SV? You only need 1/4 the funding.
- bhelkey 8y ago
  > As you can see, the $3.35M I raised at a San Francisco valuation netted me over $4.5 million of purchasing power in Philadelphia. 3.35 / 4.5 = 74.4%. 3/4 the funding not 1/4.
  - ojbyrne 8y ago
    Arbitrage == information asymmetry. It gets reduced over time (this post and comment will help).
samprotas 8y ago
I find it kind of odd that there are all these comments claiming the article glosses over nuance and therefore its conclusion is baseless when the counterpoints have even less data. Everyone seems to agree successful companies have started in SV and outside of SV, and that there’s a lopsided distribution. No one has spent much time on whether the location is the cause of or just correlated with success. I get that this is hard to determine, but maybe people should speak in less absolutes? The article is one persons decision making process, explained for the benefit of others. I don’t think it’s claiming to be The One Truth. Disclaimer: I worked for the author in Philly previously.
jarjoura 8y ago
The conversation that you're either starting a company in SV or not seems silly. Of course you can start a company in most civilized places in the world, people do it all the time. Case-in-point the article above. Plenty of industry defining tech companies started outside of the valley too. Microsoft up in Redmond, Commodore in West Chester Penn, AOL in Reston VA, and so on. The point I never see talked about with conversations like this is, should you? You can find plenty of data points that say you can and you absolutely can. It's the, does your idea and execution path make sense for the location you're setting up at. Some of the worlds top talent for tech are located in SV and that's why so many companies are here fighting for them. We're told, we need the best of the best to stay competitive and execute. If your product doesn't need a concentration of world class product managers, designers and engineers, then don't waste your time here competing for that talent. You'll have a much easier time finding talent elsewhere and for less money. For me, an engineer, I chose SV because I didn't want to be the best person on my team. I wanted to be surrounded by people who are 10x smarter than I am and learn from them.

193 points by robertjmoore 8y ago

As someone who started a company outside SV, then moved there for 3 years to grow the company, and has now moved away again - I would say it's well worth it to spend at least some time in the Valley to build a network and understand how deals get done in person. The density of investors and other founders/early employees in Silicon Valley can't be beat, and I often found myself learning inadvertently - dinner table conversations would be about how people raised their round, the friend of a friend you meet while camping turns out to be a partner at a fund you're trying to pitch. In more cases than are logical or fair, people simply invest in their friends - which means if you make friends there you're increasing the chance you'll be able to raise money easily. That being said, the cost of living is absurd and I would never hire an engineer in Silicon Valley unless I was building something at the outer limits of frontier tech (and even then I'd scour the globe for qualified engineers elsewhere). And I don't think you need to be there forever. If you build up a solid network you can move away and still reap a lot of the benefits from afar / through occasional visits.

everdev 8y ago
I did web design sales from Silicon Valley but used a remote team (US-based) to develop the projects. Everyone was happy. Clients got a great project, I had great margins and the team got paid at or above going rates in their local area. I would never try to build an in person team in the bay area unless you need the absolute 1% of engineers on your team.
- jen20 8y ago
  If you need the “absolute 1%” of engineers on your team, you go to them where they are, by having a remote-first team and hiring remotely.
  - everdev 8y ago
    IMO, most are already working in the Bay Area at the big companies or unicorns. If you know how to find that ultra top tier talent remotely I'd love to hear what's worked for you.
    - jen20 8y ago
      Frankly just being remote is sufficient - HashiCorp (for example) was almost entirely remote for engineering for a long time (and may still be, I haven't kept track). Some people ended up in the Bay Area, many people appreciated being able to live and work elsewhere. Not least, Europe.
true_tuna 8y ago
Where did you move? I’d guess 50% of the people in this thread are open to leaving the Bay Area if we find a location with comparable opportunity.
- ghaff 8y ago
  The thing is that "comparable opportunities" equates to (perceived) Bay Area salaries which are more or less equated to higher-end FAANG salaries and the (perceived) ability for a random engineer to drop a few emails and be starting in a new well-compensated position the following Monday. You're not going to get those most places. I'm not sure it's the norm in the Bay Area either though.
  - sidlls 8y ago
    I don't work at FAANG. My "all in" is about 65% what I'd earn at FAANG at the same level (EM, L5/6). It's about 150%, or more, of what I'd earn just about anywhere else in the US. Not to mention the opportunity cost: most anywhere else the software job market is not nearly as well developed. It is absolutely the norm in the Bay Area for salaries even adjusted for cost of living to be far better than elsewhere. Plus all the additional attractive features like a relatively more tolerant population, much more diversity, better public venues like parks, and recreation like museums and such.
  - Kalium 8y ago
    > The thing is that "comparable opportunities" equates to (perceived) Bay Area salaries which are more or less equated to higher-end FAANG salaries In my experience, people mostly look to preserve their financial position rather than take a jump up. Just because rent's cheaper somewhere else doesn't mean I want to take a proportionate pay cut. I've watched people turn jobs down flat when offered 50% of their pay in NYC because rent is half of NYC's. Salary history matters a lot of negotiating power in the future. Salary matters for building up a financial cushion in case this job elsewhere doesn't work out and now I'm somewhere that has a lot fewer options on offer.
- geverett 8y ago
  I'm in the process of trying to figure out where I'm going to be based next, leaning towards Puerto Rico (love the climate, friendly local population, easy/cheap/fast hop to family in New York, incredible tax incentives for people running businesses, sense of excitement/opportunity as the state rebuilds). 'Comparable opportunity' is relative - while an engineer here isn't as likely to earn a Bay Area salary, as a founder I think it's likely I could raise a decent round while based here (likely sourcing a lot of capital from Silicon Valley) while enjoying a comparably low cost of living and doing business. If I were trying to build the next Instagram I wouldn't do it here but there are so many businesses that need to be built here. I'm a firm believer you can find opportunity anywhere if you get creative. It's more fun to be a statistical outlier :) I'm also in a position at the moment where I have relatively low overhead (no kids, good health) and realize that might not be the case for everyone, though I'd bet it's the case for many people who don't bother to take advantage of it.

