Tech giant of the West, soil of the startup, epicenter of the cutting-edge. Companies have long come to the Bay Area to plant their seeds, and for good reason. The stretch of land from San Jose to San Francisco encompasses some of the most revolutionary technology in the world, and the best of the best call it home. But that’s beginning to change.
Surveys show that more than one-third of Bay Area residents hope to pack up and leave in the next few years, and newcomers (those who’ve lived here five years or less) are most eager to abandon the region. Residents cite cost of living and traffic as the primary motivations to move and, increasingly, believe the Bay Area is “headed in the wrong direction.” That’s a vague statement at best, but there’s no question the region’s social and economic disparity have left a bad taste in people’s mouths for quite some time now.
As a mass exodus becomes more and more realistic, companies need to evaluate how the Bay Area stacks up next to rising tech hubs that offer lower business costs, greater recruiting power and minimal saturation. Those very reasons are why I decided to move my six-year-old startup, Bizness Apps, out of San Francisco. We broke ties with our Bay Area zip code last month and opened up shop in San Diego.
Comments on my March TechCrunch article, “Why I moved my startup from San Francisco to San Diego,” asked for a follow-up to that decision, so here it is: A breakdown of the benefits and consequences, how we made it happen and how your startup can do it, too.
You’re going to have serious pushback the moment you suggest a new idea that could be this risky.
The why makes sound sense. I crunched the numbers, I weighed the scales and I decided it was a risk worth taking. And I’m glad we did. I could quantify solid reasons, largely centering on cost and talent. I could argue my case like the best attorney. But we were still facing the question of how to do it. We had to learn on the job; hopefully others can benefit from our hindsight.
What made the move worthwhile
Let’s just get this part out of the way. We can quantify it by reeling off the stats: two new world-class VP hires we’d struggled to attract in San Francisco; operational costs plummeted by 14 percent; our employees’ rent reduced by 37 percent on average, and their commutes are down to less than 30 minutes; our overall profitability has rocketed by 21 percent; and we’ve gained a lot of local media attention, including having the San Diego mayor open our offices.
Our SF office pales in comparison to our new space. We can afford wall-to-wall ocean views (fun fact: study finds ocean views are linked to better mental health) in a class-A office for almost half the price. It’s allowed us to expand into a larger, modern and more comfortable space, and our employees love showing up to work. Down here, you have more options that can suit your culture and your budget.
It’s looking good, but moving was not easy by any means.
The questions began — starting with myself
As any entrepreneur knows, you’re going to have serious pushback the moment you suggest a new idea that could be this risky. You need to know, without a shadow of doubt, that you’re looking to move your business for sound economic reasons that stand up to scrutiny. That way, when the tough spots come (and they will), you won’t be left questioning the decision in the first place. You won’t question the basis of your decision — you’ll just fight the small fires that arise along the way.
Home is where you make it, even for startups.
Did I have to stay put in San Francisco for my investors? Did they want us to stay or chase the future elsewhere? Did location matter more to them than profits and success? Does San Diego have access to venture capital? Was moving to a lower cost area a sound long-term decision?
Luckily for us I was able to quickly check these questions off the list. We have a team of exceptional investors that want us to do what is best for the business, regardless of our location. When we ran the idea by them with some of our initial analysis, they were completely behind us. Also, if we decided to take on more venture funding, San Diego ranks No. 4 in the nation in VC dollars per capita, and has more VC funding than Seattle and Austin — combined.
Source: San Diego Regional EDC
Then I looked at the talent I had now, and the talent I needed to continue to grow the company. Did I, in Silicon Valley as a small fish, have the power to recruit the best future talent? I found myself realizing I would be a far more attractive employer in a less competitive environment. The reality was that I was competing with the salaries and benefits of the largest companies in the world. I wanted my employees to feel valued, to feel they are compensated fairly, to have the standard of living they deserve. I couldn’t make that match up in San Francisco.
But more questions were needed to solidify how we would pull off a move successfully.
Once I was sure moving made sound business sense, I needed to extend my questioning. How did my key team members and employees feel about a potential move? Would they be open to the possibility of a move? Would I lose my very best employees, or would they see sense in my decision and get on board with moving with me? By now I was heading into December and the questioning gained momentum.
