It matters where you locate your startup. A few locations attract most of the talent that fast-growing startups need to keep growing. The talent designs, builds, and sells the products that customers use and buy. And the revenue growth attracts capital that startups need to keep growing at triple-digit rates. If a startup can do that, shareholders will be amply rewarded with an IPO (or acquisition).
If your startup is in one of those regions, your chance of beating the odds in this way increases. More specifically, if you’re running a fast-growing tech company and your company is not located in one of five U.S. regions, you will be putting your founders, investors, employees, and customers at a competitive disadvantage.
Where do you need to be? Boston; San Diego; San Francisco; Seattle; and San Jose, California, according to a study by Mark Muro and Jacob Whiton of the Brookings Institution and Rob Atkinson of the Information Technology and Innovation Foundation.
These researchers found that between 2005 and 2017, 90 percent of all the high-tech job growth — in fields where 45 percent or more of the workforce has STEM degrees and in which R&D spending per worker exceeds $ 20,000 — happened in these five cities.
If you are not in these cities, it may not be essential that you move. That’s because high-tech jobs — in 13 industries such as software publishing, pharmaceutical manufacturing, and semiconductor production — were also growing in smaller cities, according to the study, most of which I notice are near major universities.
These smaller cities include Madison, Wisconsin (University of Wisconsin); Albany, New York (Rensselaer Polytechnic Institute); Provo, Utah (Brigham Young University); and Pittsburgh (Carnegie Mellon).
I am not surprised by these research findings. In my book, Startup Cities, I found that Boston and the other cities producing most of the high-tech jobs educate the world’s best technology talent, either in their local universities or their pillar companies: local, publicly traded high-tech companies that develop entrepreneurial talent that leaves to start new companies.
Boston’s success as a startup city derives from the founding of MIT in the 1860s. Back then, MIT could not pay professors much money, so the school encouraged professors to collaborate with industry.
Students saw their professors starting companies — which gave them job opportunities and sparked the urge to follow in their professors’ entrepreneurial footsteps. That adds up: MIT-affiliated companies generated $ 1.9 trillion in revenue according to a December 2015 MIT study.
This kind of success comes at a serious cost to the region where it happens. Though these MIT companies are located around the world, enough talent — most notably biotechnology and pharmaceutical scientists — has flocked to Kendall Square, near the university’s campus, that the local housing and transportation systems are making life difficult.
More specifically, housing prices are barely affordable, the public transportation system regularly breaks down, and commuting by vehicle is a daily nightmare for those who must drive into the city, as I know from my personal experience.
Why Your Company Should Move to These Tech Cities
If your company competes in one of the 13 high-tech industries analyzed in the Brookings study, you should take a serious look at moving to one of these five cities. Here are some questions to investigate to think about possible answers:
- Where are your fastest-growing competitors located?
- How much does the quality of their people contribute to their rapid growth?
- Where do these competitors’ best people live?
- Where are these competitors’ investors located?
- How close are these competitors’ key suppliers?
If your company’s fastest-growing rivals are based in one of these five cities, and the best talent, investors, and suppliers are located there, then the benefits of moving your company there are likely to be high.
Such a move is a big investment. Your best will need to sell their houses and move their families — causing serious adjustment. After the move, your real estate costs, salaries, and taxes will be higher. And the misery of commuting back and forth from the office will metastasize.
Here’s a key benefit to consider: In the 20 metro areas with the most tech jobs, the average output per worker is $ 109,443 — 33 percent more than the other 363 U.S. metropolitan areas, according to the study.
If you want your company to change the world and enrich your employees and investors, these costs will be more than offset by the benefits of being located where the world’s top tech talent resides.
The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.