San Francisco is expensive.
Just take a look at Nested's 2017 published report if you need proof. The report ranked 87 cities based on current market listings from Zurich to Dubai. The UK-based housing startup cited San Francisco as having the most expensive rental prices worldwide.
If you've been considering moving your tech startup here, headlines like these may understandably cause concern. However, despite the increasing prevalence of tech hubs across the country, the Bay Area still takes the cake in one area—density. Nowhere else can you find such a concentration of high-quality talent, founders, and investors.
According to the Wall Street Journal, San Francisco now boasts more than 94,000 people employed in tech, a 10 percent increase from last year.
If your knowledge of this tech-forward city is limited to Full House reruns, this article is for you. In it, we'll explore the pros and cons of building a tech startup in San Francisco.
Is San Francisco The Best Place to Build Your Startup?
The Disadvantages
1. High Cost of Living
We'll start with the obvious—the high cost of living.
Depending on where you're coming from, you may find the costs of basic items to be higher than you've grown accustomed.
A dozen eggs? That will set you back about five bucks.
Laundry detergent? $10.
A simple lunch in the business district? $16.
While the cost differences for groceries, utilities, and entertainment may not seem like much, they quickly add up. However, the real kicker is the cost of rent.
The average monthly rent for a 900 Sqft furnished accommodation in a popular neighborhood is $4,300. The same accommodations in a less popular area? $3,500.
While the potential earnings are higher, it's unlikely you'll be able to afford the same level of luxury you did back home.
Commuting from Oakland is a viable option, but we don't recommend anything longer than a 30-minute journey. Check-out this Cost of Living Index for more information.
2. High Competition
Competition generally comes in three forms: competition for funding, competition for customers, and competition for talent.
While there are many VC's and investors in the Bay Area, there is a lot of competition. Getting funding comes down to having an innovative product or company and meeting the right people at the right time.
Additionally, with heavy-hitters like Google, Amazon, and Facebook nearby, the competition for top talent is fierce. Most early-stage companies can’t compete in terms of salary and name.
Getting into startup fundraising mode? Get our guide: 12 Things You Should Know About Raising a Seed Round to help you prep.
3. High Office Space Rent
The demand for office space in Silicon Valley has driven the cost of office rentals through the roof. As reported by Fortune in 2016, the price per square foot for office space in San Francisco reached $72.26 in the fourth quarter of 2015.
That's a 14 percent increase from the previous year! For comparison's sake, the cost in Manhattan—which includes Midtown, Midtown South, and Downtown—is $71.85 per square foot. Just a few years ago Justin Bedecarre, a young real estate broker who created the first War For Talent conference in San Francisco, told TechCrunch:
“Twitter alone has driven rental rates in San Francisco’s Mid-Market district up by as much as 50 percent, buoyed by the fact that companies like One Kings Lane, Yammer, Zendesk, and Zoosk have all moved their headquarters into the area.”
4. High Salaries
Attracting top talent in San Francisco is expensive. According to PayScale, “mid-career employees" at the biggest tech companies easily make more than $100,000 a year. That's twice the average American household income.
At Google, the median employee makes six figures less than five years into his or her career. Though the numbers aren't all that surprising (considering the high cost of living), it's important to remind yourself of how much capital you'll really need to accommodate team salaries in the Bay Area.
5. Less Loyalty
This one can actually work both ways. On the one hand, people are generally more loyal toward those they have existing relationships with. This can work to a startup founders favor when looking to form partnerships.
Unfortunately, that same loyalty is somewhat less prominent when it comes to maintaining employees. With so many opportunities abound—whether that be from exciting, new startups, or big-name players—you'll have to work twice as hard to curb the "grass is greener" syndrome. Prioritizing employee satisfaction and treating culture as more than just a buzzword is paramount.
6. Undesirable Time Zone
While not a deal-breaker, the west coast doesn't come out on top when it comes to time zones.
The Pacific Standard Time Zone can be an inconvenience when doing business overseas. You're looking at nine-hour time difference from San Francisco to Western Europe. If you're planning on being actively involved in global sales, that may be reason enough to look elsewhere.
The Advantages
1. Large Talent Pool
Put simply, hiring in San Francisco is a dream.
The city is a haven for product-driven engineers, tech professionals, and web designers. With some of the country's best schools nearby, the city annually produces a fresh crop of talent that's hard to beat.
Additionally, attracting international and out-of-state candidates is arguably easier than anywhere else besides NYC. Being an iconic cultural center, individuals from all over the world gladly embrace the opportunity to work here. The location easily increases the size of your candidate pool, thus making it possible to build a better team.
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2. Renowned Tech Community
The technology sector may be sweeping the nation, but no one does networking like the Bay Area. Meetups, educational talks, and networking events happen around the clock.
Got a free Monday night? There are probably five tech events happening nearby.
Infiltrating yourself into the startup scene is easy when there are so many opportunities for networking, learning, and demos. And that's because the community essentially became what it is today via outsiders. Everyone loves an ambitious, hardworking person with a good idea. Silicon Valley's tech community is the place to share ideas, seek advice, and create partnerships for your tech startup.
3. Access to Capital
From the beginning, a funded company has a huge advantage over a bootstrapped company. Not having to sacrifice choices in hiring, product development, or marketing.
Can you find investors outside of the Silicon Valley? Absolutely. But can you find as many, who are specifically interested in tech? Probably not. San Francisco and Silicon Valley are home to many prominent venture capital firms, incubators, and angel investors.
Since maintaining consistent cash flow is vital to quick growth, building in a city with plenty available options can be an advantage.
4. More Credibility
Saying, "Our company is based in Omaha" just doesn't have the same ring to it as "We're in San Francisco." Like it or not, general perceptions often influences sales.
When courting potential VCs and customers, having that San Francisco area code can sometimes make the difference between a returned call or not. With that said, don't let this one be a deciding factor—just an added bonus if you decide to come here.
5. Faster Progress
A startup is a company designed to grow fast. Just because someone recently started a company doesn't mean they are running a startup. Running yours from a location dominated by individuals who don't understand the difference could be problematic.
With so many like-minded individuals in the vicinity, it's hard not to entertain the same mentality. Ultimately, the possibility of fast progress is why many startups come here.
They want the experience of working alongside other individuals with the same level of commitment to success. The San Francisco work ethic combined with plentiful resources make for a rich learning experience that's hard to beat.
Should You Build Your Startup in San Francisco?
There is a reason so many tech founders continue to head west. The kind of connections, collaborations, and partnerships that change lives happen here every day. Ultimately, companies choose their startup locations based on three factors:
- Recruiting and retaining talent.
- Access to the right investors.
- Proximity to their target market.
It's for these three reasons San Francisco’s SOMA district and downtown Palo Alto are two of the hottest startup locations in the country. However, as we've shown, it's not right for everyone. Even Mark Zuckerberg has mentioned that he would stay in Boston if he were starting Facebook today.
Our recommendation?
- Build and test your beta.
- Come to San Francisco (if the pros outweigh the cons).
- Stay flexible with coworking.
Interested in San Francisco and Silicon Valley's best events, meetups, coworking spaces, VCs, and more for tech startups? Grab The Silicon Valley Startup Guide here.