And so I began to extend my questioning beyond myself and my closest team members. This was essential to the how of the move, simply because I needed to understand viewpoints other than my own. How could I mitigate the losses if I wasn’t sure what those losses would be?
Planning the move
First of all, we had to examine a few things. Our chief order of business was to nail down office space — which was far from an easy task. While the cost was less expensive than our San Francisco office, negotiating a lease takes time, energy and commitment. We also had to do the research and figure out the logistics of relocating without allowing a bunch of rumors going around the workplace. Without a definitive plan in place, we had to keep everything quiet until we were absolutely sure we would be moving. After we found an office space and had a lease in hand, we worked for a month to figure out a way to get our employees to follow us.
Ultimately, we knew our employees would have a tough time with change, but we didn’t think we should hold back pursuing relocation for fear of upsetting the apple cart. We knew we had intelligent talent on our hands, so we instilled trust by asking for their opinion.
I had to accept the scary reality that I would definitely lose some of our employees. And that is a scary thought for any tech startup. However, knowing what talent I was liable to lose was a vital step in mitigating the impact of our move.
Soliciting employee feedback
Before we officially announced a move, we sent out multiple surveys to all employees and asked if they would be willing to move to a number of locations outside of San Francisco — including San Diego. And to our surprise, the majority of our respondents said that they would be willing to pack up and join us in San Diego. Considering we had already found a potential office and that the cost of operating there was far less expensive, we were thrilled.
Make the relocation decision a company-wide discussion from Day One.
We knew we needed to make sure that people were not just blowing smoke in the first survey, so we sent out a new survey about once a week to see if anything had changed. A lot of our team seemed really excited about a Southern California lifestyle. We subtly started to share the benefits that San Diego had to offer the company: less expensive, nicer office space and being a bigger fish in a smaller pond. But the key to making this work was retaining my best employees. So in January a survey a week started hitting the inboxes of our employees. I moved forward with logistics, thinking all was going great.
Come February I called an all-hands meeting for the company to announce “We are officially relocating to San Diego,” and I walked out of that meeting having shell-shocked my entire staff. The surveys weren’t as reliable as I had hoped — by a pretty large margin.
Mistake number one: I should have spent more time speaking one-on-one with everyone and finding out their thoughts. I took the reliability of surveys for granted without a second thought. They were wrong — the “moving” majority dropped to a minority.
I shared our official plans to relocate. I prepared what I thought was a great presentation highlighting why San Francisco was not the best place for our business. I started by showing pictures of our nice, new office followed by pictures of the beaches. You know, to get people excited. Then I gave a video walk-through of our new place.
Then I started to explain how the rent in San Francisco was absurd — which actually backfired a bit with my die-hard San Francisco employees. After that, I shared some information about how there’s so much untapped talent in San Diego.
Unfortunately, it did not go as planned. Even with the relocation packages, salary and stock bonuses we offered, along with a clear timeline of our plan, people were not sold — morale collapsed in that instant.
After the announcement, communication was poor and morale decreased significantly. We should have clued in team leaders sooner to help mitigate the damage and gauge their own willingness to move before the rest of the staff. For anyone thinking about relocating your startup, make the relocation decision a company-wide discussion from Day One.
Despite its poor initial reception, we had signed a lease, the plan had begun and there was no turning back. So after the official announcement, we made sure to speak to every single employee in the company and gauge their interest every single week. Some gave us an immediate, “Yes I’ll move.” Some gave us, “I need more time to think about it.”
Others were interested in working remotely. And, some were very upfront and said they were likely to leave the company in the upcoming months. So, we needed to get creative here.
I needed every employee during the transition, as we couldn’t risk gaps in service, so I incentivized my team to stay together as long as possible with a $5,000 bonus for staying with the company until July 1.
Tech hubs are emerging all over the country.
This all paid off. That scary moment of thinking I was losing most of my talent in reality changed to losing only about 7 percent. And even for those 7 percent, we’ve given LinkedIn recommendations, handled reference calls and even offered introductions at top SF companies. It was important to us not to forget the very people who facilitated our growth, even at a parting of ways.
