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Is New York too expensive for software companies?

Thought I'd start a thread on this topic ...

One thing which I hear over and over is, "why would you want to start a software company in New York City? The cost structure is too high."

To which I've generally been replying:

* it doesn't cost any more to run a business here than in Silicon Valley. Rents are pretty much comparable. Salaries are about the same.
* in NYC you draw from a talent pool of 17,000,000 people within easy commuting distance. Many of the technology people you find here are the creme-de-la-creme, originally recruited to the area by investment banks to do Derivatives Rocket Science.
* and there are so few other pure software companies that you don't have the same kind of turnover as you see in Silicon Valley.

Am I just rationalizing something I wanted to do anyway? What do you think?

Joel Spolsky
Tuesday, March 11, 2003

Let me answer your questions with questions of my own:

If you started your company in say (just because I'm familiar with the area) Norwalk, CT or Fairfield, CT or any CT city along the Metro-North Railroad; do you think you wouldn't have the same access to 17,000,000 people within commuting distance?

And if you think you would have the same access, wouldn't rents and salaries be cheaper than say...NYC?

With my limited knowledge, I would guess yes and yes.

William C
Tuesday, March 11, 2003

You also get to take advantage of the services the city offers instead of having to duplicate them in-house. For example, you don't need a giant parking lot around your office because people can take the subway or a bus to work. (Well, maybe that'll be easier once you move to the Garment District from Murray Hill. :) Google can brag that it has some fancy chef in their cafeteria, but if I work in midtown, I have hundreds (thousands?) of chefs that I can select to make me lunch each day.

You also get to be surrounded by a zillion other interesting industries instead of just seeing billboards about TPC benchmarks and other tech-focused stuff everywhere. Provides some helpful perspective.

David Sklar
Tuesday, March 11, 2003

I think if you're on the Metro North corridor you have access to fewer people... most of New Jersey goes out of scope, and many neighborhoods in NYC like Brooklyn would be bloody inconvenient commutes to Connecticut. The transit infrastructure in the city really does converge on Grand Central Station.

Joel Spolsky
Tuesday, March 11, 2003

Errrrr....got me on that one. :)

I did realize that people in New Jersey would go out-of-scope.  But I was thinking, quickly, in my head, that the people you lose from NJ you gain through people that live in CT that would not want to commute intto NYC.

What I didn't take into consideration was how difficult it was to get to CT from Brooklyn (using your example).  I have two co-workers (the office is in Norwalk) that live in NYC, so I was guessing that CT would still offer you all the people that live in NYC.

Darn!  I was really hoping I could poke some holes into your argument. :)  I say this, because I'm someone that lives in CT, and I suppose I could consider NYC companies for employment, but I just wouldn't want to go through the hassle of getting into NYC on a daily basis.

1) Unless you are rich (CT gold coast) you can't live in a town that would keep your commute, by train, under less than an hour.  Well, if you want to own a house anyway.  Which is what I want to do (and have done).

2) The drive into NYC would make me want to blow my brains out.  Three words: "Stop and go".

Thinking about 1 and 2, do the NYC commuters tend to be single?  And doesn't that actually work out to be an advantage?  Or am I just one of the few that take the trade-off of sanity vs. daily NYC excitement.  Maybe even they are just locked-in to the ridiculous commutes to keep the career they desire?

I'm babbling, but you are definitely right about the talent pool.

But maybe you can use the "there are so few other pure software companies" in favor of not having to place your company in NYC.  Because there are so few, which I agree with, people would make every effort in the world to get to a company like this.  Thus, location might not become an obstacle.  Brooklyn-natives might put up with the commute times that I see my CT-natives go through.  People might move from NJ, NYC, etc. to live in CT.  Not sure.

