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The Rising Costs of Scaling a Startup in San Francisco

tomtunguz.com

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

#41
post #33

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.

If you get employed directly you don't get paid any more do you - sounds like the OP is young and doesn't understand how the world works - or more negatively is not suited for a professional role ie what can I scam out of my employer no mater what

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

#42
post #10

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…

Just like if you are setting up a new F1 team it would make sense to base it in the Midlands of the UK as that is where a lot of teams an the universities that produce the right sort of graduates and there is a large infrastructure of subcontractors to leverage.

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

#43

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.

Compared to what? What do Dr and Lawyers get in SF

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

#44

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…

No because its the deals that get by bumping into some one at a bar or socially.

flying in for a few 9-5 days a month is not the same.

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

#45
post #7

Earlier quoted context omitted.

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

Sure. The newest subway line runs down Third Street right to Candlestick Point (about 5 miles away from downtown). It would take over an hour and requires walking a mile.

Or you could take the single bus line, which cuts your walk down to half a mile or so. You'll have to transfer to another bus that goes on the highway to downtown (so it will be absolutely awful during rush hour). Expected transit time is again 1 hour.

Muni's on-time rate is 60%, so these are pretty optimistic numbers. Bus's don't keep to their schedule at all -- if they get to a stop early, they take off. The supposed 15 minute interval is laughable given the city's traffic patterns, it's just as likely for three buses to arrive simultaneously because they were all stuck in traffic for an hour.

The city's infrastructure is simply not built for outlying neighborhoods to be viable living destinations for people who commute into the city for work. The highways are clogged and poorly designed (and don't connect through the city). The surface road stoplight system is one of the worst synchronized I have seen in the US. The bus and subway system is poorly run and starved for money on basic necessities. The subway system itself is terribly designed: all the lines run through the same underground portion, on the same rails, so the slightest hiccup blocks up every line.

It's all solvable if you throw a lot of money and political will at it, but neither seems to be there. At least all of the buses are supposed to be replaced within a few years: they SORELY need it.

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

#46
This is very interesting but it really is San Francisco data. Silicon Valley is a lot cheaper and faster on several dimensions than SF (only a small amount cheaper on salary, though that salary goes a lot farther). And while SF is a nicer place to live than most of the valley, who has time for that nicer life while you're busy building a business?

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

#47

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…

In reverse order...

    > please, tell me about the added value recruiters in the UK bring anyone
Sure.

Firstly, the last 5 candidates I've placed were not looking for jobs. Each was in a role where they were slightly unhappy, but inertia was keeping them put. Having chatted to them, I was able to find them roles they enjoyed more, with a significant pay rise. You could see this as introducing liquidity to the market. A job-board would not have found them.

Secondly, of the last job ads I've posted to job-boards, fully 50% of the applicants came from a single non-European company, and the applicants had no right to work in the UK. Of the remaining 50%, almost all were totally unqualified by CV alone. Of the handful who were qualified, a very quick technical chat on the phone weeded out approximately half again. Then the ones whose salary expectations were out of line with the hiring company needed filtering out too. When you're in a position to actually hire people, you'll get a feel for how time-consuming it can be to hire a single role. When you have 5 to fill, it can become a full-time job.

Thirdly, as an immigrant to the UK (welcome!), you'll be well-acquainted with the foibles of the UK immigration system. Candidate A's wife is on a Tier II inter-company transfer visa, and he wants to get a role; does the hiring company need to be on the UK BA list or can you just hire him? What if it's a subsidiary company of a larger company that is on the UK BA list, but it doesn't have its own registration? Is the candidate worth pursuing? What if the candidate applied for ILR four weeks ago? Is it safe to make him a job offer?

Fourthly, as you point out, the UK job-board market is not centralised, and it's not a monopoly. Where should you post a Python job? LinkedIn? Monster? CV Library? Twitter? Reed? Jobsite? Facebook? Jobserve? Any number of the scammy Python-specific job-boards? As a direct employer, your media cost is £200 a pop. Filling out each form take half an hour. Each of these systems has a different way to get the candidates and format them. As a recruiter, however, I'm using a multi-poster, and I'm paying ~£10 for the media cost, and I have the time and motivation to post the job to a wide-range of channels, but I also have a pretty good feel for where my return on investment will be.

Fifthly: What's a reasonable salary for a Ruby developer in London? What if you need them hired in the next four weeks, urgently? What about a contractor? You've probably got a gut feeling, but look, all the job ads show a range, and not an actual salary. How much would you pay for a superstar? How much for a junior? Are you paying more or less than the competition? Two types of people have access to salary data across the industry: HR people, who aren't allowed to share it, and recruiters, who share it as part of their value-add.

There are sixthly, seventhly, eighthly and ninthly here, but who reads long comments anyway?

