Y Combinator Startup Podcast - Does Your Startup Need To Be In San Francisco?

Episode Date: August 29, 2023

Should you and your startup live in San Francisco? Y Combinator Partners, Michael Seibel and Dalton Caldwell, debate their different opinions on whether startups are more likely to succeed in the Golden City or elsewhere. Where do they find common ground? Watch to find out. Apply to Y Combinator: https://yc.link/DandM-apply Work at a Startup: https://yc.link/DandM-jobs

We're working together. We're in the same room right now. Yes. We get to live in the same area, even though our personal decisions about where we live are wildly different. We have very different lives. I don't have a yard. I have kids too. Yeah. All right. This is Michael Seibel with Dalton Caldwell. And today we're going to talk about, does your startup need to be in San Francisco?

Oh, man. We're just, we're waiting into the, to the debate of the moment. So, why don't you kick it off? You've got a controversial. How about this? Usually in these videos, you and I just agree on everything. I do. It's boring.

We disagree. Strongly. We have a different opinion here. I'm confident you're wrong. Okay. Good start. So let me start by saying, I don't think everyone's startup needs to be in San Francisco to be successful. Oh, no.

And that you could build a successful startup and not live in San Francisco. Please. Okay. Please share. So a lot of the reasons that folks read the discourse about San Francisco. And man, there's a lot of test scores. Yes. They're very fixated on the lifestyle of living in downtown San Francisco.

Yes. They see all the photos on Twitter. They hear the stories. It's all over national media. Yeah. Like my parents know all about. Yes. San Francisco politics.

My dad's like, so how's it going in San Francisco? Right? Like, okay. So for me personally, I actually prefer to not live in a dense city. I like living in a place that is warm and bright. and sunny and I can walk around and like the birds are singing and like there's trees everywhere. I kind of like living in a boring place. Personally, I'm just being for myself where there's not a lot of distraction and I can just

kind of focus on the work I'm doing. Yep. Then, you know, really intense stuff going on around me all the time. Also, as you know, I got small children and just for my lifestyle and the happiness of my family, like I prefer to live just in a different environment. You like having a yard? I do. Okay, so I enjoy those things.

And then also I think sometimes what people forget, especially that aren't in the Bay Area, is how the actual big employers for most folks in tech are not in the San Francisco. Right down south. Google and Facebook and Apple. The Apple HQ is in Cooper Tino. No way near the San Francisco.

Boring companies. Yes. And so clearly in the history of this stuff, all these great companies were built outside of San Francisco. Like, we actually look, how many of the most epic companies in the world in tech were actually built in San Francisco? Yes.

It's actually not that many. And so to argue that every company has to be in San Francisco is factually wrong. Fair. And here's why you're wrong. So I live on Market Street in downtown San Francisco. Fair? Just to be clear. Okay.

For me, growing up, living in a city was aspiration. So I spent my high school and middle school years in a suburb. of New York. And when you do that, you know, New Jersey, right? New Jersey. Whenever since I'm from New York. Well, where exactly? We're Connecticut. They're like, well, you know, upstate. Yeah, yes. I, middle school and high school in New Jersey. And when you're growing up in a suburb of New Jersey, you know where you are is not worthy action. It's true. You know, almost by definition. And at least for me, I perceive getting to the city as part of growing up,

becoming an adult. That was a big part of kind of my mentality. Two, I like nice restaurants and nice bars and those things don't exist in the suburbs. I know someone's going to be in the comments saying like, but in my suburb, there's like, no, no, it doesn't. Sorry. It's just good for where you live. Another thing that I like, especially as a startup founder, I liked having a chip on the shoulder. I liked being in a place where there are things I couldn't afford where there were places I couldn't go unless I was more successful, where I could kind of see what success could get me. And I always felt like the suburb tried to hide that away.