William C
Tuesday, March 11, 2003

Joel,

I would say you are correct about the cost structure and recruiting pool. However being one of very few pure software companies is also a turn-off, at least to me. As you can see in the thread I started the other day, http://discuss.fogcreek.com/newyork/default.asp?cmd=show&ixPost=206, my options are quite limited if I even leave LinksPoint -- well, unless I want to return to cube-land and work for one of the big United Technologies-type companies here in CT. I also have no interest in working at one of the Manhattan financial firms doing equities stuff which seems to dominate dice.com. The bottom line is I'm likely to leave the area if I even have to find another job again.

dmooney
Tuesday, March 11, 2003

The most expensive factors while running a company are in my opinion:

1.) Salary
2.) Infrastructure

In case of NYC both are pretty high.

In case of Fog Creek,

1.) Is there a real requirement for you guys to be in NYC? - most of the work you do can be done from anywhere, correct?

2.) Most of your clients, I presume buy through your website. Again your physical presence could be anywhere (Since you said a while back you guys are out of the consultancy business)

3.) Unless you are looking at hiring people in the near future, you do not need to worry abt the talent pool.

Thoughts...

Prakash S
Tuesday, March 11, 2003

To add to what Prakash said about the talent pool, let's say you did have to hire sometime soon?  And let's say you weren't located in NYC, but instead somewhere similar to the CT cities I suggested.  Would a talent pool of 4,000,000 (warning: numbers pulled out of back-side) really hurt your hiring process?

I'm not talking about Moosup, CT (a place I lived as a youngster -- far away from anything relevant).  I'm talking, places close to NYC -- but not as expensive as NYC.  17,000,000; 4,000,000 -- What's the difference! :)

Of course, being in NYC is pretty cool for you.  I wish there was a point in my life that I did live in the city for a few years (bout to get married, kids on the way in a year or two, too late for that!).  So I totally understand wanting to be there.  I'm just trying to play devils advocate.  I could be wrong, I've been wrong before!

And as for my friend Dave,  don't leave me! :)

Although, I have told you countless times that I would not want to leave CT (immediate family here).  Having to ever leave LinksPoint would surely be a dilemma.  That's why I wish more people responded to your thread.  People don't want to discuss that?  People don't want to find the gem's (example: fogcreek) of the world?  Joel makes Microsoft seem attractive.  As I think of it, I'd have to seriously weigh that option.  And if I did decide to consider it,  hopefully they'd let me in.  That's the thing though ... why is the short-list on cool-sounding places "Microsoft and ... and ... and ... and ..." Hmmm.

William C
Wednesday, March 12, 2003

To clear up my comment about great companies to work for, I meant companies outside of Silicon Valley.  Google, for example, is a great sounding company.  But I'm not interested in Silicon Valley as a place to live and work.

William C
Wednesday, March 12, 2003

Don't forget that there are other cities than NYC and Silicon Valley.  DC, NC's Triangle, and Texas among other places all have substantial tech sectors, and excellent work forces.  New York would have a very poor tech work force in my opinion, if it were not for two things: the finance industry which does attract some good talent, and immigration of some excellent talent from overseas.  NYC just doesn't seem to have the education infrastructure that produces its own tech people.  Excellent colleges, but they just don't seem to produce many programmers.

Keith Wright
Wednesday, March 12, 2003

I would have to dispute that education produces good developers. I've never seen anything that remotely looked like a direct correlation of training <=> skill.

Brad (dotnetguy.techieswithcats.com)
Wednesday, March 12, 2003

    I would have to dispute that training is the same thing as education.  There's a lot to be said for a solid foundation in Computer Science that cannot be said for a week of ClearCase training.

    Anecdotally, I went to the University of Illinois at Champaign, which has a good reputation as an engineering school.  I personally felt like it was a gladiator pit with ruthless (and occasionally arbitrary) weeding-out.  At the end of the day, though, you could code your ass off.

    As far as NYC area schools, there's nothing at the level of Stanford, but I've worked with some very talented people from Columbia, NYU, and Fordham.  Plus some wonderfully over-educated people from formerly soviet countries.

Charles Lewis
Wednesday, March 12, 2003

Plenty of married folks, with children, live in NYC.

B
Wednesday, March 12, 2003

To respond to "B", I'll have to divulge a little personal information.

I am interested in living-in and paying-off a house as soon as possible.  Also, I want to avoid having to pay rent (no equity) and we (fiancee and I) live our lives well below our means. 

