Our Startup Would Probably Die If We Were In San Francisco • Hacker News Board

Re: Our Startup Would Probably Die If We Were In San Francisco

#31

Post by bunderbunder » Thu, Jul 24, 2014, 7:46 PM UTC

frankus wrote: post #26

It's probably obvious to most, but I recently came to the realization that if you're paying off debt, a high COL works in your favor, whereas if you're living off cash, it works against you. That means that if you're fresh out of college with lots of student loans, you're doing yourself a disservice if you don't move to a big city and get a high paying job. You can effectively inflate your way out of your debt by mak…

That only works out if the salary you can make increases in proportion with the cost of living. I haven't lived in a lot of places, but at least based on the few cities I have lived in, I don't believe the two are anywhere near that tightly correlated.

For example, consider Milwaukee vs. Chicago. Chicago's a major finance and banking center, and a huge percentage of the people living there are in some kind of profession. Milwaukee's still mostly a blue collar town. This difference shows in the very different costs of living: An apartment in Milwaukee costs about half of what an equivalent one costs in Chicago, restaurants cost less for similar quality meals, drinks are way cheaper, etc.

But it does not follow that you can earn twice as much money working as a developer in Chicago. The same job in Chicago might pay a bit better, but the difference is modest. This is because the two cities are so close to each other that at least in tech they're essentially the same job market. There's even a busy commuter train connecting the two cities.

In short, it's not necessarily doing yourself a disservice if you don't move to a big city and get a high paying job. You might do yourself an even better service by moving to a small city and getting a high paying job.

Re: Our Startup Would Probably Die If We Were In San Francisco

#32

Post by davidw » Thu, Jul 24, 2014, 7:47 PM UTC

smutticus wrote: post #21

acheron wrote: post #9

There's also the fact that California is regularly at the bottom of rankings of "business friendly" states. I'd rather locate my business in a state that wants me there.

I've never understood these "business friendly" rankings. If CA is so terrible to businesses, then why are there so many successful businesses in CA?

"Positive network externalities":

http://en.wikipedia.org/wiki/Network_effect

The bay area has 1) a large, talented workforce, 2) great universities, 3) lots of venture capital, as well as people who have "already done it" to give advice. Plus it's a nice place to live if you don't mind the traffic. Granted, opening an LLC costs X compared to a much cheaper Y in Nevada, but that's ultimately kind of small potatoes compared to all the things in California's favor.

That said, I'm more interested in bootstrapping something: what people like patio11, Rob Walling and company have achieved doesn't look like science fiction, and they're doing it in places that are not Silicon Valley.

Re: Our Startup Would Probably Die If We Were In San Francisco

#33

Post by 7Figures2Commas » Thu, Jul 24, 2014, 7:47 PM UTC

frankus wrote: post #26

It's probably obvious to most, but I recently came to the realization that if you're paying off debt, a high COL works in your favor, whereas if you're living off cash, it works against you. That means that if you're fresh out of college with lots of student loans, you're doing yourself a disservice if you don't move to a big city and get a high paying job. You can effectively inflate your way out of your debt by mak…

You're missing one other consideration: retirement savings.

If you have a 401(k) plan, you can contribute up to $17,500 of your salary each year as an elective deferral. While it's possible to come out ahead earning a lower salary in a lower cost of living area, for most folks, it's generally going to be easier to set aside the $17,500/year for retirement with a higher salary. If you have a decent employer match, a higher salary can also be meaningful over time.

Of course, it is possible to obtain the best of both worlds (make a lot of money in a low cost of living area). You don't need to be in a high cost of living area to own a profitable business or become a consultant, and folks who are self-employed can set up their own 401(k)s.

Re: Our Startup Would Probably Die If We Were In San Francisco

#34

Post by gamblor956 » Thu, Jul 24, 2014, 7:48 PM UTC

acheron wrote: post #9

There's also the fact that California is regularly at the bottom of rankings of "business friendly" states. I'd rather locate my business in a state that wants me there.

The rankings are heavily biased against tax rates and employee's rights. They focus on the factors that are related to cutting costs, while ignoring the factors that are related to generating revenues or operating the business, such as access to capital, trained/educated/trainable employees, and customers.

California and New York, both frequently at the bottom of such lists, have all 3 in spades, which is why they're great for businesses that engage in active business activities (sales or services). The states at the "top" of the lists are great for businesses that depend heavily on the exploitation of labor and cost-cutting to generate revenue or growth.

I represent quite a few companies that left California for tax reasons, and ended up coming back. They lost more businesses than they saved in taxes by moving to "business friendly" states.

Re: Our Startup Would Probably Die If We Were In San Francisco

#35

Post by x0x0 » Thu, Jul 24, 2014, 7:50 PM UTC

JPKab wrote: post #13

cft wrote: post #10

The problem is that the massively funded SF/SV start-ups will create the "scorched earth" regime for the bootstrapped ones: try moving to St. Louis and compete with a AirBnB from there? If you get traction, you will have to get VC money, which means moving back to SF or NY.