filoleg 8y ago

What about the opportunity cost that he potentially lost by starting his company outside of Silicon Valley? I am not saying that he definitely did, but the fact that OP doesn't mention it at all makes his whole post feel a bit disingenuous. In fact, it reminds me a lot of people who talk about how much money they saved by not going to college and how it is the way to go for everyone, despite studies [of US colleges] showing otherwise. P.S. I don't lean one way or the other about colleges, there are definitely cases where not going is a good idea. However not even seriously looking into upsides of going and closing eyes on potentially missed opportunities will devalue your argument.

sontek 8y ago
What would the opportunity cost? What does silicon valley have that philly doesn't?
- filoleg 8y ago
  Talent, VCs, good weather. OP has managed to save $1mil by basing his company in Philly, but could have potentially missed out on multiples of that amount from VCs. Mind you, I don't even live there, because the downsides of living there in my current situation outweigh the upsides. However,I have been there many times, and if I had to start a company right now, that's where I would do it. P.S. Try hiring engineers for a company in Philly and a company in SV. Then try to compare the quality and number of candidates knocking on your door in each scenario.
  - donaldknuth123 8y ago
    Yeah all those UPenn grads are trash compared to Uber drivers in SV. /s
- eanzenberg 8y ago
  He may lose out tons if/when he gets acquired / acquihired.
- true_tuna 8y ago

unignorant 8y ago

Similar things can be said about starting a company with a fully remote team. I’d estimate we saved much more than $1M for our thirty-person company. An additional benefit is that you can recruit the best talent from anywhere, so long as they have experience working remotely (it’s a bit of a risk to experiement with someone who hasn’t done remote work before). With this setup, I’ve been blown away how easy it is for us to recruit amazing people. It would be much harder recruiting for local engineers wherever you are based, whether that’s SV or Philadelphia.

sontek 8y ago
I started my company fully remote but doing payroll in multiple countries is a pain. Have you solved this? I'm limiting my employees to the areas I've already registered with the proper authorities and not hiring in any other locations.
- bitL 8y ago
  Hire them as contractors with equity. Pay them their accounting costs + health insurance amount + voluntary pension plan if you want to emulate their countries' typical deductions.
- nostrademons 8y ago
  Most of the entrepreneurs I know avoid this problem by not hiring employees - they use contract labor sourced from Upwork, which handles the paperwork of dealing with different countries & currencies. There are some challenges around communication, management, finding good people, etc, but once you find someone you can get a very loyal worker for a low price. A Cambodian programmer making $15/hour can live like a king - that's 12x the median income for their country, or the equivalent of an American making about $720K/year, so they have a strong incentive to work hard and not fuck it up.
- unignorant 8y ago
  In US we do payroll. For other countries the employees are legally contractors, though still with equity and not treated any differently from anyone else on the team

