How San Francisco Housing Prices Are Affecting Startups

San Francisco has a strong reputation for being one of the largest tech hubs in the world, but as housing prices continue to soar, startups are struggling to find affordable office space and pay their employees a livable wage. Additionally, small startups are forced to compete for the brightest talent against tech giants like Google and Facebook that can offer employees very lucrative compensation packages as well as generous perks ranging from free meals and dry cleaning to substantial vacation days.

This issue was brought to my attention last week when I was catching up with a friend who is a senior this year at BC. She was struggling to pick between accepting an existing job offer or entering into another round of unpredictable and stressful recruiting. The summer after her sophomore year, she interned at a small technology startup in San Francisco. Impressed with her work ethic and talent they gave her an offer to return as a full time employee after graduating from BC. She loved the company culture and enjoyed the work, but the company was unable to offer her a salary that would allow her to live in the Bay Area. Her other offer was to work in New York City at one of the largest investment management companies in the world. Given the scale of the company, they had the resources to offer a much higher salary. She was caught in the dilemma of choosing between a company that she loved but couldn’t afford to pay her and a company that she enjoyed less but provided financial security.

The offer deadline for the job in NYC expired last Friday, forcing her to quickly make a decision. She ended up accepting the position and turning down the offer from the San Francisco startup. She told me that the startup that had given her an offer could often be quoted saying:

“We can’t pay our employees what they’re worth, we pay them what we can afford.”

In order to combat this issue, some startups have begun to seek out other alternatives such as satellite operations in less expensive areas

Median Home Values

Baltimore: $117,100

Dallas: $194,100

Atlanta: $243,100

Minneapolis: $259,300

Portland: $424,700

San Francisco: $1,366,000

(according to Zillow)

Instead of fostering a traditional work environment where everyone gathers in the same space, some startups have begun to utilize video conference chat technology to help employees across locations communicate with one another.

video conference

Jelli, a San Mateo-based tech startup, has been forced to seek out other alternatives. The co-founder and CEO, Michael Dougherty, was able to cut costs by opening a satellite office in Boise, Idaho where average salaries are only two-thirds of those in the Bay Area. The startup Skymind also benefited by having remote employees and claimed it has saved millions annually by not having to pay all of their employees “Silicon Valley wages.” Many startups fail because they simply are unable to fund themselves, and therefore, being able to effectively save money can help to determine the fate of a startup.

The San-Francisco-based startup UrbanSitter had to adapt to having employees work remotely when one of their top engineers announced he was planning to move to Portland, Oregon because he couldn’t buy a home in San Francisco. A few years later, two more engineers from UrbanSitter followed his lead and went to Portland seeking more affordable housing. UrbanSitter embraced this change and opened a WeWork space in Portland for their engineers living there. They also attempted to maintain the startup culture by conducting lunches, happy hour drinks, and even in-office yoga all through video chat.

Yoga

Corporate yoga class at UrbanSitter

However, despite these conscious efforts, the remote employees still don’t feel as connected with the rest of the company.

“I would say there definitely is a small bit of longing. You feel like you’re missing out a little bit on things that are happening in San Francisco.” – Travis Dobbs, UrbanSitter lead engineer

UrbanSitter and Jelli are not anomalies as many startups resort to having remote workers. In fact, Toni Schneider, a partner at True Ventures, remarked that almost all of the companies his team invests in have remote workers. He is a first hand witness to the weight that housing prices in San Francisco put on fledging startups.

housing prices

“We never had a problem finding people, whereas every single startup in San Francisco, we ask them what their biggest problem is, and it’s always hiring. And that’s directly related to the cost of living.” – Toni Schneider

Similar to San Francisco, the cost of living in New York City can also be exorbitant. As we visit various companies on the East Coast, I’m curious to see if they’ve had to incorporate non traditional work environments to help manage expenses. I had the opportunity to intern at a tech startup in Boston this summer and only a little over half of the employees actually worked out of the Boston office. Even within my short time there, I noticed some of the impacts this arrangement had. When a tech problem would come up, employees had to communicate with the remote tech team via email or phone. The office had poor reception which created issues given how much the team relied on wifi to communicate. Additionally, I was unable to easily build relationships with those outside of the office. There weren’t any conversations in the kitchen or lunches on the deck or hellos in the hallway. Although these were small interactions, they were what allowed me to become close to the people I worked with and made being at the office more enjoyable.

At the recent SSC Demo Day in Boston, Dan Nova, a partner at Highland Capital, noted that the two industries he believes need disruption are education and work. I agree that there is huge potential for the current mindset of what it means to “go to work” to be transformed. As new technologies continuously emerge and old ones are improved, I am excited to experience the impact they’ll have on everyday life.  

