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The NYC Developer Dilemma

Comments (33) | Posted October 9, 2006 in Venture Capital and Technology

Comments

I have plenty of friends that make 35-45k in NYC and get along in the city just fine.

Not everyone has to live in a $2000 a month studio in the West Village. Its ok to live in Astoria and have a 30 min commute to work or in Bay Ridge and have a 40 min commute. There are plenty of cool places to live in NYC, and if you're making 120k, you should pretty much be able to live right in the middle of the action in a nice place... not 1000 sq ft in the prime area, but a nice place. If that's not good enough, move to Wyoming where NOTHING is going on and you can live in a 6 bedroom 10 acre spread.

Posted by: Charlie | Oct 9, 2006 7:10:59 AM

It costs just as much to "live well" in Silicon Valley as it does in NYC. No one seems to have any issues with start ups in the valley.

Rents in "nice" parts of Manhattan are comprable to rents in PA or Menlo Park. You can get cheaper but then you're driving two hours a day or living in a shithole in EPA. In the Valley you need 1 car/adult and in NYC you need 0 cars/adult, so that drives us the valley costs. NYC kicks the valley's butt as far a anything cultural (art, music, sports). The ethnic food is prety much a tie. The weather in the valley is better (unless you like seasons). Neither place has great public schools (unless you count Bronx Science, Stuy, and so on) so you're probably ponying up big tuition bucks.

Posted by: Erik Schwartz | Oct 9, 2006 7:35:49 AM

Apropos of this:

Despite housing costs, valley still luring the best

http://www.mercurynews.com/mld/mercurynews/business/technology/15692886.htm

Posted by: Erik Schwartz | Oct 9, 2006 8:29:30 AM

The idea that you're competing with Wall Street for technical talent is off-base. The type of person who would want to program in a Wall Street firm is not the same type of person who would want to work for a startup. Developing a new product at a startup vs. programming trading systems at an investment bank are very different experiences, very different types of environments, and appeal to very different personalities. If there's a shortage of "startup-type" technical talent here it's probably because there's a shortage of startups.

Posted by: Lee Semel | Oct 9, 2006 8:49:31 AM

Hey Fred, what's your take on the recent WSJ article (October 5) on NYC-area startups heading out to Silicon Valley for talent/funding despite the higher costs?

Posted by: JL | Oct 9, 2006 9:02:27 AM

"entrepreneurs should start businesses where they want to work and then organize the company according to what works best for them. The whole company, particularly development, does not need to be in one location anymore."

This claim is hardly supported by the facts you present. First off, this kind of claim needs to be based on outcomes. For example, are all of your companies genuinely successful? If some are failures, or are going to be failures, then they hardly support the supposition.

Then you need to explain to what degree the success or failure depends on software or engineering.

Finally -- and this is my crucial point -- while a company may be successful with a geographically dispersed team, what if there is a competitive advantage to having them all in the same place? Then even your examples of success could be trumped by even more successful companies that have not traded in certain kinds of management efficiencies for paying people less so that they can live away from headquarters.

Honestly, what you present is merely anecdotal. Good anecdotes, but perilous advice, perhaps especially for new companies that are trying to get off the ground and minimize certain kinds of operational risk so that they can take bigger ones in terms of their core offering.

Posted by: John | Oct 9, 2006 9:10:27 AM

Thanks for this post! I find this type of analysis based on empirical data very useful. It looks like the norm for the NY based startups is to have their customer/investor/industry facing base (management/sales/marketing, etc.) in NY but development team elsewhere.
There is no doubt that working with a remote team is feasible, but despite all the communication tools, it's still better to be in close proximity. So I suspect that for the startups in your portfolio, there must be some advantages of being in NY that is strong enough to compensate for having the development team elsewhere.
Can we have a follow up post on why they are in NY? What are the advantages of being in NY for a startup (apparently availability of technical resources is not one) ?

Thanks!

Berkay

Posted by: Berkay Mollamustafaoglu | Oct 9, 2006 9:10:28 AM

How do you make sure all these distributed teams are building a company, not just a web application? We're starting our company, www.faneuilmedia.com, with a geographically distributed team. One of my concerns is that we just build stuff and don't develop the culture, internal relationships and common vision of a small company.

Posted by: Rick Burnes | Oct 9, 2006 9:35:01 AM

If 120k is 'just getting by', then I'm well below the poverty line at 50K.

Hmmmm, maybe I'll go with the food stamp program - NOT!

Manhattan is not NYC, just a wee part of it.

Posted by: jackson | Oct 9, 2006 10:15:00 AM

There's been a lot of rumbling about building a biotech cluster in NYC as well. While there are some examples of biotech companies where the management is in one place and R&D in another, the biotech cluster plans in NYC generally entail putting down research space in brooklyn / manhattan. Makes little sense to me; post-docs who would be making <$30k elsewhere need to be paid twice that in NYC. Seems more like an attempt to keep NYC VC dollars in NYC than anything else.

