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Where Startups Are Matters More Than What They Pay

The cliché that "location, location, location" determines whether a business lives or dies applies to more than just retail stores and restaurants. It's also a factor for office-based startups and newly hatched manufacturers. That's because the one thing they have in common is people. Whether you're looking to lure the most customers or attract the best employees, where you set up shop is a critical decision that should not be based solely on the cheapest lease available.

"Successful companies are going to go where the best people for their enterprise want to live and work," says Mark Arend, editor in chief of Site Selection, a magazine that covers corporate real estate and economic development. "Consider a creative company, like an ad agency or electronic game developer. If that labor demographic wants to live in a trendy, downtown part of the city, then that's where the company will want to locate, because those workers typically won't want to commute to the suburbs, where workspace may be more affordable. It's a cost of doing business."

Case in point: Silicon Valley, where housing costs and rents are some of the highest in the nation. Yet technology startups continue to flock to the region to tap into the labor pool of talented software engineers. The same scenario explains why the entertainment industry congregates in Hollywood, or why Miami is a popular home base for U.S. companies seeking a multilingual work force to help them tap into Latin American markets. Depending on the nature of a business, other variables come into play, such as easy access to raw materials and proximity to logistics centers in the case of manufacturers (think Memphis, Tenn., and its role as a hub for FedEx).

But in the end, determining where to set up shop should be a matter of finding a qualified work force for the job and knowing there's enough extra labor available for growth. As Arend notes: "I keep hearing from companies that they would expand tomorrow if they could only find the work force they needed."

Grant Davis is the Tech and Money Editor for Entrepreneur Magazine.

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This article was originally published in the June 2013 print edition of Entrepreneur's StartUps with the headline: Not-so-easy Pickings.

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