Silicon Valley tech startups are establishing satellite locations or moving entirely out of the California’s Bay Area to find affordable workers who don’t have to cope with the state’s high cost of living, The Mercury News reported on Monday.
Hiring in Silicon Valley has become increasingly difficult for young companies needing to attract workers in one of the costliest areas in the U.S. Employees expect large salaries in order to cover ordinary expenses and pay the highest state income tax in the country.
Toni Schneider is a partner at a San Francisco-based venture capital firm. He is the former CEO of a startup that maintained a mostly remote workforce. Without the physical constraints of a traditional office, Schneider never had a problem finding employees or attracting talent. Employees from other firms even sought after Schneider’s firm because the company allowed such flexibility in living.
“We never had a problem finding people,” San Francisco-based venture capital firm True Ventures partner Toni Schneider told The Mercury News. “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.”
Small startups are also forced to compete with massive companies like Facebook and Google that can afford to pay salaries well into six figures. Even at those pay scales, engineers at large tech firms can spend as much as half their monthly salaries in rent, Observer reported.
The skyrocketing cost of living is largely due to a housing shortage plaguing urban centers in California, and it’s getting worse. The average housing price in San Francisco has grown by roughly 75 percent in just five years.
“Eighty percent of startups never make it,” Skymind co-founder and CEO Chris Nicholson told Observer. “Startups need time to find a profitable business model before they burn out the [venture capital] money. It takes anywhere from three years to infinity. When a startup compensates employees with an enormous salary package, that shortens its time to find a profitable model.”
Letting employees move to other places or work remotely, however, allows financially struggling tech startups to pay employees less, but the employees still enjoy a higher standard of living because each dollar goes further.
“It’s a painful decision to make,” Nicholson told Mercury News, adding his company has saved millions since making the move to let employees work remotely. “We did that to increase the likelihood of our survival as a company.”
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