There used to be a time when if you were a tech company or a hot new startup, you had to have a head office in Silicon Valley. If you didn’t, you were effectively invisible, and there was a sort of stigma attached that led to people looking down on you just because you weren’t based in Palo Alto or Mountain View.
But those days are on the wane (if they’re not over already), and while we’re not about to call it a bubble, it’s certainly true that no single place can hold a monopoly forever. It’s just a case of waiting for the political and economic conditions to be right for startups to thrive, and we’re already starting to see that happen all over the world in cities as diverse as London, Toronto, Berlin, Tel Aviv and Singapore.
Let’s take a look at just a few of the reasons why the exodus is beginning.
1. The cost of living
This is arguably the single biggest barrier to launching a new startup in the Valley area, and that’s hardly surprising. It costs an average of over $4,000 a month to rent a two-bedroom house in San Francisco, which makes it more expensive than anywhere else in the United States. Property prices are just as inflated, and we haven’t even started on the cost of public transportation and artisanal coffees in the hipster cafes that seem to be popping up all over the region.
As if the price of living wasn’t bad enough, the rise of the Silicon Valley startup has brought with it a corresponding rise in congestion. The length of the average commute has increased in recent years and as of 2014, the average Silicon Valley commuter spent 67 hours a year just sitting in traffic. It’s not exactly the best use of their time.
3. The snowball effect
According to one study, Silicon Valley residents are now leaving the area faster than they’re arriving, which is hugely significant for the tech industry because a quarter of local jobs are in tech-related industries. The problem for startups is that if these engineers leave the area, they also leave the potential talent pool – and considering how in-demand top programmers already are in Silicon Valley, that means it will become harder and harder for startups to fill job vacancies.
4. Practical alternatives
We mentioned at the start of this article that London, Toronto, Berlin, Tel Aviv and Singapore are all building solid reputations as alternatives to Silicon Valley. Different cities offer different incentives, varying from grants and reduced taxation to incubation programmes and government-sponsored facilities, and when it all comes together and starts to gather momentum, technological hubs pop up and offer a practical alternative to Silicon Valley for young entrepreneurs who want to start a company.
5. The gig economy
The gig economy came about due to a combination of the rise of the freelancer and the rise of the internet and freelancing sites like Upwork and PeoplePerHour. In the UK, self-employment is at its highest rate since records began and is set to overtake the public sector, and we’re seeing a similar trend in many developing countries across the world. Thanks to the gig economy, founders no longer need to hire full-time workers that commute to a local office. They can hire people to work remotely as and when they need them, cutting overall costs, increasing quality and keeping people out of Silicon Valley.
6. Too much competition
The problem with being a startup in an area that’s known for being a hub for startups is that it’s really, really difficult to stand out. It’s much easier to become the most well-known startup in Columbus, Ohio than it is to become the most well-known startup in Palo Alto, California. Many founders would prefer to be a big fish in a small pond than a small fish in a big pond, and it’s also easier to gain traction if there’s less competition in the local area.
7. The political climate
Let’s face it: the political climate across the world as a whole is enough to give anyone a nervous breakdown. Interestingly enough, the 2016 election caused a certain amount of division in Silicon Valley, which was largely anti-Trump as a whole but which was still home to the odd supporter or two. Whether you agree with Trump or not, his unpredictability can scare potential founders and lead to them basing their company elsewhere, especially if they’re worried about immigration changes or the deployment of new legislation. President Trump is something of a wild card, and while founders like to be that wild card, they don’t like the idea of someone else holding a full deck of them.
One of the best things about the gig economy and the rise of the internet is that people are no longer limited to a single geographic location. Startups will still be formed in people’s garages, but those people won’t need to move to California if they want to find people to work with. They’ll be able to do all of that online, and the market will decide which products and services are the best. People won’t care where the company is based. They’ll just care how good their offering is.
In the future, the big trend that we’re likely to see is the rise of the digital nomad, a movement which is already gaining popularity amongst millennials. The idea behind being a digital nomad is that you live a life where you’re constantly on the move, working as you go with just a laptop and an internet connection.
Of course, it’s likely that Silicon Valley will still maintain its impressive reputation for many years to come. It’s just that it will no longer maintain a monopoly. After all – the startups of the future may well be created from the comfort of a shared working space in Bali. And there’s nothing wrong with that.