My first job was july 99, and as people I knew were living the "bubble"-life, I was living with my parents, saving money, and driving the same 89 civic DX that was the first car that I ever owned (I now have a 2nd car, still drive the Civc, but only because I was able to buy my parents 3 year old car that was coming off a lease -- couldn't pass up that oppurtunity).  As an example of how frugal we are, the 3 cars we own cost a total of $26K (spread out over the past 10 years) and they are all paid off.  It will probably be 5 years before I consider another car.

Saving the money we do and living the lifestyle we do, conservatively, if I don't lose a job or get laid off or any disaster like that (fiancee is an RN, she doesn't have to worry) and maintaining my current salary (not even factoring in raises), I could (if I chose not to invest it elsewhere) have my house paid off in 5 years (easily).

Anyhow, the point I'm trying to make is that I don't want to live my life paycheck-to-paycheck OR under the assumption that I'll always make the salary I make now (and it's not like I make 100K or something) or that I'll always be in this industry -- whether it's my choice or not.  Having a house paid off, for example, would allow me freedom (in my mind).  Living below my means and saving, gives me freedom.

Living in NYC, or other expensive areas, doesn't give me that freedom.  I wouldn't be able to own anything and I'd have to likely rent.  Even though the salaries might be higher, the cost of living is higher, and I don't think I'd be able to save the money I could save in my current situation.  Most people don't look towards the future, and live in the Now.  I'd like to position myself where in 10 years I could stay in my current field, if I like, or leave it if I want to.  That's my goal.

I'm not saying that I don't love what I do.  The way I feel right now, I hope to program forever.  There isn't a day that goes by where I don't feel blessed that I can code and get paid for it.  In fact, because of the flex hours, I get myself into trouble (for example -- staying until 6am at the office last night coding -- sometimes I just don't want to get up and stop coding!).

This is why I was enthusiastic about trying to poke holes in joel's arguments (which, of course, is tough to do).  I hope more people do get away from these expensive "coding centers" like NYC and Silicon Valley.  It would help keep me in this industry.

William C
Wednesday, March 12, 2003

I approach this as a consultant, and, of course, it pays off big to be near clients that have money.  There are more big clients concentrated in the NYC area than just about anywhere else. 

If I were to start a consulting company, for safety reasons I would probably choose greater New York City, rather than midtown or Downtown.  But I would not choose to be too far from my client base.

Ran
Wednesday, March 12, 2003

What's a RN?

-------

If you are consulting it sure makes sence to start it in NYC.

Prakash S
Wednesday, March 12, 2003

RN = Registered Nurse

Nurses, now and for the forseable future will be in demand like how programmers were in demand during the bubble.  Signing bonuses, good salaries, etc.

For example, my fiancee got a postcard from a hospital, 2 miles from my house, that was touting some pretty good salaries and asking nurses to come and visit during this recruiting fair.  She went down to visit and came back with 3 offers from 3 different floors.  She's going to go in July (with the hospital she works at now, if she leaves before her 2 year contract is up (in July), she must re-pay ALL her signing bonus -- yikes! remember to always read the fine print).

To note: I don't want people to think she's just chasing the higher salary.  The hospital that she does work at is a nightmare (I could spend days telling you all the aggravating things).  So when you couple that with a higher salary + a 2 mile commute (vs. 35 minute commute), it's a no-brainer.

William C
Thursday, March 13, 2003

cool.

Prakash S
Thursday, March 13, 2003

Joel,

I don't think you are just rationalizing when comparing NYC to Silicon Valley. Both places are insanely expesive.

I believe your point about the large talent pool is irrelevant because you personally would attract the best talent. Any talented person working in the Valley, Redmond, or *ahem* Norwalk, CT would probably consider relocating to New York if given the opportunity to work at Fog Creek.

Your point about lower turnover might be flawed because I bet the turnover has gone down significanly in Silicon Valley since in this job market. Turnover during the end of the bubble was extremely high in Fairfield County but has dropped to virtually none now. Nobody leaves now because nobody can find anyplace to go.