Posted by: y | Oct 9, 2006 10:23:14 AM

Nice post Fred. I agree that the core issue is not can you afford to attract great development talent where your company is located. Anyone paying attention today knows that distributed development is a common practice. So, whether you're team is in Austin, India, China or whatever, is independent of where the business is headquartered.

The more important question is where is the best business and executive talent, and where is the best place from which to access and serve your customers. The ability to generate and grow revenue will determine the startups success more so that if you can attract development talent near your corporate headquarters.

-- brian

Posted by: Brian | Oct 9, 2006 10:35:33 AM

Louisvillle, KY is the next big thing. You didn't know that KENTUCKY was the land of the start-up?

It is for me, because I love living here, and it works for our company.

I think that's Fred's point.

Posted by: Andy | Oct 9, 2006 10:40:10 AM

Fred,

Excellent post.

I recently founded a company, and raised money.

My company is focused on "social media inventory" - and maximizing the result for advertisers to target more efficently, as well as earning publishers more money.

Hiring talent is tricky, but, based on a previous successful start-up that I was a part of, I learned a valuable lesson.

With a strong operational leader, it was possible and effective to have the development team outside of NYC for a variety of reasons...

We have our technology group based in Columbia, MD. Rent is reasonable -- and the talent pool for developers is amazing. Salaries are realistic -- and the competition for a good developer, (although present) is not nearly as fierce as NYC.

All in all, our business is based in NYC - but our technology and "back end" is housed in Columbia, MD.

I find it more affordable, more effective -- and most of all more secure.

Andy

Posted by: andym | Oct 9, 2006 10:55:24 AM

Amen Fred -- I think you buried the lede -- your last point is the right point: "What I am suggesting is that entrepreneurs should start businesses where they want to work and then organize the company according to what works best for them." --

I have been told for the past 10 years that Chicago is a terrible place for tech -- and I always call "b---s---!" -- every single place has tradeoffs. While it may be harder to find certain specific disciplines here than other places -- it's also a lot easier to keep people. And as more and more of the stack gets standardized it gets easier and easier -- so for J2EE, or PHP or what have you. And oh btw, one of our guys lives in Kansas right now!

I find that the people who make those types of comments (and believe me, Chicago doesn't even make these lists!) are not entrepreneurs -- the people who make these things happen. It's your company, no one can tell you can't make it happen! And guess what, if it's good enough, you can get financing also, regardless of location!

I think the location "whine" is a big copout

Posted by: AlFromChicago | Oct 9, 2006 11:21:21 AM

Hi Fred,

I should have been more explicit about my comment. I am just an ankle biter on your blog so I tried to be brief. Expanding my comments, I should have also said that it is borderline irresponsible NOT to have a presence in New York, or for that matter all of the high cost areas mentioned in your salary survey. The reason why these areas are high cost is because good paying customers are there. I was expressing (venting) some of my frustration of trying to attract top quality people to this area.

As a matter of history, I have lived in NYC for 20 years, LOVE it and think New York is the greatest place in the world. We also have many large customers in NYC. Our offices are in CT about 75 miles outside of New York. I recently have been trying to hire a "A" sales guy and an "A" software developer. My costs here are about 30%-40% higher than in lower cost areas (Austin, Chapel Hill, Tucson, Ottawa). That can add up to a lot of salary overhead.

Much like a new company should not locate their factory in New York due to high salary/real estate and tax costs, a software startup should not devote their precious resources to software development in New York in the beginning unless you can get a "A" team of players at a very low cost. Stock options, equity, etc. are all good reasons. Many folks can agree/disagree and yes you can find people to work at low salaries. It is the "A" employee problem. After you get some traction and can afford it, then yes you should be in New York. Better yet, sales and marketing HAS to be in New York even from the start.

Every dollar is very precious, especially when you take outside investment. My point is that any startup company should be VERY careful about overhead. When you startup in a high cost area like I did in New York, you should be very aware of the extra challenges you face. Next time I will take a bit more space to completely explain my position (rant).

Posted by: Dan Cornish | Oct 9, 2006 12:09:25 PM

A few short thoughts...

1) I don't think you can consider contract development, whether in Austin, India or Russia as part of a company.

2) Distributed teams are part of a company, but they need to be on an equal footing in the company with others in terms of equity, access, etc. This is hard - there's still a noticeable home office/branch office vibe that will be reinforced if the founder and execs are in one place and the 'worker bees' are elsewhere.

3) Your culture will be influenced by how you distribute the team - if Sales and Biz Dev are in the office with the founder(s) and the technical staff is elsewhere you're sending the message that Sales and BD are important (worthy of the higher overhead) while development isn't. Another cultural point is that casual communications don't happen in the same way over Skype. That said, everyone needs to be on Skype/Gizmo/IM to prevent the team from being fragmented

4) Locating the HQ should consider not only where the entrepreneur wants to live, but also where it's best for the business - where can you more easily do sales, biz dev, etc. Start the company from whereever, but open to moving if that makes sense for the business. If you're not willing to move, ask yourself how badly you really want to do this.

