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 making your salary much bigger in comparison (assuming COL and salaries roughly match up).
And if you're about to retire (without having Fuck You Money), you should move somewhere cheap, all else equal. The same could be true for many bootstrapped startups.
If you're investing or saving 30% of your income, it's better to work somewhere with higher COL / higher pay. This way over time you accrue more wealth than you would if you were working in an area with low COL and lower pay.
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.
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.
I think 30-40% more salary is easy in Chicago. I think you can easily live at only 30-40% more expenses in Chicago (think of all the stuff a big city saves you.. can get rid of all your cars, get more free entertainment options, etc).
Thus, I think Chicago is awesome for post college people to inflate their way out of college debt. I do not know enough about SF to say if that is a good idea, but the COL to Salary ratio could be off.
I live in Milwaukee and disagree. There is no tech scene here. Programmers work for banks, insurance companies, Time Warner Cable, manufacturing, etc. if they work at all. In Chicago, there are actual software companies and consultancies. You would never see something like ThoughtWorks or Matasano (and their correspondingly competitive salaries) in Milwaukee.
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.
But if you're focused on building a 7 or low 8-figure business, bootstrapped, and self-funded, and your goal is financial independence/freedom instead of "changing the world", totally agree, starting up outside of SF is a great way to build up and earn those first stripes.
I live in San Diego and there are lots of internet millionaires here: http://helenchangwriter.com/2009/11/20/millionaire-internet-...
Now that I know how HN people define it, I guess my inclinations are way more towards small business than startup.
Customers aside, there are tons of people willing to help, either through advice or introductions. There's an entire ecosystem who understand startups, and have been there.
My failed started before that was in Austin, Tx, and the startup density just wasn't there at the time (2009).
Not every developer in SF is as mercenary as you make it sound. For your first employee hire, you might find a single person living in an apartment in SF vs. a family man in St. Louis who has to pay for day care and save for college. Their salary requirements might be comparable. [Edit: my point here is not to say that SF people are only single, and STL people only have kids, but that salaries are a distribution, and that there are places where the SF and STL distributions overlap, based on the individual's experience, desires and stage in their life.]
This is based on a ridiculous premise:
1) That a highly paid professional in a city BRIMMING with recruiters and cool new companies throwing themselves at them isn't going to respond to market pressures and/or "the shiny new company" effect when you reach a certain growth point
2) That a "family man in St. Louis" will cost something comparable due to this odd concept unique to flyover country of having a family.... oh wait, people in the Bay Area have kids too.
I'm sorry, but there is a huge amount of delusion in San Fran about the advantages of physical proximity. I'm not idiotic enough to believe there aren't huge advantages, but it seems as if there is absolutely no point (that HN folks are willing to acknowledge) where the cost of being in San Fran and having to pay your talent at grossly inflated rates actually MORE THAN CANCELS OUT the benefits.
- there are some advantages, but it depends
- the advantages depend on your target market, the stage of your company, and your desired direction, in terms of bootstrapping vs. raising
- you can't know ahead of time which way (SF vs. STL) will be more advantageous, and you can't repeat the experience, because the second time you'll have more experience, more talent, etc. This is a path-dependent experience.
Maybe if they did the startup in SF, they'd meet an advisor who changed the direction of the company to something even better, or maybe they wouldn't, in which case low cost of living in STL is an advantage. But pointing at cost-of-living alone isn't a useful comparison.
Source: SF has 44.7% single people, St. Louis has 32.9% single people
The subtext of your point about the STL person having kids is a little icky. You might want to reframe that point.
Offices in St Louis might be cheaper than San Francisco, but they're nowhere near as cheap as not having an office at all and possibly flying everyone to a common location on a quarterly basis for company all-hands.
Maybe I'm dreaming of having a large lab in the countryside, and a tiny office in the city.
Right now outside of truly hot tech areas like SF the hiring scene is stacked heavily in employers' favor: there are fewer job opportunities with fewer companies. That's true even in places like St. Louis (or Austin, or any of a number of other supposedly "hot startup" areas). I get some recruiter-spam from St. Louis and Austin based recruiters looking for candidates for "hot" startups and established businesses in the areas, but these opportunities are all with hospital/medical companies (STL) or corporate-y .NET type stuff (Austin). It's a bit baffling, actually, since my resume pretty clearly puts me far outside of those boxes.
It seems to me there's an opportunity there for would-be startups to exploit. On the other hand, the very same phenomenon leads to a kind of resistance: the density of "talent" to draw from reduces substantially outside of the SF/Bay area because a lot of it has already been drawn here to the very same job imbalance.
For a non-trivial number of startups, the founders were already working at a big tech company in the Bay Area before they started their own company.
For others it's access to investors or really critical employees. If you want someone who can build Amazon/Facebook/Google-scale datacenters, you're not going to have much luck in St. Louis.
People like proximity, they like being able to pop in and see other people. Distance is friction from a business point of view. Just as we see friction in applications as bad, so do business people see friction in business as bad. Distance is friction.
I'm bootstrapping in the UK, I love SF and would love to be there (at least part of the year!), there are a lot of advantages to having that much contact with other startups.
However, interestingly I notice that people who do what suits them best often seem to overcome geographic and financial obstacles. So I certainly wouldn't want to recommend or even suggest one way as better than the other.
You've got to balance what's right for you with what is right for others.
On a completely different note it would be great if we could swap the word 'funded' with debt everywhere it's used :-) The two words have very different connotations but mean the same thing (unless someone is just willing to GIVE you money :)) I think the word debt helps people to make more sober judgements.
So the obvious answer is that VCs are not there to provide money. They are there to provide a process/leadership to acquisition. So if you are a founder who is more interested in building something than an equity event, maybe there is a better way to do it than the VC funding route.
Maybe face time is important after all. Which makes the SV pumping of MooCs and other "disrupt education" pitches hilariously ironic and bleakly dishonest.
I've heard people calling it the Brooklyn of the Bay Area.
One mistake I've seen over and over again, don't hire your customer facing staff in those cheaper areas. You really want sales staff/etc. To be in the same area as your customer base
Here's a list and the cost of living delta vs. San Francisco (which translates into direct salary costs for your business).
Portland, OR - 35% cheaper
Nashville, TN - 80% cheaper
Atlanta, GA - 70%
Miami, FL - 50%
Tampa, FL - 70%
Huntsville, AL - 70%
Northern, VA - 20%
Blacksburg, VA - 60%
Charlottesville, VA - 50%
Virginia Beach, VA - 60%
Fredericksburg - 40%
Richmond - 60%
Williamsburg - 50%
Phoenix, AZ - 70%
Columbus, OH - 80%
Tri-cities area, WA - 70%
Boston, MA - 20%
Newark, NJ - 25%
Austin, TX - 70%
San Antonio, TX - 80%
Ft Meade, MD - 30%
Chicago, IL - 40%
Minneapolis, MN - 50%
Las Vegas, NV - 60%
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.
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.
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.
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.