Like everyone was in the same kind of house in the development. And like we all have our own space. We can't see each other. Like I liked seeing what if we were to make it, what I might be able to get. That was really amazing. Also, I spent my first kind of nine years living in a, in Brooklyn. So I was used to living an apartment. That was never weird for me. And there are a bunch of

amazing newer companies, Uber, Airbnb, DoorDash. I don't know those. Those. Well, DoorDash was Palo Alto food delivery. That was their original name. So they didn't move there. They didn't start there. And they moved. They moved. Okay. So I think that my core point is that the city is the better place for a young startup. founder to get ahead. Now, this is kind of a fake disagreement because if you kind of have been parsing our words carefully, we're talking about living in the Bay Area. Yeah. So I'll ask you straight up, Dalton. Would you recommend someone starts a startup outside of the Bay Area? Yeah. Well, I genuinely would not. We agree. So the part we're agreeing with is that, again, think about it, we're working together. We're in the same room right now. Yes. We get to live in the same area,

even though our personal decisions about where we live are wildly different. We have very different lives. I don't have a yard. I have kids too. Yeah. And so what's cool is we get to work together. Yeah. And we get to work with all these amazing people.

And yet we have very different choices on how we want to live. Yes. And that only would happen here because this place attracted both of us. Yes. And I think that what's not spoken about enough, and its point you make a lot, is that there are certain cities that are just better. and there are certain regions that are just better. We can talk about all the reasons why,

but if you want to be the best in finance, you're probably going to find yourself in New York. Or maybe London. Or maybe London. Yeah. If you want to be the best, I don't know, well, came anymore.

In essence, Brexit. Yeah. Brex has got to fuck that up. If you want to be the best in entertainment, you're probably going to find yourself in L.A. And the reason why is because when you want to be top 0.0.01%, you want to be around us.

other people who are trying to be top 0.01%. And I think both of us wanted to be top 0.01% in startups. Yeah. You're from Texas. Yeah. From fucking Jersey. Like, we didn't grow up here. Yeah, that's true.

We made our way here. And when you're here, you get to consume all the other people like us who were looking to be the best and willing to get in a car and make our way here to do it. So I think that's a huge, huge fact. Yeah. And I just think a lot of the folks that I talk about. I talked to, they have the opinion from reading Twitter and reading all this stuff that they all need to agree with you on this point. And that like if moving to San Francisco means you have to live downtown in the tender line.

They're like it means you have to make some really serious. It's a protest on the weekend. Yeah. Again, I talk to people when I find people who I see and I think they have a lot. A lot of people have like a lot of anxiety about these issues. And again, what they don't realize is do you know how many people live in East Bay and they live in the peninsula and they like. It's a huge area. It's a huge area.

Yeah. But we all get to work together. Yes. But we get to make our own decisions. Yes. We get the benefits of living in the Bay Area and having the network effects of the city. Yes. Without all living in like the, like our lives are not the Twitter thread.

No. Showing photos of what's going on in downtown San Francisco. Well, and I think they're like, what's tricky is that they're all of these embedded interests who I think are influencing startup founders, right? They're the politicians who are like, oh, come to my city, come to Miami because like, Like we're trying to make it startup friendly. Those politicians, what they're looking for is tech jobs. What they really need is a Google office.

They're not going to get the Google office by having a startup culture, but they're politicians. They don't realize that. There are other people who are just looking to kind of flame folks on Twitter. And right, like the easiest way you could do that is start posting shit about San Francisco Sox, right, and then get into some debate. And I think the smartest founders, look past that. They look past all these, like, stupid debates. And one of the things I think

they see about the Bay Area is the network effect. So why don't you go into? Like, what's going on here? Like, why our billion-dollar companies just seem to keep popping up after decade after decade here? Well, I think, look, network effects are powerful. We know this. This is the thing that makes things like Airbnb work, like Uber work, like all the startups. Network effects are like really powerful. That's why Facebook has any value at all is network effects. And basically, what What's weird about network effects is if you're not benefiting from them, you don't know what you are missing. And a lot of the times when people want to talk about, well, I don't need to live there, blah, blah, blah, okay, that's fair. You won't know what you're missing.

It's all the things that won't happen. It's all the people that you won't meet, all the chance encounters you won't have, all the employees you won't have. Like all these surface area for luck. You know, I like to talk about how to maximize luck, you know, think about how many people, again, talk about non-tech, if you want to make it as an actor, think about how many people, their story of their big break is that something happened in like Los Angeles or New York. Yeah. Or a band that moved to Los Angeles or New York.

And like when the actual moment happens when someone spots them or finds them or like that. Lucky moment. Whatever that is. Yes. The work that they did before there was to put themselves in that position. Yes. And so no one is going to take someone that's outside of this area and tell you this is what you're missing out on.