    > Russian recruitment industry as an example of smoothly-
    > functioning market ... through two of the largest
    > websites
So, to summarize, the Russian way is better because there is a duopoly in the job-board market, rather than meaningful competition. I can't tell if you're making a very clever ironic comment on economic centralization and its effects on the Russian economy, or you're just not thinking through the implications of what you write...

    > that people like you (yes, you) will lose their jobs and 
    > suffer
You should consider re-reading the HN guidelines.

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

#48

Earlier quoted context omitted.

> 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…

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).

    > 1) recruiter effectively steals a percent of your
    > starting salary
This is absolutely true for contractors, and absolutely not true for permanent staff.

I have only lengthy experience to back this up, rather than anything I can link you to, but:

* For a contractor, companies budget a maximum amount to spend per day. How that gets cut between the recruiter and the contractor, they don't care about. If you're going through a recruiter, you could be charging the employing company exactly what they're being charged by the recruiter, and pocketing £70-£120/day difference.

* For permanent staff, it's accounted very differently. Companies large enough to have people employed in an HR capacity will treat recruiter fees and salary very differently. Salaries will normally have an upper-band, the salaries of other employees and future employees will need to be taken in to account, the precedent set will need to be taken in to account, generally payroll and hiring costs are accounted for differently, and so on. A three-person company will see it all as cost, but a larger company will treat the recruiter fee and the salary as completely different. Additionally, it's in the recruiter's interest to get you the best salary they can, as they take a percentage from the employer. They will know the limit the employer will pay, and will try and get you the best salary they think the employer will go for; generally they are far better negotiators than developers!

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

#49

Earlier quoted context omitted.

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.

Unfortunately not many companies are willing to consider that - even Slack[1] isn't interested in remote workers. [1] https://twitter.com/mrmrs_/status/567832899854065664

Something that works really well in London, and might work well in big urban areas, is partial WFH. If someone can work at home 50% of the time, they can live 5 hours away and just come in on a Tues morning, leave on Thurs eve, or are willing to put up with a 2 hour commute as they only do it half the time. I managed a mid-sized tech team at a company that did this, and it gave us access to many many candidates who didn't want to live in London, but lived as far away as Edinburgh...

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

#50

Earlier quoted context omitted.

> 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…

In reverse order... > please, tell me about the added value recruiters in the UK bring anyone Sure. Firstly, the last 5 candidates I've placed were not looking for jobs. Each was in a role where they were slightly unhappy, but inertia was keeping them put. Having chatted to them, I was able to find them roles they enjoyed more, with a significant pay rise. You could see this as introducing liquidity to the market. A…

    > who reads long comments anyway?
I do! It's great that someone is able to see through an emotional response and explicitly address most of the points. I'll try doing the same (and also in reverse order).

    > the Russian way is better because there is a duopoly
    > in the job-board market, rather than meaningful competition
The Russian way is better because the marketplace is more efficient for both sides. If I'm a candidate, I have direct access to more real, existing, non-anonymized vacancies. If I'm a hiring company I have the way to target those looking for jobs. You cover the positive results of that with negative wording ("monopoly"), but in reality it's much less one-sided. Would someone willing to purchase some goods prefer to deal on the phone with people with limited inventories or go directly to something like eBay? Is eBay a monopoly in this case? Answer for both: of course not.

    > Fourthly, ... Where should you post a Python job?
You are describing the very root of the problem and make it sound as if it's something to be proud of. As a hiring company, I can also use a multi-poster too. But now think about a candidate. Where would they go to search for a Python job? Aston Carter? Oxygen Recruitment? Any other scammy-looking firm harvesting their CVs?

    > Thirdly, ... Is it safe to make him a job offer?
Sorry, but for this sort of advice, I'll call my lawyer and my lawyer only. We hired a company specializing in legal services for startups the day we raised funding.

    > Secondly, ... you'll get a feel for how time-consuming it can be to hire
    > a single role. When you have 5 to fill, it can become a full-time job.
I did it, so I know. You are right, it's a very time-consuming process. When my company grew to four people, subsequent hires were driven by an in-house hiring consultant (former recruiter now doing consulting) working one day a week.

Would you argue that a person sitting next to you, being able to talk to hiring person (me) in case of any doubt, speaking on behalf of your company (emailing candidates from @company-mail.com, not @recruiter-company-mail.com) and costing fraction of recruiter cost is better than a recruiter from an outside firm?

    > Firstly, ... You could see this as introducing
    > liquidity to the market.
Market liquidity is not a good thing in itself. Its only purpose is to reduce spread between bid and ask prices, but by introducing your fee for a bidder you actually increased the spread. You surely can argue that you did a universal good thing for those applicants but you definitely don't bring more efficiency into the market.

I understand this conversation is a bit meaningless. It's as if someone would talk to me saying that programming profession is outdated and needs to be replaced with something else. I would refuse to believe that, of course.

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