duxup 8y ago

I always assumed the valley focus was because, yeah VC money there, and VCs wanted people close by to help (well if they help), and just generally there are a lot of good people there. By no means are those bad reasons, but not everyone will have those reasons. A calculator seems a bit simplistic but I would generally agree that if there isn't something outright drawing you to that area, you don't have to be there and there are costs. I worked for a really large company a while back. They bought some smaller company and discovered a support center ... that I worked at. They thought they'd try doing support at that site as they suddenly had support there. For less than half the cost per employee we managed to do twice the workload, higher customer satisfaction, and we often were requested by customers who quickly realized we wouldn't just shut down cases on them. Almost immediately there were tensions. I'd go out and visit and oh man it was tense. There was this idea that support just had to be in the valley because straight up the managers and folks working there didn't know there were technical people... anywhere else (this was before we had other islands of tech in the US). I even bought it for a bit thinking I was going out to meet some high performing folks and found ... way not that. It was amazing that they had (including some management) convinced themselves that stuff only happens in the valley and if they hadn't seen it they wouldn't have believed it was possible outside (and some did not, oh the excuses).... and that was just for a maintenance type task like tech support. (granted this was some high end stuff so it did take good people, but they're everywhere)

stcredzero 8y ago
convinced themselves that stuff only happens in the valley and if they hadn't seen it they wouldn't have believed it was possible outside (and some did not, oh the excuses).... Isn't this bigotry? I remember watching all of these shows on PBS as a kid, where one of the major themes was how people would judge other people by class or other surface signals, and how this could obscure the truth or leave good people unappreciated on their merits. Did people learn the lesson? I guess some people did, and some people didn't. Here's my experience coming to the Bay Area, looking up from the bottom: There's more bigotry here. People judge you more quickly and more absolutely on a more shallow basis here than anywhere else I've lived. (With the exception of the Norwood neighborhood in Cincinnati.)

avallark 8y ago

penny wise, pound foolish

deleted 8y ago
[deleted]
kgwgk 8y ago
Million wise, billion foolish?

jacquesm 8y ago

You could save a ton of money starting a restaurant on the North Pole! Free real estate, low bill to light the place during half the year, what's not to like. As much as I hate the draw of SV if I were to start a company that needs that kind of funding I would do everything I could do to do it there. Why hamper yourself on purpose, the $1.1M saved might easily translate into a couple of missed connections worth a very large multiple of that amount.

JohnFen 8y ago

Personally, I wouldn't start a company in silicon valley. On the whole, it looks to me like the downside of doing that far outweighs the upside.

maxk42 8y ago
Elitists from silicon valley will downvote this simply because they don't like having their life choices called into question but you're right: The costs (cost to lease space, cost of labor, business costs, commute, quality of life you can afford for your dollar, crime rate, etc.) far outweigh the benefits (access to talent and VC). If you can bootstrap it yourself or find VC outside of SV, it's typically better to do so.
- joejerryronnie 8y ago
  This outlook is just as baseless as the opposite view that all startups have to be in SV.
  - JohnFen 8y ago
    All cost/benefit calculations are context-dependent. You're right, it's not possible to accurately make a blanket statement such as "everyone should/should not start their business in silicon valley". All anybody can say is how that calculation works for themselves.
- erikpukinskis 8y ago
  People might also downvote it because they didn’t say anything at all.
true_tuna 8y ago
Where would you go? Asking as a Silicon Valley person looking for a place that’s a step less Silicon Valley, but not quite middle America.
- JohnFen 8y ago

inputcoffee 8y ago

I think there is an error in the title. It should read: "Starting a Company Outside Silicon Valley Saved Me Just $1.1M"

desireco42 8y ago
Ha ha, I totally dont' agree with you, but I appreciate your point :).
adventured 8y ago
I agree. I was surprised that the gap was so narrow. Only costing 25% less is not a favorable outcome for Philadelphia given how expensive Silicon Valley is. If I can do Philly for $3.3m or SV for $4.5m, that's an easy choice. The valuation boost you'll get for being in SV instead of Philly will cover that several times over. The network and talent available in SV is worth suffering that gap all by itself. The only way that difference is a meaningful deterrent to choosing SV, is if you're not going to raise serious VC and will mostly bootstrap the business or otherwise raise smaller amounts of investment. In that case saving that money can make a big difference.
- jryan49 8y ago
  So 25% more runway has no value?

jawnv6 8y ago

50% of VC funding lands in CA. 50% of that is on Sand Hill. So ~25% of all VC funding happens in offices in Palo Alto, the sheer efficiency of chasing a funding round can't be beat. For an established serial entrepreneur with a proven track record, it can absolutely make sense to stay in an area you know. But I think that math really changes if you're going to be cold calling VC's, trying to wrangle meetings from 3 time zones away, get meetings bunched up to consolidate travel, etc. The overhead of redeye travel is relegated to a joke at the end, where's the "measurement" on that?