Can I say something that's even more? I think the people here sometimes don't understand the network effects they're consuming. You and I both saw a lot of people leave the Bay Area during COVID. All of them came back. And they also said that as publicly. They don't say that as publicly. They don't say that as public. They all came back.

Yeah. And all of them said the same thing, which was basically like I missed the community. But I never really understood that I was consuming the community. I thought I was working all the time and da, da, da, da. But I actually was consuming a community of people who were really into startups. And when I moved to Seattle or Austin or New York or da-da-da-da, that community wasn't as strong. And I missed it. And there is tech there.

Yeah, but there's tech there. And there is tech there. And there is not startups. It's different than tech. Yeah. And I think that what's so funny is that, like, you know this is counterintuitive and hard when the people who don't consume the network effects don't know what it exists. And the people who do consume the network effects sometimes don't realize it exists either.

So this is like a subtle point. It makes sense that people will be confused by this. And then you add in some choice photos of San Francisco, and it makes sense why people would say, why I mean you do this anymore. Yep. What I will say, though, to kind of like finish this point is I think one of this slightly dangerous things that kind of sneaks into this startup game that also causes people not want to come here is that people don't realize that they need to be aiming for greatness. I always like to equate this back to sports where it's like there are so. few spots in the NBA, let alone on the All-Star team, let alone in the Hall of Fame. The bar is so high to get into the NBA that any time you're a basketball player anywhere, you want to be

the best basketball player. On your high school team, on your AAU team, on the invitationally you want to be the best basketball player anywhere because you know that like the average NBA player was the best basketball. Like anywhere. And I think that some sometimes startup founders miss this point. And they're kind of like, I want to be in the game versus I want to win the game. And I think that like it's really easy to say, well, you know, I can be in the game in Austin. I can be in the game in Seattle.

There are investors there. There are people there. I can be in the game in New York. And I wish that we were more honest that like, yeah, you can play basketball for your high school team. But that's not, that's necessary but not sufficient to make the MBA. If you want to be a great founder who really impacts the world and helps lots and lots of users, you have to aim for great.

You can't just aim for being in the game. And I actually just bring it back to statistics and odds. So I'm really precise because I can imagine how some people will respond to something that you're saying here. And they're going to throw anecdotes at us. They're going to say, there's this and there's this. Shopify is in. Yeah. So, yeah.

And it's true. Yes. I have nothing to take away from those things. MongoDB is in New York. and I've been told that by every fucking New York founder for a decade. MongoDB. Yeah, great.

And again, good for them, like rock and roll. They're doing well. But the point is, we're actually trying to impart advice to increase your odds of success. Exactly. Because just like with people that want to become Hollywood celebrities

or rock stars, there's certainly anecdotes of people that were discovered and everything slipped into place for them. Yes. But if you actually just look at the numbers of how you increase the odds of success, moving to an area, moving to the big leagues was a key part of it.

And so I would just encourage folks that are unsure about this debate or they don't have their mind made up to realize that the anecdotes are true that you can do a startup outside the Bay Area. Of course. And like maybe there's a really good reason you want to do that. I don't know. Sure. Maybe there's health reasons or family.

Like great. Of course. But if all you want to do is play the odds and optimize for success, I can't really understand why you wouldn't want to be here. And I think that's not anecdotes. That's numbers. That's just numbers. Yeah, you know, it's funny because I was thinking about this in the context of casino

where I'm like, imagine you sat down to the black tack table, but you didn't know basic blackjack strategy. Right. You know to double down, when to split. You can still win. You can still. You can still win. You can't.

But like, it is so easy to get that one hour of instruction, and that increases your odds so much. Getting into the Bay Area is so relevant. to all the other things you have to do to succeed. Choosing where to live is so relatively easy to all the other things you have to choose correctly. Why not pick up the easy wins? It's an easy percentage multiplier. And I'm like, this game is so hard, you might as well take the easy ones. So to wrap it up, we have a strong disagreement.

I think the suburbs are horrible. You clearly like them. By the end of the day, there's room for both of us. Yeah, we're both in the same ecosystem, right? We're both working together. Who knew? Yeah. And we're recording this video in the frickin' suburbs, too.

We are. We're right. We came to my area's own to do this video. To your place to do the video. Oh, man. All right, great chat, Dalton. Thanks.