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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

#31

Post by walshemj »

smikhanov wrote: post #21
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…

> immature state of the US agency > recruitment market compared to Europe You really have no idea about mature recruitment markets. The UK recruitment industry you represent needs to be replaced with a number of short Bash scripts, so that people like you (yes, you) will lose their jobs and suffer. The sooner it will happen, the better for everyone. I'm a Russian living in London and always mention Russian recruitmen…

The values add is you can reduce the size and of your hr team

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

#32

Post by walshemj »

peteretep wrote: post #14
littletimmy wrote: post #8

Earlier quoted context omitted.

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.

but for start-ups remote workers are in 99% of the cases much worse than collocated ones - If your a big company and you need some one to do basic CRUD work that can be well defined remote works better.

To many people want to have their cake and eat it

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

#33

Post by ropiku »

walshemj wrote: post #30
_random_ wrote: post #23

Earlier quoted context omitted.

Yes, unfortunately in London either: 1) recruiter effectively steals a percent of your starting salary; 2) company is so cheap they cannot afford a recruiter; 3) big tech companies are paying extremely low in comparison to the primary sector - finance (and the most interesting stuff will still be developed in USA).

re 1 Its illegal for recruiters to charge the employee in the UK re 3 is mainly related to the poor social standing of STEM employees in the UK

I think by "effectively" he means the company will pay the employee less to compensate for the recruitment fee, not that the employee is directly charged.

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

#34

Post by [deleted] »

skuhn wrote: post #4

I 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…

[deleted]

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

#35

Post by Iftheshoefits »

ilyanep wrote: post #5
skuhn wrote: post #4

I 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.

A lot of those NIMBYs are the landlords, though, presumably because they like the high rents and the ever-increasing property values. The cost of ownership makes those high rents incredibly inefficient and the returns on "investment" questionable, in my opinion, but there you have it.

The rent I charge on my (nice, two-story, good neighborhood) property that is not located in the Bay Area is about 1% of the price I bought it at. In the part of the bay area I live, rents are about 0.3%-0.4% of the typical sale price for homes that are much smaller than my rental. I could buy 6 of my rental properties for the cost of one such home, have similar net appreciation in real estate value and be earning more rent.

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

#36

Post by Iftheshoefits »

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?

Why ever is your comment being downvoted? It's the plain truth.

Wages aren't ridiculously high in SV--they're ridiculously low, just like share of equity is.

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

#37

Post by bradleybuda »

From the article: "The cost savings startups achieve from cloud computing infrastructure or other technology cost reductions are dwarfed by the steady cost increases of labor in particular."

I don't have hard data, but my intuition is that this is not the case. The raw price of storage / compute has only declined a little bit since 2009, but the number and variety of development tasks you can outsource to (broadly speaking) "cloud services" has dramatically increased.

In 2009, Heroku was still a relatively primitive platform with only Ruby support - today, it can save you the cost of a sysadmin or two. Mailgun didn't exist and SendGrid was just coming out of TechStars - if you wanted email in your app, you needed a dev to build it. Twilio couldn't do text messages yet, and we didn't have Stripe for payments or Mixpanel for analytics - both were glimmers in their founders' eyes.

The sheer amount of grunt work you need to do to get you app up and running has plunged since 2009 - now you can buy these core services for 1-2% of what you had to pay to develop them. These wins are most pronounced for seed- and A-stage companies, but they substantially cut your development and operations costs throughout your scaling lifecycle.

I'm willing to bet that if you plot the median number of employees it takes to reach a seed, A, B, or even C round, you'd find that the leverage gained from this ecosystem of services more than makes up for increasing personnel costs. Of course, startups everywhere benefit from these cost reductions - this has nothing to do with San Francisco - but it certainly makes the increase in salaries and real estate expenses an easier pill to swallow.

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

#38

Post by vinceguidry »

ropiku wrote: post #33
walshemj wrote: post #30

Earlier quoted context omitted.

re 1 Its illegal for recruiters to charge the employee in the UK re 3 is mainly related to the poor social standing of STEM employees in the UK

I think by "effectively" he means the company will pay the employee less to compensate for the recruitment fee, not that the employee is directly charged.

Recruiters only make sense in an environment where labor supply is short. Potential employees are not going to accept lower salaries simply because the recruiter's client has a recruitment fee to pay on top of it. So the client ends up paying both.

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

#39

Post by pinaceae »

bradleybuda wrote: post #37

From the article: "The cost savings startups achieve from cloud computing infrastructure or other technology cost reductions are dwarfed by the steady cost increases of labor in particular." I don't have hard data, but my intuition is that this is not the case. The raw price of storage / compute has only declined a little bit since 2009, but the number and variety of development tasks you can outsource to (broadly sp…

"don't have hard data, but my intuition..." and everything beyond this sentence is just blabla.

the author has a well laid out case, researched and backed. you come in with feelings.

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

#40

Post by keithpeter »

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?"

Bus service? Public not the Google Buses. Will always help to encourage movement out of a crowded city centre and (relatively) low capital requirement. Do some deals on season tickets/passes/carnets

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