JohnFen 8y ago
But that only matters if you're chasing VC money. That's the norm in silicon valley, but (depending on your goals) it's not necessary in order to start a profitable business. I've started and sold a handful of successful tech companies, but have never taken a dollar of VC money.
- jawnv6 8y ago
  Right, the article is chasing VC money. They have a calculator to see how far a VC dollar will take you called "VC Arbitrage". The author takes flights to SF specifically for VC meetings. You're talking about a situation wholly removed from the article, why?
  - JohnFen 8y ago
    Because I was engaging in a broader discussion. I'm sorry for offending you.
bluGill 8y ago
You only need the VC who funds you though. Chasing after one elsewhere might be better odds because everyone else is looking to CA.
- jawnv6 8y ago
  "the" VC? lol

kokokokoko 8y ago

Philadelphia is less than two hours from New York. There are plenty of well known and successful startups from New York. This is more like "Starting a Company in Daly City". Definite clickbait hustle story to drive traffic and sell his product. I wouldn't waste your time on the article.

40acres 8y ago

Why do you need to start a company in the Valley when two mega-corps (Amazon, Microsoft) have already shown that you can succeed outside of the valley? The huge companies are already starting to branch out (Amazon in NYC/DC, Apple in Austin, FB/Google in NYC) and ecosystems will be built around these hubs. Not only that but there are a variety of other hubs in the nation that are in close proximity to elite technology schools (Pittsburgh, Boston). The talent is definitely there, the VC infrastructure may be lacking but you're telling me Marc Andressen won't hop in his private jet to meet with a promising founder?

ghaff 8y ago
It's also somewhat of a bias that tech = "whatever Silicon Valley does." While there is a fair amount of that tech in e.g. Boston/Cambridge as well, you also have way more biotech/pharma than exists in SV.

znpy 8y ago

tl;dr: the silicon valley is unreasonably expensive.

isostatic 8y ago
Pope is Catholic. Bears shit in woods.
- znpy 8y ago
  software is broken. computers were a mistake.

oarabbus_ 8y ago

Is it just me or is the headline a good reason to start a company _inside_ Silicon Valley? I can't be the only one who thought "all you saved was $1.1 million? I'd rather spend that and be in a location which is drowning in tech talent"

rc_kas 8y ago

Good on you that you had access to $1.1M. Congratulations.

tschellenbach 8y ago

Traditionally the valley has clearly been the best place to start companies. Many VCs still believe its the best place today. Hard to say if that's true, you won't really know till companies that are started today end up growing and succeeding. That takes about 10 years to play out, so in 2029 we'll have a good idea of where the succesful startups came from. I'm going to go ahead and guess that a larger percentage of them will come from outside of the valley. There is more VC funding outside the valley than before, great startup knowledge is available via books, classes, techstars outside of the valley. Due to cost of living talent has moved outside of the valley. So yeah definitely expect to see more startups succeed outside than has been the case historically.

jillesvangurp 8y ago

There is talent outside the valley and you can get it at a discount. I live in Berlin but I've worked with lots of Polish, Rumanian, Belarusian, Russian, etc. colleagues spread all over Europe. Good hard working people, with solid academic degrees, plenty of experience, up to date skill sets, etc. You can hire an entire team of them for the kind of money valley based teams spend on a single person. It doesn't even have to be a good one. From what I've seen, there sure are a lot of not so great developers working in the valley. At least judging from the copycat designs, the clumsy UIs, chronic UX issues, etc. from typical startups I don't think that the grass is greener over there in any meaningful way. So, I think it is a myth that you get better than average people or products in SFO. Sure there are geniuses but the success/failure rates are not significantly different. There's simply more of both around. However, the failures are five times more expensive (ballpark, give or take, lets assume that for the sake of this argument). That is only offset by the occasional unicorn; which due to the enormous amount of startups happens more often there as well. IMHO this is the main benefit the valley has. There are lots of unicorns creating lots of wealth which quite often gets reinvested locally. There's a lot of money flowing around there. Most of it gets wasted on the same BS that VCs are funding elsewhere. But then you get the occasional unicorn making up for that and the practice of those companies acquiring the expensive failures to funnel some of that back to investors. Is a valley based team five times more expensive than a Eastern European team five times as good? I don't think so. I'd say it's quite easy to find people and teams elsewhere that are arguably just as good. Also, job hopping is a thing in the valley. Despite the insane salaries, the average tenure is quite short, especially at the bigger unicorns. So, there's a bang for buck problem in the Valley and the smart VC money there is already encouraging startups there to work remotely or consider having remote developer teams. Relocating to the valley after you get funded stopped being a thing here in Europe. VCs are no longer asking or expecting that; that was a standard question a few years ago. What would be the point? Quintupling the burnrate is not a goal; you need a good excuse than vague beliefs/hopes. You basically pay five times what you pay in e.g. Eastern Europe and most of that goes directly to real-estate owners, the state of California (taxes are actually very high there, even compared to Europe), and all the other overpriced stuff that the Valley has to offer.