With a vague idea of who was following us down to San Diego, we still had to set our sights on setting up shop in San Diego. Our VP of Finance created a huge to-do list of what tasks needed to be done, when they needed to be done and who needed to do them.
We all got to work on our laundry list of things to do. From getting bids on furniture, to hiring movers, to opening up a new office, we were busy with the logistics of the relocation itself. Installing furniture, activating services, relocating your team… a lot goes into opening an office. This is also a decisive period for employees riding the fence on moving, so it’s critical to keep them comfortable. We opened our new office in San Diego on March 1, two full months before we closed our SF doors.
Keep both offices open in the interim
Those two months between March and May when we had two offices open were tough. It was change: We were in limbo. I was surrounded by an amazing team who still hit their goals and kept on task, but I also had to see some of them walk away, even if I desperately wanted them to stay. I watched people go, for good, for remote-working, or in the process of moving to San Diego. I was, literally, the last man standing. We closed our San Francisco office on April 21, yet I didn’t head down to the new office myself until May 1 when our lease ended. It felt important for me to stay behind; a captain never leaves his ship.
And it was personal. So much had been accomplished in that space. We were on the Inc. 500 fastest-growing company list for two years in a row, there had been so many great times and our processes had improved immensely. We had fun, we learned and we grew as a team. Closing our San Francisco office was an emotional time for everyone, but the show must go on.
Recruit before you uproot
We began our San Diego talent search months before leaving San Francisco, flying candidates up to interview in our SF office and hiring them before we opened our SD doors. The media buzz surrounding our move leveraged our recruiting more than anything — we received hundreds of applications.
Our announcement to move attracted top media attention, and the mayor of San Diego offered to join us for a ribbon-cutting ceremony. In regards to becoming a bigger fish in a smaller pond, the move itself went extremely well.
Consequences and mistakes
There’s no doubt the decision to move had its ups and downs, but the benefits far outweighed the mistakes I made as we transitioned. The one that hurts the most was that we lost about 7 percent of our valuable employees, and I attest that to the way the move was presented to our team. Another struggle we are still working around is half of our team is now working remotely, which strains communication and productivity.
How could I mitigate the losses if I wasn’t sure what those losses would be?
If given the opportunity to do the moving process over, I would have planned more carefully. Our move plan covered everything from prepping our remote team to cleaning the carpets and disabling the alarm system. However, with all this planning, I should have clued in more employees individually sooner rather than relying almost solely on company surveys. When selling employees on the move, I also focused too much on San Francisco’s drawbacks and not enough on San Diego’s advantages. I failed as a leader here, and view this as my biggest mistake with the move.
As CEO, I lost the trust of many employees who felt undervalued by my decision. If you’re committed to moving, you have to take the heat that comes with that. I know the decision was right. The benefits we are seeing are just the beginning. We anticipate all of the above metrics to only improve as time goes on.
I know I’ve harped on this enough, but the benefits are real: lower operational costs, shorter commutes, less competition for talent. These factors position you in a way the Bay Area’s saturated atmosphere can’t. As the great Jack Welsh said, “If you don’t have a competitive advantage, don’t compete.”
A lasting competitive advantage
After reading the above, you might think a move is crazy — it’s expensive, risky, uncomfortable and borderline insane. But so is losing out on prime talent, pouring money into rent and operational costs that dwarf the rest of the country’s. If you ever plan to get out, the time is now. Tech hubs are emerging all over the country; from San Diego to Detroit to Atlanta, cities are eyeing the opportunity to pick up where the Bay Area has left off, evolving into more profitable locales for businesses that are just as ready as residents to head for shore.
Yes, Silicon Valley will probably always be the best place to start the next Facebook. For the other 99 percent of us — those with practical, executable ideas — there are better places out there. If you want to build a profitable, mid-sized company, explore elsewhere. Don’t get caught up in the notion that tech lives and dies in the Bay Area, or that sharing an area code with the giants will spur your momentum. Growth is about competitive advantage, not proximity to the scene.
Home is where you make it, even for startups.
Featured Image: Nightman1965/Shutterstock