Regardless, that only answers your question in terms of a comparison to Silicon Valley, about which the same question could be asked. Certainly there are countless companies which have run out of money in the Valley.

The answer to New York being TOO expensive lies in whether you can sustain your business in NYC, and if you can not, whether you coudl if only your geograpically influenced costs were lower. If I am not mistaken, you ARE profitable so then the answer is 'no'.

The next quesiton would be 'Could you be more profitable somewhere else?', but that quesiton doesn't matter much to you because I believe you came to New York for the culture.

dmooney
Thursday, March 13, 2003

I agree with the "large talent pool" is irrelevant comment.  In fact, I said as much in one of my previous replies.  If your company is a great place to work, people will re-locate or possibly make an excruciating commute from Booklyn-to-say-CT.  Then, when you couple this with the fact that Joel runs an immensely popular website, it makes the point more irrelevant.

Also, "coming to NY for the culture", is a reason that can't be discounted quickly.  There's an interest, for me, to work in NYC for those same reasons.  But other reasons, for me, quickly overruled that thought.  But Joel is the guy that started the business, and his happiness is very relevant.  Maybe he wouldn't be as happy up in Norwalk (woo-hoo! another night at blockbuster!).  So as long as you can sustain the busines in that area, there is possibly a value in the trade-off of a little less profit for personal happiness and well-being.

William C
Thursday, March 13, 2003

Why would NJ be out of scope? Much of central and northern NJ is within an approx. 1 hour commute. I used to commute to NYC for years-- NJ transit goes right to Penn Station.

Just sayin'...

Edoc
Friday, March 14, 2003

Edoc --

it would go out of scope if his company was located in say...Norwalk,CT.

William C
Friday, March 14, 2003

Ahhhhh, got it.
thanks

Edoc
Friday, March 14, 2003

Is the talent pool really that much of an issue?  Do you have the HR staff to go through 17,000,000 resumes, or even a fair percentage of them?

Unemployment is rising everywhere in the U.S., and, with war imminent, it's unlikely to significantly decline anytime soon.  If you're looking for technical talent, and are located anywhere near a large population center, you'll get plenty of qualified applicants.  People are also much more likely to inconvenience themselves (say, by adding an extra half-hour to their commute) if they've been out of work for a year.

Matt Blum
Sunday, March 16, 2003

To be fair to Joel, all of the "unemployment woes" were non-existent when he first started his company.  Also, I don't believe his website became as popular as it is today until after he started his company (already in NYC).  So at the time he was starting his company, getting really smart people (who get things done) into his company may have been more difficult than it would be now.

Now, I was thinking that the 17,000,000 people could be overkill.  Do you really need that many people to find a few smart people?  If his company was based in, say CT, would 1,000,000 (I made up the 17:1 ratio) people to choose from *really* limit him from finding the number of people he needed to launch his company to success?  I'm not so sure. 

Being close to NYC, as the areas of CT that I am thinking of are, I still feel that you will find smart people (that get things done).  There could be people that want to finally end their long commute into NYC and take advantage of something closer to home.  But to play devil's advocate, he might have still had to pay something close to NYC salary to bring them to his company.  At that time, people were getting many offers.  So I would think if these smart people were willing to commute into NYC, he would have to pay at least "NYC salary - extra cost of commuting into NYC".  Basically, he might not save as much in salary as expected (but other costs to running the business would be cheaper).  Then again, he might still have such a talent pool that he could start ignoring people that wanted too much.  Although, Joel seems like the type of guy where "the right guy" was more of an issue than "nickel-and-diming" on salary.

What he did have going for him were:

1) His company being a "start-up".  Most people were willing to chase the dream of making a "start-up" a successful company.  Of course, that was anywhere (not just CT), but the point is that he still would have had that advantage regardless.

2) His company being one of the few "pure software companies".  Especially in CT where 99.9% (exaggeration!) of companies are insurance/finance related or Defense related.  Most savvy developers would be drooling at this prospect.

Basically, he would have had the pick of the litter of all CT applicants.  And with some of these areas being so close to NYC, that's a big litter to choose from.

William C
Sunday, March 16, 2003

Certainly you realize that, at this point, your talent pool is the entire country, if not the world.

