Where to locate your startup

Location matters, but how much?

There are key variables when considering where to locate your startup and the ones that people focus on might not be the most important. I’ve had this conversation with a few other founders, especially those located outside of major hubs.

SF wins on the crude metric of unicorns per capita (maybe unicorns per companies started would be better), but this doesn’t mean you should build your company in SF - furthermore you could argue this metric is indicative of “past performance” rather than “future returns.” Big IPOs are more geographically distributed with lots in SF, but also Bozeman (Snowflake), Denver (Palantir), and Irvine (Rivian) in the top 10 over the last decade.

There’s probably a lot more useful data to be explored, but as follows are five location related attributes to consider.

Proximity to talent

This is probably the number one thing that people talk about when choosing a location. Ideally there is a healthy talent base of people with the expertise you need in the location you choose. But there is some nuance here. This talent base should be selected for on two variables: background/skills/CV and something I’ll call heartiness.

Background is a pretty easy one. Maybe you want people who currently work at a relevant company (e.g. SpaceX alumni) or people with deep domain expertise in some field through academic training or prior jobs. If you’re starting a new oil company, Houston probably makes sense.

Heartiness is a little tougher, but is actually more important - can you find talent who is willing to work their butts off to make the company a success? Do they come from a culture with a healthy work ethic? It’s possible that some regions breed or attract more hearty people, but I think it’s likely that 5-10% of talent across the board has this attribute. Maybe you can up your chances by focusing on hires from notoriously hard charging companies. I would be curious to hear if people have thoughts on how workforce heartiness is correlated with geographical location.

Another attribute of proximity to talent is being close to related industry / companies / competitors (and maybe customers, see below). This is a double edged sword: on the one hand you can find people who can easily join your company without moving. You also may be able to attract talent from outside the area because they know they can find another job if this one doesn’t work out. BUT you may also have talent retention challenges - things might get competitive (including the need for higher salaries) if your employees have tons of local options. I love the Micron story - they are a legendary semiconductor company based in Idaho, with insane talent retention because, at least in part, there is nowhere else to go.

Proximity to capital

There is arguably value in being close to the investors you want to target. It’s great to be able to stop by their offices, have them visit yours on a whim, or just meet them for coffee. That said I think the main value here is that investors are biased towards the hubs for the other reasons on this list: they will look at you funny if you are based in some random location, as that is seen as a disadvantage. This one is more perceptual than real. I mean how often do you see your investors in person even if they live in the same city?

Proximity to customers

It’s nice to be able to visit your customers in person with ease, especially in the early days when you are the main salesperson at the company. But as you grow, hopping on a plane to visit your customers is pretty normal. This might be different if you are making some physical good and you want customers to easily visit your factory, see the products in person, or even drop off product at their site. I wouldn’t index this one that highly as your customers will probably be all over the place, but if you’re working in atoms it’s pretty valuable to be on the beaten path.

Availability of specialized infrastructure

If you need labs, industrial space, lots of power, or whatever, this one could be pretty important. It’s hard to find good manufacturing space in the middle of San Francisco. Especially if you are a deeptech company heading towards large scale, even if your HQ is in a big hub you might need a facility somewhere else. Maybe the right move is to have a small facility in a big hub and plan for expansion elsewhere.

General quality of life

I think people generally undervalue quality of life in their decision. Where will the founders be happiest? Where do you have a strong network of business and personal contacts to support you through the ups and downs? Being based in a place where you are on solid footing might be the most important part of this decision. Sure you can develop a network wherever you land - in that instance, are you and your company aligned with the culture of the location?

This definitely comes into play if you are recruiting people from outside the area. Will they be able to find somewhere to live at a reasonable price? Would they be willing to move their family and feel safe bringing their kids here? What is the social scene like - can they find friends or a life partner in this place?

Also worth mentioning the value of easy travel logistics - its nice to be close to a major airport and geographically well situated for flights to visit customers/investors.

One thing to add is that being outside of a major hub can be an advantage. You may be able to retain and attract talent with lower cost of living and general quality of life, but most importantly you can operate outside of the noise and just build shit without distractions of the events / social calendar / competition that is often associated with being in a major hub.

Conclusions

Amongst the variables listed, I index almost entirely on 1) availability of a maximum hardiness workforce (or ability to bring them in) and 2) quality of life. These are absolutely critical for success and the rest will follow. Where are the most committed and hardcore people in your industry and is this a place where you want be for an indefinite amount of time, through good times and bad?