The Rising Costs of Scaling a Startup in San Francisco
1–10 of 56 posts
Re: The Rising Costs of Scaling a Startup in San Francisco
#2Staffing costs and salaries are why I'd think long and hard about starting up in San Fran with my CTO hat on.
I am a long-term open-source and commercial dev, former serial CTO, with an additional specialization in recruitment software, but I also work as a recruiter. Recruitment in SF sounds like a nightmare for everyone involved. Agency fees are relatively low (10%ish, compared with 15-20% in the UK), but the service the candidate gets (incessant LinkedIn spam for inappropriate roles) is poor, the service the employer gets (scatter-gun approach, loads of shitty CVs, very little value-add from the recruiter, other than they'll spam LinkedIn for you) ...
I'm guessing it's a combination of the generally slightly immature state of the US agency recruitment market (compared to Europe; not meant as a judgement, just a fact), insane competition for candidates, very small take-up of and limited competition in job-boards/channels, and the big competition with corporate recruiters against FB, Google, and so on.
Every so often I wonder about trying to break in to the SF market (rather than London, which is where I put 90% of my time), but I wonder if the effort would be worth it, given what feels like the dire state of the market.
All the recruitment startups I can see are trying to build a better ATS to remove the agency recruiter (Lever.co, Greenhouse.io, SmartRecruiters.com, TheResumator.com, and even ZipRecruiter (an ATS disguised as a multi-poster)), yet no-one seems to be trying to fix agency recruitment.
Sorry for the slightly rambling post - happy to give free advice to anyone trying to recruit (see my profile), but it sounds like a real uphill battle in the Bay Area...
Re: The Rising Costs of Scaling a Startup in San Francisco
#3Key point to take away from this is: Wages constitute the majority of the increase in startup expenses. Real estate costs add only 5% of per employee costs.
The market has driven up salaries ridiculously high.
Re: The Rising Costs of Scaling a Startup in San Francisco
#4I think that if you dig a bit deeper, real estate really is a major driver of the cost of doing business in San Francisco. Particularly now that companies and employees are more resistant to the process of migrating elsewhere after the startup phase.
A startup's office space is just one way that venture capital is getting funneled directly into a landlord's pocket. And office rents are rising like crazy, while pushing lots of other types of businesses out (particularly in SOMA).
If a landlord thinks they can come out ahead by evicting a long time tenant and refurbishing a mechanic's garage into office space, then you're clearly paying a much higher rent than that space used to command.
Salaries are still a larger overall expense for just about every startup, but consider how much of that employee salary goes straight to rent. 30% in pre-tax dollars is completely normal at this point, and I expect for some people it's even more. Ownership is out of the question for anyone who hasn't had a stock windfall at a previous company (or who lived here 20 years ago). When a 1 bedroom in a shitty neighborhood is over $3000/mo, there's a minimum to the salary you can accept -- even doing the normal salary-for-equity trade with a startup. Just to hit 30% of pre-tax dollars, you need to make $120,000/yr for that 1 bedroom.
There's no reason for landlords to stop until they've milked the tech economy dry. In most cases they're entirely within their rights to charge whatever the market will bear, and there is currently no shortage of people willing to pay more for less.
In the long term this will hurt San Francisco and the tech industry. The money won't last forever, and eventually the city will be so expensive that the benefits of locating here become irrelevant. SF landlords can't levy a tax on the innovation of the entire tech industry forever.
Re: The Rising Costs of Scaling a Startup in San Francisco
#5I think that if you dig a bit deeper, real estate really is a major driver of the cost of doing business in San Francisco. Particularly now that companies and employees are more resistant to the process of migrating elsewhere after the startup phase. A startup's office space is just one way that venture capital is getting funneled directly into a landlord's pocket. And office rents are rising like crazy, while pushin…
The people who are to blame are not the landlords that are merely reacting to market conditions, but the NIMBYs who refuse to let any development occur in the city or anywhere on the peninsula.
Re: The Rising Costs of Scaling a Startup in San Francisco
#6Where is this person getting their salary data from?
Re: The Rising Costs of Scaling a Startup in San Francisco
#7I think that if you dig a bit deeper, real estate really is a major driver of the cost of doing business in San Francisco. Particularly now that companies and employees are more resistant to the process of migrating elsewhere after the startup phase. A startup's office space is just one way that venture capital is getting funneled directly into a landlord's pocket. And office rents are rising like crazy, while pushin…
The people who are to blame are not the landlords that are merely reacting to market conditions, but the NIMBYs who refuse to let any development occur in the city or anywhere on the peninsula.
I'm not blaming them, as I mention the majority is likely acting within their rights. I agree that part of the solution is to create more housing -- but it's also too late for that solution to work before there is a downturn in the startup economy. If there's a next time, it might help then.
Even at San Francisco's current relatively frenzied building pace, there will only be another 4000 units or so this year. That will not make even a slight dent in rent for a city of 700,000+ people.
The other problem with building more units is that a lot of the available space sucks. There are whole huge swaths of the city that may as well be on the moon for how accessible they are to locations with offices (SOMA, Financial District, etc.). You can build condos in Candlestick Point, but how are people going to get to work?
The infrastructure of public and private transit in the city (and the larger region) is woefully inadequate for even half the number of people that currently live here, let alone if the population significantly increases. And these kinds of projects work on 10-20 year timetables. So again, it's way too late for this to be fixed in this economic cycle. Maybe next time.
Re: The Rising Costs of Scaling a Startup in San Francisco
#8Key point to take away from this is: Wages constitute the majority of the increase in startup expenses. Real estate costs add only 5% of per employee costs. The market has driven up salaries ridiculously high.
That's one way of looking at it. The other way of looking at it is that the tech sector is one of the most profitable sectors in the US economy that rakes in millions per developer. The salaries are high because they should be: the companies are raking in record profits, why shouldn't the employees see some action?
Re: The Rising Costs of Scaling a Startup in San Francisco
#9The market has also drove San Francisco based startup valuations to ridiculously high levels - you have to take the bad with the good.
All else being equal, a Silicon Valley/San Francisco based startup is able to achieve a much higher valuation than an equivalent startup outside San Francisco. However, this Silicon Valley/San Francisco based startup has to deal with higher real estate and salary costs.
Re: The Rising Costs of Scaling a Startup in San Francisco
#10Staffing costs and salaries are why I'd think long and hard about starting up in San Fran with my CTO hat on. I am a long-term open-source and commercial dev, former serial CTO, with an additional specialization in recruitment software, but I also work as a recruiter. Recruitment in SF sounds like a nightmare for everyone involved. Agency fees are relatively low (10%ish, compared with 15-20% in the UK), but the servi…
The other side, though, is that it might be much easier to raise the necessary capital (taking into account changing costs due to location) in san francisco or the bay area in general than other places.
It might also be easier to find qualified people in the bay area. Certainly they'll cost more than just about any other place, but how important is it to you to find say 5 people within the next month or two instead of the next say 6 to 24 months?
I've never needed to actually do either of those two things, so I might just not know what I'm talking about, but for a startup that isn't bootstrapped I'd think that getting a long runway (for wherever you are) and advisers/investors who are knowledgable about your company's market are more important than the raw monthly expense figure, and that quickly getting qualified people working on the product might be more important than saving, say, $75,000 in salary per employee per year.