Apple’s recent announcement that it’s building a new $1 billion campus in Austin, Tex. adds momentum to the trend among tech startups and investors to look beyond Silicon Valley to incubate and grow the next generation of innovative companies.
Moreover, in what amounts to doubling down on its satellite strategy, AppleAAPL, -1.06% also said it will establish new sites in Seattle, San Diego, and Culver City, Calif., as well as expand in cities across the U.S., including Pittsburgh, New York, and Boulder, Colo. over the next three years — welcome economic boosts for those areas.
I’m not sounding the death knell for Silicon Valley. To be sure, this remarkable region south of San Francisco is still the brightest star in the global tech universe. Silicon Valley will remain Apple’s home base, as well as that of GoogleGOOGL, -1.23% , Facebook FB, -0.01% , Cisco Systems CSCO, +0.09% , OracleORCL, -0.37% , Intel INTC, -1.35% and many others. Its position of dominance is not in jeopardy — yet.
Nonetheless, many of the tech startups planting their flag in Silicon Valley to be near angel investors, venture capitalists, investment banks, and tech talent are keeping only small teams there. They are increasingly utilizing less-costly satellite offices, remote co-working spaces, or other remote-work options for the majority of their employees.
Indeed, satellite campuses and remote working initiatives have become increasingly viable as Silicon Valley has shifted its focus from hardware to software and app development. Engineers can code from anywhere, and there are no shipping costs associated with transporting code.
Additionally, the economic, employee-recruitment and retention, and quality-of-life challenges of doing business in Silicon Valley and living in Silicon Valley are well-documented and daunting — even for giants such as Apple, but particularly for startups.
The operating costs for a tech startup in Silicon Valley can be three or four times that of one in emerging tech hubs such as Austin, Pittsburgh, Columbus, Ohio, the Charlotte-Durham, N.C. area, Wilmington, Del., and Boise, Idaho. A private equity investor recently observed at a CNBC investor event that a tech company in his portfolio relocated to a Midwest tech hub and added six months of cash burn onto its balance sheet. That’s not inconsiderable.
Moreover, the cost of living in Silicon Valley is among the highest in the U.S. Buying a home — even for highly paid Silicon Valley employees — remains frustratingly out of reach for many.
Both startups and growing companies need high-quality talent and as more and more people have flocked to Silicon Valley, traffic and congestion have increased. By one recent estimate the average Silicon Valley commuter sits idly — and unproductively — in traffic for 67 hours per year.
Read the full post at MarketWatch.
Lou Shipley is a lecturer at the MIT Sloan School of Management.