 

Sources:

https://www.mercurynews.com/2018/04/09/the-bay-area-broken-why-local-startups-are-hiring-outside-silicon-valley/

Silicon Valley’s Astronomical Housing Price Creates a Problem for Startups

https://www.businessinsider.com/san-francisco-housing-so-expensive-alternative-tech-cities-salary-data-2018-5

 

11 thoughts on “How San Francisco Housing Prices Are Affecting Startups

  1. Interesting angle. My take on this phenomenon is that basically tech entrepreneurship has grown too big for any one city. I think this is actually good news that it’s moving to other places as digital is expanding its role in the economy. The big tech companies are setting up companies around the world.

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    • I was just discussing this with my roommates over dinner the other night. I think tech companies are on the cutting edge of this transformation of work. It makes sense, seeing as they are creating the tools that allow for this flexibility. As much as I loved the Bay Area, I think this distribution across the world will create some really interesting dynamics and opportunities.

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  2. Having grown up in the Bay Area, it’s been amazing to see how the real estate market has seemed to skyrocket overnight. It’s getting to the point now where young adults have to endure long commutes to live outside of this expensive bubble, and parents have to help their adult children put down payments on homes. I can’t imagine these housing prices increasing for much longer, and I feel we are almost at a breaking point, but at the same time, we have been saying this for years.

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  3. It’ll be interesting to see how remote work continues to improve and evolve in the future. As I’ve been looking at grad roles, I’ve been seeing more and more remote opportunities, especially for technical roles. The culture at startups is often a huge selling point, so I wonder how companies will be able to build that culture if the majority of their employees are remote.

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  4. I had always heard that the cost of living was significantly higher in California, and the Bay Area in general, however I had no idea just how much until reading your post. I was surprised to hear that companies like UrbanSitter are adapting to meet their employees needs, since everyone understands the housing problems people are facing in this region. Also, interesting point in your comment Maddie on how people have ben expecting these prices to max out for years now, and yet they still seem to be climbing.

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  5. I really enjoyed reading your article; I was just reading an article from The Economist about this issue the other day. It discussed how a major draw of The Valley was not just the location but the idea. Just like it is the American Dream for people to come and make a name for themselves, it seems to be the entrepreneurs dream to launch a successful startup in Silicon Valley. It will be interesting to see, in addition the growth of remote employees, if another major city will emerge as a the hub of tech companies.

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  6. Great article Jenna!! It’s so interesting that startups continuously flock to the Bay Area, where money in tech seems unlimited, yet the companies can barely afford employees. However, I am excited that this trend is forcing startups to reconsider their headquarters locations. Hopefully more companies will become encouraged to transfer to the Boston area! Such a great topic, thanks for sharing.

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  7. Hi Jenna,
    Thank you for sharing! I definitely think it is a fine line between the idea that a startup needs to be in Silicon Valley for success purposes compared to needing to be in Silicon Valley for status purposes. With some industries, being in Silicon Valley is extremely vital in order to capture the best talent or network with companies that may become clients. However, for companies that do not necessarily need the Silicon Valley help, but are only there for the status, it seems as if they could relocate to other popular startup cities like Boston.

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  8. Great post. I agree that this has gone way too far and has serious effects, such as the vast homelessness that is present in San Francisco. There are more homeless people per square mile in the city of San Francisco than any other city in the US. Although it is warmer and there is apparently more opportunity there, this is not enough for those who have nothing. There is a massive gap between the extremely wealthy and the extremely poor, and a lot of the time, the homeless population is mentally ill or addicted to drugs, making them even less able to find a steady income. I really hope that nonprofits or governments can devise some sort of plan to ameliorate the consequences of this.

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  9. Hey Jenna,

    As I am from the East Coast and rarely look into job opportunities on the West, this is such an interesting and new perspective for me! The idea of launching a start-up in Silicon Valley is so appealing to many entrepreneurs as they hope to join the tech giants who have set up their headquarters in this area. However, there is definitely a fine line where these leaders must consider what is better for their company and what is better for their employees. Or both! It certainly seems to be a struggle for these start-ups to determine the correct trade off between locating their offices in a technology rich area, versus being able to pay their employees well and ensuring their well-being. I’m curious to see if companies will start to migrate to a cheaper area in the US, and start a Silicon Valley 2.0 to ensure more affordable costs.

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  10. Thank you for sharing your research and perspective on this topic! It’s sad that the financial challenges are costing people jobs that they love. When I was applying to internships last Summer, I was hoping to find career opportunities in Silicon Valley but had to give up my search because of the high living cost there. I’m curious to see if more start-up companies headquartered in high-cost locations will offer remote internship opportunities to students.

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