Until recently, it was easy to argue that Silicon Valley was the best place to locate your new tech startup. But with startups playing a larger and more visible role in many local economies, lower barriers to launching and startups now impacting many industries beyond technology, a non Silicon Valley or New York location matters less in terms of creating a successful company.
Still, if you’re wondering where to base your new business, the following are some factors to consider about your city.
1. Talent: Clustering is still a reality, no matter how “flat” the world gets. Sure you may at first be able to get by as a party of one or two. But when it comes to gaining traction and ultimately scaling, you will eventually need to build a team, at least some of whom will be local. What does the local talent pool look like in this city? Not to say that every place needs a Stanford or MIT, but are there major academic institutions that could be feeders for technical and other talent? What’s the workforce like in terms of education level, technical training and other relevant skills? How healthy is the job market: i.e., how hard will you have to compete for talent?
2. Existing startup ecosystem. Just as with talent, a fertile startup ecosystem needs a concentration of early-stage supporters in the form of founders, funders, advisers and hands-on mentors. Assess the quality and depth of the local network. While increasingly many of these resources are available remotely (Ted Talks, Skype, crowdfunding), there are some things you can’t just phone in. Building real, substantive relationships takes time and a certain amount of face-to-face effort, at least initially. As evidenced by the surging number of applicants to incubators and accelerators, there are distinct advantages to sharing space with your ecosystem.
3. Funding: The presence of funders is a major criterion. When it comes to the funding landscape, how robust is the network? Is funding available for early-stage startups or only for more mature businesses? Will you have to fly to meet VCs or is there an active network of local investors?
4. Focus: There’s a reason major industries are concentrated in certain areas. So if you’re developing a media and advertising focused startup, you might want to consider setting up in New York. Once you determine what your target market segment is and who your natural customers are, choose the base that will best position you to build inroads into, and optimize your access to, those groups.
5. General costs: What’s the cost of living like? This encompasses everything from major ongoing expenses like rent, to one-time costs for things like state and local incorporation fees, to recurring costs for business insurance, utilities and local fees and taxes. Another big line-item is the going rate for local talent. For employees that includes salaries, benefits and workers’ compensation payments. It also covers payments to contractors and professional services providers.
6. Regulatory considerations: How much red tape (licensing, registration, other) will you have to go through to set up your business? Hand in hand with these considerations is the nature of the regulatory environment. Some states and cities are actively trying to encourage startup hubs through special tax breaks, zoning changes and setting up state or municipal run incubators. Initiatives like these shouldn't be your sole reason for choosing a location, but they can be the tipping point in a close contest between two different locales.
7. Office space: Unless you’re planning a completely virtual business, you will at some point need office space. How well does the location you’re considering meet this need in terms of availability, quality of the infrastructure and neighborhood setting including desirability and ease of access and costs?
8. Cultural fit: To some extent, this is an intangible, but it does have a very real impact on whether new businesses flourish or flounder. How supportive is the local environment? Is there an entrepreneurial “mindset?” Is there an openness to new ideas?
Of course the weight you put on any one of these variables is specific to the dynamics of your business and will shift over time. But going through a systematic thought process as early as possible makes it much more likely that you’ll achieve your startup goals.
David Ehrenberg is the founder and CEO of Early Growth Financial Services, an outsourced financial services firm that provides early-stage companies with day-to-day transactional accounting, CFO service, tax and valuation services and support. He’s a financial expert and startup mentor whose passion is helping businesses focus on what they do best. Follow David @EarlyGrowthFS.
The Young Entrepreneur Council (YEC) is an invite-only organization comprised of the world's most promising young entrepreneurs. In partnership with Citi, YEC recently launched StartupCollective, a free virtual mentorship program that helps millions of entrepreneurs start and grow businesses.