If you build it like you describe it, and presumably that is what you are doing, people will come.

Scot
Wednesday, March 19, 2003

According to a few links I found, the population of NYC (all 5 boroughs) as of the 2000 census is roughly 8,000,000. I don' t know what the +/- is on a figure like that, but even if it is anywhere near 17,000,000, surely not every person in NYC is in the technology industry.

My only point though is that it's not just the size of the population that is important, but what percentage of that population is in the field.

Having an extra million bankers or lawyers or fast food workers doesn't help much if you want to hire programmers.

Tim Marman
Thursday, March 27, 2003

The "Creative Class" model might be helpful in picking less-expensive cities.

http://webseitz.fluxent.com/wiki/CreativeClass

But NYC is still the center of the universe. One reason to start your own biz is to live/work where the hell you want to.

(EastVillage, married, 2 kids, bought co-op 10 years ago. But, uh-oh, starting the private school thing this fall....$18K for kindergarten).

Bill Seitz
Friday, March 28, 2003

Joel's essay prompted me to post some bullets from my recent research on the possibility of getting an SBA loan to help fund a startup.

http://webseitz.fluxent.com/wiki/SBA

Bill Seitz
Friday, March 28, 2003

I guess for me it all comes down to income v. outgo.

Is your income in NY good relative to your expenses in NY?

In purely practical terms, this comes down to things like contacts, sales, and yes, talent pool.

A corner store in NY can justify the high NY rent because it does high volume business. Similarly, a recruitment firm in NY benefits from knowing the territory, though they don't strictly have to be in the area they're headhunting for.

A software company that doesn't have a sales force that goes from corporation to corporation selling things can be located nearly anywhere and do the same amount of sales. So it probably does come down to, as Joel says, talent pool.

Saying the talent pool in NYC is better than other places strikes me as being typical NYC arrogance. It's the same reason New Yorker's don't travel much, and when they do it's to places that aren't big cities and have quirky things (like naked girls in New Orleans or thousand year old buildings in Rome). New York thinks that because it's the center of the universe, everything outside of NY must suck.

This reminds me of that Netzero (Juno) ad about the phone jack. Well, the Internet is the same everywhere in the US, and so is Amazon.com and Barnes & Noble. This means programmers have access to similar resources everywhere you go.

The same way city-based musical styles are dying out because of top 40 radio, programmers everywhere are pretty much the same.

Obvious exceptions to the rule are programmers that migrate to where the jobs are like actors heading to LA and NY.

www.marktaw.com
Saturday, March 29, 2003

I'm a former New Yawker (born and raised, Chelsea/TheVillage). I spent 9 years in Silicon Valley (Cupertino, Apple).

An intangible expense I've always felt about Manhattan is that it is impossible to turn it off. As a programmer I would quickly go insane because of this.

I remember I used to walk up to the NYPL on 42nd St. and nestle into a seat in the great reading room as one of the few sanquaries I could easy get too. Even there you could find some questionable charaters sitting in the darkness.

The sensory overload. Ahh yes, summer in the city walking to the newstand on another humid early Sunday morning for a Times the unmistakable aroma of urine wafting up from the 14th street IRT station below ...

Seriously, how do you guys keep that all at bay and get into the zone to code?

DOuglass Turner
Sunday, March 30, 2003


LOL: that reminds me of this guy I knew about 8 years ago from Cali who decided to move back: "I just woke up one day and realized that I'm not going to start liking the smell of urine."  I didn't try to talk him out of it.

It is true that NYC, being a booming chaotic metropolis, can be distracting.  There's always more to do than you can possibly fit in, there's always some kind of street drama going on, there are people yelling at you in languages you didn't know existed.  Some sickos like this.

As far as "the Zone", I guess it depends on your work environment.  I think that cubicle-land everywhere is painfully similiar, with similiar distractions (OK, I didn't have to worry about ticker-tape parades in Chicago).  Lately I've been working at home a lot, so I can just crank up the music, make some coffee, and watch the rhythms of Second Avenue.

Charles Lewis
Wednesday, April 16, 2003

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