Bay Area’s Explosive Growth: An Impetus for Startups to Expand to Regions with Lower Wages, Real Estate Costs

Conor Dougherty reported in Monday’s New York Times that, “Three years ago, Kate Rogers was caught in the Bay Area struggle. She paid the astronomical rents. She did the crushing commute. She lived the frustration of always thinking about money even though she was a well-paid professional in the booming technology industry.

“And then, just like that, the stress went away. All she had to do was move to Arizona…[A]s start-ups across San Francisco and the Silicon Valley try to contend with high salaries and housing costs, many are expanding to lower-cost cities in the West and employing more people like Ms. Rogers. For Phoenix, which is about a 90-minute flight from San Francisco, the Bay Area’s loss is its gain.”

Mr. Dougherty indicated that, “At the end of last year in the Bay Area mega-region — including both the San Francisco and San Jose metropolitan areas — there were 530,000 tech and engineering jobs, a 7 percent increase from a year earlier. Phoenix has about one-fifth as many tech jobs, but the total grew 8 percent from a year ago, according to Moody’s Analytics.

“‘The Bay Area’s explosive growth is almost too much for the region,’ said Jackson Kitchen, an analyst at Moody’s Analytics. ‘They are bidding up wages so high that companies are saying, ‘Let’s expand to Phoenix or Boise or Salt Lake City where wages and real estate are that much cheaper.””

Graphic from The New York Times

Graphic from The New York Times

Mr. Dougherty also pointed out that, “Wages, taxes and energy cost about 25 percent less in Phoenix than they do in San Francisco, according to an index of business costs compiled by Moody’s Analytics.

Housing is much cheaper. The median home price in the Phoenix metropolitan area is $221,000, according to Zillow. In San Francisco, it is $812,000.”

Yesterday’s article added that, “Hordes of young dreamy entrepreneurs still flock to the Bay Area each year in search of venture capital. Silicon Valley is to tech entrepreneurs what Hollywood is to actors, and the region continues to significantly outpace the nation in creating engineering jobs.

But as companies grow and add large numbers of sales and customer service jobs, ‘it’s less about survival and having everybody in the same room,’ said Lawrence Coburn, chief executive of DoubleDutch, a San Francisco maker of software for live events that recently laid off a quarter of its staff to try to become profitable sooner.

“This year, the company opened a downtown Phoenix office with sales and customer service jobs. ‘San Francisco is a terrible place for entry-level people,’ Mr. Coburn said, because the infrastructure and housing are ‘failing.'”

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