Why do VCs require companies to be in the city they are in? Can someone please explain this? We are talking about an industry whose product is supposed to transcend physical space, but we have to be located in an ultra expensive city to get funded? Where is the logic?

Disliking travel is the obvious reason (and to be fair, if you're on the board of 10+ companies, that can quickly become a lot of travel). And it's not just for board meetings; it's travel for the board member or for the ceo in order to use the board member's contacts, etc.

Re: Our Startup Would Probably Die If We Were In San Francisco

#36

Post by rjurney » Thu, Jul 24, 2014, 7:51 PM UTC

marshallhaas wrote: post #6

freeqaz wrote: post #3

I've thought a lot about this and I feel like it makes sense pre-seed to do this. Save the cash, invest it in the business, and then when you raise money move to San Francisco/Bay Area. It's really tough to grow outside of SF, I feel like. But if you're bootstrapping yourself... Then I can't see many reasons to come to SF.

Agreed, San Francisco is probably the worst place to be if you want to bootstrap.

I don't think so. There are so many early adopter, visionary customers here you can sign up on spec to pay you to develop your product.

Re: Our Startup Would Probably Die If We Were In San Francisco

#37

Post by rjurney » Thu, Jul 24, 2014, 7:53 PM UTC

JPKab wrote: post #13

cft wrote: post #10

The problem is that the massively funded SF/SV start-ups will create the "scorched earth" regime for the bootstrapped ones: try moving to St. Louis and compete with a AirBnB from there? If you get traction, you will have to get VC money, which means moving back to SF or NY.

Why do VCs require companies to be in the city they are in? Can someone please explain this? We are talking about an industry whose product is supposed to transcend physical space, but we have to be located in an ultra expensive city to get funded? Where is the logic?

There is such an advantage to being in a startup-dense area, why would you fund companies without this overwhelming advantage? You have a choice, and the valley startups come out on top.

Re: Our Startup Would Probably Die If We Were In San Francisco

#38

Post by rjurney » Thu, Jul 24, 2014, 7:56 PM UTC

acheron wrote: post #9

There's also the fact that California is regularly at the bottom of rankings of "business friendly" states. I'd rather locate my business in a state that wants me there.

How ironic, when California has the most pro-entrepreneur labor laws. Non-competes aren't enforceable and California 2870 has the entrepreneur's back.

http://www.leginfo.ca.gov/cgi-bin/displaycode?section=lab&gr...

Every company has to give you a piece of paper that says, "If you develop something unrelated without using company resources, you own it."

California is an entrepreneur's wet dream. The tax liability is cheap for what you get.

Re: Our Startup Would Probably Die If We Were In San Francisco

#39

Post by calciphus » Thu, Jul 24, 2014, 7:57 PM UTC

smutticus wrote: post #21

acheron wrote: post #9

There's also the fact that California is regularly at the bottom of rankings of "business friendly" states. I'd rather locate my business in a state that wants me there.

I've never understood these "business friendly" rankings. If CA is so terrible to businesses, then why are there so many successful businesses in CA?

Because it is good for workers, and therefore workers who value themselves (or more specifically, understand their value to businesses) will want to live someplace where their rights are more important than their companies.

For example: non-compete clauses are unenforceable in California. This makes it "unfriendly" to businesses, but much more appealing to highly skilled workers who don't want to be boxed out of their industry for two years just because they dislike their job and want to quit.

Re: Our Startup Would Probably Die If We Were In San Francisco

#40

Post by kasey_junk » Thu, Jul 24, 2014, 8:03 PM UTC

bunderbunder wrote: post #31

frankus wrote: post #26

It's probably obvious to most, but I recently came to the realization that if you're paying off debt, a high COL works in your favor, whereas if you're living off cash, it works against you. That means that if you're fresh out of college with lots of student loans, you're doing yourself a disservice if you don't move to a big city and get a high paying job. You can effectively inflate your way out of your debt by mak…

That only works out if the salary you can make increases in proportion with the cost of living. I haven't lived in a lot of places, but at least based on the few cities I have lived in, I don't believe the two are anywhere near that tightly correlated. For example, consider Milwaukee vs. Chicago. Chicago's a major finance and banking center, and a huge percentage of the people living there are in some kind of profess…

There is a bit of a fallacy going on here. If your housing costs 2x of another place it does not follow that the total COL is 2x. For instance, most cost of living calculations predict that even though housing is 85% higher in Chicago, the total cost of living is more like 28%.

A 28% salary differential is just about right for the last couple of jobs I looked at and maybe a bit lower. This also doesn't count for the choice differential between Chicago and Milwaukee which is extreme.