mschuster91 8y ago

aantix 8y ago

Sadly, if you're an engineer, those savings aren't passed on to you (obviously). If you're a software engineer and want to make an amazing salary by most people's standards, move to the Bay Area and get a job with Google/Facebook/LinkedIn/Etc. You can literally make a 500K+ a year.

true_tuna 8y ago
Add Netflix to the list. They pay extraordinarily well. Although most engineers make half what you listed. And what’s the median home price in Mountain View, San Francisco, Palo Alto, Los Altos? None of the above are less than a million. By contrast an engineer making 150k but buying a 500k house might have a better deal.
driverdan 8y ago
> You can literally make a 500K+ a year. People need to stop repeating this nonsense as if everyone makes that much. A very small percentage makes that.

erikb 8y ago

Which is not much, if you could've gotten $500M more in investments. My experience is the complete opposite of Tim Ferris Wisdoms TM. If you are where the money is at, you have vastly more opportunity to participate on the receiving end of money flows as well as information flows. So if you are a keen developer in SF you will not live on $60k for long, but rather quickly bargain your pay up the food chain to $120k or $150k. And then check out how well you can live on $120k in Thailand, you know? There are two exceptions to this rule of following the money, though. Exception 1: When you hit the ceiling. It might be much higher than you initially thought, but there is one. And when you hit it, it might be more reasonable to try to stabilize on that level and find a more peaceful and cheap environment to live in. Exception 2: When the current location is over hyped. Bay Area might still be in that phase where prices really are too ridiculously high. If you spend more than $60k/year on rent alone then maybe it's not wise to go there for $120k. But it might still be worth an internship or finding customers there.

ojbyrne 8y ago

“It’s VC arbitrage.” The problem with arbitrage is that everyone wants to capture it, since it’s basically free money. Not in SV? You only need 1/4 the funding.

bhelkey 8y ago
> As you can see, the $3.35M I raised at a San Francisco valuation netted me over $4.5 million of purchasing power in Philadelphia. 3.35 / 4.5 = 74.4%. 3/4 the funding not 1/4.
- ojbyrne 8y ago
  Arbitrage == information asymmetry. It gets reduced over time (this post and comment will help).

samprotas 8y ago

I find it kind of odd that there are all these comments claiming the article glosses over nuance and therefore its conclusion is baseless when the counterpoints have even less data. Everyone seems to agree successful companies have started in SV and outside of SV, and that there’s a lopsided distribution. No one has spent much time on whether the location is the cause of or just correlated with success. I get that this is hard to determine, but maybe people should speak in less absolutes? The article is one persons decision making process, explained for the benefit of others. I don’t think it’s claiming to be The One Truth. Disclaimer: I worked for the author in Philly previously.

jarjoura 8y ago

The conversation that you're either starting a company in SV or not seems silly. Of course you can start a company in most civilized places in the world, people do it all the time. Case-in-point the article above. Plenty of industry defining tech companies started outside of the valley too. Microsoft up in Redmond, Commodore in West Chester Penn, AOL in Reston VA, and so on. The point I never see talked about with conversations like this is, should you? You can find plenty of data points that say you can and you absolutely can. It's the, does your idea and execution path make sense for the location you're setting up at. Some of the worlds top talent for tech are located in SV and that's why so many companies are here fighting for them. We're told, we need the best of the best to stay competitive and execute. If your product doesn't need a concentration of world class product managers, designers and engineers, then don't waste your time here competing for that talent. You'll have a much easier time finding talent elsewhere and for less money. For me, an engineer, I chose SV because I didn't want to be the best person on my team. I wanted to be surrounded by people who are 10x smarter than I am and learn from them.