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The Rising Costs of Scaling a Startup in San Francisco

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Re: The Rising Costs of Scaling a Startup in San Francisco

#11

Post by peteretep »

joshAg wrote: post #10
peteretep wrote: post #2

Staffing 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 o…

    > 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.
YMMV but generally: really important. If you are at the point where you are looking for five heads, you likely have competition and investor pressure. If you're bootstrapped or have a significant moat, maybe less so, but when I've been in charge of tech at companies, ability to grow my team quickly has been a major KPI, and a reasonable one.

While I am led to believe that the easiest money is in SF, and there are some awesome investment partners, don't assume the best advisers are necessarily there; it's not been true for any of the three industries I've worked in, namely high-end fashion, recruitment software, and news/PR analysis.

Digging specifically in to recruitment, the fact that every recruitment startup appears to be another ATS (Applicant Tracking System) - by far the most competitive space, also the one where the established players will be some of your hardest to displace (the reasons are dull but real (ATSs have long tendrils in to all sorts of business processes)) - seems testament to my hunch that "fixing hiring" companies are being guided by advisers with little in the way of recruitment experience. Possibly I'm wrong, and disruption needs to happen from outside, but the prevailing view that the expertise in tech in SF translates to expertise in every thing seems suspect to me.

Re: The Rising Costs of Scaling a Startup in San Francisco

#12

Post by peteretep »

courtson5 wrote: post #9

The 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.

    > 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.
How sure are you that that's true, and if you are, why do you think that is? Is it really so hard for a founder in - say - Vegas - to get on a plane to SF frequently enough to neutralise any location advantage? If so, sounds like a massive opportunity for a VC to get some really cheap deals (and hence my skepticism).

Re: The Rising Costs of Scaling a Startup in San Francisco

#13

Post by x0x0 »

littletimmy wrote: post #8
franklinho wrote: post #3

Key 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?

Not to mention that, now that decent 1 bedrooms in commute friendly areas of the city cost $3500, the first $70k [1] of salary is a straight passthrough to the landlord.

[1] at a 40% tax rate, 3.5k/0.6 * 12 = 70k

Re: The Rising Costs of Scaling a Startup in San Francisco

#14

Post by peteretep »

littletimmy wrote: post #8
franklinho wrote: post #3

Key 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?

If that was true, salaries would be high everywhere. They're high in SF because of competition for workers, and because of the high cost of living.

Here's an open secret: companies willing to allow remote working are able to hire in a -fraction- of the time it takes to hire onsite, and often substantially cheaper.

Re: The Rising Costs of Scaling a Startup in San Francisco

#15

Post by joshAg »

peteretep wrote: post #11
joshAg wrote: post #10

Earlier quoted context omitted.

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 o…

> 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. YMMV but generally: really important. If you are at the point where you are looking for five heads, you likely have competition and investor pressure. If you're bootstrapped or have a significant moat, maybe less so, but when I've been in charge of tech at companies, ability to grow my team q…

That's pretty much exactly what I was thinking, but I didn't want to overstate how much better 5 people starting NOW at a higher rate is than 5 people starting soonish for a lesser rate.

I'm not surprised at all that there are probably better advisers outside of Si Valley for many industries. I'm a little surprised about recruitment, but not shocked at all for fashion or news. SF doesn't really have much in the way of those industries.

Re: The Rising Costs of Scaling a Startup in San Francisco

#16

Post by yummyfajitas »

skuhn wrote: post #7
ilyanep wrote: post #5

Earlier quoted context omitted.

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…

You can build condos in Candlestick Point, but how are people going to get to work?

So where I live (Pune, India), we are also having an huge surge in population due to people moving in for new jobs. We don't really have a housing crunch.

Unlike SF, you are allowed to simply build new housing societies as needed (more or less). Here is NIBM, one of our outskirts, about the same distance from Koregaon Park as Candlestick Point is from SoMa: https://pbs.twimg.com/media/B8cMeVTIMAEMyzk.jpg:large

Strangely, all these terrifying issues like people being unable to get to work simply don't happen. They take two wheelers, auto rickshaws, or 6 seaters. Housing societies sometimes provide shuttle buses.

Re: The Rising Costs of Scaling a Startup in San Francisco

#17

Post by peteretep »

joshAg wrote: post #15
peteretep wrote: post #11

Earlier quoted context omitted.

> 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. YMMV but generally: really important. If you are at the point where you are looking for five heads, you likely have competition and investor pressure. If you're bootstrapped or have a significant moat, maybe less so, but when I've been in charge of tech at companies, ability to grow my team q…

That's pretty much exactly what I was thinking, but I didn't want to overstate how much better 5 people starting NOW at a higher rate is than 5 people starting soonish for a lesser rate. I'm not surprised at all that there are probably better advisers outside of Si Valley for many industries. I'm a little surprised about recruitment, but not shocked at all for fashion or news. SF doesn't really have much in the way o…

America does almost everything exceptionally well, but my understanding is that recruitment can be added to the list of: cellphone service; airlines; consumer banking; Internet provision; justice system... (ironic for the country that gave us such marvels as the iPhone, Boeing, Wall Stret, the Internet, and the U.S. constitution)

Re: The Rising Costs of Scaling a Startup in San Francisco

#18

Post by hackerboos »

joshAg wrote: post #10
peteretep wrote: post #2

Staffing 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 o…

Not hard to raise funds in London...if your startup is in FinTech. Everything else mind...

I've read good things about Berlin, but by-and-large investors in Europe are far more cautious and more heavily taxed than the US.

Re: The Rising Costs of Scaling a Startup in San Francisco

#19

Post by peteretep »

hackerboos wrote: post #18
joshAg wrote: post #10

Earlier quoted context omitted.

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 o…

Not hard to raise funds in London...if your startup is in FinTech. Everything else mind... I've read good things about Berlin, but by-and-large investors in Europe are far more cautious and more heavily taxed than the US.

Hard to think of a better place to do FinTech than London

Re: The Rising Costs of Scaling a Startup in San Francisco

#20

Post by sheepmullet »

franklinho wrote: post #3

Key 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.

"The market has driven up salaries ridiculously high."

Has it really? My dad owned his first home freehold after working for 5 years. I'm almost there after ~15 years. And I've had help from my wife.

Real estate has driven up salaries ridiculously high.

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