5 Factors to Weigh When Choosing Your Company's Headquarters
Don't follow the crowd and set up shop in a popular startup area. Instead, ask yourself, "Why?"
Silicon Valley is certainly a heady environment, what with every block home to the headquarters of three or four startups. But that doesn't mean every business should make its home there in the Bay Area.
Look at the example of Amazon and its search for a second headquarters site. According to the New York Times, cities all over the country have been vying to woo the tech giant however they can. Altogether, Amazon received 238 proposals from regions and cities across North America and will make its decision on a location in 2018.
You can bet that all those regions and cities await Amazon's decision with bated breath: Whichever the lucky locale ends up being, it will be in line for a $5 billion investment and about 50,000 jobs. No wonder so many local governments have pulled out all the stops.
Nor should anyone assume that one of the contenders in America's heartland won't win: According to the Kauffman Foundation (which studies business growth), four of the nation's five fastest-growing entrepreneurial cities are located between the coasts. Places such as Columbus, Ohio, and Nashville, Tennessee, offer many of the same amenities San Francisco or New York does, but with a fraction of the competition for attention.
When deciding where to establish a headquarters, you must consider what type of business you want to run. How much does location matter in your industry? Biotech companies, shoe stores, restaurants and online companies all have different needs, and multiple cities are ready to accommodate. By understanding your HQ needs and considering all your options, you can save money while pursuing unique opportunities.
How we decided on St. Louis.
We're originally from London, but when we founded our company, Tallyfy, we lived in Chile. As the business grew, we noticed that most of our customers were in the United States. And because we wanted to expand that market and understand our customers better, the only way to do that was by moving there.
Arch Grants, a nonprofit organization that provides $50,000 equity-free grants and pro bono support to entrepreneurs who locate their early-stage businesses in St. Louis, gave us one of those grants.
That's what led us to conduct research about this city we knew almost nothing about. We discovered that many Fortune 500 companies and other successful businesses were already based in St. Louis. Even better, much of the population was a good fit for our customer profile, which meant we could study our customers in greater detail. We decided to give it a shot.
Today, we still operate out of St. Louis, even after living in Silicon Valley for a stint and winning acceptance to a couple of top accelerators there. Why? We realized that Silicon Valley didn’t match our market as well as St. Louis, which had a greater number of medium- and small-sized companies we could target.
We also discovered that we could still get funding from Silicon Valley without living there, which would not be the case living outside St. Louis.
In fact, our largest investor is from Missouri. Further, talent and rent cost more in the Bay Area (with stiffer competition for both), while, in St. Louis, we could get the same level of talent and operate in a larger space for much less. After seeing what each locale had to offer, we decided St. Louis had what we needed to succeed, so we set up shop there -- permanently.
What makes a city the right fit?
Cost, talent and culture are the three factors that should determine where a company settles down. Each of these aspects will have its pros and cons, so founders must weigh their choices carefully before investing in a new city. Here are the questions to ask to make an informed decision:
1. Do we need to see people in person? If the business operates entirely online, this isn’t much of a factor. However, if meeting people face-to-face drives revenue, take it into account before moving somewhere that offers fewer customers.
One consideration is that IT work will grow 12 percent over the next 10 years, according to Virtual Vocations. Startups that offer IT services don’t need to meet and greet clients the same way that a soft-skills firm does, but both types of businesses can still succeed by choosing their environments carefully.
2. What level of talent can we get, and for how much? Do employees need to come to the office every day, or is telecommuting an option? Which cities have clusters of talent related to this field, and how much does the average employee there cost? Cities such as Boston, for example, have pockets of biotech talent around MIT.
Another consideration is that different types of workers can afford to live in different cities. For instance, a prospective city might prefer those who work in health care to those in finance, so adjust your decision accordingly.
3. What is the city’s culture? We didn’t particularly like San Francisco because the culture there is so tech-centered. Everyone is a developer -- coding on laptops in coffee shops. St. Louis, on the other hand, offered a more diverse atmosphere where we could build a different kind of business without worrying whether we fit in.
The tight-knit startup culture of St. Louis helped, as well. In our first few months, we noticed how much other corporations based in St. Louis worked with startups to help them succeed, compared to other cities where everything was a competition. With a growing, happy startup culture, as covered by VentureBeat, we knew St. Louis was the kind of place we wanted to work.
4. What is the cost of living? San Francisco, Seattle and New York City all have notoriously high costs of everything -- from rent, to office space, to transportation, to food. For online businesses, an internet connection and a cheap workspace are far more important than a $3,000 apartment that used to be a garage.
Our concerns are not unique; nor is the success we've found outside Silicon Valley. According to the Huffington Post, Tackk -- a cloud-based software company -- has not experienced any drawbacks to operating in Cleveland, as opposed to the traditional tech hubs.
5. How do you feel about it? You won’t last long running a company in a place you don’t want to be. Unhappy founders don’t attract great talent, lead well or like what they do.
So, consider personal factors before settling on a new HQ location. Think about schools, parks, restaurants, nightlife, even the bar scene -- whatever personal priorities you think differentiate one city from another.
Also be careful not to chase money for wealth’s sake, at the expense of other factors. According to researchers Daniel Kahneman and Angus Deaton, reporting in the Proceedings of the National Academy of Sciences, earning anything above $75,000 per year does not make people any happier.
The lesson? Don’t follow the crowd and set up shop in a popular startup area without first asking why.
What does one place have to offer over another? By asking that question, you'll make an objective decision and establish your headquarters in a locale that will be perfect for your company, perhaps for decades.