Posted by: rick gregory | Oct 9, 2006 12:51:42 PM

the best/smartest/nicest/etc. developers i think i've ever worked with were a collection from nyc.

the best of the best flock to where you can have an impact and change the world - and where they can take on the world (if you can make it in NY...). for some, that place is silicon valley. for others, nyc is the place to be. nyc is obviously more than a place to code - it's the advertising/financial/etc center of the universe. it has tremendous mind-share.

then there are other developers who need to live in a real city - so they choose the only one in the U.S.

Posted by: Peter | Oct 9, 2006 1:14:30 PM

There are some communication and team building possibilities startups should think about:
- internal blogging
- internal podcasting/videocasting
- Skype/IM
- Second Life/games/simulations
- internal social networking
- social bookmarks

Posted by: Dimitar Vesselinov | Oct 9, 2006 1:54:34 PM

I have forgotten photo sharing services like Flickr.

Example:
http://www.flickr.com/photos/tags/blogtronix/

Posted by: Dimitar Vesselinov | Oct 9, 2006 2:13:55 PM

It seems to me that if you have a great idea, great vision, great leadership and a great business plan, great people will want to work with you, regardless of where you are. Sure, there may be trade-offs. But not all people's utility functions look the same. Most great developers in NYC could invariably make more money working for Wall Street, but are often super-excited about the prospect of being part of a special team, of making a real difference. They value the start-up stock differently than someone who is looking strictly for quality-of-life, i.e., cash to support a targeted lifestyle. I also think Charlie is absolutely right. Plenty of super-smart, hyper-successful people are now Astoria (and environs) refugees, building lives just across the river that they find fulfilling, interesting, slighly off-beat and lots more fun than living in Manhattan. And yes, it is more affordable, but the LES and Williamsburg music scenes and performances at the Kitchen are just a subway ride away. NYC rocks - it always has and it still does.

Posted by: Roger | Oct 9, 2006 2:21:36 PM

"It seems to me that if you have a great idea, great vision, great leadership and a great business plan, great people will want to work with you, regardless of where you are."

But that's not ben the case historically. Tech startups seem to thrive in a few cities... NYC, the Valley, Boston, Seattle, Austin. Yes, you CAN get people to do tech startups elsewhere but it's just not as likely to happen. OK, now for the obligatory link to Paul Graham's take on this... http://paulgraham.com/america.html

Posted by: rick gregory | Oct 9, 2006 2:38:06 PM

That may be, but we're talking about NYC, not Fargo, ND. Remember what Fred's post is about. Not that there couldn't be a rocking start-up in Fargo, but the barriers would certainly be greater than in NYC. I'm not breaking new ground here, only to say that NYC has all the elements to build a successful start-up, and believe the "hardships" that many people point to (cost of living, quality of life, difficulty competing for talent with Wall Street, etc.) are pretty much red herrings in my book. That's my point - nothing more. And yes, Paul Graham is a rock star.

Posted by: Roger | Oct 9, 2006 3:07:40 PM

In Lancaster, PA (yes, THAT one), our space costs $6 per square foot. Our devs range from 55 (junior) to 85 (senior), and they have wives and families. They all have nice houses, and love living here. We don't outsource any dev.

For culture, we have flim, music, theater, Amtrak to Philly and NYC, and an hour to Baltimore.

Taxes are lower, the air is cleaner, and the beach is only 2 hours away. Sail in the Susquehanna or the Chesapeake, and get some great local food at the country's oldest operating farmer's market. And for sports fans, we've got a baseball team, the Ravens and Eagles, and a few great sports bars.

Our people work hard, but they have real lives and most of us are in before 8:30 and out by 6. 3 hours with the family, then 3 hours more of work.

Here's what we need:
Sr. Architect
Product Managers
Channel Sales
Director of Marketing

And the real upshot is we are making money and growing at 10% a month. More info is available here: http://www.missionresearch.com/jobs/

I love New York, but don't regret (usually) moving home.

Posted by: Charlie Crystle | Oct 9, 2006 3:41:35 PM

By definition, there's a sea of exceptions to very nearly every generalization. Nonetheless, this is absolutely a real concern for non-Wall St. firms in NYC. It's definitely not insurmountable, but it's a factor that is somewhat unique to the market. And it does lead to creative solutions. It also cuts both ways. If you need someone with niche expertise, you can find them here. For virtually any specialty, if you need it you can find it here in relatively decent supply. I can really only say that about the Valley, and in some ways about Seattle.

Posted by: Grant | Oct 9, 2006 5:18:32 PM

I am living with a techy in Ma. and hate to see development business going to India and Russia. We need your development business here in Massachusetts. There is so many empty buildings in the 128 belt. I wish Massachusetts was more committed to welcoming businesses to Ma. Burlington and Andover have become ghost towns.

Posted by: ellen | Oct 9, 2006 7:37:02 PM

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